Consumer Protection And The Law Of Insurance

Brief history of Law of Insurance in India

There have been traces of Insurance being practiced back in Kautilya's Arthashastra, Yajnavalkya's Dharmashastra, and Manu's Smriti.^[1] In 1818, The Oriental Life Insurance Company was the first British Insurance company that started their functions in India. Post this there came in numerous companies and settled in different part of the Country which was to help the British people settled in India. There was a lack of clear awareness about these policies among the Indians and if they wished to buy these Insurance policies they were made to pay extra 20% of the premium amount. The first Indian Life Insurance Company known as “Bombay Mutual Life Insurance Society” was established in the year 1870 and then it was followed by various other insurance companies coming into existence with updated policies.

In 1912, the Indian Life Assurance Companies Act was passed marking it to be a very first statute on the Life Insurance sector in India. This act left out on Non-Life insurance policies like marine, fire, house, vehicle etc. In 1907, the first non-life insurance or the general insurance company established in Bombay was “Indian Mercantile Insurance Company”. And finally, 1928 a consolidated act dealing with both life and general insurance was passed but however that was not sufficient enough to deal with the post industrial revolution period and there was immense growth in the industry which the present act was unable to deal with.^[2] In 1956, the Life Insurance Company was created as a statutory body under the LIC Act of 1956 and all the life Insurance business was compiled and transferred to it for better allocation of funds as well as statutory convenience. The Indian Insurance sector came a long way since then several developments and regulatory body was brought into existence to protect the interest of the policy holders.

Laws Governing Insurance in India:

1. Insurance Act, 1938
2. Life Insurance Corporation Act, 1956
3. Indian Marine Insurance Act, 1963
4. General Insurance Business (Nationalization) Act, 1972

Types of Insurance

The broad classification of Insurance is General Insurance and Life Insurance. The further classifications of Insurance are the follows: Health insurance which helps us pay for doctor fees and sometimes prescription drugs. Another important insurance policy is Life insurance that pays a beneficiary a set amount of money if or when the person taking the particular policy dies. There are different types of life insurance. One is term life insurance, which pays a benefit only if the insured person dies during the term of the policy (usually from one to 30 years). Another is whole life insurance, which pays a benefit whenever the insured person dies. Disability insurance is another type of insurance policy that protects individuals and their families from financial hardship when illness or injury prevents them from earning a living. Motor vehicle or Auto insurance protects you from paying the full cost for vehicle repairs and medical expenses due to a collision. In most states, the law requires one buying a new vehicle to have auto insurance when operating a motor vehicle. And last but not the least is the Homeowner’s or renter’s insurance that covers home and the personal belongings inside in the event of loss or theft and helps pay for repairs and replacement.^[3]

Regulatory Authorities^[4]

a) Insurance Regulatory and Development Authority

The Insurance Regulatory and Development Authority ("IRDA" or "Authority") has been established by the IRD Act as a statutory regulator to oversee and advance the Indian insurance sector and safeguard the interests of insurance policyholders. The Authority has been given the responsibility of promoting, regulating, and ensuring the orderly expansion of the insurance and reinsurance industry in India.

b) Tariff Advisory Committee

The Tariff Advisory Committee ("Advisory Committee") is a body corporate that oversees and monitors the premiums, perks, and terms and conditions that insurer in the general insurance market offer. The Advisory Committee has the power to demand that any insurer provide any information or statements required for the performance of its duties.

c) Insurance Association of India, Councils and Committees

The Insurance Association of India ("Insurance Association") is comprised of all insurers and provident societies incorporated or domiciled in India. All insurers and provident societies incorporated or domiciled outside of India are considered associate members of the Insurance Association. The Insurance Association has two councils: the General Insurance Council and the Life Insurance Council. Exams are administered by the Life Insurance Council's Executive Committee for those looking to become insurance agents. Additionally, it establishes the maximum amounts that any group of insurers or an insurer conducting life insurance business may spend in excess of the amounts permitted under the Insurance Act. Similar to the Insurance Act, the General Insurance Council, through its Executive Committee, may set the upper limitations by which the actual management costs incurred by an insurer conducting general insurance business may go over such limits.

d) Ombudsmen

In accordance with the Redressal of Public Grievances Rules of 1998, the Ombudsmen are appointed to resolve all claims-settlement complaints against insurance companies in a cost-effective, efficient, and effective manner. Any individual who has a complaint to make about an insurer can do so in the specified manner to an Ombudsman in his or her area. However, this individual ought to have made a representation to the insurer prior to filing a complaint, and either the insurer has rejected the complaint or has not responded. In addition, the complaint must be filed within a year of the insurer's rejection, and there must not be any other proceedings pending in any other court, Consumer Forum, or arbitrator on the same subject.

