The Dilemma of Settling a Claim For want of the Proper Understanding of Policy Conditions

The problem in India is that the conditions and warranties are treated alike. Everything is treated as a breach of condition. A breach of warranty has the same effect as a condition. As a result, remedies for a breach of contract do not benefit Indian customers. There is no scope for collateral or mere conditions.

- Prof (Dr) Abhijit K. Chattoraj Chartered Insurer

Imagine a scenario: A claims manager, in a Standard Fire and Special Perils Policy, observed during the processing of the claim that the insured didn't have an insurable interest in the subject matter of the insurance at the material time of the accident. The insured, however, had an insurable interest at the time the insurance commenced. The claim manager had no option but to repudiate this claim. However, he could not cite a policy condition that would allow him to deny the claim.

He meticulously examined every condition printed or endorsed on to the Policy. He could find the mention of conditions related to contribution, subrogation, indemnity, average Clause, arbitration clause, misrepresentation, mis-description or nondisclosure of any material particular and fraudulent declaration and means. But he could not find any condition related to insurable interest. He was therefore in a fix on how to deny the claim by citing a proper policy condition.

In this context, it is imperative to understand the word ‘Conditions’. Every insurance contract has terms known as "Conditions" or the terms of the Policy. Any breach of the contractual terms by the assured will allow the underwriters to raise a defence under the Policy for a claim that would otherwise be payable under the Policy. A violation of a condition can prejudice the validity of a liability for a claim(insurance) or the Policy itself.

The terms of the contract are exhaustive provisions contained in the agreement. The terms of a contract must be specific; that is, an essential term should not be missing from the contract, and the meaning of a critical term should not be uncertain or nebulous.

Certain conditions are integral to all insurance contracts. They are called Implied Conditions and are effective even though they don't appear on the face of a policy. Implied terms express themselves in three ways: In fact, in law and by custom or usage.