Exclusion clauses in insurance policies must be explicitly disclosed to the insured

High Court Upholds Compensation for Flood Damage Despite Insurance Exclusions Jammu and Kashmir High Court dismisses National Insurance's appeal, emphasizing insurer's duty to disclose policy exclusions.

In a significant ruling, the Jammu and Kashmir High Court has upheld the order of the Jammu & Kashmir Consumer Redressal Commission, which directed National Insurance Company Limited to compensate Mala Bashir and others for flood damage to their residential property. The insurance company had previously denied the claim, citing exclusions in the policy for Storm, Tempest, Flood, and Inundation (STFI) perils.

The case stemmed from the catastrophic floods of September 2014, which caused substantial damage to the insured property. Although the insurance company argued that the policy excluded STFI perils, the High Court found that the exclusion clause had not been adequately disclosed to the insured, rendering it unenforceable.

The Bench, comprising Justices Sanjeev Kumar and Sanjay Parihar, emphasized that insurance contracts are contracts of adhesion, often drafted unilaterally, leaving consumers with little bargaining power. The Court underscored the insurer's duty to inform policyholders of any exclusions, as mandated by the IRDA (Protection of Policyholders' Interests) Regulations, 2002. The Court noted that the failure to produce the original proposal form or other evidence of disclosure led to an adverse inference against the insurer.

The ruling reaffirmed that exclusion clauses which negate the basic coverage of an insurance policy cannot be enforced if not explicitly disclosed and explained to the insured. The Court found no merit in the insurer's appeal and ordered the compensation to be paid as directed by the Commission, along with interest.

This decision highlights the importance of transparency and full disclosure in insurance contracts, reinforcing consumer protection principles against unfair trade practices.

Bottom Line:

Exclusion clauses in insurance policies must be explicitly disclosed to the insured, especially when they negate the basic coverage of the policy. Failure to disclose such clauses can render them unenforceable as unfair trade practices.

Statutory provisions: IRDA (Protection of Policyholders' Interests) Regulations, 2002, Consumer Protection Act, Insurance Act.

National Insurance Company Limited v. Mala Bashir, (Jammu And Kashmir)(Srinagar)(DB) : Law Finder Doc Id # 2817769