Insurance Disputes & Litigation: Reason for its rise and impact on SDG Goals

Introduction

The concept of insurance was developed to mitigate the future risk associated with the loss of life or property of an individual, but what if such risk happens and the insurance policy fails to protect you against the loss?

In reality, this is what most of the insured population is facing. Even after taking the Insurance Policy, the insured is not covered against the future risks since most of the insurance claims are repudiated by the Insurance Companies. This led to the emergence of insurance disputes since in most cases, there is a disagreement between the insured and insurer regarding the interpretation of clauses of the insurance policy, deciding the amount of compensation payable by the insurers or in relation to any other terms & conditions of the insurance policy.[1]

In case of disputes related to insurance, the insured person generally has four recourses viz.; dispute resolution through arbitration if there is an arbitration clause in the insurance policy, litigation before the civil court, instituting consumer complaint before the Consumer Dispute Redressal Forum or raising compliant in the Insurance Ombudsman.[2] However, in practice, most insurance disputes are either handled by the Consumer Forums or Civil Court having jurisdiction over the subject matter of the dispute.

With the increase in the number of insurance policyholders, insurance litigation has grown drastically with long-pending insurance disputes across different legal forums. As per the data available with the IRDAI, there has been an increase of 16.9% in the year 2019-20 in terms of total insurance complaints reported with the ombudsman as compared to the previous year.[3] This continuous growth in the number of disputes in the insurance sector highlight that the purpose of the insurance sector which is to mitigate future risks of individuals is diluting. Even the insured population is distressed and not getting the insurance benefit at the time of loss and are only left with the recourse to litigate for settling their insurance claims.

Though insurance has not been specifically related to the Sustainable Development Goals [SDG Goals] however, the insurance sector which provides financial protection against probable financial losses directly or indirectly impacts the achievement of most of the SDG goals.[4] With the increase in insurance litigation and disputes, undoubtedly smooth indemnification against such future financial losses decreases and it impacts some of the SDG goals like No poverty, zero hunger etc. Through the means of this article, the author seeks to analyse the causes and emergence of insurance disputes and the impact of insurance litigation on the achievement of SDG goals.

Insurance Litigation: Nature & Causes

Insurance Litigation is a consequence of an insurance dispute which generally arises when the insured claims the coverage amount under the insurance policy on the happening of the insured event and the insurer denies or rejects the insurance claims alleging one of the various grounds such as breach of the terms & conditions of insurance policy, non-coverage of the matter claimed under the policy, or non-compliance with the claiming procedure etc.[5] Due to this disagreement between the insurer and insured relating to the settlement of insurance claims, the insured population mostly takes the recourse of litigation and approaches the civil court or the consumer forum against the insurance companies for adjudication of claims,[6] giving rise to insurance litigation.

One of the major causes of insurance litigation is the repudiation of insurance claims by insurance companies. When an insurance claim is filed with the insurance company, the company engaged a Surveyor and performs an assessment of the claim, it is after this stage that the insurance company repudiates the claim of the insured citing the reason.[7] Some of the reasons/ root causes involved in the denial of insurance claims are:

1. Non- Disclosure- When the Insurance Company alleges that the insured person has not fully disclosed the issues, material and information related to the policy with the company and hence the insurance claim deserves to be repudiated.
2. Exclusion Clause-The Insurer alleges that the event or the loss suffered is excluded from the terms of the insurance policy.
3. Fraud or Misrepresentation- The Insurance Company alleges that the insured has acted fraudulently and misrepresented the insurance claim.[8]
4. Breach of Terms of Policy- The Insurance Company allege that certain terms and conditions of the policy have been breached by the insured party thus, they are not liable to pay the coverage amount.

Hike in Insurance disputes: Who is at fault?

 According to the survey conducted in the year 2019 regarding the cases filed in the Gurgaon district consumer court, around 84 out of the 257 cases instituted at the Consumer Court in the year 2019 were related to insurance disputes.[9] Such statistics readily suggest that a considerable number of cases filed before the consumer courts relate to insurance disputes. One such cause of ever-increasing insurance disputes can be attributable to the tendency of the insurance company to repudiate the claims of the insured in the guise of one ground or the other.[10]

Remarking on the hike in the insurance litigation, the Haryana State Consumer Dispute Redressal Commission has categorically observed in one case that the tendency of the insurance companies to repudiate the genuine claims of the insured claimants is one of the primary causes of the increasing insurance litigation between the insurance companies and the insured.[11] Due to the growing trend of the incessant repudiation of genuine claims by insurance companies which gives rise to excessive insurance litigation, IRDAI issued a circular directing the insurance companies to only repudiate claims when there are logical and valid grounds and not merely on technical grounds like delay in submission of documents.[12]

Despite the establishment of the Insurance Regulatory Authority and such kind of provisions in place, the issue of repudiation of genuine claims of the insured has become a perennial problem which eventually results in unnecessary insurance litigation. Though the insured population can approach the Insurance Ombudsman in case of claims repudiation by insurance companies yet commercial entities taking insurance is still at a loss since this provision is not available for them and there are no provisions for alternate dispute resolution in such cases,[13] ultimately causing unwarranted insurance litigation.

However, the insurance company is not always the defaulting party as most insurance litigation is also caused due to the non-disclosure of true information by the insured person. Primarily in the health insurance sector, one of the major grounds of claims repudiation is the non-disclosure of the information relating to age, past disease, income of the family etc by the claimant.[14] At the outset, the cause of excessive insurance litigation cannot be wholly attributable to the insurance companies however, in present times, the profit-generation tendency of most Insurance Companies is depriving most of the insured population of their genuine insurance claims and they are left with the only recourse of litigating for years to claim the compensation covered under the insurance policy.

