 "Insurer can refuse a claim if intimation is not given promptly")
National Bulk Handling Corporation helped producers to avail of loans against pledging of commodities. It had taken a Fidelity Guarantee Insurance Policy from Oriental Insurance.
Despite deploying hired security guards, as well as own field staff, a loss arose in respect of urad and mentha oil stocks. The insurer was intimated and a report lodged with the police after 11 days.
The employees who were involved were suspended from service, after an inquiry. Since settlement of the claim was delayed, the Corporation approached the National Consumer Commission. It contended the claim was payable, as its own employees had committed criminal breach of trust, covered under the fidelity clause of the policy.
However, he recommended repudiation of the entire claim on the ground that the loss was caused by the dishonest act of the borrowers, and not by the Corporation's employees. So, even the claim under the fidelity clause was not maintainable. Also, the claim was not payable as there was a breach of the mandatory clause requiring prompt intimation of loss.
The Commission considered the statements of the warehouse supervisor and the security guard recorded when the Corporation investigated how the loss. The Commission observed the unacceptable conduct of supervisor and the security guard, butmade it evident that they had colluded with the borrower to cause the loss.
The Commission then considered whether delay in intimation of the loss would render the claim liable to be repudiated.
The Commission observed the policy clause requiring prompt intimation of the loss is not only to enable the insurer to set the law enforcement machinery into motion by reporting the matter to the police but also its own investigation, in an attempt to recover the insured goods, so, the Commission concluded that even though the claim for loss of urad was covered under the fidelity clause of the policy as the Corporation's staff was involved in causing the loss, it was not payable as intimation of loss was not promptly given as required under the terms of the policy.
On substitution of mentha oil with water, the Commission observed the suspicion on visual inspection was confirmed only when the laboratory report was received, after which the claim was promptly lodged. Since such substitution was not possible without connivance of the Corporation's staff, it would be covered under the fidelity clause.
Accordingly, by its order of June 22, 2016, delivered by V K Jain, the Commission directed the insurer to pay Rs 3.47 crore towards the claim for loss of mentha oil, along with nine per cent annual interest.
Thus, delayed intimation deprives the insurance company of the opportunity to ascertain the reason for the loss and the genuineness of the claim, it can refuse to honour a claim. Hence, besides telephonic communication, prompt written intimation of the claim must be given.
The writer is a Securities and Exchange Board of India-registered investment advisor
Despite deploying hired security guards, as well as own field staff, a loss arose in respect of urad and mentha oil stocks. The insurer was intimated and a report lodged with the police after 11 days.
The employees who were involved were suspended from service, after an inquiry. Since settlement of the claim was delayed, the Corporation approached the National Consumer Commission. It contended the claim was payable, as its own employees had committed criminal breach of trust, covered under the fidelity clause of the policy.
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The insurer repudiated the claim on the basis of the survey report. The surveyor had assessed the loss at Rs 1.04 crore for urad, and Rs 5.43 crore for mentha oil, totalling Rs 6.48 crore.
However, he recommended repudiation of the entire claim on the ground that the loss was caused by the dishonest act of the borrowers, and not by the Corporation's employees. So, even the claim under the fidelity clause was not maintainable. Also, the claim was not payable as there was a breach of the mandatory clause requiring prompt intimation of loss.
The Commission considered the statements of the warehouse supervisor and the security guard recorded when the Corporation investigated how the loss. The Commission observed the unacceptable conduct of supervisor and the security guard, butmade it evident that they had colluded with the borrower to cause the loss.
The Commission then considered whether delay in intimation of the loss would render the claim liable to be repudiated.
The Commission observed the policy clause requiring prompt intimation of the loss is not only to enable the insurer to set the law enforcement machinery into motion by reporting the matter to the police but also its own investigation, in an attempt to recover the insured goods, so, the Commission concluded that even though the claim for loss of urad was covered under the fidelity clause of the policy as the Corporation's staff was involved in causing the loss, it was not payable as intimation of loss was not promptly given as required under the terms of the policy.
On substitution of mentha oil with water, the Commission observed the suspicion on visual inspection was confirmed only when the laboratory report was received, after which the claim was promptly lodged. Since such substitution was not possible without connivance of the Corporation's staff, it would be covered under the fidelity clause.
Accordingly, by its order of June 22, 2016, delivered by V K Jain, the Commission directed the insurer to pay Rs 3.47 crore towards the claim for loss of mentha oil, along with nine per cent annual interest.
Thus, delayed intimation deprives the insurance company of the opportunity to ascertain the reason for the loss and the genuineness of the claim, it can refuse to honour a claim. Hence, besides telephonic communication, prompt written intimation of the claim must be given.
The writer is a Securities and Exchange Board of India-registered investment advisor