Will the Insured get an independent and objective Surveyor when there is a claim?

Sec. 64 UM of the Insurance Act is an important section in the event of a claim. The relevance portions are:

"(4) No claim in respect of a loss which has occurred in India and requiring to be paid or settled in India equal to or exceeding an amount specified in the regulations by the Authority in value on any policy of insurance, arising or intimated to an insurer at any time after the expiry of a period of one year from the commencement of the Insurance Laws (Amendment) Act, 2015, shall, unless otherwise directed by the Authority, be admitted for payment or settled by the insurer unless he has obtained a report, on the loss that has occurred, from a person who holds a licence issued under this section to act as a surveyor or loss assessor (hereafter referred to as "approved surveyor or loss assessor"):

Provided that nothing in this sub-section shall be deemed to take away or abridge the right of the insurer to pay or settle any claim at any amount different from the amount assessed by the approved surveyor or loss assessor.

(5)The Authority may, at any time, in respect of any claim of the nature referred to in subsection (4), call for an independent report from any other approved surveyor or loss assessor specified by him and such surveyor or loss assessor shall furnish such report to the Authority within such time as may be specified…."

Down the years it was understood that surveyors are independent professionals who will be neutral and act like a true middleman in a claim so that the questions of liability under the policy and the quantum of indemnity can be properly assessed to the satisfaction of both parties. However, it was seen that after the liberalisation of the insurance sector, Private Insurers started appointing qualified and licensed surveyors as their employees and they were being given survey jobs, and thereby allegedly putting at risk the concept of independence and neutrality.

There were vociferous opposition and court cases were filed against insurers having in-house surveyors. The first case in this regard was filed in 1995 in the Delhi High Court: Surveyors' Welfare Association ... vs Union of India And Ors, because the then PSU insurers started appointing in house employees for surveys below Rs. 20,000.The High Court ruled that in so far as in-house assessment is concerned Section 64UM does not place any restriction on the settlement of the claims where the value of the claim is less than Rs.20,000 and further that such an action does not infringe the rights of surveyors under Articles 14, 19(1 )(g) and 21 of the Constitution. It is thus clear that surveyors looked at the independent surveyor issue as merely a livelihood issue.

A case was filed in the Madras HC in 2019: R.K.Elango vs Insurance Regulatory And Development Authority, on the same subject. The court stated as follows: “I sustain the contention of the learned counsel appearing for the contesting respondents that notwithstanding the statutory developments, the case on hand is covered by the aforesaid decision of the Hon'ble Division Bench of the Delhi High Court.”

The fact of employee surveyors was examined by the IRDAI by a letter dated 05.08.2010. Surveyors had alleged that the term “approved” surveyor means independent surveyor. Herein the IRDAI ruled that on examination of 64UM of the Act, the only requirement for survey was to be duly licensed, and therefore employees of insurers who were duly licensed could act as surveyors for losses above Rs. 20000.

So how does anyone justify the perception that the surveyor is independent? The term independent is used in sec. 64 UM only in subsection (5) where the term is independent report. Citing 64UM, there was a subsequent false news that only the IRDAI can authorise appointment of a second surveyor and this was accepted across the spectrum of the insurance world in India. This was clarified only when the Supreme Court stated in the case Shri Venkateswara Syndicate vs. Oriental Insurance Co. (2009) that “The proviso to sub section (2), however, retains the right of the insurer to settle a claim for an amount different from that assessed by the surveyor. This proviso impliedly permits an insurer to obtain a second or further report where considered appropriate or expedient in the circumstances of a case, based upon which the claim could be settled for a different amount than as assessed earlier.”

The permission to appoint is subject the caveat stated by the Supreme Court in the same case : “However, if the rejection of the report is arbitrary and based on no acceptable reasons, the courts or other forums can definitely step in and correct the error committed by the insurer while repudiating the claim of the insured. We hasten to add, if the reports are prepared in good faith, due application of mind and in the absence of any error or ill motive, the insurance company is not expected to reject the report of the Surveyors.”

The question whether surveyors are logical in their assessment and who is the best authority to appoint a real authentic surveyor has been proved fruitless if a case filed before the Delhi HC (2010) is seen. In this Case a fire insurance policy covered a large stock of red sanders wood which was burnt. The insurer appointed two reputed surveyors as joint surveyors to assess the loss. These surveyors assessed the loss for Rs. 1.43 crores, but the insurers overplayed their hand and repudiated on various grounds. The insured appealed the repudiation before the IRDAI, who appointed 2 new surveyors. These surveyors assessed the claim at two extremes, one at Rs 21.01 crores and the other Rs 2.21 crores respectively (as against the Rs 1.43 crores assessed by the insurer appointed surveyors). The IRDAI directed the insurer to settle the claim at Rs 2.21 crores. The insurer appealed the IRDAI decision before the Insurance Appellate Authority under sec.110 H of the Insurance Act 1938, saying that the IRDAI’s power was limited to changing the assessment finalised by the surveyors appointed by the insurers, and did not extend to appointing surveyors or intervening once the claim had been repudiated. The Appellate Authority rejected the argument but directed the IRDAI to appoint yet another set of surveyors (since the surveyors appointed by the IRDAI were interested parties). These newly appointed surveyors assessed the claim at Rs 7.95 crores. (Now there are 6 surveyors and 4 illogical amounts.) The IRDAI rejected this new assessment. The insured again appealed before the Appellate Authority, who directed the insurers to pay Rs 7.95 crores. The insurer appealed against this order before the Delhi High Court which rejected the pleas of the insurers and held that the IRDAI had the power to interfere in relation to claims under sec. 14 of the IRDAI Act.

Sadly, insurers have sometimes gone out of the way to get reports of their subjective understanding of the loss or to teach the insured a lesson. In one classic case the insurer was offended that the insured sent too many letters for speedy settlement. The 1st set of joint Surveyors assess Rs.2,37 lakhs, but to teach a lesson a 2nd Surveyor was appointed to assess the loss and he gave as many as six independent investigation reports. His assessment of Rs.1.10 lakhs. which tallied almost exactly with the assessment made by the Insurer. Despite this the insurer repudiated the claim. An appeal was filed by the insured before the NCDRC which ruled in favour of what was assessed initially.  The insurer then got an opinion from a retired Chief Justice of the Supreme Court who advised them to settle the claim as per the original report. However, the insurer still went before the Supreme Court for appeal, who berated the insurer and noted that the second surveyor had made a “tailor made” to suit the insurer.

So where does all this leave the insured claimant? It is a very difficult question. All that the current regulation relating to surveyors allows is in section 13 (1) (j) which allows the surveyor to survey and assess the loss on behalf of insurer or insured. This has allowed the insured to appoint a surveyor, but apparently the insured has to bear the cost of the survey, and there is no clue on how the insurer will be compelled to take proper note of the insured appointed survey report.

It would therefore appear that the IRDAI may have to examine the issues under 64 UM afresh as their core mandate in the Insurance Act and the IRDAI Act is ‘protection of the policyholder’. In an insurance contract it is very clear that the insurer is the dominant party and that not only they normally issue a one way contract which can tie down the insured to terms which can be twisted in an unfair manner and if on top of this, the surveyor assesses losses “tailor made” for the insurer, then the insurance sector can lose public confidence.