Common Disputes arising in the Insurance sector:

• In Health sector the Insurance company may deny that claim by announcing a lapse in coverage, or that the injury or procedure is not covered by the policy.
• The healthcare insurance is sometimes also denied stating that the health treatment taken was not necessary or was experimental.
• Another dispute arises if there are pre-existing health condition before taking health insurance, the can be denied (New India Company Limited v. Shiv Kumar^[5])
• In the motor insurance sector the most common disputes that arise are that if you hire an independent mechanic then the insurance stands repudiated

• In case of an accident, an employer may state an accident was caused by the worker or that the worker had a prior health condition.

• A homeowner’s insurance company could allege arson was the cause of a fire that destroyed a home, or the company could dispute the home’s value.
• There are also disputes of change in premium amount (for insurance)
• Disputes with regard to change in Insurance policy
• Motor vehicle insurance can be denied if used without a valid registration. It can also be refused if driven on a restricted area
• Driving motor vehicle without a permit will absolve the owner of any insurance claims

Major Point of Discussion

1) Cause of Action- The general cause of action in an Insurance suit arises when the insurance claim has been denied and the cause of action arises therein. The prescribed limitation period for filing a claim in the civil court or arbitration is three years, whereas the limitation period for filing a claim in the consumer court is two years. (Om Prakash V. Reliance General Insurance^[6])

2) Preliminary Consideration- Identification of the suitable limitation period and jurisdiction for the commencement of the case are examples of procedural factors. In terms of strategy, it's critical to raise any preliminary objections to a lawsuit (such as expiry of prescribed limitations) as soon as possible in order to get them considered by the court and result in a dismissal. In India, however, it frequently happens that preliminary objections are resolved after the substantive pleadings are finished since the courts there are hesitant to make a decision before having access to all the relevant documents.

3) Damages- The remedy available is two-fold in cases of insurance disputes and that are a) specific performance and b) claims for damages. In a proceeding, the insured can either require the insurer to specifically perform its obligations under the policy or to pay the claim amount.

Statutory and Non-Statutory Benefits: Some of the common examples of Statutory benefits in Insurance sector includes, employee’s provident fund, unemployment insurance, motor vehicle insurance, work injury insurance among others. Non-Statutory Insurance benefits are those which are not required by law and include Health Insurance, Life Insurance, disability insurance, pension plans, etc. which is the at option of the insurance buyer.

Insurance and Contract: As per the legalities of Indian law, an Insurance Contract must fulfil the basic 4 requirements to make it legally binding and that are a) the parties must be in capacity to contract b) Intention to create a legal purpose c) the contract must be for payment (Consideration) d) and there must be evidence of meeting of minds between the Insurer and the Insured.

Assessment of Consumer Protection Act 2019 to support protection of Insurance policy holders in India

Consumer Protection Act 1986 was repealed by the Consumer Protection Act 2019 (Hereinafter referred to as Act) to protect and promote consumer rights and to deal with Unfair Trade Practices, Misleading Advertisements and all those areas which are violative of Consumer Rights. The main objective of the act is to establish a strong and working complaint mechanism to solve the consumer disputes.

There are different provisions under the said act that can be invoked to protect the rights of a policy holder in an insurance market and they are:

a) Unfair Trade Practices (Section 2(47))

b) Restrictive Trade Practices (Section 2(41))

c) Unfair Contract (Section 2(46))

d) Deficiency in Services

e) Product Liability (Section 2(34))

In the present Insurance market different types of policies are being commercially advertised and sometimes through personal agents as well. As much as insurance policies are the need of the hour and very much beneficial, it is undeniable that a number of frauds and disputes have been reported by the policy holders. Some of the common issues are of misleading advertisements, fake promises, inefficient contract, loopholes in the procedure meant to claim the amount among others.

As per Section 2(7)^[7] of the CPA, 2019 “A consumer is any person (i) buys any goods for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any user of such goods other than the person who buys such goods for consideration paid or promised or partly paid or partly promised, or under any system of deferred payment, when such use is made with the approval of such person, but does not include a person who obtains such goods for resale or for any commercial purpose; or (ii) hires or avails of any service for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any beneficiary of such service other than the person who hires or avails of the services for consideration paid or promised, or partly paid and partly promised, or under any system of deferred payment, when such services are availed of with the approval of the first mentioned person, but does not include a person who avails of such service for any commercial purpose.”

Here whenever a person buys a policy from Insurance Company, he becomes a consumer and is very much under the purview of Consumer protect under the said act. Indian Contract Act^[8] which defines “Consideration” under Section 2(d) provides that a consideration can be anything and is not restricted to money and includes a promise. The above definition provides the phrase “any goods for a consideration which has been paid or promised or partly paid and partly promised” which makes it clear that money is the consideration for the Insurance Company and the insurance amount and other promise is the consideration for the policy holder.

