Supreme Court clarifies insurance liability in car accident claim: Bajaj Allianz vs. Mukul Aggarwal (20 November 2023)

Date of the Judgment: 20 November 2023
Citation: 2023 INSC 1005
Judges: Abhay S. Oka, J. and Rajesh Bindal, J.
Can an insurance company deny a claim for a car accident based on minor discrepancies in the claim form and police report? The Supreme Court of India recently addressed this question while hearing an appeal regarding the rejection of a claim for a completely damaged BMW car. The core issue was whether the insurance company and BMW were justified in denying the claim and whether the consumer was entitled to a replacement car or monetary compensation. The judgment was delivered by a two-judge bench comprising Justice Abhay S. Oka and Justice Rajesh Bindal, with Justice Abhay S. Oka authoring the opinion.

Case Background

On 29th July 2012, Mr. Mukul Aggarwal (the owner) was involved in a severe car accident near DLF Square in Gurgaon between 12:30 am and 2:00 am. The accident resulted in his BMW 3 Series 320D car being completely damaged and beyond repair. The car was purchased on 17th May 2012, and was registered in the name of Dassault Systems India Pvt. Ltd. (Dassault), where Mr. Aggarwal was a director. The purchase was financed by a loan from a car financing company in the name of Dassault. Mr. Aggarwal had secured two insurance policies: a motor insurance policy from Bajaj Allianz General Insurance Co. Ltd. (the insurer) and a BMW Secure Advance Policy from BMW India Pvt. Ltd. (BMW). The Insured Declared Value (IDV) of the car was Rs. 29,46,278. Mr. Aggarwal believed that the combined policies entitled him to a new car if the damage exceeded 75% of the IDV.

Timeline

Course of Proceedings

After the insurer repudiated the claim, Mr. Aggarwal and Dassault filed a complaint before the State Consumer Disputes Redressal Commission, Delhi (State Commission). They sought a direction to the insurer and BMW to either replace the damaged car with a new one or pay the equivalent on-road value, quantified at Rs. 34,10,516, along with compensation for mental torture. The State Commission directed both the insurer and BMW to indemnify the owner by replacing the car and also to pay Rs. 50,000 as compensation and Rs. 10,000 for litigation costs. Aggrieved by this, both BMW and the insurer appealed to the National Consumer Disputes Redressal Commission (National Commission), which dismissed their appeals. Subsequently, the insurer and BMW filed separate appeals before the Supreme Court.

Legal Framework

The Supreme Court considered the following legal provisions:

• Section 17(2)(b) of the Consumer Protection Act, 1986: This section deals with the territorial jurisdiction of the State Commission. The court noted that the State Commission at Delhi had jurisdiction because both the insurer and the dealer had offices in Delhi.
• Section 2(1)(d)(i) of the Consumer Protection Act, 1986: This section defines a “consumer.” The court clarified that even though the car was registered in the name of Dassault, Mr. Aggarwal, as the user of the car, was also considered a consumer under this provision.
• Section 2(g) of the Consumer Protection Act, 1986: This section defines “deficiency” in service. The court found that both the insurer and BMW had a deficiency in service by wrongly repudiating the claim and not honoring the policies.

The court also referred to the principle that the terms of an insurance contract must be construed strictly without altering the nature of the contract, as reiterated in National Insurance Company Ltd. v. Chief Electoral Officer and Others [2023 SCC Online SC 115]. The court also clarified that the rule of contra proferentem is not applicable to commercial contracts like insurance contracts.

Arguments

Submissions by BMW:

• BMW argued that there was no cause of action against them because the insurer had repudiated the insurance policy. They contended that their liability under the BMW Secure policy was contingent on the insurer’s liability.
• BMW submitted that the State and National Commissions had misinterpreted the BMW Secure policy. They argued that the policy only covered the difference between the IDV and the price of a new vehicle of the same model, or 1% of IDV if the model was unavailable, and did not provide for replacement of the car.

Submissions by the Insurer:

• The insurer argued that the insured did not immediately inform them about the accident and that there was a suppression of material facts about the nature of the accident. They pointed out that blood stains and beer bottles were found in the vehicle.
• The insurer contended that the insured should have informed them before moving the damaged car to the garage. They also argued that it is not mandatory for the insurer to replace the vehicle if there is a total loss.
• The insurer relied on the case of Gurshinder Singh v. Shriram General Insurance Co Ltd. [(2020) 11 SCC 612] to argue that failure to inform the insurer immediately after the accident is a valid ground for repudiation.

Submissions by the Owner:

• The owner argued that there were concurrent findings of fact by the State and National Commissions, which should not be interfered with by the Supreme Court.
• The owner supported the reasons given by the State Commission for concluding that the repudiation of the policy was illegal.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section, but the core issues addressed were:

1. Whether the State Commission at Delhi had the territorial jurisdiction to deal with the complaint.
2. Whether the repudiation of the insurance policy by the insurer was valid.
3. Whether the owner was entitled to a replacement car or monetary compensation under the insurance policies.
4. What was the extent of liability of the insurer and BMW under their respective policies?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The Supreme Court considered the following authorities:

Judgment

The Supreme Court partly allowed the appeals, setting aside the State Commission’s order to replace the car and instead directed monetary compensation. The court held that the insurer’s repudiation of the policy was invalid and that both the insurer and BMW were liable to pay compensation for deficiency in service.

How each authority was viewed by the Court?

