SC Slams ‘Absurd’ Motor Insurance Clause That Denied Claim for Vehicle Accident Outside Insured Premises

In a strongly worded ruling on February 12, the Supreme Court called out a vehicle insurance policy clause as ‘absurd’. The matter was related to an insurance company denying a claim simply because the accident did not occur within the insured’s registered premises.

The case revolved around a heavy-duty vehicle, Tata Hitachi Heavy Duty Crane, which was insured under a policy that stated the insurer would not be liable for damages if the accident happened anywhere other than the insured’s own premises, except in cases of fire-fighting missions.

The SC bench, headed by Justices J.B. Pardiwala and R. Mahadevan pointed out the impracticality of such an insurance condition, stating that cranes, by nature, are meant to be used at construction or industrial sites. The court ruling stated, “The appellant at the time of purchasing the crane and while getting it insured could have pointed out to the insurance company, how do you expect us to use the crane in our office?”

The bench further criticised the insurance company for not questioning the feasibility of such a restriction when issuing the policy.

What was the case?

The insured purchased his vehicle (the crane) in 1999 and insured it with United India Insurance Co. Ltd. This policy was renewed multiple times since its inception, with the crane being regularly used within the Tata Steel Complex in Jamshedpur. However, in June 2007, while lifting material at a powerhouse under Tata Steel Jamshedpur, the boom of the crane collapsed, causing extensive damage.

The insured claims to have promptly informed his insurer and also undertook repair work, which incurred costs exceeding Rs 70 lakh. Over the course of the next two years, despite his repeated follow-ups, the insurer remained silent on the claim.

In 2011, four years after the accident, the insurer rejected the claim on the grounds that the accident had not occurred within the insured’s registered premises.

The Supreme Court Ruling

When faced with this claim rejection, the insured took the legal recourse wherein both the Commercial Court and the High Court upheld the insurer’s decision citing the wording of the policy’s strict terms.

The apex court, however, took a different view and called the clause ‘absurd’, unreasonable and detached from real-world usage.

“There is no dispute regarding the accident, the damage, or even the quantum of the loss. Yet, it took the insurance company years to come up with a reason to reject the claim," the court noted. Given the peculiar facts of the case, the bench urged the insurer to reconsider its stance.

Following deliberations, the insurer eventually agreed to pay Rs 40 lakh, with the amount capped at Rs 45 lakh, including taxes. The Supreme Court directed the insurance company to pay this amount within six weeks, bringing the long-standing dispute to an end.

Common Reasons Behind Motor Insurance Claim Rejections

While motor insurance is meant to provide financial protection in case of any accident or mishaps with your vehicle, there are certain mistakes that can lead to your claim getting rejected.

Here are some common reasons that can lead to claim rejection against your motor insurance policy:

- If there is a delay in claim intimation by the policyholder

- The insurer can reject a claim on the grounds of it being a ‘Fraudulent Claim’

- If the rider is found to have driven the vehicle in a drunken state, the claim for any accidents against such occurrence can be denied

- Driving without a valid ‘Driving License’ can also lead to claim rejection

- Insurers can also reject claims on the grounds of violation of ‘Policy Terms and Conditions’

- If your motor insurance policy has already lapsed

To avoid any outright claim rejections, policyholders should promptly inform their insurers in case of any accident before immediate repairs. Moreover, being unaware of exclusions or limitations in your policy coverage can lead to unpleasant surprises when your claim gets rejected. It is best to go through the fine print of your insurance policy and understand exclusions/limitations before needing to make a claim.