Secondly, if Insurance can be taken as service for the purpose of this Act, reference can be made to section 2(42) of the Act which defines Service as "service means service of any description which is made available to potential users and includes, but not limited to, the provision of facilities in connection with banking, financing, insurance, transport, processing, supply of electrical or other energy, telecom, boarding or lodging or both, housing construction, entertainment, amusement or the purveying of news or other information, but does not include the rendering of any service free of charge or under a contract of personal service” which have mentioned providing insurance as rendering a service.

What is Deficiency in services?

In a market, consumer is the one keeps regulating the demand and supply chain of that market and hence the protection of the same becomes inevitable. No sector can claim not to have a buyer-seller relationship in the current market and it includes different sectors such as Aviation, Railways, Banking, Insurance, entertainment to name a few. Anything that is not complied with, that was previously decided as per the terms of the contract in the buyer seller relationship can invoke deficiency of services thus leading to legal consequences.

In, Gurshinder Singh vs Sriram General Insurance Co.Ltd. & Ors^[9], the claimant delayed in informing about the insured vehicle getting stolen and the Insurance Company declined his insured amount. The Supreme Court of India held that just because the claimant delayed in informing the theft, the insurance company cannot decline the claim just on the technical grounds when the claim has been verified by the investigator. Hence, declining the claim just on technical grounds would be unjust and unfair. With respect to Unfair Trade Practice, the New Act (CPA 2019) has listed out different types of unfair trade practices which includes “making a false or misleading representation concerning the need for, or the usefulness of, any goods or services and providing the public any warranty or guarantee of the performance, efficacy or length of life of a product or of any goods that is not based on an adequate or proper test thereof” will be sufficient to say unfair trade practice for the purpose of the Act. In addition to this, the Act also introduced to the concept of “Product Liability” which was not there in the previous Act (CPA 1986). Section 82-87 of the Act deals with the same and provides right to a person against the manufacturer, seller or service provider for the deficiency in service, defective products and to compensate for the harm caused to the consumer by such deficiency or the fault in the product.

In Arvind Shamji Shah vs. Tata A.I.G. Life Insurance Co. Ltd. and Ors^[10] the court observed that the company have wrongly forfeited the premium amount deposited by the complainant and the only sent cheque of Rs. 2,242.21 to the complainant. The above act of the company comes in the category of deficiency in service.

In, Life Insurance Corpn. of India vs. Noorul Ali Khan^[11], the commission held that it has not been established by the insurer/appellant that the deceased suffered from the disease of 'Sickle Cell' for the last 6 to 8 years or she received treatment thereof. If the deceased did not know that she was suffering from above disease, it could not be said that there was suppression of material fact by her. The repudiation by the appellant, therefore, does not appear to be justified. Accordingly the findings of the learned 'District Forum' that the appellant/insurer committed deficiency in service by repudiating the claim of the complainant/respondent under the policy, appears justified. The finding as above is affirmed.

Complaint Mechanism under the CPA, 2019

Complaint may be made any person who falls within the definition of 'consumer' as defined in clause (7) of section (2) of the CPA. First complaint must be made to District Consumer Disputes Redressal Commission ("District Commission" unless the value of service paid as consideration exceeds 1 crore.^[12] In that case, it would be directly made before the State Commission unless it is more 10 crore.^[13] Section 37 of the Act, provides for the dispute resolution by Mediation. If the District Commission thinks there is a possibility of such settlement which may be acceptable to the parties in question, the said Commission may further seek consent of the parties in writing within five days of such institution of complaint. Like any other complaint mechanism, section 40 of the Act, if the complainant is not satisfied with the verdict passed by the District forum, can file a review application from the date of the order in the same forum. Section 41 of the Act provides if still not satisfied by order of the review application, the aggrieved can appeal to the State Commission within 45 days from the date of order. Section 50 of the Act provides that The aggrieved if not satisfied with the State commission order, can file a review application, within 30 days from the date of order, in the same Forum, and Section 51 of the Act provides that a person can accordingly appeal to the National Forum within 30 days from the date of order given by prior Forum.^[14]

The Consumer Protection Act 2019 not just incorporated improvements to the previous Act (CPA, 1986) but also expanded and added few of the unique provisions such a product liability which changes the initial notion of “buyers beware” to “sellers beware”. Insurance is one of the biggest sectors presently and highly competitive which tend to follow unfair practice every now and then to be in the competition. Hence protection of rights of the Policy holder holds an important place and the 2019 Act definitely marks a milestone in the Consumer Market.

Views are personal.