Abstract
Insurance is intended to provide financial protection when an insured event occurs. The difficulty begins when a genuine claim remains pending for an unreasonable period, moves repeatedly between departments, or is followed by unexplained deductions. While every delay is not unlawful, repeated silence and avoidable administrative delay can cause serious hardship to policyholders. This article examines when delay, repudiation and underpayment may amount to deficiency in service under Indian insurance law.
1. Introduction
A policyholder pays a premium with the expectation that the insurer will honour the policy when the insured risk occurs. A claim therefore needs to be dealt with fairly and within the applicable regulatory framework. Problems arise when the claimant repeatedly receives responses such as ‘under process’, is asked for documents already submitted, or is transferred between offices without a clear decision.
Internal movement of a claim is an insurer’s administrative matter. It should not, however, become a reason for keeping the policyholder waiting indefinitely. The important question is not merely whether a claim was eventually decided, but whether it was handled in a transparent and timely manner.
2. When Delay Becomes Legally Significant
Delay alone does not automatically establish deficiency in service. The circumstances surrounding the delay must be examined. Repeated unexplained silence, unnecessary document requests, failure to follow applicable timelines and prolonged uncertainty may become relevant when determining whether the insurer failed to provide the service required under law or contract.
In New India Assurance Co Ltd v Shashikala J Ayachi, the Supreme Court recognised that delay in processing or repudiation can be a relevant factor, while making clear that delay by itself is not sufficient to establish deficiency in service.
3. The 2024 IRDAI Framework
The IRDAI (Protection of Policyholders’ Interests, Operations and Allied Matters of Insurers) Regulations, 2024 and the Master Circular on Protection of Policyholders’ Interests, 2024 strengthen procedural protection for policyholders. For general insurance claims requiring a surveyor, the framework provides timelines for appointment and submission of the survey report and prescribes consequences for certain delays.
These requirements are important because they convert the idea of timely claims handling into identifiable procedural obligations. An insurer’s internal workload or transfer of a claim between departments should not, by itself, defeat those obligations.
4. Repudiation and Unexplained Deductions
Repudiation must have a genuine contractual or legal basis. In Modern Insulators Ltd v Oriental Insurance Co Ltd, the Supreme Court held that an insurer could not rely upon an exclusion that had not been properly incorporated into or communicated through the policy.
Underpayment also requires transparency. Deductions may be legitimate where supported by policy terms, such as deductibles, depreciation or sub-limits. However, the insurer should clearly identify the basis of significant deductions. In Saurashtra Chemicals Ltd v National Insurance Co Ltd, the Supreme Court emphasised that an insurer cannot freely introduce a new ground of repudiation during litigation when that ground was not stated in the repudiation letter.
5. Delay and Underpayment
Delay and underpayment may have a combined practical effect. A policyholder facing financial pressure may accept a reduced amount simply because immediate payment is necessary. This makes transparent settlement statements particularly important. The claimant should be able to see the amount assessed, deductions made, relevant policy clauses and final amount payable.
A surveyor’s report is an important part of the claims process, but it is not necessarily beyond examination. The Supreme Court in New India Assurance Co Ltd v Pradeep Kumar recognised the evidentiary importance of a surveyor’s report while not treating it as absolutely conclusive in every circumstance.
6. Remedies and Consumer Protection
Insurance disputes may, depending on the facts and applicable jurisdiction, be raised through the insurer’s grievance mechanism, the Insurance Ombudsman or consumer dispute-resolution mechanisms. The Consumer Protection Act, 2019 recognises deficiency in service as a relevant basis for consumer redress. The Insurance Ombudsman framework also provides a specialised mechanism for eligible insurance complaints.
7. Recommendations
A fair claims system should provide: (i) prompt acknowledgement of claims; (ii) one clear list of required documents; (iii) meaningful updates where investigation is continuing; (iv) compliance with regulatory timelines; (v) reasoned repudiation decisions; and (vi) detailed explanations for deductions. Insurers should also review recurring patterns of deductions and avoid making policyholders bear the consequences of purely internal administrative delays.
Conclusion
Delay is not automatically an unfair practice, and insurers must be given reasonable opportunity to investigate genuine claims. However, investigation should not become an indefinite excuse for avoiding a decision. Repeated silence, unnecessary internal transfers, unexplained deductions and shifting grounds can undermine the transparency expected in insurance claims handling. Indian regulation and judicial decisions increasingly emphasise timely, reasoned and accountable claim processing. The objective should therefore be neither to favour insurers nor policyholders automatically, but to ensure that contractual rights are determined through a fair and transparent process.
Selected References
IRDAI (Protection of Policyholders’ Interests, Operations and Allied Matters of Insurers) Regulations, 2024.
IRDAI, Master Circular on Protection of Policyholders’ Interests, 2024.
New India Assurance Co Ltd v Shashikala J Ayachi, Supreme Court of India (2022).
M/s Modern Insulators Ltd v Oriental Insurance Co Ltd (2000) 2 SCC 734.
Saurashtra Chemicals Ltd v National Insurance Co Ltd (2019) 19 SCC 70.
New India Assurance Co Ltd v Pradeep Kumar (2009) 7 SCC 787.
Consumer Protection Act 2019.
Author: Arpita Anand
Bba.ll.b (hons.) student