The order of the Calcutta High Court in West Bengal Power Development Corporation Limited (WBPC) Vs. The New India Assurance Company Limited 1 (NIA) is a textbook case study on what has gone wrong with Insurance claims redressal in India.
Brief Facts:
WBPC had taken a Mega/Industrial All Risk Insurance Policy with NIA for their Thermal Power Plants. Around 2018, sudden vibration was observed in the machinery. The machinery was shutdown for inspection. Following an inspection, the generator rotor was found to be damaged. In Sept 2018,
WBPC made a claim of Rs. 32,70,96,000/ (Approx USD 3.8 MILLION) under the insurance cover.
NIA appointed a surveyor for loss assessment and advice on maintainability of insurance claim. The surveyor submitted his initial report opining that the claim was not admissible under the terms and conditions of the Policy. However, the gross assessed loss was quantified at Rs. 32,53,26,000/- (Approx 3.8 Million).
WBPC contested the grounds on which the claim was rejected. NIA agreed to review and reopen the claim by appointing a third-party independent agency, to investigate the cause of loss. In October 2019, instigative agency opined that the incident was sudden and accidental. Based on the 3rd Party
report, Surveyor issues a addendum to their report: advising that the claim is admissible!!! and but quantified loss at Rs. 23,32,00,202 (USD 2.7 million).
In Sept 2021, following a meeting between Insurer, Insured and Surveyor: the Surveyor revised the addendum to the report on quantification to quantify the claim at 30. 5 Cr Net (USD 3.5 million). In Jan 2022, NIA informed WBPC that they decided to repudiate the claim of WBPC.
WBPC filed a writ petition.
WBPC filed a writ petition to set aside the order of NIA repudiating the WBPC claim among other reliefs. The Calcutta High Court partially allowed the writ petition by setting aside the order of NIA repudiating the claim of WBPC and directed NIA to reconsider the claim based on the second addendum report of the surveyor.
Our Comments
We view the decision of Calcutta High Court directing the NIA to reconsider its decision to repudiate the claim as unwarranted interference in the functioning of a commercial entity though controlled by Govt India.
The issue that we wish to comment upon is the role of the Surveyor and the interplay between the Surveyor and the Insurer in the context of the claim’s redressal and the IRDAI regulations. The case clearly demonstrates the pressure, and the burden loaded on the surveyor by the IRDIA regulations requiring the surveyor to advice on maintainability of the insurance claim, loss assessment and causation.
The surveyor on two occasions revised their estimate on quantification of loss and changed their view on the merits of the insurance claim under the policy. When the surveyor opined that claim was not maintainable, the advice would have found favour with the Insurer. When the Surveyor subsequently opined that the claim was maintainable under the policy, his advice would have found favour with the Assured. The contradictory advice of the surveyor on the merits claim would only add to the confusion and his credibility questioned when he is required to give evidence should the matter reach the courts again.
The fact that third party expert was appointed may reflect that the Surveyor was out of his depth when dealing with the issue of causation.
The ideal way forward would be is to allow the surveyor to quantify of damage. Depending on the nature of the incident, the insurer could have involved a third-party expert to advise on causation (as done much later in the present case). Based on both these reports, the Insurer should have taken an independent view on the maintainability of the claim. The fact that the Insurer disagreed with the final advice of the surveyor on the admissibility of the claim only adds confusion to the entire process. While the insurer is not bound by the advice of the surveyor, the fact the there are multiple advice on the merits of the claim only adds to the confusion.
IRDIA regulations loading the responsibility of claim assessment, quantification and causation on the surveyor is not best way forward. This case highlights the requirement of doing away with IRDIA regulations requiring the surveyor to advice on maintainability of merits of the claim.
1 Order dated 22/01/2024 in Writ Petition No. 2532 of 2022 – Calcutta High Court.
