Introduction:
Insurance is commonly defined as [1]coverage by contract whereby one party undertakes to indemnify or guarantee another against loss by a specified contingency or peril. Insurance has rapidly developed into vast realm in banking and financial sector. Going forward, the Indian insurance industry is expected to continue growing at a strong clip, reaching a market size of Rs 19,56,920 crore ($280 billion) by FY 2020. The insurance industry is critical to the economic development and growth of a country. It boosts risk-taking while at the same time securing growth[2].
History:
In India, Insurance sector had its humble roots since the year of 1818[3], when Oriental Life Insurance Company was started by [4]Anita Bhavsar in Calcutta, to serve the European community. Indian insurance sector heavily borrowed concepts from its western counterparts, especially from England, due to its colonial influence. After many players including both Indian and foreign players entered the field, the British government passed a statute called as “The Indian Life Assurance Companies Act of 1912”. This act did its job of regulating insurance service providers till 1938. In 1938, the Indian insurance sector boosted with the influence of the new law of “The Insurance Act of 1938”. This act has been viewed as the major statute governing this field and has been amended recently in 2015. In Indian constitution, the matter of insurance sector is included under [5]entry 43 of schedule 7 under union list, thus bringing it under the power of Union. After independence from the British power, there were numerous native and foreign players in insurance field and the government cannot control their unfair practices. So, to curb their such activities, the legislature passed an ordinance on 19th January 1956 to nationalize the business of insurance. The ordinance nationalized 245 existing companies in the insurance sector and transferred their ownership to the newly created Life Insurance Corporation of India. This institution was created by the Parliament by passing the LIC act of 1956 on 19th June 1956. LIC remained the monopoly of the insurance sector in India, till the industry was again opened for private corporations. In 1993, the Government set up the Malhotra committee to submit a report on how to reform the Indian insurance sector. This committee recommended opening the field to new foreign private companies, partnering with Indian companies. Therefore, to regulate them, the Insurance Regulatory Development Authority (IRDA) was formed by the IRDA act of 1999. Since then, it has been working towards the regulation and reformation of the Indian insurance sector. India is the [6]fifth largest insurance market by premium in Asia. In India, the insurance laws follow the footsteps of the common law of England, but also originate new principles suited to this nation, by virtue if its judgments and amendments.
Insurable Risk:
To enter into an insurance contract, there should be an insurable risk in the subject matter. The insured interest should have some legal relationship with the insured person, ad the loss of insured interest should cause a pecuniary risk to the person[7]. The court has also held that the insured need not have a strict title and interest in the object[8]. The Indian Courts have also declared that these legal principles in recovering compensation for the incurred loss cannot be employed as a tool to help persons indulged in criminal activities to reimburse their loss[9].
Insurance Litigation:
The major reason for tussles between insured persons and insurers is the non-disclosure of certain details that will help the insurers to understand the customers better. The court has made it mandatory to disclose the necessary details[10]. The court stated that the details can decide the acceptance of the insurer to enter into such contracts with the insured person[11]. If any such disputes arise between the insured and the insurer, the insured can approach the legal way, i.e., the courts, to solve issues. If the insurance paper has a specific clause mentioning arbitration to be the 1st way to resolve issues, it has to be followed. However, if there are no such explicit clauses, the aggrieved can move to commercial courts established by the Commercial Courts Act 2015[12]. If the insurance policy of question qualifies to be under customer service, then it can be resolved by reaching out to the consumer courts. Nowadays, the amendment in the Commercial Court’s Act has made mediation compulsory before bringing the issue to the court.
Doctrine of Subrogation:
The principle of subrogation has been defined by Black’s law dictionary as “The principle under which an insurer that has paid a loss under an insurance policy is entitled to all the rights and remedies belonging to the insured against a third party with respect to any loss covered by the policy.” To make it simple, by this principle, the insurer has all rights to pursue the recovery of the insured’s lost property after the insured person has been indemnified with necessary promised money/ article. By this principle, the insurer steps into the position of the [13]policy holder and commences the process to recover the lost article of the policy holder.
