Insurers can’t repudiate contract if exclusion clauses are not disclosed to insured as per IRDA regulations: Supreme Court.

The Supreme Court, on Wednesday, cautioned all insurance companies that if they do not mandatorily comply with Clause (3) and (4) of the Regulatory and Development Authority ( Protection of Policy Holder’s Interests, Regulations 2002) Act (IRDA Regulation 2002) then their right to repudiate insurance contract taking recourse to any terms and conditions, including the exclusion clauses, would be taken away. “……we would like to extend a word of caution to all the insurance companies on the mandatory compliance of Clause (3) and (4) of the IRDA Regulation, 2002. Any non-compliance on the part of the insurance companies would take away their right to plead repudiation of contract by placing reliance upon any of the terms and conditions included there under.”

These clauses of the IRDA Regulations mandate that the insurer should disclose all material information to the insured, including the exclusion clauses.

“ Any non-compliance (with IRDA Regulations), obviously would lead to the irresistible conclusion that the offending clause, cannot be pressed into service by the insurer against the insured as he may not be in knowledge of the same”, the Court observed.

Conclusion

The court inferred that once it is proved that there was a deficiency in service and insurer knowingly entered into a contract, it would be a conscious waiver of the exclusion clause. It was noted that though the NCDRC has indeed approved the findings of the State Commission, it has decided to set aside the order of the State Commission. Non-compliance with provisions of the IRDA Regulations, 2002; unilateral inclusion of the exclusion clause; execution of the contract; receiving premiums; repudiation even after having the knowledge that the contract for insurance was entered into for a basement shop amounts to unfair trade practice. Moreover, the exclusion clause is unfair as it goes against the very object of the contract, making it otherwise un-executable from its inception. However, the court held that the 2.5 lakh compensation granted by the State Commission was not justified.

So, while partly allowing the appeal, the Court however sustained the NCDRC order to the extent it aside the direction to pay Rs. 2.5 lakh compensation to the insured.

Case Title: M/s. Texco Marketing Pvt. V. TATA AIG General Insurance Company Ltd. And Ors. CA No. 8249 of 2022.