Imagine a scenario where you have been paying mediclaim premium year after year without any break in the continuity of the cover, and also without ever making a claim. You are reminded at the time of each renewal that, in the event you incur medical expenses arising from a disease, the insurance company will honour its commitment to pay the medical expenses as covered under the policy. However, last year, a family member of yours unexpectedly needed hospitalisation, and you approached the insurance company through your agent to submit the claim. The insurance company denies the claim, leaving you in a state of mental distress and disbelief and of course, in great financial misery. Are you aware that a concept called estoppel can sometimes come to your rescue?
Estoppel is a legal principle that protects the interests of policyholders, preventing insurance companies from reneging on their promises.
1. The Fundamentals of Estoppel
It is worth noting that estoppel is a powerful legal principle that allows policyholders to prevent insurers from denying claims under certain conditions. The right an insured gets when an insurer or its agents makes a representation or promise to the insured, and the insured relies on that representation or promise to their detriment. In such cases, the insurer may be estopped from denying the claim, even if the terms of the insurance policy do not explicitly state that the loss is covered. For example, if an insurance agent verbally assures a policyholder (medical insurance) that all types of advanced surgeries are covered under their policy, and the policyholder reasonably relies on that assurance. The insured later opted for a robotic surgery. However, robotic surgery was not covered under the policy, and the insurer later denied the claim based on this policy exclusion. The insured or policyholder can invoke estoppel to prevent the denial of the claim based on the assurance given by the agent. Estoppel works on the principle of reasonable and legitimate expectation. Suppose a statement or action of an insurer or its agent leads an insured to believe and rely upon it; there can be no going back from that statement or action, as it has given rise to a legitimate expectation in the insured.
To the contrary, contractual obligations encompass the terms and conditions agreed upon by both the insurance company and the policyholder at the time of policy issuance. The agreed-upon terms and conditions determine the rights and responsibilities of each party, as well as the scope of coverage of the given policy. As explained above, an insured can exercise the option of estoppel, which arises from promises made outside the bounds of the written policy. Contractual obligations occur exclusively on the terms of the insurance contract. Therefore, if a policyholder’s claim falls outside the coverage outlined in the policy, the insurer is generally not estopped from denying the claim solely based on contractual obligations.
Estoppel and waiver, often used as synonyms and sometimes used interchangeably, however, convey different meanings.
Estoppel is not a cause of action; on the other hand, it helps a complainant enforce a cause of action by thwarting the defendant from refuting the existence of a fact essential to establish the cause of action. It is a rule of evidence which comes into operation if (a)the insurance company has made a statement of the existence of a fact to the insured( complainant) (b) there is the existence of detrimental reliance, where a policyholder must have honestly trusted the insurer’s words or actions to their detriment (c) there is an indication of detrimental reliance. To successfully invoke estoppel, a policyholder must demonstrate that they have suffered a financial or legal detriment as a result of relying on the insurer’s representations. The insured must have acted in reliance on the reliability of the statement.
To the contrary, a waiver is a contractual provision and constitutes a cause of action by not asserting a right. Thus, if the insurer agrees to waive its right, then it is bound by the contract, not by estoppel.
Waiver
A party to an insurance policy waives a right under the policy if
(1) that party, with actual or constructive knowledge of the facts that give him the right, deliberately withdraws the right, and with his acts makes the opposite party believe that he has withdrawn the right.
(2) It has also to be ensured that the withdrawal of the right has been made known to the other party.
Waiver and Estoppel Contrasted
Both waiver and estoppel raise significant practical concerns. Both principles lessen insurers’ ability to maintain control over the risks they assume. Estoppel requires insureds to prove that such harm in fact occurred, in the form of a showing of detrimental reliance. The waiver doctrine does not require such proof. The detrimental reliance requirement of the estoppel doctrine serves two purposes. First, it restricts insurers’ involuntary assumption of risk in cases where the insured can prove that the countervailing concern—harm to the insured—actually occurred. Second, it serves an evidentiary role. The fact of detrimental reliance makes the insured’s assertion that the agent made the promise more credible, which the insured seeks to enforce.
