Court orders prevail over circulars

An insurance policy is a contract. Its terms are binding on the parties. Once the conditions are interpreted in a particular manner, can the insurer issue an administrative circular to circumvent judicial decisions and avoid paying similar claims? This interesting issue recently came up before the National Commission.

Pankaj Kapoor owned a vehicle which was insured with National Insurance under a policy valid from April 4, 2014, to April 3, 2015. The vehicle was taken on April 19, 2015, for filling the air in its tyres, when a retaining wall accidentally fell on to it. Due to the impact, the vehicle rolled down 150 meters below and the driver died on the spot.

The insurer was intimated, and it appointed its surveyor. He assessed the loss at ~220,594. However, the insurer repudiated the claim on the ground that the vehicle neither had a fitness certificate nor a valid route permit when the accident occurred.

Kapoor filed a complaint before the Chamba District Forum. He produced the fitness certificate issued by the Motor Vehicle Inspector which showed that it was in force on the day of the accident. The insurer contested the case. The Forum concluded that even though the vehicle had a fitness certificate, it did not have a valid route permit, which entitled the insurer to repudiate the claim. Since Kapoor's complaint was dismissed, he challenged the order in appeal.

The Himachal Pradesh State Commission observed that there was a breach of the terms of the policy as the vehicle did not have the necessary route permit, but the absence of this document had no bearing on the cause of the accident. So it directed that the claim be settled on a non-standard basis (which means payment of 75 per cent of the assessed amount), along with interest at 9 per cent a year from the date when the complaint was filed.

The insurer challenged this order through a revision petition. It reiterated the same objections about the absence of the fitness certificate as well as the route permit. The National Commission observed that the first objection was not tenable as the fitness certificate had been produced before the Forum which considered it to be valid. In respect of the other objection regarding the absence of a valid route permit, the National Commission held that outright repudiation of the claim was not justified and that it would have to be treated as a non-standard claim. In support of its decision, the National Commission relied on its own earlier rulings as well as that of the Supreme Court in Amalendu Sahoo versus Oriental Insurance Company. But National Insurance argued that the previous judgement was no longer good law as the company had subsequently issued a circular on February 5, 2016, by which it provided that since the vehicle did not have a valid route permit in force, the company would not be liable to pay the claim. The Commission trashed the insurer's argument, observing that an internal circular issued by the insurer cannot prevail over judicial pronouncements.

Accordingly, by its order of April 11, 2018 delivered by Justice VK Jain, the National Commission dismissed the insurer's revision petition and upheld the order passed in Kapoor's favour.

Though the claimant did not have a valid route permit, the National Commission still asked the insurer to settle the claim