The Punjab State Consumer Disputes Redressal Commission has raised concerns about insurance companies’ unfair claim rejections, urging the IRDA to address these practices. Presiding officials highlighted the need for regulatory action to prevent customer harassment by unscrupulous insurance firms.
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CHANDIGARH: The Punjab State Consumer Disputes Redressal Commission has recently expressed apprehension regarding the widespread problem of unfair rejections of claims by insurance firms. This escalating issue has led to considerable attention from regulatory authorities and proponents of consumer rights.
Presided over by Justice Daya Chaudhary and Member Simarjot Kaur, the Commission voiced that the Insurance Regulatory and Development Authority (IRDA) should clamp down on the misconduct of insurance companies. They emphasized that these companies often engage in dubious practices when processing claims, which results in undue harassment for the customers.
“We find it necessary to state that the majority of insurance claims are denied by insurance companies without valid grounds. In this case, the insurance company has acted similarly, highlighting the urgent need to implement strict regulations to protect the legitimate rights of the insured and ensure full transparency in claim processing.”
– the Commission observed.
This observation came to light while the Commission was adjudicating two appeals lodged by HDFC ERGO General Insurance Company Limited and HDFC Bank Limited. These appeals were against a ruling on a consumer complaint at a district consumer commission.
The original complaint was filed by Shubh Lata, whose husband had secured a housing loan from HDFC Bank in 2019. Following the advice of bank officials, he also obtained a Loan Credit Assure Policy from HDFC ERGO General Insurance.
Tragically, Lata’s husband passed away in 2021 due to renal failure and acute kidney injury. When Lata approached HDFC ERGO to settle the housing loan under the credit assure policy, her claim was unfairly denied. The insurer’s rationale was that her husband’s medical condition did not fall under the “Major Medical Illnesses” covered by the policy.
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However, the district consumer commission in 2022 found that HDFC ERGO had unjustly rejected the claim in collusion with the bank. The commission then prohibited the bank from demanding the unpaid loan amount from Lata and directed the insurance company to clear the remaining balance of the loan.
In reviewing the matter, the State commission meticulously examined whether the cause of death fell under the “Major Medical Illness” category as stipulated in the insurance policy.
They referred to medical definitions, noting that-
“According to Dorland’s Illustrated Medical Dictionary, ‘Acute’ is defined as having a short and relatively severe course, whereas ‘Chronic’ is defined as persisting over a long period of time. This indicates that acute diseases are sudden and unexpected.”
indicating a possible oversight in the original policy terms regarding acute conditions.
The State Consumer Disputes Redressal Commission has directed HDFC ERGO General Insurance Co. Ltd. to settle the insurance claim of a complainant whose husband suffered from Chronic Liver Disease and Hepatorenal Syndrome, classifying it under “Major Medical Illness.” The Commission also modified the District Commission’s order regarding the recovery of the outstanding loan by HDFC Bank.
The State Commission found that the complainant’s husband was afflicted with a complicated disease, making it eligible for insurance coverage under the category of “Major Medical Illness.” The ruling was based on an in-depth examination of the medical literature and the nature of the disease.
“The Appellants-Insurance Company has not provided any substantial reason or evidence to justify the rejection of the legitimate claim of the Complainant/Respondent No.1. The District Commission correctly determined that insurance companies often deny genuine claims on trivial grounds.”
-the State Commission firmly stated.
This observation was pivotal in the Commission’s conclusion that HDFC ERGO General Insurance had no valid justification for denying the insurance claim. The State Commission upheld the District Commission’s finding that the rejection of the claim was unfounded and done on flimsy grounds.
The case also involved a separate appeal by HDFC Bank against the District Commission’s order, which restrained it from recovering the loan from the complainant. The State Commission recognized the bank’s right to claim the loan but clarified the relationship between the bank’s functions and those of the insurance company.
“The bank is fully entitled to recover the loan, as the operations of the bank and the insurance company are entirely separate.”
-noted the State Commission.
However, it asserted that the complainant was entitled to the insurance claim, which should be used to settle the loan amount.
“Thus, First Appeal No.788 of 2022 is partly upheld, modifying the District Commission’s order to allow the Appellant-HDFC Bank to claim the outstanding loan amount from either party, i.e., HDFC ERGO General Insurance Co. Ltd. or Shubh Lata-Complainant. The imposed liability of Rs.10,000/- in compensation and Rs.5,000/- in litigation expenses on HDFC Bank Ltd. is annulled.”
-ordered the State Commission.
This nuanced decision balanced the interests of the complainant, the insurance company, and the bank. The State Commission’s ruling ensures that the complainant receives the insurance claim to cover the loan while allowing the bank to pursue its rightful claim for loan recovery.
The legal representation in this case included Advocate Vishal Aggarwal for HDFC ERGO General Insurance, Advocate Rajesh K Sharma for the complainant, and Advocate Neetu Singh for HDFC Bank.
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By redressing the concerns of the plaintiff and delineating the distinct responsibilities of the bank and the insurance entity, the State Commission has established a precedent for handling analogous cases with empathy and legal expertise. This ruling serves as a reminder to insurance firms to uphold valid claims and a warning to financial establishments regarding their debt recovery procedures.
