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Sunday, July 1, 2018

Employee Compensation Insurance ~ Insurer's liability on interest

In any workplace, be it an Office, or factory or elsewhere – accidents do occur and employees could be injured. In a society, there has to be welfare and the Law requires that they should be protected. In India, we have -  Employee Compensation Act 1923 [Workmen Compensation Act earlier] intended to be an beneficial legislation extending to whole of India. It defines workmen to be any person other than a person whose employment is of a casual nature and who is employed otherwise than for the purposes of the employer’s trade or business.

General insurers in India, have a product covering this liability.  There are 2 options – one covering liability under WC Act alone and another covering WC Act, Fatal Accidents Act and Common Law.  In India, insurance covering such liability is not mandatory and the policy contract though intended to cover the act liability is a separate contract between the Insurer and the employer and can be on restrictive / different terms.  The Operative clause would spell out that – subject  to the terms exceptions and conditions, if at any time during the Period of Insurance any Employee or Employees of the Insured shall sustain injury by accident arising out of and in the course of his employment in the Business, for which the Insured is liable to pay compensation under any Law(s) specified in the Schedule, then the Company shall indemnify the Insured upto the Limit of Indemnity against all sums for which the Insured shall be so liable, including costs and expenses for defending any such claim incurred with the Company’s consent.

Amongst other things – there is this exclusion ‘interest and/or penalty imposed on the Insured’. .. .. and here is a case before the High Court of Judicature at Madras  pronounced in Feb 2018.  This was a Civil Miscellaneous Appeal filed under Section 30 of Workmens Compensation Act 1923, against the order passed by the Deputy Commissioner for Workmen's Compensation    in W.C.No.275 of 2008 dated 11.01.2013.

                      The Appellant before the High Court contended that the doctor assessed the partial permanent disability at 35%. But  the authority  fixed the loss of earning capacity at 20%, which is unjust. The appellant would contend that the Doctor had issued disability certificate which was marked as exhibit and evidence paraded.  Therefore, the loss of earning capacity should have been fixed at 35% as certified by him in the disability certificate. Appellant further contended that the  Authority  failed to award interest from the date of accident but awarded interest only in the case of the default in depositing the award amount within a period of 30 days from the date of order.

Thus the appeal was on the following Qs of law:  -
o   Whether the Dy. Commissioner was right in reducing the disability %
o   Whether the order granting interest after failure to pay the awarded amount within 30 days of receipt of the copy from the Court is legal ?

                 The learned counsel for the claimant contended that the claimant has lost two teeth in the upper jaw and four teeth in the lower jaw and he has lost his mastigating power and that affects his efficiency to drive the vehicle. Therefore the loss of earning capacity should have been considered as 35% corresponding to the physical disability certified by the doctor.

             The counsel for the Insurer (PSU)  contended that there is no contract to pay interest to the claimant. The policy clearly excludes the  interest portion  and therefore the liability to pay interest should be passed on to the employer and not on the Insurance Company. Therefore, they are not liable to pay the interest. In support of this contention, the learned counsel appearing for the Insurance Company relied upon the judgment reported in 2004 ACJ 452 (P.J.Narayan Vs. Union of India and others) and also another case reported in 2006 ACJ 1699 (New India Assurance Co.Ltd., Vs. Harshadbhai Amrutbhai Modhiya and another). In the case of P.J.Narayan Vs. Union of India and others the issue was that as to whether the Insurance Company is statutory liable for payment of interest on the amount of compensation. The Hon'ble Supreme Court  held that the liability of the employer and the insurance is a matter of contract between the insurance company and the insured. It is always open to the insurance company to refuse to insure. Similarly, they are entitled to provide by contract that they will not take on liability to pay interest. In such circumstances, the Hon'ble Supreme Court has held that nobody can force the Insurance Company to take on liabilities which they do not want to take on. In the judgment of New India Assurance Co.Ltd., Vs. Harshadbhai Amrutbhai Modhiya and another the Hon'ble Supreme Court  held that the policy expressly excludes interest and penalty imposed on insured employer on account of his failure to comply wtih the requirements of the Act, Insurance Company is not liable to pay the interest and the employer is liable to pay the interest.

In the instant case, the  Insurer did not adduce any evidence on their liability to pay interest as per the substantial question of law framed. Though it was contended  by the learned counsel for the Insurance Company that the terms and conditions specifically excludes payment of interest; they failed to mark the relevant document  (Policy document with printed terms and conditions thereon) and adduce evidence that there is no contract to pay interest on behalf of the employer.  The Hon’ble Judge held that he did not find any evidence orally and documentary to show that there is a specific contract which excludes the liability to pay interest to the claimant.

In a similar circumstance in CMA.No.219 of 2012 by judgment dated 03.11.2017, the  Court has considered the judgment referred above and has held as under. Therefore, a duty is cast upon the insurance company to show that there is an exclusion clause in the terms of contract between them and the insured. In the absence of any exclusion clause, it shall be deemed that the insurance company is liable to pay compensation, which includes interest also. The interest part of the compensation cannot be segregated and it cannot be contended that they are liable to pay only principal and not interest.

The Court further held that  in so far as the interest claimed by the claimant after 30 days from the date of accident is concerned, it is settled by a decision of the Larger Bench of the Hon'ble Supreme Court in Pratap Narain Singh Deo vs Shrinivas Sabata and another reported in 1976 A.C.J.141, wherein, the Hon'ble Supreme Court has held that the word falls due as specified under Section 4-A of the Employee's Compensation Act, 1923, denotes the date of accident and not the date of order passed by the authority. Accordingly, the claimant is entitled for interest after 30 days from the date of accident.

               The same view has been followed by a Hon'ble Division Bench of this Court in N.Ganesan Vs. Thilagavathi and another reported in 2010 (2) TN MAC 80 (DB) as under :-   "27. (i) The word "falls due" occurring under Section 4-A of the Workmen's Compensation Act, 1923 in the light of the ratio laid down in the Larger Bench decision of the Hon'ble Supreme Court of India reported in Pratap Narain Singh Deo v. Srinivas Sabata and another, 1976 (1) SCC 289 and Kerala State Electricity Board v. Valsala, K., 2000 ACJ 5 (SC), means that interest for compensation amount would accrue 30 days after the date of the accident and not from the date of quantification / orders passed by the Commissioner for Workmen's Compensation."

The Hon’ble Judge concluded that – ‘ I respectfully follow the dictum laid by the Hon'ble Supreme Court and accordingly hold that the claimant is entitled to interest from the 31st day of accident @ 12% p.a. Since the liability is fastened on the insurer, Insurance Company is directed to deposit interest from the 31st day of accident till the date of deposit @ 12% p.a. within a period of four weeks from the date of receipt of a copy of this order and on such deposit the claimant is entitled to withdraw the same. It is open to the Insurance Company to work out the remedies in the manner known to law.  With the above directions, this Civil Miscellaneous Appeal was allowed. There was no order on costs.

The direct learning is that even though there is a categorical condition, the Insurers are expected to file copy of policy, highlight the same in their written statement, adduce evidence, if allowed.  Though Insurers feel that rightfully the policy contract with the assured is not concurrent and is independent of the liability that may arise for the employer, Courts have been conferring award direct on the Insurer.  When a Policy copy is filed before the Court by the representatives of the victim or by the employer – the liability is directly awarded on the Insurer as is the norm in any MACT under a Motor vehicle insurance policy.  In every case, there are learnings to be had  – and most of these go against the poor Insurer.

With regards – S. Sampathkumar
26th  June 2018.

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