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Sunday, November 13, 2016

Insurance Contract ~ does payment by cheque concludes contract ? - interesting elephant claim !!

For those connected to Insurance industry – have mental answers for these Qs before you read in full.  Others can proceed to read :
o   The agent deposits some money in the Office of Insurer, but does not provide sufficient details, before any document could be issued, a claim occurs, will that loss be indemnified
o   An Official collects premium for a specified subject matter of insurance, pays it in Office – but before policy could be issued, a claim occurs, say on the 4th day – would the claim be paid ?
o   The premium is paid by means of a crossed cheque drawn in favour of Insurance Company, deposited with Insurers who receives it, but does not  issue any document  - a claim occurs, say on the 4th day – would the claim be paid ?
o   The primary ingredient of any contract – ‘offer and acceptance’ – will that be revisited before any consideration ?
o   ..and .. .. .. .. how likely such things are to be viewed in a Forum or Court of law i.e., what is the legal position.

Elephant is the subject matter of this post and hence  photo of a majestic tusker –             certainly not Padmanabhan – the cause of action.

Insurance is a contract, one of indemnity -  whereby one party (the insurer,or the indemnitor) agrees to indemnify (compensate)  the other (the insured, or the indemnitee) for any damages or losses (as arising out of specified perils), occurring during the currency of policy (period of Insurance),  in return for consideration (premium paid).  ~ that is too rudimentary !!

According to Contract Law - “An offer may be defined as a statement of willingness to contract on specified terms made with the intention that, if accepted, there will arise a binding contract.  An offer  may be express or implied from conduct.  By another legal definition “Acceptance is an unconditional assent, communicated by the offeree to the offeror, to all terms of the offer, made with the intention of accepting.  Whether an acceptance has in fact occurred is ascertained objectively from the behaviour of the parties, including any correspondence that has passed between them.” The basic elements could be summarised as :
- The parties to the contract  must have reached an agreement (offer and acceptance)
- The parties must intend to be bound legally
- The parties must have provided valuable consideration.

Of course, there are other considerations, such as express and implied terms, duress and undue influence.  Now here is a case dealt by Kerala State Consumer Disputes Redressal Commission, Thiruvananthapuram; between an owner of an elephant and United India – the subject matter being claim arising out of death of an elephant.

The complaint was filed against the United India Insurance Company Ltd. alleging deficiency in service on the part of the Insurance Company in not issuing the policy of insurance and also in not honouring the insurance claim made by the complainant with respect to the elephant by name Padmanabhan owned by the complainant.  The complainant claimed a compensation of Rs.4,50,000/-.  The Insurers denied  the alleged deficiency of service and contended that the proposal was not accepted and hence there was no valid contract.  [you can form an opinion on what the decision could be and continue reading !]

The points that arose for consideration before the Forum were :
1.                Whether there was a concluded contract entered into between the complainant and the opposite party insuring the elephant by name Padmanabhan owned by the complainant?
2.                Whether there was any deficiency of service on the part of the Insurers in causing delay in issuing the policy insuring the elephant ?
3.                Whether the claim could be upheld?

There was no dispute on primary aspect of insurable interest – that the complainant owned the elephant by name ‘Padmanabhan’  and that the said elephant died on 20-04-2003.   There were documents establishing that and the fact that the complainant submitted proposal for insuring the aforesaid elephant.  The proposal had been accompanied by a certificate issued by a Vet. Doctor; that  a crossed cheque dated 08-04-2003 in favour of the Insurer towards  premium of Rs. 29,750/- was also not denied.  What was contended was ‘the cheque was not accepted by the Insurer and not  presented for encashment’.   As no policy was issued, the  complainant could not produce any document to show that the opposite party  had accepted proposal or that the Insurance Company communicated the acceptance of the proposal.  Thus fundamentally, the existence of the contract itself was questioned !  

The owner contended that the cheque for Rs. 29,750/- was given to the opposite party towards the first premium of the insurance policy on 08-04-2003 and the elephant died on 20.4.2003, supported by autopsy report.  To the complainant, it was unreasonable delay of 12 days in processing the proposal and that delay in deciding should be held as deficiency of service. 

The case for Insurers was that cheque towards the first premium of the policy is to be treated as acceptance of the proposal cannot be upheld.  It is a settled position that acceptance of the first premium along with the proposal for the policy would not amount to acceptance of the proposal.    There must be acceptable evidence to show acceptance of the proposal.  The contract will be concluded only on issuing communication regarding acceptance of the proposal or issuance of policy.  But in the present case on hand, there was no such acceptance of the proposal and there was no concluded contract of insurance.  Thus in all respects, there was no deficiency of service on the part of Insurers. There was a letter on 21.4.2003 by the Insurer that they were not prepared to  accept the 3rd party cheque submitted towards the first premium of the policy providing reasons for non-acceptance.

            Admittedly, the complainant paid the first premium for the policy by way of a 3rd party cheque and Insurers were  at liberty to accept 3rd party cheque or reject the same.  The Insurers  rejected the 3rd party cheque.   The complainant contended that this letter was issued on the very next day of the death of the elephant and returning of the said cheque was made with ulterior motive. 

The State Forum opined that it was clear that the lower Forum was perfectly justified in dismissing the complaint and dismissed the appeal – deciding in favour of the Insurer.  The parties were directed to suffer their own costs.

.. you are entitled to your opinion and now tell me – whether you would concur  .. [offer and acceptance] – that contract is not binding unless  there is acceptance.  Interesting and there are learnings everywhere !

With regards – S. Sampathkumar

13th Nov. 2016

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