Word of Caution to all Insurance Companies on Mandatory Compliance of Clause (3) and (4) of the IRDA Regulation, 2002 by Supreme Court 

The Supreme Court extended a word of caution to all the insurance companies on the mandatory compliance of Clause (3) and (4) of the IRDA Regulation, 2002.

Background 

The appellant secured a Standard Fire & Special Perils policy from the respondent. It was meant to cover a shop situated in the basement of the building. However, the exclusion clause of the contract specifies that it does not cover the basement. Due inspection of the shop which was actually situated on the other side of the road from the office of respondent. Not only this shop of the appellant, but yet another shop similarly situated, was also insured by the respondent. The appellant continued to pay the premium promptly. 

Arguments 

Senior Advocate A.K. Ganguli, appearing for the appellant, submitted that the National Commission has not overturned the reasoning of the State Commission both on facts and law. When once there is a finding which is not in dispute, the consequence would follow. 

Advocate Shantha Devi R., appearing for the respondents, submitted that the existence of the exclusion clause is not in dispute.

He submitted that admittedly, the shop was situated in the basement, as such, the mere fact that the decision of the National Commission was accepted would not disentitle the respondents to contend that the finding that there was knowledge even at the time of the execution of the contract, is not correct. In any case, it cannot be the basis for restoring the decision of the State Commission.

Decision 

The division bench of Justice Surya Kant and Justice M.M. Sundresh noted that both the forums have held concurrently that respondent was conscious of the fact that the contract was entered into for insuring a shop situated in the basement.

It was further noted that there was no specific denial on the non-compliance of adequate notice.

The court said that once it is proved that there is a deficiency in service and that respondent knowingly entered into a contract, notwithstanding the exclusion clause, the consequence would flow out of it. 

It was observed by the court that even as per the common law principle of acquiescence and estoppel, the respondent cannot be allowed to take advantage of its own wrong, if any. It is a conscious waiver of the exclusion clause by respondent.

The bench held that the decision of the National Commission cannot be sustained as the appellant cannot be non-suited only on the ground of mere deficiency in service without taking note of the fact that it is the duty of the Forum to grant the consequential relief by exercising the power under Section 14(d) and 14(f) of the Consumer Protection Act, 1986 which mandates the payment of adequate compensation by way of an award. 

It was further observed that non-compliance of Clauses (3) and (4) of the IRDA Regulation, 2002 preceded by unilateral inclusion, and thereafter followed by the execution of the contract, receiving benefits, and repudiation after knowing that it was entered into for a basement, would certainly be an act of unfair trade practice.

The court set aside the order passed by the National Commission except to the extent of declining a sum of Rs.2.5 lakhs towards harassment and mental agony.

“We would like to extend a word of caution to all the insurance companies on the mandatory compliance of Clause (3) and (4) of the IRDA Regulation, 2002. Any non-compliance on the part of the insurance companies would take away their right to plead repudiation of contract by placing reliance upon any of the terms and conditions included thereunder” the court said. 

Case title: M/s Texco Marketing Pvt. Ltd. v/s TATA AIG General Insurance Company Ltd. & Ors.

Citation: Civil appeal no. 8249 of 2022 

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