In insurance, we deal with both types of estoppel: equitable estoppel and promissory estoppel.
Equitable estoppel focuses on actions or inactions that prompt the policyholder to reasonably rely on their insurance coverage. It would be inequitable for the insurer to backtrack on its commitments, as conveyed through its actions or inactions. An example could be when an insurance company chooses to ignore mild diabetes that the proposer disclosed in the proposal form and issues the policy despite the proposer’s assertion. A claim is reported where diabetes is a concern. The insurer repudiates the claim, citing a pre-existing disease. Here, equitable estoppel should be invoked by the insured to negate the wrongful repudiation of the insurance claim.
Promissory estoppel relates to a specific promise made by the insurer. If the insurer makes an unambiguous promise and the policyholder relies on that promise to their detriment, the insured can estop the insurer from breaking that promise. For example, if an insurer, upon being explicitly questioned by the insured about the coverage of Dilation and Curettage (D&C), confirms its coverage, the same is an example of promissory estoppel. If the insurer denies a claim arising from the use of the D&C procedure, it can be estopped from denying the claim in question by the insured.
A promissory estoppel is a scenario where an insured has breached a warranty and cannot enforce the contract unless he proves that the insurer, either by his words or conduct, didn’t rely on the breach of warranty to disown liability (or deny a claim) under the policy. It must also be proved that the insured relied on the insurer’s assertion to that effect. It is, therefore, unjust or inequitable for the insurer to go back on the promise (s) made. An example of estoppel could be a scenario where an insurer, despite being aware of the breach, issues or renews a policy. While taking out a health insurance policy, the proposer, when asked, mentioned that his blood pressure occasionally fluctuates. He doesn’t take medication, and his blood pressure level remains relatively stable, albeit with occasional fluctuations. Despite this disclosure, the insurer issues a policy.
Let us delve into a recent case to gain a deeper understanding of the concept.
In the Civil Appeal Nos 1217-1218 OF 2017 M/s. Sonell Clocks and Gifts Ltd. ….Appellant(s) :Versus: The New India Assurance Co. Ltd. ….Respondent(s)
M/s. Sonnel Clocks and Gifts Ltd. had taken a Fire Insurance Policy from New India Assurance Co. Ltd. for a period of one year, from July 19, 2004 to July 18, 2005, for its building, plant, and machinery at Plot70/ Textile Compound, Dan Udyog Sangh Ltd., Piparia, Silvassa, Dadra Nagar, Haveli, for a sum assured of Rs.2,87,00,000/- (Two Crore Eighty Seven lakh only) on reinstatement value basis. On August 4, 2004, torrential rains and floods ravaged the entire area, causing water to surge into the factory premises, damaging both the machinery and the raw materials stored therein. The loss was not reported to the insurance company immediately. In fact, the loss was informed after a gap of 3 months and 25 days, on November 30, 2004.
New India Assurance Co. Ltd., having received the intimation through the bank, appointed M/S. Saran Engineers & Consultants to survey and assess the loss caused by the flooding of the factory premises. The surveyor submitted its report, dated December 29, 2004, to New India Assurance Co. Ltd., stating that the claim was not payable due to the claimant’s failure to comply with General Condition No. 6 of the Standard Fire and Special Perils policy. Based on the above findings, the respondent( New India Assurance Co.Ltd) vide letter dated February 18, 2005 intimated the repudiation of the claim to the appellant (M/s. Sonnel Clocks and Gifts Ltd) on the ground that neither the intimation of the loss had been given to it immediately as stipulated in the policy issued to the appalent nor were the requisite particulars of the loss conveyed within stipulated period. Thus, there was a breach of the terms and conditions of Clause 6 of the general conditions of the fire policy issued.
Let us peruse Condition 6 of the fire policy, which states, ‘ On the happening of any loss or damage, the Insured shall forthwith give notice thereof to the Company and shall, within 15 days after the loss or damage, or such further time as the Company may in writing allow in that behalf, deliver to the Company.
