Report No. 126
Inquiry, Data and Inferences
4.1. Competition in trade or commerce has the inbuilt potentiality to eliminate litigation. Monopolies, on the other hand, have a tendency to litigate because for the service or goods produced by it, no alternative source is available and they are in a position to dictate their terms. Accordingly, the inquiry to collect data on the litigation, litigious tendencies and litigious culture must of necessity start with monopolies in public sector.
Life Insurance Corporation, Employees State Insurance Corporation, Oil and Natural Gas Commission, Employees Provident Funds Organisation, General Insurance Corporation of India, Steel Authority of India, Coal and Gas Authorities, are but few of the monopolies operating in public sector and are free from the tentacles of competition.
The goods and the services produced by them are of such nature and variety that people from all strata of society have to come in contact with them and be subject to their monopolistic overtones. They are unquestionably the agencies and instrumentalities of the State and are comprehended in the expression 'State' in Article 12 of the Constitution. This position is established by a catena of decisions. If the Government should avoid all avoidable litigation, ipso facto these instrumentalities of the State must inhere the same culture.
The trend being in the opposite direction, the Law Commission approached them both for furnishing reliable statistical information as also their approach to litigation and the litigation policies and strategies. The Law Commission addressed detailed queries to these monopolistic undertakings and sought their co-operation both for furnishing reliable data and for understanding their approach to litigation and whether they have any policy norm for either initiating or avoiding litigation. The query and the responses furnish a peep into the working of these Corporations.
4.2. The Law Commission approached Life Insurance Corporation, a monopoly which came into existence in 1956, set up under the Life Insurance Corporation Act, 1956. A copy of the letter is annexed of this report at Annexure I. Section 6 of the Act confers a monopolistic status on the Corporation by transferring all life insurance business to a Corporation set up under the Act to the exclusion of anyone else. Keeping in view that policy of insurance represents a contract, described as contract of insurance, and being aware of the fact that the Corporation can unilaterally repudiate the contract by declining to honour its obligations under the contract of insurance, the query centred round:
(a) number of claims repudiated yearwise from 1980 onwards;
(b) number of suits filed by the party whose contract of insurance was repudiated yearwise;
(c) the stake involved in each case;
(d) the decision of the first court of original jurisdiction in each suit;
(e) if the decision was adverse to the Corporation, the number of appeals preferred by it;
(f) whether second appeals were preferred by the Corporation;
(g) number of appeals preferred by the Corporation to the Supreme Court of India;
(h) cost of litigation in each case related to the stake involved.
A further query was whether Life Insurance Corporation had maintained an establishment for legal advice and, if so, expenses of the establishment, payments made to lawyers not on the establishment and the ratio of such expenses to the total expenditure of the Corporation. The Corporation was further requested to state whether, and, if so, in how many cases, the view of the Legal Department was overruled with a view to pursuing litigation.
The Corporation was specifically asked to state the number of cases whether the attitude of the Corporation in pursuing litigation found disfavour with the court and the matter had to be withdrawn if it was within the competence of the Corporation.
4.3. The Corporation conceded that it does repudiate claim by refusing to honour the claim made under the policy of insurance when it has reasons to believe that the contract of insurance was entered into by supplying incorrect, inadequate or insufficient materials and if correct facts were stated, it would induce the Corporation not to enter into the contract.
The information supplied by the Corporations tabulated and set out at Annexure II. The Corporation was at pains to point out that between the period 1979-80 to 1987, hardly 1% of the claims were repudiated by it. This figure of 1% should not provide a blind-fold because it has to be correlated to the huge volume of insurance work undertaken by the Corporation as a monopoly.
4.4. The General Insurance Corporation of India, which deals with insurance other than life insurance, submitted inconclusive and insufficient information. It may be recalled that the General Insurance Corporation works through four subsidiary companies and it pointed out as in interim feed back that out of a total of 11,60,871 claims preferred against its subsidiaries during the year 1985 and disposed of by it, only 3,012 claims were repudiated.
This was done after obtaining the surveyor's report as required by section 64: UM(2) of the Insurance Act, 1938 which is mandatory in character. The surveyor is one who is licensed by the Government of India and the repudiation is based on his report, common grounds being that the loss was outside the scope of the policy or the genuineness of the contract being in question. It specifically pointed out that except the marine policies, in two other policies there is a term of arbitration to settle the dispute relating to the quantum of the claim.
This term excludes approach to court and the parties generally resort to arbitration. The Corporation pointed out that out of a total of 1,31,673 claims accumulated over the years against only one of its subsidiaries, namely, New India Assurance Company Ltd., as on December 31, 1986, only 7,448 claims were pending in court apart from third party motor accident claims pending with tribunal, called Motor Accidents Claims Tribunal, which are 17,768.
4.5. The Corporation points out that with proliferating surface transport, as a consequence of inducement for expanding tourist trade, coupled with statutory requirement of third party insurance in respect of any motor vehicle, numerous claims are preferred by the victims of accidents by motor vehicles. It appears that almost at every district headquarter, a tribunal, called the Motor Accidents Claims Tribunal, has been set up. As on December 1986, New India Assurance Company Ltd., a subsidiary of the Corporation, was sued for recovering compensation and the unadjudicated petitions were 17,768.
