Insurance claim can’t be repudiated by insurer by simply alleging fraud & non-disclosure, when no such suppression is attributable to insured: SC

Read Judgment: The Oriental Insurance Co. Ltd. vs. Malana Power Company Ltd

Pankaj Bajpai

New Delhi, November 16, 2021: The Supreme Court has ruled that an insurance company cannot repudiate the claim made by the insured by alleging fraud or non-disclosure of data, when no such suppression was made by the insured. 

The Division Bench of Justice R. Subhash Reddy and Justice Hrishikesh Roy therefore observed that when the insurance policy availed by previous insurer is well within the knowledge of current insurance company, then it cannot be said that there was any suppression or non-disclosure. 

The observation came pursuant to appeal filed by Oriental Insurance (Appellant) challenging the order whereby the National Consumer Disputes Redressal Commission (NCDRC), New Delhi, had allowed the complaint filed by Malana Power Company (Respondent/complainant) and directed the appellant to pay a sum of Rs.4,68,33,840/- towards the loss suffered by the respondent, in terms of insurance policy along with interest @ 6% per annum from the date of filing the complaint till the date of payment.

Going by the background of the case, the respondent company runs a Hydro Power Project around Malana Nalah and was interested in securing an indemnity in respect of any shortfall that may take place in aggregating annual power generation at its Hydro Power Plant due to failure of hydrology which depends upon vagaries of nature. Accordingly, the respondent obtained policies from M/s. IFFCO-TOKIO General Insurance Company, which covered loss of power generation due to loss of hydrology. 

At the same time, the respondent had obtained policies from the appellant on similar lines. Since the likely loss of power generation was estimated to be around Rs.8 Crores, the respondent wanted the risk coverage enhanced from Rs.5 Crores to Rs.10 Crores for the year 2002-03, and the said terms and conditions were accepted by the appellant.

When the appellant was not able to obtain reinsurance in the reinsurance market for getting it protected as per the requirements of business retention norms by the Insurance Industry, it addressed a letter to the respondent for modifying the terms and conditions of the policy to reduce the insurance coverage to Rs.5 Crores from Rs.10 Crores. When the said proposal was not accepted by the respondent, the appellant cancelled the policy by refunding the premium on pro-rata basis for the remaining period. 

Later, the respondent informed the appellant that there had been a shortfall of electricity and the loss suffered was Rs.5,20,37,800 and after deduction of 10%, the respondent claimed an amount of Rs.4,68,33,840 with the appellant for reimbursement. As the same was not acceded to, the respondent approached the NCDRC. The appellant contested the claim, contending that the respondent fraudulently suppressed the hydrological data of that project of the previous year. 

The National Commission however found that there was no non-disclosure of material information in terms of the insurance policy issued by the appellant when the available hydrology data was duly supplied by the respondent and incorporated in the policy itself. Further, with reference to cancellation of the insurance policy, the National Commission found that at no point of time, there was any complaint of any material suppression with regard to hydrology data. Accordingly, the National Commission allowed the claim of the respondent. Hence, present appeal. 

After considering the arguments, the Apex Court opined that there was no suppression or non-disclosure by the respondent in suppressing any hydrology data of the previous year, as pleaded by the appellant. 

Further, the data of the years 1993 to 2002 could not be provided as the same was not available with the respondent and it was also made known to the appellant. 

“When the respondent has requested to increase the coverage to Rs.10.00 Crores, the same was agreed by the appellant and entered into an MoU with the similar terms and conditions of the previous year policy which was with IFFCO-TOKIO. Except the amount of coverage was increased from Rs.5.00 Crores to Rs.10.00 Crores in the policy issued by the appellant, all other terms and conditions were the same. The appellant was aware of the earlier insurance policy entered into by the respondent with the IFFCO-TOKIO prior to issuance of the subject policy in favour of the respondent for the period covering from 07.07.2002 to 06.07.2003. If they were to examine the hydrology data of the previous year, it was well within the knowledge of the appellant to ask for such data even before entering into contract”, observed the Division Bench.

Hence, the Apex Court confirmed the decision of NCDRC and dismissed the appeal.