1. A claim in writing for the loss or damage containing as particular an account as may be reasonably practicable of all the several articles or items or property damaged or destroyed, and of the amount of the loss or damage thereto respectively, having regard to their value at the time of the loss or damage, not including profit of any kind. b) Particulars of all other insurances, if any. c) The Insured shall also at all times at his own expense produce, procure and give to the Company all such further particulars, plans, specification books, vouchers, invoices, duplicates or copies thereof, documents. No claim under this policy shall be payable unless the terms of this condition have been complied with.
Point of Contention –
The insured contested that the repudiation of the claim on the grounds of delayed intimation, as well as non-intimation of the requisite particulars of the loss within the stipulated period, was incorrect, as the insurer is estopped from raising a plea of violation of the condition warranting a repudiation by appointing a surveyor. The above action was an indication of the insurer’s admissibility of liability.
Course of action by the appellant –
The appellant filed a complaint before the National Consumer Disputes Redressal Commission, New Delhi, vide Consumer Complaint No. 20 of 2006, and approached the Commission with the plea that the respondent (insurance company) was guilty of both deficiency in service and unfair trade practices. The appellant pleaded before the Commission to direct the respondent to pay a genuine claim of the appellant for the loss caused to it due to the floods to the tune of Rs.2,66,05,000/-(Two Crore Sixty Six Lakh Five Thousand Only) with interest at the rate of 21% per annum from the date of incident till realization of the same. The appellant also prayed for compensation for mental agony and costs, as well as incidental expenses, to the tune of Rs. 5,00,000/- (Five Lakh Only) and Rs. 1,00,000/- (One Lakh Only), respectively.
As stated above, the complaint was challenged by the insurer because there was a gross violation of the terms and conditions stipulated in the policy.
The complaint filed by the appellant came to be dismissed by the judgment of the National Commission vide order dated December 10, 2015, on the following terms:
There were three requirements that the complainant/insured had to fulfil as per the policy they had taken. The first requirement was to notify the insurer of the loss immediately, i.e., within 15 days of the loss occurring. The second obligation on the complainant was to submit a claim for the loss or damage, giving all necessary particulars of the loss, within 15 days or such other time as the insurer might allow. The third obligation of the insured was to notify the insurer, within six months of the date of the loss, that it intended to replace or reinstate the property that had been destroyed or damaged.( The third obligation follows from the Special Provison no -4 of Reinstatement Value Policy – which states that this Memorandum shall be without force or effect if ‘if the Insured fails to intimate to the Company within 6 months from the date of destruction or damage or such further time as the Company may in writing allow his intention to replace or reinstate the property destroyed or damaged’.
The complainant company (insured), as per the above order, breached Clause 6 of the insurance policy, i.e. the first two defaults referred to above. According to the third requirement, the complainant argued that the requirement to notify the insurer and submit a claim within 15 days of the loss is superseded by Clause 4, applicable to reinstatement value policies, which requires the necessary notification to be given within six months of the date of loss. The order maintained that there was no question of supersession of clause 6 of the policy (Standard Fire and Special Perils Policy) by clause 4(3), applicable to reinstatement value policies. The obligation of the insured under clause 4(3) applicable to reinstatement value policies was independent.
The above ruling of the Commission was challenged before the Supreme Court of India through Civil Appeal No.…….. (D.No.6048 of 2016). This Court, vide order dated 26th February, 2016, relegated the parties before the Commission by allowing the appellant(Insured) liberty to file a review petition before the Commission on the sole contention of waiver of the condition stipulated in Clause No. 6 by the insurer. Accordingly, the appellant filed a review petition before the Commission, raising a sole issue regarding whether the respondent (insurer) had waived the condition relating to delay in intimation by appointing a surveyor, which the Commission considered.
The Commission adverted (referred) to various earlier decisions of the Commission, like Oriental Insurance Co. Ltd. Versus Parvesh Chander Chadha, and New India Assurance Company Ltd Versus Trilochan Jane and concluded that ‘there was nothing to indicate an intentional and conscious relinquishment by the respondent (insurer) of its right to reject the claim on account of the delayed intimation of the loss, by appointing a surveyor to assess the loss claimed by the insured (appellant)’.
