Insurance is a type of contract in which an individual or organization receives financial protection and reimbursement of damages from the issuer of an insurance company. It is a type of contract of indemnity in which a person promises to save the other from a loss caused by the promisor himself or by the conduct of any other person. Insurance contracts are contingent and dependent on the happening of a future event.
Insurance law claims refer to a request made by the policyholder to the insurance company to compensate for any loss that occurred. The insurance company can accept or deny the claim once the process is initiated.
All the insurance claims and legalities are governed by the Insurance Act of 1938, The Insurance Regulatory and Development Authority (IRDAI), and the Life Insurance Corporation Act of 1956
Types of Insurance:
- Life Insurance: Life Insurance refers to a policy or cover whereby the policyholder can ensure financial freedom for their family members after death. It is a contract entered between the policyholder and the company wherein a premium (monthly or annually) is paid for a payout that the relatives will receive upon the policyholder's death. It can be granted for a term period which is a specified duration, or permanent life insurance, which provides coverage throughout the lifetime of the insured policyholder.
- Motor insurance: It is a financial assistance policy in case of any accident involving the policyholder's car or bike. Motor insurance is granted to cars, two-wheelers, and commercial vehicles. Motor insurance can be granted on a third-party liability basis, under which the insurance company offers cover against any legal liabilities arising from the loss/damage caused by any third person's body or property.
- Health insurance: It covers all medical expenses that arise due to an illness or injury. Different types of health insurance, such as Mediclaim Plans, cover the cost of treatment incurred by the policyholder, which is recovered from the payout. Critical Illness Insurance Plans cover only special life-threatening illnesses, and the payout may be decided on the diagnosis of the disease.
- Travel insurance: This kind of Insurance provides safety and security to the traveler during a trip. This is a short-term insurance plan compared to other kinds of insurance coverage. Travel insurance may be granted for domestic and international travel.
When is an insurance claim rejected?
When a claim for the insurance policy is made, the insurer is bound to compensate the policyholder on the payout. However, the insurance company can reject the claim only on sound logic and valid reasons. Usually, claim repudiation applies to a claim that is found to be processed but unpayable.
The IRDAI has also mandated that a delay in submitting documents is not a valid reason for rejecting claims. The insurance claim should be such that, even if the documents were submitted on time, the insurance claim would still have been rejected. There are several reasons for the rejection of insurance claims:
- Lack of Information in the Proposal Form: the policyholder's primary duty is to disclose all material facts while applying for Insurance. This aligns with the principle of 'good faith that all insurance claims must adhere to. The active concealment of any material fact can lead to the rejection of insurance claims.
- Pre-Existing Condition: Any pre-existing health condition or disease must be disclosed to avail of the benefit of the Insurance
- Delay in filing an insurance claim: The delay in filing an insurance claim cannot be a valid reason for rejecting the Insurance. This was held in the case of Om Prakash v. Reliance General Insurance, which held that delay in reporting to the insurance company could not be a valid reason for its rejection. In this case, the appellant Om Prakash reported the theft of his vehicle to the insurance company after eight days. The policy would only apply upon immediate reporting in a written format which was not done in the present case. However, the court found that the report was genuine, so the claim must be accepted. The SC opined that there was a delay in reporting due to unavoidable circumstances, and this cannot be a valid reason for its rejection.
What to do in the event of rejection of the insurance claim?
- Approach the Insurer's Redressal of Grievance Mechanism- Upon the rejection of the insurance claim, the policyholder can approach the redressal machinery of the insurance company. For example, the LIC has specific Grievance Redressal Officers at different levels, such as the Branch, Divisional, Zonal, Central, etc.
- IRDAI Grievance Redressal Cell- The Grievance Redressal Cell in the Consumer Affairs Department of the Insurance Regulatory and Development Authority of India looks into complaints/grievances from policyholders. It registers the grievances of the respective insurers for redressal, and the policyholders having complaints against the insurers approach the Complaints/Grievance Redressal Cell of the insurer concerned. If they do not receive a response from the insurer within a reasonable period or are dissatisfied with the company's response, they may approach the Grievance Redressal Cell in the Consumer Affairs Department of the IRDAI. It is pertinent to note that only complaints from the insured or the claimants shall be admitted in the cell, and no third-party complaints shall be entertained.
- Insurance Ombudsman- The Insurance Ombudsman scheme was created by the Government of India under the Redress of Public Grievances Rules, 1998, for individual policyholders to settle their complaints out of the court's system. Individual policyholders can approach the ombudsperson if:
Ø Delay in settlement of claims beyond the time specified in the regulations framed under the IRDAI Act, 1999.
Ø Any partial or total repudiation of claims by the life insurer, general insurer, or health insurer.
Ø Any dispute about premium paid or payable in the insurance policy.
Ø Misrepresent policy terms and conditions at any time in the policy document or contract.
Ø The legal construction of insurance policies in so far as the dispute relates to the claim.
Ø Policy is servicing related grievances against insurers and their agents and intermediaries.
Ø Issuance of life insurance policy, general insurance policy, including health insurance policy which does not conform to the proposal form submitted by the proposer.
Ø Non-issuance of insurance policy after receipt of premium in life insurance and general Insurance, including health insurance and
Ø Any other matter resulting from the violation of provisions of the Insurance Act, 1938, or the regulations, circulars, guidelines, or instructions issued by the IRDAI from time to time.
Can a policyholder sue a company for the rejection of an insurance claim?
Insurance law is governed by the principles of good faith that all contracts of Insurance have a fair dealing provision. All contracts Insurance have to be clear, precise, and not ambiguous. It was held in a case where the terms of the policy are clear, plain, or unambiguous and reasonably susceptible to one meaning; the courts are bound to give effect to that meaning irrespective of the consequences.
Therefore, in case of any doubt as to the provisions of the contract of Insurance, the same is against the insurance company. If the policyholder is denied the insurance claim due to such ambiguous contracts, the policyholder can sue the insurer company. If the insurance company denies the claim without any valid reason, the same can be remedied under section 73 of the Indian Contract Act 1872.