According to advocate Singh, The policyholder should be educated not to accept the discharge voucher in the first instance itself if he is not satisfied with the amount specified in it or which is being offered. At this instance only he should invoke the arbitration clause to which the company is bound to abide by and they have to agree for arbitration. Here are the excerpts from an interview…

ML: How effective is the insurance Ombudsman in settling claims?

SRS: The insurance Ombudsman is a very informal set-up to resolve disputes for matters below Rs20 lakh. It is a mechanism within the insurance sector itself. According to my experience, I think this is an efficient route for resolving disputes. On an average, matters in the Ombudsman are settled in six months.

ML: Where does the surveyor’s role come into play? Who appoints him and how does he function?

SRS: According to section 64UM of the Insurance Act, 1938, the insurance company has to appoint a surveyor when the claim amount is Rs20,000 and above. This means claims beyond Rs20,000 cannot be settled by the company internally. Relevant IRDA regulations regular the functioning and conduct of the surveyors. The surveyor’s job is to assess the quantum that is claimed for. After assessing the amount he makes the survey-report making suggestions if required as to payability and the amount that should be actually paid taking into consideration the relevant deductions.
Broadly speaking, there are three types of deductions—salvage, depreciation and excess provided under the policy. The deductions are made because as an 'indemnity' implies that one cannot make profit out of the insurance policy.

ML: What if the claimant is not satisfied with the assessed amount? How would this dispute be resolved? To whom should the policy holder go to resolve this quantum dispute?

SRS: Often there are disputes in this regard. The insurance policies always contain an arbitration clause which has two things clearly spelt out,
a) There is no arbitration if the question is of liability.
b) It is only the quantum aspect of the claim that is arbitrable .
 
If the claimant is not happy with the surveyor’s assessment or the amount offered as full and final settlement, he can invoke the arbitration clause on the dispute regarding quantum and not liability. Though this arbitration clause is available in most of the policies, it is usually not given in medical insurances and motor vehicle claims or in any personal line insurance.

ML: The arbitration should be binding on both the parties. However despite insurance being a contract, there are several instances where the insurers are reluctant to go for arbitration. Why this is so?

SRS: The insurance companies resist arbitration due to the discharge vouchers. The practice has been that the company gives discharge voucher, which clearly mentions that acceptance of the voucher, would be full and final settlement of the claim. If the policyholder accepts the voucher, it becomes a binding agreement under the Contract Act. Therefore, after executing the discharge voucher the policyholder cannot claim for rest of the amount later evidences full and final settlement via-vis discharges any further liability of insurance company. 

So, on this ground the companies resist arbitration. In such cases, the recourse left for the policyholder is to file a petition in the high court under section 11(6) of The Arbitration and Conciliation Act, 1996 to seek for appointment appointment of an Arbitral Tribunal.
 
It is to be noted in a case before the Supreme Court, (National Insurance Company Ltd Vs Bogara (1) SCC 267) Justice RV Raveendran said that such practice of seeking advance discharge voucher and then paying the amount is 'coercive bargaining' or 'undue influence'. Thus many claimants today have filed petitions taking shelter of the aforesaid case-law saying that the discharge voucher was accepted under duress and/or undue influence hence there is no final settlement and the arbitration clause is still open.
 
Later in 2011, the Supreme Court in a case of Union of India & Ors Vs Master Construction Co 2011 STPL (WEB) 422 SC said that if the voucher is executed and amount accepted then it cannot be further disputed. So there is a mixed view given by the Supreme Court from both the ends.

ML: What the policyholder should do in order to avoid all this litigation?

SRS: The policyholder should be educated not to accept the discharge voucher in the first instance itself if he is not satisfied with the amount specified in it or which is being offered. At this instance he should invoke the arbitration clause to which the company is bound to abide by and they have to agree for arbitration.

ML: Given the fact that roughly 5% to 6% of population in India is insured and yet we have so much litigation in the sector, do we need an appellate tribunal against the Ombudsman order?

SRS: Yes, there should be a two-tier mechanism. This is because, if one wants to appeal the verdict of the Ombudsman today, he has to go back to a civil court or the consumer fora for redressal. These courts/tribunals themselves are flooded with cases. Hence there is an urgent need for an appellate tribunal in the insurance sector. Also, the judgment of the tribunal should be binding on the company and there should be few grounds for appealing the order of the Ombudsman.

(Adv SR Singh is the proprietor of SR Singh & Co, a highly focused and specialized firm in insurance laws and claims. Adv Singh has been one of the prominent and distinguished insurance defense and recovery attorneys and lead counsel in India with over 29 years of experience. He was honorary professor for post graduate degree courses of law and insurance laws Mumbai University. He is also a visiting faculty at the business school of Mumbai Education Trust (MET). He has vast experience in alternate dispute resolution, conciliation and arbitration.)