Non-Standard Claims in Indian Insurance Law: Judicial Doctrine, Regulatory Framework and Emerging Issues

Non-Standard Claims in Indian Insurance Law: Judicial Doctrine, Regulatory Framework and Emerging Issues

1. Introduction

Indian insurance jurisprudence has, over the past three decades, developed a distinct category of “non-standard claims”. These are claims in which the insured has breached one or more policy conditions or statutory requirements, yet the breach is not considered so fundamental as to dis-entitle the insured to every benefit under the contract. Courts and consumer fora have frequently ordered settlement on a percentage basis—typically 75 % of the admissible loss—rather than outright repudiation. This article critically analyses the normative foundations, statutory context and judicial evolution of the non-standard claim doctrine, with particular reference to recent Supreme Court and National Consumer Disputes Redressal Commission (NCDRC) authorities.

2. Conceptual Framework

2.1 Contract of Indemnity and Doctrine of Utmost Good Faith

Insurance contracts in India are governed by the Indian Contract Act, 1872, notably the indemnity provision in section 124, and by general common-law principles requiring uberrima fides. As reaffirmed in United India Insurance Co. Ltd. v. Kantika Colour Lab (2010)[1], the insurer’s obligation is to indemnify the insured for actual loss, subject to compliance with policy warranties.

2.2 Classification of Breaches

  • Fundamental Breach: vitiates the contract ab initio and justifies total repudiation (e.g., deliberate fraud).
  • Technical or Non-Fundamental Breach: does not go to the root of the bargain. Judicial practice has treated such breaches under the rubric of “non-standard claims”.

3. Regulatory & Policy Framework

3.1 IRDAI Regulations

Regulation 17 of the Insurance Regulatory and Development Authority of India (Protection of Policyholders’ Interests) Regulations, 2017 obliges insurers to expedite claim settlement and to provide reasons for repudiation. Although the Regulations do not expressly mention non-standard settlements, they create a fiduciary environment in which partial indemnification is viewed as a fair balancing mechanism.[2]

3.2 General Insurance Corporation (GIC) Guidelines 1988

The seminal internal circular of 29 July 1988, adopted industry-wide, prescribes settlement percentages for common breaches:[3]

  • Under-declaration of licensed carrying capacity – deduct 25 % or differential premium for three years, whichever is higher;
  • Over-loading beyond licensed capacity – pay up to 75 % of admissible claim;
  • Any other breach of warranty/condition (including limitation as to use) – pay up to 75 % of admissible claim.

3.3 Motor Vehicles Act, 1988

Sections 39, 66 and 149 are of recurring importance. Breach of section 39 (unregistered vehicle) or section 66 (permit) constitutes an offence, yet the Supreme Court has held that such infractions—absent causal connection to the loss—may justify non-standard settlement rather than repudiation (Narinder Singh v. New India Assurance, 2014)[4].

4. Judicial Evolution of Non-Standard Claims

4.1 Pioneering Phase: United India v. M.K.J. Corporation (1996)

The Supreme Court acknowledged that an insurer could not evade liability merely because loss arose during a strike; the policy, interpreted contra proferentem, covered consequential loss. Though the term “non-standard” was not employed, the judgment laid the normative groundwork for partial indemnity where coverage ambiguity exists.[5]

4.2 Consolidation Phase: National Insurance v. Nitin Khandelwal (2008)

The vehicle, insured for private use, was being plied as a taxi when stolen. The Court upheld the NCDRC’s direction to pay 75 % of the sum insured. It observed that section 149(2)(a)(ii) of the Motor Vehicles Act did not permit repudiation where the breach had no causal nexus with the theft.[6]

4.3 Doctrinal Maturity: Amalendu Sahoo v. Oriental Insurance (2010)

Reiterating the GIC guidelines, the Court held that even in the presence of breaches (carrying passengers for hire), insurers cannot “repudiate the claim in toto”; a consolidated amount—there, 50 % of the claim—was directed.[7]

4.4 Extension to Passenger and Permit Violations: Manjeet Singh v. National Insurance (2017)

Carriage of gratuitous passengers was deemed a technical, not fundamental, breach; 75 % of the insured value was ordered.[8]

