Insurance contracts prepared by an insurer have very little option or choice for a consumer, except to sign on the dotted lines, the Supreme Court said on Wednesday. A bench of Justices Surya Kant and M M Sundresh made the observation while setting aside an order passed by the National Consumer Disputes Redressal Commission in a case seeking compensation for a shop which met with a fire accident.
“Contracts of Insurance are prepared by the insurer having a standard format upon which a consumer is made to sign. He has a very little option or choice to negotiate the terms of the contract, except to sign on the dotted lines. The insurer, who being the dominant party, dictates its own terms, leaving it to the consumer, either to take it or leave it. Such contracts are obviously one-sided, grossly in favour of the insurer due to the weak bargaining power of the consumer,” the bench said.
The top court said the concept of freedom of contract loses significance in a contract of insurance.
“Such contracts demand a very high degree of prudence, good faith, disclosure and notice on the part of the insurer, being different facets of the doctrine of fairness. Though, a contract of insurance is a voluntary act on the part of the consumer, the obvious intendment is to cover any contingency that might happen in future.
“A premium is paid obviously for that purpose, as there is a legitimate expectation of reimbursement when an act of God happens.Therefore, an insurer is expected to keep that objective in mind, and that too from the point of view of the consumer, to cover the risk, as against a plausible repudiation,” it said.
In this case, the appellant Texco Marketing Pvt. Ltd. secured a policy from TATA AIG General Insurance Company Ltd and was meant to cover a shop situated in the basement of the building.
However, the exclusion clause of the contract specified that it does not cover the basement.
Due inspection of the shop was made and not only this shop of the appellant, but yet another shop similarly situated, was also insured by the insurer.
The shop met with a fire accident for which the appellant raised a claim. The claim, however, was repudiated by taking umbrage under the exclusion clause.
The top court said the terms of the contract were unfair, particularly the exclusion clause.