The Commission, while referring to the decision of this Court (Commission) in Galada Power and Telecommunication Ltd. v. United India Insurance Co. Ltd. and Another, observed that the facts of the present case differed significantly from those in Galada Power. The appellant, it may be noted here, heavily relied on the judgment in the Galada Power case. Thus, the Commission dismissed the review petition vide judgment and order dated 25th October, 2016.
Findings of the Supreme Court –
The singular question involved in these appeals is whether the respondent (insurer) had waived the condition relating to delay in intimation by appointing a surveyor.
The Hon’ble Judges noted that 1. Waiver is an intentional relinquishment of a right, involves conscious abandonment of an existing legal right, advantage, benefit, claim or privilege, which, except for such a waiver, a party could have enjoyed.
1. It is an agreement not to assert a right. While invoking the principle of waiver, the person waiving their right must be fully informed of their rights and act with full knowledge of them, intentionally abandoning them. There must be a specific plea of waiver, much less of abandonment of a right by the opposite party.
2. In the present case, the repudiation letter dated 18th February, 2005, of the insurer mentions clearly that the claim of the appellant was rejected as the intimation of the loss was not given to it immediately after the loss and also the requisite particulars of the loss were not conveyed to it within the stipulated period. Thus, there was a breach of the terms and conditions of Clause 6 of the general conditions of the Standard Fire and Special Perils policy. Additionally, the surveyor’s report states that it was very difficult to estimate the damages for the reasons mentioned therein and that the appellant’s claim was not payable due to a breach of Clause 6 of the policy’s general conditions. The insurer incorporated the surveyor’s recommendation in its repudiation letter.
3. The fulfilment of the stipulation in Clause 6 (No claim under this policy shall be payable unless the terms of this condition have been complied with)of the general conditions of the policy is the sine qua non (an essential and necessary condition) to maintain a valid claim under the policy. The same is not the case with Clause 5 of a Marine Insurance Policy in Galada Power and Telecommunication Ltd. v. United India Insurance Co. Ltd. and Another. (In my next article, I will discuss this case in detail) The two clauses form part of two different policies; as a result, they are materially different and thus cannot be compared.
The Hon’ble Judges opined that “ We, therefore, agree with the respondent that the dictum in Galada’s case (supra) is in the context of the facts of that case and does not lay down that on the appointment of a surveyor, per se, the insurer is estopped from raising a plea of violation of the condition warranting a repudiation of the claim. The fact of waiver must be gathered from the totality of the existing circumstances.
The Hon’ble judges firther observed that ‘ the appointment of a surveyor by the respondent after receipt of intimation of the loss from the appellant, in the context of the present insurance policy, coupled with the 2000 Regulations and in particular an express stand taken in the repudiation letter dated 18th February, 2005 sent by the respondent to the appellant after consideration of the surveyor‟s report, it cannot be construed to be a case of waiver on the part of the respondent’.
( It may be noted that Insurance Surveyors and Loss Assessors (Licensing, Professional Requirements and Code of Conduct) Regulations, 2000 mandate the appointment of a surveyor by an insurer in the event a loss is reported to it by an insured.
Given the above, the Hon’ble Judges of the Supreme Court upheld the conclusion of the Commission that the respondent (insurer) had not waived the condition relating to delay stipulated in Clause 6 of the general conditions of the policy by appointing a surveyor.
Reference :
1. https://www.thealiadviser.org /liability-insurance/waiver-and-estoppel-part-1/
2. AIR 2018 Supreme Court 4146- — M/s. Sonell Clocks and Gifts Ltd. ….Appellant:Versus The New India
Assurance Co. Ltd. ….Respondent(s)
3. https://fastercapital.com/content/Estoppel-in-Insurance-Protecting-Policyholders-from-Denials.htm.
Authored By:
Dr Abhijit K.Chattoraj, Chartered Insurer.