A plea was raised that Lok Adalats are helping to reduce the litigation but there is much to be said for that method of settlement of disputes. There is very little or practically no effort on the part of the Corporation to pay compensation whenever the claim is made and this forces the victims of accidents or their dependants to approach the Tribunal. Third party risk insurance was devised as a social justice measure.
In a motor accident, either the bread winner dies or is so injured as to be incapicitated from earning and the dependants suffer so much that sometimes they are reduced to destitution or penury, yet the Corporation hardly settles the claim and litigation piles up. The delay in disposing of claims for compensation ranges over three years during which period the dependants of the victims of accidents suffer untold hardship.
In the capital of Delhi alone, there are numerous cases involving claim for compensation pending for over three years. An employee of Ashoka Hotel, a hotel managed by Indian Tourist Development Corporation, died in an accident. His widow and children have preferred claim for compensation and it is pending over three years. The widow and the children are maintained by relations. There is not the slightest effort to relieve the misery.
4.6. The Corporation is absolutely impervious to the provision contained in section 92A of the Motor Vehicles Act, 1939, by virtue of which an amount of Rs. 15,000 has to be paid to the victim of a motor accident irrespective of fault liability. In other words, an amount of Rs. 15,000 has to be paid as a social security measure on the principle of no fault liability. As a rule, unless the Tribunal compels, the Corporation never pays the same and the Tribunal hardly gives priority to such application. This bespeaks volumes about the litigious culture of the Corporation.
4.7. It is hardly necessary to recall the earlier effort of the Law Commission in this behalf. Section 45 of the Insurance Act, 1938, provides that the validity of policy shall not be called in question on the ground of misstatement in the personal statement two years after the issuance of the policy.
But there is a rider that if the insurer shows that such statement was on a material matter or suppressed facts which it was material to disclose and that it was fraudulently made by the policyholder and that the policyholder knew at the time of making it that the statement was false or that he suppressed fact which it was material to disclose, it can repudiate the policy beyond the period of two years.
The attention of the Law Commission was drawn to certain difficulties experienced in the working of section 45 and it proceeded to examine the implications of section 45 as part of its function of revising the laws of the country. Life Insurance Corporation expressed an opinion that the period of two years is insufficient to make necessary investigation for repudiating the claim. After having examined the problem, the Law Commission recommended that a period of two years should be extended to three years.1 It is difficult to give credence to the view of Life Insurance Corporation a monopoly. One case will illustrate the point.
One man got himself insured for Rs. 5,000 possibly on getting a job. After a period of three years, he took out another policy of insurance and the amount was Rs. 10,000. A few years thereafter, he took out a policy for Rs. 50,000. He died within a period of one year after the third policy was issued but under which risk had commenced running.
The insured died in a hospital and the case record showed cause of death as renal failure. Life Insurance Corporation satisfied the claim under the first two policies and repudiated the third one on the ground that renal failure on expert opinion is attributable to hypertension and the insured in his personal statement has stated that his blood pressure is normal and within limits.
The legal representatives of the deceased insured brought an action against Life Insurance Corporation and the Life Insurance Corporation defended it on an utterly unsustainable defence-suppressing material evidence in his possession which, if disclosed, would have turned the tables against the Corporation-and succeeded in non-suiting the legal heirs of the deceased till the matter landed in the Supreme Court.
When the matters was called out in the Supreme Court, the Bench asked Additional Solicitor General who was appearing for the Corporation as to whether before issuing a policy of Rs. 50,000, the Corporation insists on the examination of the insured by two experts if the value of the policy is over Rs. 25,000. Of the two medical experts, one is a general practitioner but the other is a specialist. And admittedly, these reports form part of the decision-making process of the Life Insurance Corporation whether to enter into a contract or not.
In the suit filed by the legal heirs of the deceased, the Corporation, while defending the action and its stand of repudiating the policy on the ground of suppression of a material fact which would have affected the decision of the Corporation whether to enter into the contract or not, did not produce the report of the two medical experts who had examined the insured before the issuance of the policy.
The Court called upon the Corporation to produce the documents and the fact therein stated fully justified the personal statement of the insured. The whole case of the Life Insurance Corporation was in fact out from the bottom. The net outcome of this type of litigious tendency was that the Corporation had to pay for a policy of Rs. 50,000, Rs. 1,74,000 and odd amount, being the interest and costs. Does it behave the Corporation to adopt this attitude?
Does it behave a public sector undertaking to resort to suppressio veri suggestio falsi and drag the dependants of the deceased insured from court to court? And having not been satisfied with this utterly indefensible conduct, the Corporation insisted before the Law Commission on an earlier occasion to extend the time in the name of so-called investigation so as to be able to repudiate the contract.
1. LCI, 112th Report on section 45 of the Insurance Act, 1938.