Insurer/Surveyor Find New Weapons to Deny

Recently in a claim (arbitration) case, it was seen that much against the mandate in the Insurance Act and the IRDAI Regulations, the insurer insisted on enforcing a statement made by the Surveyor that the damaged machinery was “not shown” to him, and hence deny a major part of the claim.

The claim related to a major project insurance (MCE policy) which was affected by a severe cyclone. The estimated loss was around Rs. 30 crores and hence it was obvious that a Senior Surveyor was given the work. The claim was intimated immediately and the surveyor visited the site of loss for three days following the intimation and captured by photo all the loss areas which was printed in colour in the ‘Status Report’. In the Report he put in writing that he visited the site of loss 13 times and that the names of 6 Claimant’s Officers were provided to him for any assistance required.

In the MCE policy or any other policy, there is no policy condition to ‘show’ the damaged material. The policy states in condition 5 that “Insured shall a) immediately notify the Company. The loss took place in 2014 October but ironically, the allegation of ‘not shown’ came in the final survey report in May 2018 a copy of which the insured received at the end of 2018. The Insurer also specifically stated that “For the first time in the year of 2017 the surveyor was shown the CNC machines which was after replacement or repair works done. During any of the previous visits the surveyor was not shown the machines.”

In the IRDAI Regulation relating to the (Protection of Policyholders' Interest) Regulations, 2002 (PPI Regulations), which was valid on the date of claim, Sec. 9 of the Regulations deals with claim service by insurers. In subsection 1 the Regulation states: “On receipt of such a communication, a general insurer shall respond immediately and give clear indication to the insured on the procedures that he should follow.” No record has been produced by the insurer or on their behalf the surveyor that they ever issued any written instruction as to any specific procedure. The above clause is a clear indication that in the Regulations that the insurer has the ‘duty to speak’ as stated by courts elsewhere.

In a recent case in the UK “Ted Baker Plc & Anor v Axa Insurance UK Plc & Ors [2017] EWCA Civ 4097 (11 August 2017), the England and Wales Court of Appeal (Civil Division), the court found that an insurer has the duty to speak. The court stated under the sub-heading ‘duty to speak’: “44….The duty arises (even in a case that is not one of utmost good faith) where the claimant would expect the estopped party "acting honestly and responsibly" to make its position known. Even more so must that be the position in a case where there is a duty of utmost good faith.”

IRDAI Insurance Surveyors and Loss Assessors Regulations, 2000, stated that: 13(1) A surveyor and loss assessor shall, for a major part of the working time, investigate, manage, quantify, validate and deal with losses (whether insured or not) arising from any contingency, and report thereon…”. It is his duty as seen in sub-section (ii) that he cannot jeopardise the liability of the insurer and claim of the insured.

Given these regulations, it is obvious that the surveyor must take proactive steps to examine the claim lodged and “a major part of the working time, investigate, manage, quantify, validate and deal with losses (whether insured or not)”. He has to advise both the insurer and the insured about loss minimisation, loss control, security and safety measures, wherever appropriate, to avoid further losses (IRDAI Regulations). This would logically lead to a situation where once the policyholder has intimated the claim in time and then submitted a proper estimate, the duty of the insured as claimed by the insurer “to show’ actually becomes a “duty to see” on the part of the surveyor.

A surveyor is to function as given in the Insurance Act 1938, Sec. 64 UM, which states that an insurer cannot settle a claim “unless he has obtained a report, on the loss that has occurred, from a person who holds a license issued under this section to act as a surveyor or loss assessor”. Therefore, the ‘burden’ and duty of utilizing a surveyor is only on the insurer. The claimant affirmed in their submissions that they had never ever refused or denied the surveyor a chance to visit the site of loss to see the damages.

It is seen that there is neither a policy condition nor an IRDAI regulation, that it is the duty of the insured/claimant needs to keep on inviting the surveyor to ‘see’. Once they have discharged their duty to intimate the claim promptly and thereafter provided the necessary estimates and reports, the surveyor/insurer is obliged to take the matter forward.

The Insurer referred to the clause in the policy where it was stated that “in all other cases, the representative of the company shall have the opportunity of inspecting the loss or damage before any repairs or alterations are affected.”?This clause which is a part of condition no.5 of the policy has many parts. The words “company shall have the opportunity of inspecting the loss or damage before any repairs or alterations are affected” is linked to the claim intimation clause and further this part of the clause is to be read with the continuing sentence which is as follows: “If a representative of the Company does not carry out the inspection within a period of time which could be considered as adequate under the circumstances the Insured is entitled to proceed with the repairs or replacement.”

The insured also submitted that as per General condition No. 4, an insured is bound to provide assistance and documentation when such assistance and documentation is sought for. If such assistance is denied, the surveyor is required to write to the insurer and insured, under IRDAI Protection of Policyholders Interest Regulations 2002 under Regulation No. 9. The General Condition No. 4 of the policy is to be read in the context of the said statutory regulations of IRDAI. As stated by the claimant, the mandatory duty that is cast on the surveyor to immediately report in writing in case of denial of assistance as provided in the IRDAI’s Regulations of 2002 is based on public policy. It is to avoid any post facto allegation that assistance was denied.?