Preliminary and jurisdictional considerations in insurance litigation

Fora

In what fora are insurance disputes litigated?

In the absence of any reference to arbitration under the terms of a policy, insurance disputes can be litigated before both a civil court or a consumer forum. If the insurer initiates the litigation, it must be before the civil courts, and consumer fora cannot entertain these disputes.

Both the civil and the consumer courts have territorial and pecuniary jurisdiction, and the civil court or consumer forum before which the matter is decided is dependent on the value of the dispute and the geographical limits of the office of the defendant insurance company, within which the cause of action for the dispute arose.

The broad ascending hierarchy of the civil courts comprises roughly 600 district courts, 25 high courts and the Supreme Court of India, which is the highest court of law in India. Four of the 25 high courts – Delhi, Mumbai, Chennai and Kolkata – have original jurisdiction to hear matters over a certain pecuniary value, so the civil courts and judges under them do not hear matters involving values higher than that limit. In all other cases, district courts and the competent courts of first instance have an unlimited pecuniary jurisdiction to hear any insurance dispute. There is no right to a hearing before a jury, and cases are decided by judges.

The consumer courts follow a three-tier hierarchy. In ascending order, these are: the district consumer disputes redressal commissions, the state consumer disputes redressal commissions and the National Consumer Disputes Redressal Commission (NCDRC). There are 626 district consumer disputes redressal commissions, which can accept claims up to a value of approximately US$28,239. There are 36 state consumer disputes redressal commissions, which can accept claims of up to approximately US$141,195 and appeals against the decisions of the district commissions. At the apex is the NCDRC, which accepts matters with a value of over US$141,195 and appeals against the decisions of the state commissions. There is a new Consumer Protection Act of 2019 that seeks to increase the pecuniary limits, but it has not come into force yet. 

For quick resolution of commercial disputes, commercial courts were set up by the government in 2015 through the Commercial Division and Commercial Appellate Division of High Court Act 2015 (the Commercial Courts Act). The Commercial Courts Act defines commercial disputes to include insurance and reinsurance disputes. Commercial courts can accept disputes of values that exceed US$148,000. Insurance and reinsurance disputes that exceed US$148,000, if not heard before the consumer fora, will now be heard and decided by the commercial courts. By way of a recent amendment in 2018, the pecuniary jurisdiction of the commercial courts has been reduced from US$148,000 to US$4,170. In the case of commercial suits, unless the party is seeking an urgent interim measure, the Act prescribes that the parties must compulsorily mediate before the suit is filed.

Causes of action

When do insurance-related causes of action accrue?

Disputes between the insured and the insurer usually arise when the insured’s claim is rejected (in part or in full) by the insurer and that the insured believes is covered under the policy. There can be disagreement between the insurer and the insured in relation to the scope of the insuring clauses, the quantum payable under the policy, the applicability of exclusions or compliance with the policy terms and conditions, etc. Under the Indian Limitation Act of 1963, the cause of action for the purposes of calculating the limitation for filing a suit against the insurer will commence from the time that the claim is denied or the date of the occurrence causing the loss. The prescribed limitation period for filing a claim in the civil court or an arbitration is three years, whereas the limitation period for filing a claim in the consumer court is two years.

Preliminary considerations

What preliminary procedural and strategic considerations should be evaluated in insurance litigation?

Procedural considerations include identification of the appropriate limitation period and jurisdiction for the institution of the litigation. In relation to strategy, it is important that the preliminary objections to any suit (such as expiry of limitation) are brought to the court’s attention at an early stage to attain a dismissal on the basis of the preliminary objections. However, in India, it is very often the case that the preliminary objections are decided after the substantive pleadings are complete, as the courts are unwilling to decide without having had access to all the documentation on the matter.

Damages

What remedies or damages may apply?

The relief available in Indian litigation in insurance disputes are specific performance and claims for damages. In a proceeding, the insured can either require the insurer to specifically perform its obligations under the policy or to pay the claim amount.

Indian courts and tribunals have discretion to award interest from the date when the cause of action arose until the enforcement of the judgment. Interest is usually awarded at a rate of 9 to 12 per cent and, in certain cases based on the conduct of the parties, interest of 18 per cent is also awarded.

The courts may also award the successful party its costs, but the award is at the court’s discretion. It is common for cost awards to be made in favour of a successful party, but the level of costs awarded is rarely sufficient to cover the actual costs of litigation. Referring to a statutory upper limit of 4,000 rupees for costs awards in the case of vexatious litigation, the Supreme Court suggested that Parliament should consider raising the limit to 124,000 rupees. In view of the low level of costs awarded, there are, as yet, no material advantages in making a pretrial offer in civil litigation, so Calderbank letters are hardly (if ever) used.

In a commercial suit, the statutory limits for costs do not apply, thereby allowing costs to be awarded in accordance with the actual expenditure incurred by the winning party. Awarding of costs is not compulsory and remains at the discretion of the court.

In relation to interim reliefs that are generally available, they include temporary injunctions and interlocutory orders that are provided for under the Civil Procedure Code of 1908. Parties also seek interim mandatory injunctions that are available under the Specific Relief Act of 1963. A court may issue a temporary injunction restraining any act or omission to act, or make an order for the purpose of staying and preventing the alienation, sale, removal or disposition of a property in appropriate cases. Interim relief also includes ordering the insurer to pay the insured the admitted sums payable under the policy so that only the disputed amount remains to be adjudicated upon. It is for the court to decide whether any interim relief should be granted, the terms on which it should be granted and the duration of the relief.

Under what circumstances can extracontractual or punitive damages be awarded?

Indian contract law does not permit the awarding of extracontractual or punitive damages. In cases when no damages have been stipulated in a contract, the courts award reasonable damages that have been incurred by a party. Even in contracts when the damage amount is stipulated, there is a degree of reasonableness attached to the amount the court would ultimately award and courts always examine the actual damages incurred. The courts will examine whether the amount stipulated is in the form of a penalty, and they can reduce the amount if it is of the opinion that the stipulated sum is a penalty. The Supreme Court settled the law in this respect in Fateh Chand v Balkishan Das AIR 1963 SC 1405, and has reiterated the same in subsequent case law.

Under tort law, Indian courts are also slow to award any form of punitive damages, and compensatory damages are usually awarded. In some rare instances punitive damages have been awarded by the courts; these, however, relate to environmental damage cases and cases of negligence when loss of life is involved.

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6 December 2019