Insured’s dilemma: Should you flout safety norms to get the claim?

Ghatge Patil Hero, which is an authorised dealer for Hero Motocorp, had insured its stock of motorcycles with New India Assurance. The policy was valid from January 1, 2019, to December 31, 2019.

During the tenure of the policy, there was heavy rainfall due to which the entire city of Sangli was flooded for about eight days from August 6 to 13. The entire stock of 760 brand new unregistered two -wheelers remained submerged under five-six feet of water during this period. Since muddy water went into the engine, transmission, fuel tank, electric system, suspension, and other vehicle parts, all the motorcycles were damaged beyond repair.

A claim of about ~3.83 crore was lodged for total loss. The insurer appointed a surveyor, who found the claim to be genuine. New India, the insurer, agreed to settle the claim, but the hitch was that it insisted upon all the vehicles being registered in its name so that it could resell them to the highest bidder.

A dispute arose because it was impossible to legally register the vehicles in the name of the insurer in view of the legal requirements under the Motor Vehicles Act. The law requires the vehicle manufacturer to submit Form 22 certifying the roadworthiness of a vehicle and compliance with emission and noise standards. In the absence of this certification, a vehicle cannot be registered. Since the vehicles were totally damaged and it was not possible to repair them, Hero Motocorp refused to give such a declaration.

Even though Hero Motocorp clarified its legal position in a written communication to New India Assurance, the insurer refused to consider it on the pretext that the manufacturer was not a party to the insurance contract, and that the policy had been issued to the dealer, Ghatge Patil Hero. Also, ignoring the provisions of law regarding roadworthiness of the vehicle, New India adamantly refused to settle the claim unless the vehicles were registered in its name. The insurer contended that the procedure for transfer of vehicles, which were stolen or involved in an accident, would be applicable. The insured relied on a circular issued by the Insurance Regulatory and Development Authority of India that if a vehicle, even after registration, is found to have become unfit, unsafe and not roadworthy, its registration certificate would have to be cancelled. The insured also differentiated between a claim for theft or accident, and a claim for total loss of the stock of goods. Yet, New India refused to budge from its stand.

The dispute raises vital questions about ethics, safety, and the right to life. Will it not be illegal, unfair and unethical to attempt to coerce a party to give a false certificate and declaration regarding the fitness of a vehicle? If a party succumbs to the pressure and gives a false declaration just to get its claim settled, will it not compromise the safety of the purchasers to whom the vehicles are sold later by the insurer?

A false declaration by the insured could compromise the safety of the buyers to whom the vehicles are sold