Limitation period is key to insurance claims

Limitation Period is Key to Insurance Claims Limitation period means the time within which a person must file his case before a judicial authority for exercising his rights. This period is to be calculated from the date of the cause of action. This term does not have any definition, but it is well settled that “cause of action” is a mixed question of fact and law. It has consistently been held that for insurance disputes, the cause of action starts from the date of rejection of the claim. Yet, a recent judgment of the Supreme Court is being misinterpreted out of context to claim that the date of rejection of the claim is irrelevant as the limitation period starts from the date of the incident or occurrence of loss in respect of which the claim is lodged. Consequently, consumers are at the receiving end as any complaint filed after two years of the date of the incident is being rejected as time barred without considering the date of rejection of the claim. The law: The manner of computing the limitation period for insurance claims is given under Article 44 (b) of the Limitation Act 1963, which states that time is to be calculated from“the date of the occurrence causing the loss, or where the claim on the policy is denied either partly or wholly, the date of such denial”. In Sirpur Paper Mills Ltd. v/s National Insurance Co. Ltd. [ II (1997) CPJ 36 (NC) the full five member bench of the National Commission has interpreted the law on the subject. A fire had occurred in October 1986. The claim was rejected in November 1986. The insured made representations to the insurance company which appointed a surveyor who submitted his report in April 1989. The insurance company slept over the claim and ultimately rejected it in August 1994. Aggrieved by the rejection of the claim, the insured filed a consumer complaint in 1995. The issue before the National Commission was whether the claim was time–barred or not. The commission held that since the claim was under consideration by the insurance company, it would be just and fair to consider that limitation would begin to run from the date of final rejection of the claim. In Oriental Insurance Co. Ltd. v/s Prem Printing Press [ I (2009) CPJ 55 (SC), a similar issue came up. After the claim was rejected, the insured sent representations to the insurance company to review the claim. The insurance company agreed to reconsider it, and later re–affirmed the rejection. The question was whether the starting point for computing the limitation period would be the date of first rejection or the final rejection. The Supreme Court observed that by stating that the matter was under fresh consideration, the insurance company had“dangled a carrot of hope”, because of which the insured had not take legal action. Hence, the limitation period cannot be computed from the date of the original rejection of claim, but would have to be calculated from the date when the claim was rejected for the second time after reconsideration. The judgment being mis–interpreted: In Kandimalla Raghavaiah & Co. v/s National Insurance Co. Ltd. & Anr. [ III (2009) CPJ 75 (SC), a fire had occurred in March 1998. Although the insured intimated the insurance company about the fire, the claim was not lodged for years together. The insured asked for the claim form in November 1992 after four–and–a–half years. As the insurance company ignored the request and did not issue the claim form, the insured filed a consumer complaint in the year 1997. The Supreme Court held that the cause of action would be the date when the incident of fire occurred and the limitation period would begin to run from that date and accordingly held that the complaint was time–barred. Observations: One sentence from the judgment in the case of Kanimall Raghavaiah is being picked up and misquoted to argue that in insurance matters, the limitation period would run from the date of the accident and not the date of rejection of the claim. What is lost sight of is the fact that in Raghavaiah’s case, the claim itself was not lodged and hence there was no question of repudiation of the claim and it is in this context that the Supreme Court held that the cause of action would run from the date of the incident when the fire occurred. The well settled principles of law ought not to be given a go–by in view of the peculiar facts in Raghavaiah’s case. If a claim is settled, there is no cause of action; whereas if it is rejected, the insured is aggrieved and thus the rejection of the claim gives rise to a cause of action for initiating legal proceedings. Hence limitation has to be construed from the date of rejection of the claim. Impact: The misinterpretation of Raghavaiah’s case is playing havoc with regard to insurance claims. Unless the law and facts are properly distinguished, consumers will continue to find themselves at the receiving end with genuine complaints being thrown out for being time–barred.