If declaration is late, claim can be rejected

Happy Steels, a private limited company, had obtained an insurance policy from Export Credit Guarantee Corporation of India (ECGC) to cover risk while exporting goods.

Happy Steels had exported goods to Overseas Trading Company of USA, which defaulted in making payment. So Happy Steels lodged claims under the policy. The insurer, however, found that there had been delays in declaration of the shipments for which the claims were lodged. Declarations for five shipments sent on November 14, 2007, March 1, 2008, March 11, 2008, April 5, 2008, and May 23, 2008, were belatedly given on July 11, 2008, only after the payment for the first shipment was overdue by more than three months. Even though the sixth shipment was sent on July 2, 2008, it was not included along with the other declarations given on July 11, 2008, but was given on October 15, 2008 after a delay of over two months. Despite being warned, Happy Steels failed to furnish declaration for 15 subsequent shipments. The insurer pointed out that the policy conditions in respect of timely declaration of shipments had been violated, and rejected all the claims. The insurer also pointed out that this delay had needlessly put it to additional liability as it had to pay the claims of other Indian exporters who could not be alerted about the defaulting Overseas Trading Co.

Happy Steels filed a complaint against the Union of India and ECGC to challenge the repudiation of its claims. It was contested by reiterating the same reasons given in the repudiation letter. The Punjab State Commission upheld the defence of the insurer and dismissed the complaint.

Happy Steels carried the matter in appeal before the National Commission claiming that the loss was covered under the policy. Bharat Sangal, senior counsel appearing on behalf of ECGC, argued that the loss would be covered provided the declaration of the shipment was given on time. It pointed out that the policy required the insured to furnish a declaration of all the shipments made during a particular month during the subsequent month. Even if no shipment was made, that too would have to be submitted as a ‘nil’ declaration. Additionally, the policy also required that a statement regarding payments overdue by more than a month must be furnished by the end of the next month. The policy stipulated that the submission of these declarations was mandatory, and no claim would be payable if there was a lapse in making the declarations.

The National Commission agreed with the arguments advanced by senior advocate Bharat Sangal, and concluded that the claim had been rightly repudiated as the insurer was absolved of all liability in case of default in submitting the declaration mandated under the policy. The Commission also observed that the insurer could waive its right to enforce strict compliance regarding the declaration, but this was irrelevant as the insurer was well within its right to insist on strict compliance of the requirements under the policy.

Accordingly, by its order of October 13, 2020, delivered by Justice V.K. Jain, the decision of the State Commission dismissing the complaint was upheld.

The writer is a consumer activist