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Insurance Company Must Pay Full Insured Amount, Relief from Government Irrelevant: J&K High Court

Submitted by admin on October 17th, 2024

The Jammu and Kashmir and Ladakh High Court has held that an insurance company cannot deprived a claimant of his full amount merely on the grounds that the claimant has received ex gratia relief from the government.
Disposing of Civil 1st Miscellaneous Appeal by Insurance company against an award a bench of Chief Justice Tashi Rabstan and Justice M A Chowdhary observed that
“the Insurance Company is liable to pay the claim against the sum insured. It is not the business of the Insurance Company to see whether the person suffering damages has been paid some sort of relief from other sources or not”.
It flows from the heavy damage that a Wine Shop suffered when the violence broke out in Kishtwar in the month of August 2013. The shop had an insurance cover with Oriental Insurance Company for ₹22 lakhs. After final valuation, the surveyor appointed worked out the total loss at ₹29,24,212.96. Nonetheless, the insurance company approved only ₹15,61,153 after knocking off ₹3.50 lakhs which had already been credited to the shop as ex gratia relief through the government.

Unsatied with the said judgment, the shop owner approached the J&K State Consumer Disputes Redressal Commission which passed an order of ₹19,11,153.66 along with 10% interest from the date of claim. An appeal was filed against the above judgment before the High Court in this Civil 1st Miscellaneous Appeal.

Assailing the award the Insurance Company would argue that since the shop owner was already paid ₹3.50 lakhs as relief by the government, this must be adjusted against the claim. The company would also say that it had acted in good faith and calculated the loss based on the insured sum and aid received from an extraneous source.

Observing in detail about the roles of insurance companies and the impact of ex gratia payment, the court noted that there was no dispute to the fact that the shop of respondent had been severely damaged. What had been assessed by the surveyor in a sum much way above ₹ 22 lakhs, on account of which insured amount, the resultant net loss of ₹ 19,11,153.66 was liable to be totally reimbursed, irrespective of the amount of relief it had received, held the court.
Referencing the Supreme Court judgments and the high court decisions, the bench clarified that ex gratia payments from the government are acts of grace which had no legal implication on the liability of an insurance company.
“The state, in fact, takes away the very distinction between damages and compensation as it demonstrates conflicting behaviour. It exercises its discretionary powers while distributing ex gratia payments but not when it comes to granting relief under the special laws,” added the bench.

“The Insurance Company is bound to pay the claim against the sum insured. It is not the business of the Insurance Company to see whether the person suffering damages has been paid some sort of relief from other source or not.”

In addition Tlthe court relied on the case of Sudesh Dogra vs. Union of India (2014) and judgments of the Srinagar Wing of the High Court. National Insurance Co. Ltd. vs. Kh. Gh. Mohd. Shah (1979) and United India Insurance vs. Gh. Mohd. Mir (1998), wherein it is held that earlier decisions of the Government which had considered ex gratia relief to be not deductible from an insurance pay, based on the grounds that those were acts of goodwill where no legal liability was created with respect to a reduction in the liability of insurer.

The appeal filed by Oriental Insurance Company was dismissed, and the award of along with interest and litigation costs, as previously ordered by the Consumer Disputes Redressal Commission, was upheld upon these findings.