Statutory Reference:
The doctrine of subrogation has been mentioned in [14]section 79 of the Marine Insurance Act of 1963. By the principle of subrogation, the insurer can recover the losses suffered by the insured person by the third party, as the insured had made good by compensation. This principle of subrogation has been dealt with by the Supreme Court in 2010 in the case of Economic Transport Organization v. Charan Spinning Mills (P) Ltd. In this case, the court held that [15]subrogation is an inherent part of the indemnity contract which gets life as soon as the insured person is indemnified of losses by the insurer. The court also classified subrogation into three types as
- subrogation by equitable assignment
- subrogation by contract and
- subrogation-cum- assignment.
Thus, coming back to the question of what happens when the stolen property is recovered after payment of claim, the answer is the insured person cannot claim the property. This is because the principle of Subrogation finds its application and thus making the insurer or insurance company the real owner to the property recovered after the claimed money has been paid. The owners of the property, by the principle of Subrogation, transfer their title of the property to the insurer, after indemnification of losses. So, if a car is stolen and the insurer pays the claimed amount, the title of the car goes to the insurance company. After some time, if the car is recovered by chance, then the insurance company is the real owner. It is to be noted that if a car gets stolen, the owner has to submit [16]both the keys of the car, along with necessary documents to the insurance company, to eliminate the chance of fraudulent activity by the owner. However, if the stolen insured article is jewellery or an expensive painting, the owners could not bear to have the money after the article is recovered. This is mostly due to the sentimental bonding of owners to the article. In that case, the owners can return the money provided by the insurance company to themselves and can get the article from their custody, since they are the true owners of the title by subrogation. If the insured person, after getting indemnified by the insurer, gets possession of the stolen article, he/she must return the article to the insurance company, as the title has transferred by virtue of subrogation and therefore leads the person to illegal possession of such article.
References:
[1]2020. https://www.merriam-webster.com/dictionary/insurance. [online] Available at: <https://www.merriam-webster.com/dictionary/insurance> [Accessed 31 May 2020].
[2]https://www.outlookindia.com/outlookmoney/insurance/outlook-for-insurance-sector-in-2020-4125.
[3]https://www.irdai.gov.in/ADMINCMS/cms/NormalData_Layout.aspx?page=PageNo4&mid=2.
[4]https://web.archive.org/web/20130917080852/http://www.orientalinsurance.org.in/about-oriental-insurance.jsp.
[5]INDIA CONST. Sch.7, ent.43.
[6]https://shodhganga.inflibnet.ac.in/bitstream/10603/31158/7/07_chapter%201.pdf.
[7]New India Assurance Co Ltd v. GN Sainani (1997) 6 SCC 383.
[8]New India Assurance Company Ltd v. TT Finance Ltd and Ors.(2013) ACJ 997.
[9]Srinivasan M N, Principles of Insurance Law, 9th ed.
[10]Reliance Life Insurance v. RekhabenNareshbhai Rathod(2019) 6 SCC 175.
[11]Satwant Kaur Sandhu v. New India Assurance Company(2009) 8 SCC 316.
[12]THE Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015, No. 4 of 2016 (India).
[13]“policy-holder” includes a person to whom the whole of the interest of the policy-holder in the policy is assigned once and for all, but does not include an assignee thereof whose interest in the policy is defeasible or is for the time being subject to any condition, The Insurance act of 1938 (India).
[14]Where the insurer pays for a total loss, either of the whole, or in the case of goods of any apportionable part, of the subject-matter insured, the thereupon becomes entitled to take over the interest of the assured in whatever may remain of the subject-matter so paid for, and he is thereby subrogated to all the rights and remedies of the assured in and in respect of that subject-matter as from the time of the casualty causing the loss. The Marine Insurance act of 1963, sec. 79 (India).
[15]Economic Transport Organization v. Charan Spinning Mills (P) Ltd, (2010) 4 SCC 114.
[16]https://economictimes.indiatimes.com/wealth/insure/motor-insurance/insurance-company-can-reject-claim-for-stolen-car-if-you-dont-have-all-keys/articleshow/72002929.cms.
This article is authored by A.S. Aravind, Second-Year, B.A.LL.B(Hons.), student at Tamil Nadu National Law University.
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