SC: Insurance Company Liable to Pay Claim of Hijacked Vehicle

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December 28, 2017

Manjeet Singh v. National Insurance Company Ltd. & Anr.

Date of Judgment: December 08, 2017

In this recent case, decided by Two-Judge Bench of the Supreme Court, the Court has further expanded the scope and ambit of protecting consumers under Insurance claims by holding that an insurance company cannot reject motor vehicle claim on the ground that giving lift to passengers which was later stole by them did not tantamount to fundamental breach of terms of policy. 

Brief Facts of the case

In this case, the Appellant had purchased a second-hand truck under a Hire Purchase agreement. The vehicle was hypothecated in favour of Respondent finance company. The truck was insured by the Respondent insurance company.

The cause of action in the case arose when the vehicle was being driven by one, Sanjay Kumar and some persons gave a signal to the driver to stop the vehicle. After he stopped, they requested the driver to give them lift and the driver gave them lift. After a little while, one of the passengers requested the driver to stop the truck and thereafter assaulted the driver and fled away with the vehicle. An FIR was lodged and the respondent finance company was intimated about the theft. However, the insurance company rejected the claim on the ground of breach of terms of the policy.

The aggrieved Complainant approached the District Consumer Disputes Forum alleging that the insurance company was liable to compensate him for the loss caused to him by the theft of truck. However, the Respondent insurance company submitted that by giving a lift to the passengers, had violated the terms of the policy and, as such, there was breach of policy and the insurance company was not liable. The District Forum also rejected the claim on the ground that the arbitration proceedings had been initiated by the Respondent finance company against the complainant and they were at the final stage.

The appeal filed by the claimant before the State Commission was rejected and so was the revision filed before the National Commission. Aggrieved by this, the Appellant in the case approached the Supreme Court.

Bench’s Verdict

Whether giving lift amounted to breach of terms of policy?

In this context, the Supreme Court observed that the violation of the condition should be such a fundamental breach so that the claimant cannot claim any amount whatsoever. As far as the violation in carrying passengers is concerned, this has consistently been held not to be a fundamental breach. The Court made reference to the case of Lakhmi Chand v. Reliance General Insurance[1], wherein the Court held that to avoid its liability, the insurance company must not only establish the defence that the policy has been breached, but must also show that the breach of the policy is so fundamental in nature that it brings the contract to an end.

With reference to the instant case, the Court held that the appellant was not at fault in giving lift to some passengers. Carrying such passengers may be a breach of the policy, but it cannot be said to be such a fundamental breach as to bring the insurance policy to an end and to terminate the insurance policy.

Arbitration proceedings by the Respondent finance company against the complainant were at final stage

In this context, the Supreme Court held that arbitration proceedings between the financer and the insurer, relating to recovery of the loan amount, cannot in any way, negate the rights of the insured against the insurance company.

The Two-Judge Bench of Supreme Court in view of the aforesaid circumstances and laws, the Court allowed the appeal and directed the respondent insurance company to pay 75% of the insured amount along with interest @ 9% p.a. from the date of filing the claim petition till the deposit of the amount. The Court also directed the insurance company to pay sum of Rs.1,00,000/- as compensation.

The entire case can be accessed here.

[1] (2016) 3 SCC 100