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Tuesday, May 14, 2019

Gift, Ownership, Insurable Interest and claim on vehicle taken back

Insurance gives peace of mind, by protecting the property and providing financial support at the time of loss or damage. The primary criterion for taking out insurance is ‘insurable interest’ – right to insure / take out policy.  Ownership casts a right to protect the property though not the only thing.  A person or entity has an insurable interest in an item, event or action when the damage or loss of the object would cause a financial loss or other hardships. Insurable interest is an essential requirement for issuing an insurance policy which makes the contract of insurance – valid, legal and right.   In Motor Insurance, Insurers check the RC of the book to ensure that policy is taken by the individual / entity that owns the vehicle.  It is a requirement that ‘insurable interest’ should exist throughout the policy period, i.e., at the inception / taking out the policy as also at the time of claim.

Ownership may not require a lengthy explanation – it is the state or fact of exclusive rights and control over property, which may be an object, land/real estate or intellectual property. Ownership involves multiple rights, collectively referred to as title, which may be separated and held by different parties.The process and mechanics of ownership are fairly complex: one can gain, transfer, and lose ownership of property in a number of ways. To acquire property one can purchase it with money, trade it for other property, win it in a bet, receive it as a gift, inherit it, find it, receive it as damages, earn it by doing work or performing services, make it, or homestead it. Ownership is self-propagating in that the owner of any property will also own the economic benefits of that property.

Willing or voluntary transfer of property could be for consideration or by gift or by will.   A Gift Deed is a legal document that describes voluntary transfer of gift from donor (owner of property) to donee (receiver of gift) without any exchange of money. The donor must be solvent and should not use this tool for tax evasion and illegal gains.

Motor  Insurance is a contract between the policy holder (invariably the owner of the vehicle) and the Insurer.  Vehicles like any other property are sold and ownership gets transferred.  By rule, such transfers need to be intimated and recorded with Road Transport authorities and Registration Certificate [RC] of the vehicle endorsed suitably.  All India Motor Tariff clearly deals with transfer of insurance ~ primarily the transfer of insurance is not automatic.

General regulation 17 reads :On transfer of ownership, the Liability Only cover, either under a Liability Only policy or under a Package policy, is deemed to have been transferred  in favour of the   person to whom the motor vehicle is transferred with effect from the date of transfer.[this is to take protect the third party]..the  transferee shall apply within fourteen days from the date of transfer in writing under recorded delivery  to the insurer who has insured the vehicle, with the details of the registration of the vehicle, the date of transfer of the vehicle, the previous owner of the vehicle and the number and date of the insurance policy so that the insurer may make the necessary changes in his record and issue fresh Certificate of  Insurance.

In case of  Package Policies, transfer of the “Own Damage” section of the policy in favour of the transferee, shall be made by the insurer only on receipt of a specific request from the transferee along with consent of the transferor. If the transferee is not entitled to the benefit of the No Claim Bonus (NCB) shown on the policy, or is entitled to a lesser percentage of NCB than that existing in the policy, recovery of the difference between the transferee’s entitlement, if any, and that shown on the policy shall be made before effecting the transfer.A fresh Proposal Form duly completed is to be obtained from the transferee in respect of  both Liability Only and Package Policies.Transfer of Package Policy in the name of the transferee can be done only on getting acceptable evidence of sale and a fresh proposal form duly filled and signed. 

Thus categorically, transfer of insurance (own damage portion) is not automatic – Insurer has the right to revalidate the contract (can deny the cover also) – however, in the event  of the death of the sole insured,  policy  coverage will not immediately  lapse  but will remain valid for a period of three months from the date of the death of insured or until the expiry of this policy (whichever is earlier). 

With this lengthy background read this interesting decision of National Consumer Disputes Redressal Commission, New Delhi.  Insurers filed application seeking condonation of delay of 136 days – Forum condoned delay in revision petition subjecting it to deposit of Rs.20000/- as cost.

The parents of Respondent 2 purchased a vehicle in the name of R1 for gifting the same in the marriage.  The vehicle was duly insured with the petitioner.  On 13.3.2012, vehicle met with an accident, surveyor assessed it to be a total loss.  Thereafter, the marriage was dissolved and vehicle returned to complainant no. 2.  The claim was not paid and a case was filed before Dist Forum as a consumer complaint.   Insurer resisted on the grounds that accident occurred on 19.1.2012 and not 13.3.2012; on the material date complainants did not have insurable interest as vehicle had been sold (C1 to C2) on 9.3.2012.

The Dist. Forum allowed the complaint, Insurer approached State Commission by way of appeal which was dismissed and hence appeal before National Commission. 

The order of State Commission tookt he date of accident to be 13.3.2012; affidavit sworn by complainant no.1 revealed that vehicle had already been sold by him to C2 – the said affidavit was executed on 9.3.12 and hence vehicle obviously was sold on or before that date.  C1 had no insurable interest on the date of accident – he had also confirmed to have received sale proceeds and delivered possession.  C2 (the lady) had got the vehicle transferred in her name at the date of accident – but insurance transfer had not been effected and insurance still stood in the name of C1.   The forum decided that as no transfer of insurance had been effected in the name of C2 or a fresh insurance obtained, there was no valid contract between the owner and the Insurer.  The Forum drew reference to Apex court decree in Complete Insulations P Ltd Vs New India which cited Sec 157 of MV Act. 

The Forum concluded that the insurance claim for damage to vehicle was not payable either to complainant no. 1 or no.2.   It was not payable to C1 as he did not have insurable interest and C2 because there was no contract of insurance between her and the petitioner (Insurer) on the material date.  The consumer complaint was dismissed with no order as to costs.

Interesting .. and there are learning for all connected with insurance

With regards – S. Sampathkumar

Case citation : RP 3373/2018 against first appeal of 545/2017 of Punjab SCDRC

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