Landmark Judgment: Insurers Cannot Deny Claims On Impossible Policy Conditions

The recent Supreme Court (SC) ruling that an insurance company cannot reject a claim based on the breach of an impossible condition represents a significant victory for policyholders. 

This decision ensures that insurance contracts are interpreted in a manner that is fair and reasonable, preventing insurers from denying claims under conditions that policyholders could not practically meet, especially during emergencies. 

“The recent apex court ruling is a victory for coverage policyholders, in which the Court held that insurers cannot deny claims because of the violation of an impossible condition. The ruling stipulates that coverage contracts should be interpreted honestly and reasonably, so that insurers cannot deny claims beneath phrases that might be unrealistic for policyholders, particularly in instances of emergencies. This shift opens the door to the fairer remedy of claims, supplying justice, particularly in instances wherein situations of regulations are unrealistic or impossible,” says Sonal Alagh, partner, Alagh & Kapoor Law Offices. 

What Is The Case About: In a recent judgment, the Supreme Court of India addressed a case involving an insurance claim denial due to an allegedly breached condition that was impossible to fulfill. The case centered around a marine insurance policy issued by New India Assurance Co. Ltd. for a barge's voyage from Mumbai to Kolkata. The policy included a special condition stating that the voyage should commence and be completed before the onset of the monsoon. 

The bench, comprising Justices B.V. Nagarathna and Satish Chandra Sharma, noted that the insurance policy was issued for a period that inevitably overlapped with the monsoon season, especially considering that foul weather on the east coast begins on May 1, as per the Directorate General of Shipping's circular. The Court found it unreasonable for the insurer to expect the voyage to avoid the monsoon entirely, given the policy's timeframe. 

The Court emphasized that enforcing such an impossible condition would defeat the very purpose of the insurance contract, which is to provide coverage during the specified period, including the monsoon. Therefore, the insurer could not deny the claim based on the breach of a condition that was inherently unfeasible. The Supreme Court set aside the National Consumer Disputes Redressal Commission's decision, which had upheld the insurer's claim denial. The case was remitted back to the NCDRC to determine the compensation payable to the insured.

The ruling by the Supreme Court makes it abundantly evident that insurers cannot deny claims on the grounds that policyholders are unable or unwilling to carry out the requirements of the policy.  “This protects policyholders in the future by ensuring that insurance companies must act responsibly and cannot exploit unfair technicalities to reject valid claims,” says Prachi Dubey, advocate, Delhi High Court. 

Policyholders can thus now act in an emergency situation when insurers reject claims due to impossible situations. “They can plead, supported by the Supreme Court's decision, that no individual should be penalized for failing to do the impossible under crises and that justice takes precedence over fine print,” says Dubey. 

How To Challenge A Claim 

While policyholders get hold of their claims rejected on the premise of conditions that have been impossible or unreasonable to comply with during emergent conditions, coverage holders have to undergo tedious procedures and processes to dispute such rulings. Starting with hiring a lawyer who will observe the coverage settlement to identify any unreasonable or legally non-conforming situations. Also, policyholders can whinge with either the regulatory frame or the nearby insurance ombudsman, who regulates coverage. In extreme situations, submitting a case against the insurer is a likely course of action if the settlement terms had been unreasonable to comply with and the declared denial was, as a consequence, unfair.

Preventive Actions When Shopping For Coverage: To avoid the traps of strict or ambiguous phrases in coverage contracts, policyholders want to be cautious with some preventive measures. Foremost has to be a thorough evaluation and careful reading of the coverage's phrases and conditions before agreeing to them. If any phrases are ambiguous or seem impractical, search for clarification from the insurer or advice from a legal professional is beneficial. Deciding on insurance policies with simple, obvious phrases is also useful because it prevents insurers from the use of complicated clauses unfairly against policyholders. Having a criminal expert advise and vet the terms will guarantee that they are honest and affordable, preparing policyholders to successfully navigate any unreasonable denials.

“These prudent measures will ensure that certain policyholders are properly informed of their rights and the insurance afforded to them, and are organized to challenge any unreasonable denial of claims,” adds Alagh.