SC order on insurance claims a shot in the arm for policyholders

Insurers cannot reject claims mechanically, but experts say policyholders shouldn't take undue liberties with insurers' timeline for filing claims

The Supreme Court's (SC’s) recent judgment that insurers cannot reject claims purely on technical grounds will help policyholders greatly in situations where their claims are genuine but get rejected because of a strict enforcement of their deadline by insurers. 

In the case of Om Prakash versus Reliance General Insurance Company, the SC said insurers shouldn’t deny claims especially in cases where there has been a delay in filing the claim. It said that while the insured should file their claims immediately, insurers can't deny such claims if the delay was due to unavoidable circumstances. 

Legal experts say that while the insurance regulator has been talking about this, the SC order gives added heft to the policyholder. “Various circulars of the Insurance and Regulatory Development Authority of India (Irdai) and court orders, including a December 2016 judgment by the Punjab and Haryana High Court, have in the past directed insurance companies to not reject claims automatically simply because they have been reported late, but to ascertain the validity of the claim. An insurer’s decision to reject a claim should be based on logical and valid grounds. But with the Supreme Court order, the position has been clearly settled in the matter," says Shailaja Lall, partner, Shardul Amarchand Mangaldas & Co.

Insurance policies (especially of general insurers) have a clause that requires the insured to report the claim within a specified deadline. From the insurer's viewpoint, timely filing of claims allows them to investigate its genuineness. However, there have been cases where insurers have rejected even valid claims owing to a small delay. 

On September 20, 2011, Irdai had issued a circular which advised insurers not to repudiate delayed claims until the reasons for the delay had been ascertained, and the insurer had satisfied itself that the claim would have been rejected even if it was reported on time. In other words, claims should be rejected not because there was a delay in filing it but because it was not valid. This circular was in the nature of a guideline. But since matters related to rejection of delayed claims kept coming up, on October 28, 2016, Irdai issued another circular making the 2011 circular mandatory.

In 2016, a case was filed in the Punjab and Haryana High Court: National Insurance Company versus Sandeep and others. In the judgment passed on December 17, 2016, the judge asked Irdai to file an affidavit stating what action it had taken to ensure compliance with its circular. So on June 28, 2017, Irdai again wrote to all insurers asking them to adhere to its circular.  

After the SC judgment, insurance companies need to amend their policy wordings, as instructed by the Irdai. “They need to put in language to the effect that if there is a valid reason for delay in reporting a claim, the insurance company will condone such delay,” says Lall.  

Even after this judgment, the insured need to be watchful. Says Suhail Nathani, managing partner, Economic Laws Practice, "While the Supreme Court's consumer-friendly interpretation is welcome, it is not a carte blanche for delayed notifications. It will depend on the facts and circumstances of each case." As for the insurance companies, he says, it is a re-enforcement of the message that they need to adopt a realistic approach when applying their terms. 

Kapil Mehta, co-founder and managing director, SecureNow Insurance Broker, also suggests that one should not give insurers a reason to deny the claim. “Inform the insurer on the very same day the claim arises, instead of taking chances. In the case of health insurance, do it before you get to the hospital. All you have to do is drop an email or give a call on the claims helpline.”