The Delhi High Court today directed all insurance companies to abide by IRDA norms and not insist on discharge vouchers for releasing admitted claims, saying it amounts to coercion, undue influence, deficiency in service and unfair trade practice.
Justice J R Midha said that all the insurance companies shall not any longer insist on discharge vouchers for releasing the admitted claim amounts in view of a September 2015 circular of Insurance Regulatory and Development Authority (IRDA).
"...The insistence of the insurance company to sign a discharge voucher of full and final settlement before release of admitted claim amounts to coercion and undue influence as defined in Contract Act and such contracts are voidable...
"The withholding of the admitted amount by the insurance companies unless complete discharge is given, amounts to deficiency in service within the Consumer Protection Act, 1986 as the insurance companies are not expected to withhold the admitted claim amount till the insured gives receipt of full and final settlement.
"Despite well settled position of law, insurance companies are indulging in unfair trade practices ...," the court said in its 22-page judgement.
IRDA in its circular had directed the insurance companies not to withhold the claim amount where liability is proved and also not to use the discharge vouchers as a means of estoppal against the insured to seek higher compensation before any judicial forum.
The court directed IRDA to ensure that the insurance companies do not indulge in unfair trade practice any more and asked the authority to convene a meeting within 10 days of all the insurance companies to record their undertaking to abide by the circular.
The court's direction came on a plea by Worldfa Exports Pvt Ltd, which had raised a claim of Rs 12,69,51,063 for loss caused due to a fire in October 2012 in its factory insured by United India Insurance (UII) Co. Ltd.
The export firm was only paid Rs 5,62,32,959 by insurance company and Worldfa had thus invoked arbitration to settle the dispute.
UII had objected to the arbitrator, however, the court rejected it saying there is no merit in the objection raised by the insurance company and appointed Justice Mukul Mudgal (Retd) as a "sole arbitrator to adjudicate the dispute".
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The high court further said that there was no effective regulatory regime to keep a check on insurance companies and to ensure that the rights of the insured are not jeopardised during the process of claim assessment.
"Resultantly, insurance companies have developed an unfair trade practice of insisting on discharge voucher/ no claim certificate as a pre-condition of payment of the assessed amount to the insured. The necessary safeguards, which are prevalent in other foreign jurisdictions with regard to the enforcement of strict time lines, payment of amount within a prescribed time period, payment of interim amount, are in fact, practically non-existent," it observed.
The court also noted that "In developed countries, there are strict provisions and safeguards to protect the right of the insured and to ensure transparency in the manner of processing claims due under insurance policy.
"There are strict time lines which are binding on the insurance companies, the process for assessment of claims is subject to strict regulatory provisions which are designed to protect the insured against harassment, unreasonableness and arbitrariness. No insurance company is allowed to avoid payment of the legitimate amount due to the insured and take shelter behind a so-called discharge voucher."
There is no clause in the insurance policy that the amount assessed by the insurance company shall not be paid unless complete discharge is given. No law permits the insurance company to withhold the payment of the admitted amount unless the receipt of full and final settlement is issued by the insured, the court added.
It further said that in view of IRDA circular "the pending and future claims will no longer consume the court time for deciding this issue and to this extent, the court's time will be saved and the claims on this account shall not be delayed or denied".
