Insurance Company Cannot Unilaterally Delete Policy Terms To Reduce Coverage : SC [Read Order]

Holding that a state-owned insurance company cannot act arbitrarily, the Supreme Court yesterday quashed the action of New India Assurance Company Ltd in unilaterally deleting policy terms to reduce coverage.

The matter pertained to insurance policy issued to Twenty First Century Media Pvt Ltd, a sports markenting and management company, on October 15, 2010, covering the risk of cancellation of cricket matches due to floods, rains etc.

On October 17, 2010, a match scheduled in Kochi was called off due to rains and the company submitted a claim in respect of this before the insurer.  

Apprehending similar claims by the company in future, the insurer by an endorsement made on October 18, 2010, unilaterally deleted from the policy the expression "floods, rains etc".

The company protested the unilateral deletion on October 20, 2010. When another match scheduled in Goa on October 25, 2010 got cancelled due to rains, the company submitted claim. However, the insurer refused to accept the claim, citing the deletion of terms (The claim in respect of Kochi match was settled in 2011 based on earlier terms).

This led to the company approaching the High Court, challenging the repudiation of claim. But the High Court refused to interfere stating the reason that it was a contractual issue involving disputed questions of fact.

Disagreeing with the approach of the HC, the SC said that there was no disputed questions of fact involved as the insurer's action was "wholly arbitrary". The bench of Justices R F Nariman and Vineet Saran observed :

There is no dispute whatsoever that the action in the present case by the respondent was wholly arbitrary and violated the appellant's fundamental right under Article 14. No  disputed question of fact is raised, and it is settled by several decisions of this Court that even within the contractual sphere, the State, as defined under Article 12 of the Constitution, cannot be arbitrary.

Setting aside the judgment of the HC, the SC directed the insurer to process the claim of the company in respect to the cancelled Goa match.

Read Order

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