4.5 Contemporary Clarifications: New India Assurance v. Bhushan Steel & Strips (2024) and Tata Steel Companion Case

While these decisions centred on survey reports and contra proferentem, the Supreme Court implicitly endorsed insurer discretion to settle claims proportionately when documentary deficiencies exist, provided the procedure under Regulation 9(3) (IRDAI Surveyor Regulations) is honoured.[9]

5. Analytical Themes

5.1 Causality Test

Indian courts increasingly apply a causality filter: if the policy breach bears no causal nexus to the peril that materialised, full repudiation is viewed as disproportionate. The doctrine resonates with English law’s “relative breach” analysis and promotes consumer protection under the Consumer Protection Act, 2019.[10]

5.2 Standardisation versus Judicial Discretion

The 75 % benchmark, though rooted in the 1988 GIC circular, is not inflexible. In Kantika Colour Lab, indemnity was confined to actual loss quantum, illustrating that courts may award less than 75 % where evidence so warrants.[1] Conversely, lump-sum awards—e.g., Rs. 2.5 million in Amalendu Sahoo—reflect equity-based discretion.

5.3 Interaction with Statutory Non-Compliance

Breaches of sections 39 or 66 of the Motor Vehicles Act are regulatory offences. Yet Narinder Singh and allied authorities underscore that such non-compliance does not ipso facto extinguish contractual indemnity. The policy objective—to indemnify fortuitous loss—triangulates with public-law aims of consumer protection.

5.4 Survey Reports and Procedural Fairness

Supreme Court dicta in the twin 2024 Bhushan Steel/Tata Steel appeals emphasise the insurer’s duty to seek clarifications only once under Regulation 9(3). Failure to do so may estop the insurer from later invoking technical breaches to justify repudiation. Procedural lapses by the insurer, therefore, can tilt the equitable balance towards non-standard settlement or even full liability.

6. Critique and Emerging Issues

6.1 Need for Legislative Codification

The non-standard claim doctrine remains judge-made and circular-based. Codification through IRDAI (General Insurance) Regulations could enhance certainty, delineate percentage grids for diverse breaches, and prescribe timelines for insurer offers.[11]

6.2 Alignment with International Trends

The U.K. Insurance Act 2015 distinguishes between deliberate/reckless and innocent breaches, mandating proportionate remedies. Indian jurisprudence is converging towards a similar proportionality paradigm but lacks a statutory anchor.

6.3 Consumer Awareness and Disclosure Standards

Empirical studies reveal low consumer awareness of policy warranties. Mandating “key exclusion” summaries, as adopted in Australia, could reduce the incidence of breaches leading to non-standard settlements.

7. Conclusion

The jurisprudence of non-standard claims in India embodies a principled compromise between contractual sanctity and consumer protection. Anchored in the indemnity principle, tempered by causality and proportionality tests, and operationalised through the 75 % settlement heuristic, the doctrine mitigates harsh forfeitures while deterring reckless disregard of policy terms. Future reform should focus on regulatory codification, enhanced disclosure duties and consistent application across insurance classes to fortify doctrinal coherence and market fairness.

Footnotes

  1. United India Insurance Co. Ltd. v. Kantika Colour Lab and Others, (2010) 6 SCC 449.
  2. IRDAI (Protection of Policyholders’ Interests) Regulations, 2017, Reg. 17.
  3. General Insurance Corporation Circular on Settlement of Non-Standard Claims, 29 July 1988.
  4. Narinder Singh v. New India Assurance Co. Ltd., (2014) 9 SCC 324.
  5. United India Insurance Co. Ltd. v. M.K.J. Corporation, (1996) 6 SCC 428.
  6. National Insurance Co. Ltd. v. Nitin Khandelwal, (2008) 11 SCC 259.
  7. Amalendu Sahoo v. Oriental Insurance Co. Ltd., (2010) 4 SCC 536.
  8. Manjeet Singh v. National Insurance Co. Ltd., (2017) SCC OnLine SC 1433.
  9. New India Assurance Co. Ltd. v. Bhushan Steel & Strips Ltd., (2024) SCC —; New India v. Tata Steel Ltd., (2024) SCC —.
  10. Consumer Protection Act, 2019, ss. 2(6), 35–38.
  11. Suggested reform; see IRDAI Discussion Paper on Claim Settlement Efficiency, 2022.