One recurring point of dispute in consumer law has been the standing of the person who makes the complaint. The Consumer Protection Act allows only persons who buy goods or services for their own purpose to approach a consumer forum. The law was amended in 2002 to further clarify that those who buy goods or services for commercial purposes cannot move a consumer forum. By that criterion, insurance companies that are in the thick of commercial operations should not be able to move a consumer forum. However, there are circumstances when they can stand in the shoes of a consumer. So far, the law was not clear on when it could be done. Last month, a Constitution bench of the Supreme Court sorted out the right of insurance companies to move consumer forums in the Economic Transport Organisation vs Charan Spinning Mills case.
Even after the amendment of the definition of “consumer”, the problem has not gone away entirely. Some rulings of the Supreme Court and the National Consumer Commission are likely to raise one’s eyebrows. The Commission, relying on a Supreme Court judgment, held recently in the Gujarat Themis Biocin Ltd vs Subhodh Gokhale case that an employee is a consumer in respect of his rights against his employer if the provident fund contributions are not paid.
Similarly, the Commission ruled that a student is a consumer vis-a-vis university and, therefore, non-publication of results of an examination for unreasonable time (10 years in this case) is deficiency in service (the Ranchi University vs Nuzmat Sultana case). The reasoning was that the student had paid fees to the educational institution for its service and due to its negligence, she had lost academic years.
Even an industrial unit, which admittedly runs for commercial purposes, can stand in the place of a consumer if the insurer declines to pay the assured sum. In the Ritu Gram Udyog Samiti vs New India Assurance Co case, the factory collapsed in a hailstorm, leading to a claim on the insurance company. The latter rejected the claim in the consumer forum arguing that the unit was not a consumer as it was run for commercial purposes. The Commission rejected this contention and clarified that an insurance policy was taken for covering risks and not for commercial purpose. The policy was for indemnification and actual loss, not intended to generate profit. Therefore, the industrial unit was a consumer in this case.
The position was reverse in the a recent decision of the Constitution bench of the Supreme Court. The question was whether an insurance company could be a consumer in a dispute between a manufacturer and its transporter. This required resolution of conflicting views expressed by the court in its earlier judgments on the definition of consumer. The factual scenario is very common. Here, Charan Spinning Mills, a manufacturer of cotton yarn, bought a policy from National Insurance Company for transit risks. Its consignment was entrusted to Economic Transport Organisation. The goods were totally damaged in an accident. On the basis of the surveyor’s report, the insurance company settled the claim of the Mills. Then the Mills gave a power of attorney and subrogation to the insurance company to sue the carrier. When the insurance company moved the consumer forum, it was opposed by the carrier which argued that the insurer could not claim the rights of a consumer. However, all the consumer forums up to the National Commission granted standing for the insurance company.
Though an insurance company cannot be a consumer, it can get authority from the assured party to be its surrogate and claim damages from the negligent party. The fact that the assured person had received compensation from the insurance company in pursuance of the contract of insurance does not erase or reduce the liability of the wrong-doer responsible for the loss. In such cases, the insurance company first pays the loss to the affected party according to the surveyor’s report and then gets a letter of authority from it to sue the negligent party. This kind of arrangement is common, and is recognised as subrogation in insurance law.
However, disputes arise because of the prevalence of standard forms of contract, which none of the parties bother to read. The person preparing the document for a particular contract is required to delete or modify the terms or clauses. But this is usually not done, leading to questions whether there was assignment or subrogation. The Supreme Court was also misled by this inadvertence in the case of Oberai Forwarding Agency a decade ago. Confusion prevailed all these years. However, with the present judgment, the insurance companies’ right to move consumer forums has been clarified. The only caveat is that the assured person also should be along the side of the insurance company while suing the service provider.
