According to the Supreme Court, those who sign contracts prepared by insurers have tiny choices other than signing on the dotted line.
A bench made this observation of Justices Surya Kant and M M Sundresh in an order setting aside the order of the National Consumer Disputes Redressal Commission in a case seeking compensation for the loss of a shop due to a fire.
A contract of insurance is prepared by an insurer using a standard format on which the consumer signs. There is minimal opportunity for him to negotiate the contract terms other than signing it on the dotted line. As a dominant party, the insurer dictates its terms, leaving it up to the consumer to accept or reject them. Since the consumer has weak bargaining power, such contracts are one-sided and in favor of the insurer.”, the bench ruled.
According to the supreme court, a contract of insurance does not qualify as a contract of freedom of contract.
Many aspects of the doctrine of fairness are required in such contracts, including prudence, good faith, disclosure, and notice on the insurer’s part. While a contract of insurance is voluntary on the part of the consumer, the apparent intention is to cover any contingency that may arise in the future.
“A premium is paid obviously for that purpose, as there is a legitimate expectation of reimbursement when an act of God occurs. Therefore, an insurer should keep that objective in mind, and that too from the point of view of the consumer, to cover the risk, in case of a plausible repudiation,” it stated.
Texco Marketing Pvt. Ltd. was the appellant in this case. Ltd. obtained an insurance policy from TATA AIG General Insurance Company Ltd to cover a shop in the basement.
According to the contract’s exclusion clause, the basement is not covered.
After a thorough inspection of the shop, the insurer insured not only this shop of the appellant but also another similar location.
The fire occurred in the shop, for which the appellant filed a claim. The claim, however, was rejected due to the exclusion clause.
Specifically, the court found that the terms of the contract were unfair, particularly the exclusion clause.