Breach of policy condition : Does not absolve the insurance company of its liability to indemnify the insured

Jammu and Kashmir High Court Upholds "Non-Standard Basis" for Insurance Claims Court Emphasizes Distinction Between Fundamental and Ancillary Breaches in Insurance Policy Conditions

In a significant ruling, the Jammu and Kashmir High Court has reinforced the principle that insurance companies are obligated to settle claims on a "non-standard basis" unless a fundamental breach of policy conditions directly contributes to an accident. This decision came in the case of United India Insurance Company Limited v. Gurcharan Singh, where the court upheld the earlier decision by the District Consumer Disputes Redressal Forum, favoring the insured party, Gurcharan Singh.

The dispute arose when Gurcharan Singh's oil tanker, insured under comprehensive and Carrier's Legal Liability policies, was involved in an accident, resulting in substantial loss. The insurance company had initially repudiated the claim, arguing that the presence of unauthorized passengers constituted a breach of policy conditions. However, the court found that this breach was ancillary and did not contribute to the accident, thus warranting a settlement on a "non-standard basis."

The court cited precedents, including the Supreme Court's judgments in Amalendu Sahoo v. Oriental Insurance Company Limited and National Insurance Company Limited v. Nitin Khandelwal, to reinforce its decision. These judgments clarify that insurance claims should be settled up to 75% of the admissible amount if breaches are ancillary and not contributory to the accident.

The High Court's decision underscores the importance of differentiating between fundamental and ancillary breaches of insurance policy conditions. Fundamental breaches that directly or indirectly cause an accident allow insurers to deny claims entirely. However, ancillary breaches necessitate a partial settlement, ensuring policyholders are not unduly penalized for non-contributory violations.

The ruling ensures a fair approach to insurance claims, balancing the interests of policyholders and insurance providers, and sets a precedent for similar cases in the future.

Bottom Line:

Breach of policy condition - Breach of an ancillary condition of the insurance policy does not absolve the insurance company of its liability to indemnify the insured - Claims in such cases can be settled on "non-standard basis" by paying up to 75% of the admissible claim - However, if the breach is fundamental and directly or indirectly contributes to the accident, the insurance company can repudiate the claim entirely.

Statutory provision(s): Article 226 of the Constitution of India, Insurance policy conditions, Guidelines for settling claims on "non-standard basis"

United India Insurance Company Limited v. Gurcharan Singh, (Jammu And Kashmir)(DB) : Law Finder Doc Id # 2795770