New India Insurance Company Ltd v Union of India

[[2010] 101 SCL 139 (Delhi)]

October 2010

Summary
This case discusses interesting questions of law concerning the powers and jurisdiction of the Insurance
Regulatory Development Authority (IRDA), under the IRDA Act 1999 (IRDA Act) and the Insurance Act 1938
('Insurance Act'), the powers of the Central Government, as the Appellate Authority under §110H of the

Insurance Act in the context of the appointment of surveyors, as well as the binding nature of surveyors’
reports.

Facts

The dispute related to a claim under a fire insurance policy, arising from an accidental fire that destroyed red

sanders wood belonging to the insured. Upon notification, the insurer appointed 2 joint surveyors to assess
the loss. The claim was repudiated on various grounds such as provision of false declarations, non filing of

supporting documents, and causing intentional delay in the claim processing.

The insured appealed the repudiation before the IRDA, who appointed 2 new joint surveyors. These surveyors
valued the claim Rs 21.01 crores and Rs 2.21 crores respectively (as against the Rs 1.43 crores assessed by the

insurer appointed surveyors). The IRDA directed the insurer to settle the claim at Rs 2.21 crores.

The insurers appealed the IRDA’s decision before the Insurance Appellate Authority under §110 H of the
Insurance Act 1938, raising the argument that the IRDA’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 IRDA to appoint yet another set of surveyors (since the surveyors appointed by the IRDA were interested
parties). The Appellate Authority also directed the insurer to pay Rs 2.17 crores to the insured subject to the

findings of the new set of surveyors. These newly appointed surveyors assessed the claim at Rs 7.95 crores.

The IRDA rejected this 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 arguing

that the IRDA and the Appellate Authority had no jurisdiction to interfere in the insurers’ decision to
repudiate the claim.

Reasoning and judgment

The Delhi High Court rejected the insurers’ argument and held as follows:
Jurisdiction of the Scope of IRDA’s powers
The IRDA had the power to interfere in relation to claims. The High Court referred to the preamble of the

IRDA Act 1999 (IRDA Act), which states that it is an “Act to provide for the establishment of an Authority to
protect the interests of holders of insurance policies, to regulate, promote and ensure orderly growth of the
insurance industry and for matters connected therewith or incidental thereto…”. Further, the Statement of
Objects and Reasons of the Act indicates that it was meant to “enable the Authority to perform the role of
an effective watchdog and regulator for the insurance sector in India.” §14 of the IRDA Act specified the
duties, powers and functions of the IRDA, including “protection of the interests of the policy-holders in

matters concerning… …settlement of insurance claim”. Therefore, “keeping in view the objective of having
the IRDA as an independent statutory authority… the intention of the Parliament was to vest the IRDA with

sufficient powers to discharge those functions”. The IRDA Act thus provided a wide scope to the powers of
the IRDA and that the IRDA was empowered to intervene in relation to claims repudiated by the insurer and to

call for an independent report from any other approved surveyor.

The Court also clarified that the Appellate Authority was vested with the same powers as that of the IRDA.

Binding value of surveyor’s report

The Court also commented on the binding value of the surveyor’s report. It reiterated the position laid down
in the Sri Venkateswara Syndicate v Oriental Insurance (2009) 8 SCC 507, which was that ‘The option to

accept or not to accept the report is with the insurer. 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, with 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 Court held that the resultant

position was that while generally a surveyor’s report was not binding on the insurer, given the fact that there

was an in-built review mechanism before the IRDA and then the Appellate Authority, the refusal by the insurer
to abide by a surveyor’s report had to be for good reasons, the legal tenability of which could be tested by the

IRDA or the Appellate Authority as the case may be.

The Court held that in the instant case, the insurer had not shown good reasons to completely repudiate the

insured’s claim thereby accepting none of the reports of the surveyors appointed by it. Therefore, it was
open to the IRDA (and the Appellate Authority) to appoint surveyors to verify the assessments made earlier.

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