 Impact of Insurance Litigation on achievement of SDG Goals

The United Nations 2030 Agenda for Sustainable Development stipulating 17 Sustainable Development Goals [SDG Goals] does not explicitly mention the insurance sector however, the insurance business dealing with the protection of financial interests at the time of future risks or loss impliedly assists in the achievement of six major SDG goals.[15] Insurance assists in the achievement of SDG 1: No poverty by providing financial support to the families to uplift their economical condition after a loss and also promote SDG 3: Health and well-being by taking up the financial burden of covering a variety of healthcare costs.[16] Apart from this, the insurance sector also supports other SDG goals such as; Decent Work, Zero Hunger and Climate change.[17]

Since the insurance sector is one of the prime accelerators toward the achievement of SDG goals, any kind of hindrance in the smooth business of insurance has its repercussions on the achievement of SDG goals. Due to the rise in the number of insurance disputes/ litigation, people tend to refrain from taking the insurance policy and lose faith in the insurance business, and because of this large portion of the population remains outside the policyholder’s net. Insurance disputes thereby, negatively impact the insurance business and pose a threat to achieving financial security of the Indian masses ultimately affecting the sustainable development goals.

Conclusion

The growing number of insurance disputes has led to distressed policyholders and resulted in excessive insurance litigation hovering around Civil or Consumer Courts for years. Such insurance disputes mostly occur due to the repudiation of claims by the insurance companies on one ground or the other. There is no regulatory framework to tackle the ever-growing tendency of insurance companies of repudiating almost all the insurance claims that are filed before them which fails the entire purpose of the insurance business and subsequently affects the SDG goals. It is thereby, suggested that the legislature should enact a regulatory framework for regulating the incessant repudiation of claims by insurance companies.

The article has been contributed by Priyanka Bajpai, student at Institute of Law, Nirma University.

End Notes

[1] Tuli & Co, Insurance Litigation in India, Lexology (Feb. 12, 2019), https://www.lexology.com/library/detail.aspx?g=188d7059-fa83-412d-9cb4-75f6d0104f50.

[2] Id.

[3] Insurance Regulatory and Development Authority of India, Annual Report 2019-20, 118-119, https://www.irdai.gov.in/admincms/cms/uploadedfiles/annual%20reports/IRDAI%20Annual%20Report%202019-20_English.pdf.

[4] Deutsche Gesellschaft fur International Zusammenarbeit (GIZ) GmbH, Inclusive Insurance and the Sustainable Development Goals: How Insurance Contributes to the 2030 Agenda for Sustainable Development (July 2017), https://www.milliman.com/-/media/milliman/pdfs/2021-articles/5-11-21-inclusive-insurance-and-the-sustainable-development-goals.ashx.

[5] Klemchuk LLP, Insurance Coverage Disputes, https://www.klemchuk.com/insurance-coverage-disputes.

[6] Neeraj Tuli and Rajat Taimni, The Insurance Disputes Law Review: India, Law Reviews UK (Jan. 24, 2021), https://thelawreviews.co.uk/title/the-insurance-disputes-law-review/india.

[7] General Insurance Council, Insurance Claims, https://www.gicouncil.in/insurance-education/insurance-claims/.

[8] Gibbs Wright Litigation Lawyers, Insurance Disputes, https://gibbswrightlawyers.com.au/services/insurance-dispute-lawyer-brisbane.

[9] Rao Jaswant Singh, Insurance claims a third of all cases before consumer court, Times of India (Feb. 27, 2019, http://timesofindia.indiatimes.com/articleshow/68182697.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst.

[10] Insurance firms’ tendency to deny claims irks consumer court, The Economic Times (Mar. 05, 2012), https://economictimes.indiatimes.com/wealth/personal-finance-news/insurance-firms-tendency-to-deny-claims-irks-consumer-court/articleshow/12146547.cms?from=mdr.

[11] Ramesh Yadav v. The New India Assurance Company, State Consumer Dispute Redressal Commission, Haryana, Appeal No.98 of 2014.

[12] Insurance Regulatory and Development Authority, Circular No. IRDA/HLTH/MISC/CIR/ 216/09/2011 (Sept. 20, 2011).

[13] Insurers repudiated an unacceptable Rs 701 crore in life insurance claims; Parliament must step in, The Financial Express (Oct. 12, 2016), https://www.financialexpress.com/opinion/insurers-repudiated-an-unacceptable-rs-701-cr-in-life-insurance-claims-parliament-must-step-in/414706/.

[14] Suri Seeta Ram, Rejected insurance claims? Often both buyer and insurer are at fault, Economic Times (May 09, 2011), https://economictimes.indiatimes.com/wealth/insure/rejected-insurance-claims-often-both-buyer-and-insurer-are-at-fault/articleshow/8190422.cms?from=mdr.

[15] Deutsche Gesellschaft fur International Zusammenarbeit (GIZ) GmbH, Inclusive Insurance and the Sustainable Development Goals: How Insurance Contributes to the 2030 Agenda for Sustainable Development (July 2017), https://www.milliman.com/-/media/milliman/pdfs/2021-articles/5-11-21-inclusive-insurance-and-the-sustainable-development-goals.ashx.

[16] Id.

[17] Access to Insurance Initiative, Insurance and the Sustainable Development Goals, https://a2ii.org/en/sustainable-development-goals.