Supreme Court: Insurance Companies are Obligated to Prioritise Fairness over Profit

Supreme Court: Insurance Companies are Obligated to Prioritise Fairness over Profit

The Supreme Court has stated that an insurance company is obligated to interact with the insured sincerely and equitably, rather than solely prioritising its own financial gains.

The obligation of good faith applies to both parties equally, as affirmed by Justices AS Bopanna and Sanjay Kumar, who noted that the insurance company holds the responsibility to reveal all pertinent information within their awareness.

In this instance, the plaintiff, who had engaged in prawn cultivation spanning 100 acres, secured insurance coverage from an Insurance Company. A significant outbreak of the bacterial ailment 'White Spot Disease' occurred along the eastern coast of Andhra Pradesh, resulting in extensive prawn mortality. The plaintiff triggered the policy, yet the Insurance company entirely rejected the appellant's claim, arguing that the complainant had violated policy terms due to inadequate and inaccurate record-keeping. The National Consumer Disputes Redressal Commission (NCDRC), in addressing the complaint, evaluated the overall loss at ₹30,69,486.80. Unsatisfied with this verdict, the complainant appealed to the Supreme Court.

The Court highlighted the fundamental principle that utmost good faith, referred to as "uberrima fides”, is a fundamental prerequisite in an insurance contract.

The Supreme Court Bench underlined the foundational tenet of insurance law, emphasizing the imperative of utmost good faith in the contractual relationship between parties. The principle of good faith mandates that neither party can withhold facts within their awareness. Both the insured and the insurance company bear the responsibility to divulge all pertinent information, as the principle of good faith extends uniformly to both sides.

“This obligation and duty would rest on both parties not only at the inception of the contract of insurance but throughout its existence and even thereafter," the Court said.

The Bench highlighted that the insurance company summarily disregarded the Death Certificate dated May 1, 1995, provided by the officials of the State Fisheries Department in Visakhapatnam.

The Top Court held the perspective that the insurance company's dismissal of the Death Certificate dated May 1, 1995, solely based on its disagreement with the contents, was not a valid rationale for disregarding it entirely. Particularly noteworthy was the fact that such certification originated from impartial and reputable entities, which likely accounted for the insurance company's substantial emphasis on it within its guidelines.

“In any event, it is not open to an insurance company to ignore or fail to act upon a certificate or document that it had itself called for from independent and impartial authorities, subject to just exceptions, merely because it is averse to it or to its detriment. Having undertaken to indemnify an insured against possible loss in specified situations, an insurance company is expected to make good on its promise in a bonafide and fair manner and not just care for and cater to its own profits," the Court said.

Granting the appeal, the Court directed the insurance company to transfer an amount of ₹45,18,263.20 to the appellant, along with straightforward interest at a rate of 10 per cent from the date of the complaint until the date of actual payment, within six weeks.