• National Insurance Company Ltd. v. Chief Electoral Officer and Others [2023 SCC Online SC 115]: The court followed this authority to reiterate that insurance contracts must be interpreted strictly and that the rule of contra proferentem does not apply to commercial contracts like insurance policies.
• Gurshinder Singh v. Shriram General Insurance Co Ltd. [(2020) 11 SCC 612]: The court distinguished this case, stating that the facts of the present case were different, and the repudiation was not justified.
• Circular dated 20th September 2011 of the Insurance Regulatory and Development Authority: The court relied on this circular to support its finding that the rejection of the claim on the ground of delay in reporting was unfounded.

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the following factors:

• Timely Intimation: The court noted that despite the accident occurring in the early hours of the morning on a Sunday, the owner took immediate steps to secure the vehicle and inform the dealer, who in turn informed the insurer. The court found that the insurer was notified in a timely manner, and the initial delay was due to the non-availability of the dealer’s staff on a Sunday.
• No Negligence: The court emphasized that the insurer did not allege that the accident was due to the negligence of the driver. The court also noted that the driver was not prosecuted for rash and negligent driving.
• Incorrect Policy Details: The court considered the fact that the insurer had initially issued a policy with incorrect engine and chassis numbers, which they later corrected. This indicated that the insurer was also at fault and could not rely on technicalities to deny the claim.
• Surveyor’s Report: The court relied on the surveyor’s report, which assessed the loss at Rs. 25,83,012, exceeding 75% of the IDV. This confirmed that the car was a constructive total loss, triggering the liability of both the insurer and BMW.
• BMW’s Silence: The court noted that BMW failed to provide any evidence regarding the availability or price of a similar car at the time of the accident. This silence led the court to draw an adverse inference against BMW.
• IRDA Circular: The court relied on the Insurance Regulatory and Development Authority’s circular, which cautioned against rejecting genuine claims on technical grounds. This highlighted the need for a fair and reasonable approach in handling insurance claims.

Fact:Law Ratio

Logical Reasoning:

The court rejected the argument that the insured should have informed the insurer before moving the car, noting that the accident occurred on a busy highway and the owner had to secure the vehicle. The court also dismissed the insurer’s claims of discrepancies in the accident reports, stating that the fact of the accident was not disputed. The court emphasized that the insurer’s rejection was based on technicalities, which was not justified.

The court noted that while the BMW Secure certificate mentioned replacement of the vehicle, the actual policy did not have a provision for replacement but for payment of the difference between the IDV and the price of a new car of the same make. The court held that BMW was liable to pay this difference. Since BMW did not provide any evidence about the price of a similar car, the court determined a reasonable amount of Rs. 7 lakhs.

The court also emphasized that the insurer had the option to repair or replace the vehicle, but was liable to pay the IDV minus the value of the wreck in case of total loss. The court held that the insurer was liable to pay Rs. 25,83,012.

The court stated, “On a plain reading of clause (3), an option is available to the insurer to repair the vehicle or replace the vehicle.” The court further clarified, “Thus, it is not the right of the insured under the policy conditions to always claim replacement of the car. It is at the option of the insurer.” The court also noted, “Thus, in substance, a reasonable amount is made available to the insured to acquire a new car as the insured gets the IDV minus the cost of the wreck from the insurer, and under the BMW Secure, the insured gets the difference between the value of the new car of the same type and IDV.”

There were no dissenting opinions in this case.

Key Takeaways

• Insurance companies cannot reject genuine claims based on minor technicalities or discrepancies if the core facts of the incident are not disputed.
• The terms of an insurance policy must be interpreted strictly, and the insured cannot claim anything more than what is covered by the policy.
• The rule of contra proferentem does not apply to commercial contracts like insurance policies.
• In cases of total or constructive total loss, the insurer has the option to repair or replace the vehicle, but is liable to pay the IDV minus the value of the wreck.
• BMW Secure policy does not provide for automatic replacement of the vehicle but for payment of the difference between the IDV and the price of a new car of the same make.
• If a party possesses special knowledge of facts, they must bring it on record, and failure to do so may lead to adverse inferences.
• The Insurance Regulatory and Development Authority (IRDA) has emphasized that genuine claims should not be rejected on purely technical grounds.

Directions

The Supreme Court issued the following directions:

1. The operative part of the State Commission’s order to replace the car was set aside.
2. The owner was permitted to withdraw Rs. 22,09,000 deposited by the insurer, along with accrued interest.
3. The insurer was directed to pay an additional sum of Rs. 3,74,012 with simple interest at 6% per annum from the date of filing the complaint until payment.
4. The owner was permitted to withdraw Rs. 7 lakhs deposited by BMW, along with accrued interest.
5. BMW was directed to pay simple interest at 6% per annum on Rs. 7 lakhs from the date of filing the complaint until 11th March 2015.
6. The order of costs made by the State Commission was maintained.
7. There was no order as to costs in the appeals.

Development of Law

The ratio decidendi of this case is that insurance companies cannot reject genuine claims based on minor technicalities or discrepancies if the core facts of the incident are not disputed. This ruling reinforces the principle that insurance contracts must be interpreted strictly but also fairly, ensuring that policyholders are not denied legitimate claims on flimsy grounds. There is no change in the previous positions of law but an affirmation of the principles of fairness and reasonableness in insurance claim settlements.

Conclusion

The Supreme Court’s judgment in the case of Bajaj Allianz General Insurance Co. Ltd. vs. Mukul Aggarwal & Ors. clarifies the extent of liability of insurance companies in cases of car accidents. The court held that while insurance companies have the option to repair or replace a vehicle, they are liable to pay the Insured Declared Value (IDV) minus the value of the wreck in cases of total or constructive total loss. The court also clarified that the BMW Secure policy does not provide for automatic replacement of the vehicle but for payment of the difference between the IDV and the price of a new car of the same make. The judgment emphasizes that insurance companies cannot reject genuine claims on technical grounds and must act fairly and reasonably in settling claims.