Commercial Enterprise Is Also a Consumer for Insurance Claims, Rules SC
Moneylife Digital Team 18 April 2023
In a significant ruling, the Supreme Court (SC) says an insurance policy bought by a commercial enterprise cannot be said to have a close nexus to profit-generating activity. The dominant intention of the insurance transaction is not to facilitate some kind of profit generation for the insured. Thus, the commercial enterprise is a consumer under the Consumer Protection Act. The apex court then dismissed an appeal filed by National Insurance Co Ltd.
In an order issued last week, the bench of justice Ajay Rastogi and justice CT Ravikumar says, "...we are of the view that the complaint filed by the respondent insured herein has no close or direct nexus with the profit-generating activity and the claim of insurance is to indemnify the loss which the respondent insured had suffered and the national consumer disputes redressal commission (NCDRC) has rightly held that the respondent is a 'consumer' under Section 2(1) (d) of the consumer protection act (the Act)."
"We further reiterate that ordinarily, the nature of the insurance contract is always to indemnify the losses. Insurance contracts are contracts of indemnity whereby one undertakes to indemnify another against loss or damage or liability arising from an unknown or contingent event and is applicable only to some contingency or act likely to come in future," the bench says.
National Insurance has challenged an order passed by NCDRC on 3 December 2004 in the case of Harsolia Motors. While reversing the finding of the Gujarat state consumer disputes redressal commission (state commission) regarding the maintainability of the complaint, the NCDRC held that a person who takes an insurance policy to cover the envisaged risk does not take the policy for a commercial purpose. "...a person who takes an insurance policy to cover the envisaged risk does not take the policy for commercial purpose. Policy is only for indemnification and actual loss. It is not intended to generate profit," the bench of justice MB Shah and Rajyalakshmi Rao says.  
NCDRC held that the insured was a consumer as defined under Section 2(1)(d) of the Act, and the complaint filed at his instance was maintainable and to be examined by the state commission on merits.
Harsolia Motors, a dealer for Tata vehicles, bought a fire insurance policy from National Insurance for a cover of Rs75.38 lakh. However, during the Godhra riots, the office, showroom, garage, and machinery lying in the showroom premises of Harsolia Motors were destroyed by a fire set up by rioters on 28 February 2002. When it filed a claim with the insurer, it was rejected. 
Harsolia Motors filed an appeal before the state commission. The state commission held that Harsolia Motors is not covered under the expression 'consumer' as defined under Section 2(1)(d) of the Act. It held that Harsolia Motors, a company running a business from the premises to earn profits, falls under the term 'for commercial purpose', and the complaint is not maintainable under the provisions of the Act.
Harsolia Motors then approached NCDRC. After revisiting the provisions of the Act, the definition of the terms 'consumer' and 'service' as defined under Section 2(1)(d) and 2(1)(o) of the Act, respectively, NCDRC recorded a finding that the expression used 'for any commercial purpose' would mean that the goods purchased or services hired should be used in any activity directly intended to generate profit and profit is the main aim of commercial purpose. But in a case where goods purchased or services hired in an activity not intended to generate profit, it would not be a commercial purpose. It held that a person who takes the insurance policy to cover the envisaged risk for indemnification of the actual loss suffered is not ordinarily intended to generate profits. 
After hearing both sides, the apex court deliberated upon the definitions of a consumer, a person and a service, as stated in the Act. "It may be noticed that Section 2(1)(m) defines 'person' and includes a firm, whether registered or not, apart from other categories without any distinction, big or small. So, as 'services' defined under Section 2(1)(o) includes banking, insurance and, if there is a deficiency in service in the matter of banking or insurance, subject to the fact that he is a consumer under Section 2(1)(d), the remedy is always available to such a consumer to invoke the jurisdiction of the Act."
"The fact that the insured is a commercial enterprise is unrelated to the determination of whether the insurance policy shall be counted as a commercial purpose within the purview of Section 2(1)(d) of the Act," the bench says.
In the present case, the SC says, "What needs to be determined is whether the insurance service had a close and direct nexus with the profit-generating activity and whether the dominant intention or dominant purpose of the transaction was to facilitate some kind of profit generation for the insured or to the beneficiary and our answer is in the negative."
The apex court asked the state commission to adjudicate the complaint on its own merits in accordance with the law. Since it is an old matter, the SC says the state commission should decide the case expeditiously, but in no later than one year.
The SC also heard three appeals and one special leave petition (SLP) on the same subject matter. While dismissing the appeals, the apex court directed the respective state commissions to adjudicate the matters on its own merits per law.  
The appeals were filed by United India Insurance Co Ltd, National Insurance and The Bank of New York Mellon (formerly The Bank of New York). The SLP was filed by IFFCO Tokio General Insurance Co Ltd.
(Civil Appeal Nos5352-­5353 of 2007  Date: 13 April 2023)
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