Supreme Court Refuses Claim For Replacement

Came across this Supreme Court Judgement from couple of days back and thought it would be relevant. If there is already a thread on it, kindly merge the forums.

https://www.livelaw.in/supreme-court...e-court-242733

The gist of the judgement is that the insured cannot ask for a replacement vehicle as a matter of right Some quotes from the judgement:

"According to the facts of the case, the owner of a BMW car met with an accident at Gurgaon due to which the car was damaged beyond repair. He had taken two protections: one was a motor insurance policy of Bajaj General Insurance Company Ltd. (the insurer), and the other was the BMW Secure Advance Policy (the BMW Secure).

The case of the owner was that on a conjoint reading of the two policies, if the car suffers damage of more than 75% of Insured Declared Value (IDV), a new car must be provided to the insured. The owner approached the State Consumer Disputes Redressal Commission, Delhi which directed the insurer and BMW to indemnify the owner for a total loss of the BMW 3 Series 320D car by replacing the car with a new car of the same make/model. The insurer and BMW then approached the NCDRC which dismissed their appeals. Subsequently, they approached the Apex Court."

Here is what the Hon'ble Supreme Court said:

"Interpreting clause (3), of the insurance policy of the insurer, the court held that an option is available to the insurer to repair the vehicle or replace the vehicle. “In case of total loss/constructive total loss, instead of paying the amount as aforesaid, the insurer has an option available to replace the vehicle with a new one. 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 concluded, interpreting the policy."

"As per clause (3) of the Motor Insurance Policy, the constructive total cost of the vehicle, the liability of the insurer would not exceed the IDV of the vehicle minus the value of the wreck the court highlighted. Accordingly the amount payable by the insurer was quantified at Rs.25,83,012.45 by the Court.

The Court also held that since it was not pleaded by BMW that the vehicle of the same make was not available or, if it was available, what was the cost of the vehicle on that day, a reasonable amount will have to be granted on account of the difference in the value of the vehicle involved in the accident and the value of a new car of the same make. The Court accordingly directed the insurer to pay a difference of Rs.3,74,012/* to the owner."

This is one of the very dew consumer dispute cases that go to the Supreme Court and are overturned in favour of the Car manufactures. The District and National Consumer Forum had ordered BMW to replace the car. However, BMW challenged the said order in the Supreme Court and order was partially allowed, and the BMW was asked to pay only IDW and a reasonable cost which as you can see was negligent compared to what a new car would cost.

Personally, while the Supreme Court's reasoning looks fine and balanced, I respectfully cannot agree with the method of Interpretation of a Contract. This Contract cannot or should not have been strictly interpreted. Insurance Contract is a standard form contract, that does not give the purchaser any option but to accept the contract on "as-is" basis and there is no room for purchaser to negotiate the terms of the contract. Here is how Hon'ble Supreme Court interpreted it:

"Referring to the recent ruling in National Insurance Company Ltd. v. Chief Electoral Officer, the Apex Court said that the rule of contra proferentem would not be applicable to a commercial contract like a contract of insurance. This rule says that if any clause in the contract is ambiguous, it must be interpreted against the party that introduced it. However, for a contract of insurance, this would not apply since an insurance contract is bilateral and mutually agreed upon, like any other commercial contract, a bench of Justice Abhay S Oka and Justice Rajesh Bindal observed."

The above is something that I differ on, as ground realities indicate that while the Insurance Contract is bi-lateral, it cannot be said to be "mutually agreed upon" as the terms and conditions of the contract are imposed on the buyers and he has no say in changing them.

This judgement is expected to embolden the Insurance companies in future, as now State and District Consumer Forums will use this order as a precedent and the compensation will be limited to IDV of the car.

Isn't this the main intention of IDV? In case of total loss the insurance company is liable to pay only the IDV value and not a new car. We have RTI incase customer is looking forward to cover the value of entire car including road tax(again may not be applicable to an old car). Again I agree most of the times we are at mercy of provider but in today's age we have much more flexibility interms of providers, coverage, premium etc.

The IDV is quite logical for both the unsured and the insurer. The logic works like this that when an old car is for a certain IDV, the ex-showroom price of a brand new car could be much higher, sometimes 1.5 times to 2 or more times the IDV of the old car. Hence if a particular BMW has an IDV of Rs 30 L while a brand new BMW same model could cost Rs 60 L. So if the car with the Rs 30 L is a total loss, a replacement costing Rs 60 L is unfair and defeats the principles of natural justice. In case the IDV for a brand new car that's a total loss is nearer its present cost price, replacement is the only answer.

I think the insured would have moved the District Consumer Forum before moving to the State Commission. Or is it the value of compensation claimed that prompted the insured to directly move to the State Forum.

I am not at all speaking for the insurer as quite a few of them trouble the insured no end, with red tape creating hurdles for just and equitable claims.

But courts till this day ask OE's to replace their brand new car with a new one, in case of grave manufacturing defects during warranty periods. This is very much justified for brand new cars that are lemons and bring tears to the owners.

Most of the insurance companies DO NOT honour the clauses of RTI incase of a Total loss; primarily the PSU companies. Even though the clause covers the Road tax & registration and sometimes also the OD premium; the same is not being paid when claimed stating some underlying or 'hidden' terms and conditions. Moreover, there's no point in fighting it out with these companies either, as mostly it's loss of your time and energy as the response from these companies is absolutely lacklustre and definitely not full-proof.

I think apart from Iffko-tokio and Bajaj Alliance, I haven't heard of any other insurer paying to the full terms covered under the RTI. For sure, there's no PSU insurance companies in this.

Sadly, I've experienced this first hand.

Yes, from the judgement it seems if the Insured moved to District Forum and State Forum first, where he was given an order in his favor of vehicle replacement. Subsequently BMW challenged this order in Supreme Court, who decided that IDV plus some compensation was just in this case.

That's a problem with most of the claims with insurance(Car, health, travel etc.). Surveyor/ providers aim is to find a flaw to reject the claim or in worst case limit the payout. However in above case, it appears RTI was not taken and the car is old. In that case isn't the insurer liable to pay only the IDV value at the max?

It seems this is more about BMW Secure Advance rather than Bajaj insurance. I have not come across any insurance company comes up with wordings like replacement car except in RTI add on cover as pointed out by many.

Is BMW Secure Advance an additional package offered by BMW on top of underlying Bajaj insurance as it seems it is BMW that went to SC and won rather than Bajaj insurance except that they have to just pay around 4L. Anyone has any details about it?

Agreed. If the RTI is not taken (which generally isn’t for an old vehicle) , than the liability is only the IDV cover.

On a side note, there used to be a provision earlier wherein one could inflate the IDV or in other words take the max possible IDV than the standard. But recently I see that it isn’t entertained by thr insurers anymore.

AFAICT, the insurance companies exercise the option to replace the vehicle with a new one in two very unlikely scenarios.

1. In certain market circumstances, conserving cash right now is more profitable than paying the IDV
2. When the cost of the replacement is less than the IDV. This is highly unlikely
   

However, I agree with the OP. Insurance contracts place a lot of discretionary power in the hands of the insurance companies. In such cases, the companies must be held accountable for defending their actions.

In this case, the insurer doesn't seem to have provided a justification for not exercising the option to replace the vehicle. Hence, the Supereme court has provided additional compensation.

IMHO, this is an extremely thoughtful decision from the Supreme Court.