Insurance Company Must Pay Full Insured Amount, Relief from Government Irrelevant: J&K High Court

The Jammu and Kashmir and Ladakh High Court has held that an insurance company cannot reduce the payout to a claimant based on ex gratia relief received from the government.

Dismissing a Civil 1st Miscellaneous Appeal filed by an Insurance company against an award a bench of Chief Justice Tashi Rabstan and Justice M A Chowdhary emphasized

“the Insurance Company is bound to pay the claim against the sum insured. It is not the business of the Insurance Company to see whether the person suffering damages has been paid some sort of relief from other sources or not.”

The case stemmed from the extensive damages suffered by a Wine Shop, during the eruption of violence in Kishtwar in August 2013. The shop was insured by Oriental Insurance Company for ₹22 lakhs, and after a thorough assessment, the total loss was estimated at ₹29,24,212.96 by the appointed surveyor. However, the insurance company approved a lower payout of ₹15,61,153 after deducting ₹3.50 lakhs, which the shop had received as ex gratia relief from the government.

Dissatisfied, the shop owner approached the J&K State Consumer Disputes Redressal Commission, which awarded him ₹19,11,153.66 along with 10% interest from the date of the claim. The insurance company challenged this order before the High Court in this Civil 1st Miscellaneous Appeal.

Assailing the award the Insurance Company argued that since the shop owner had already received ₹3.50 lakhs from the government as relief, this amount should be deducted from the insurance claim. The company also contended that it had acted in good faith, calculating the loss based on the insured sum and external relief received.

Making detailed observations regarding the duties of insurance companies and the implications of ex gratia paymen the court noted that the insurance company did not contest the fact that the respondent’s shop had suffered extensive damages. The surveyor’s assessment, which reported a loss of ₹29,24,212.96, far exceeded the insured sum of ₹22 lakhs and therefore the net loss of ₹19,11,153.66 should be paid fully, regardless of any government relief received, the court opined.

On the implications of Government Ex gratia payments on insurance claims the bench cited precedents from the Supreme Court and earlier decisions by the High Court, to reaffirm that ex gratia payments made by the government are acts of grace and have no legal bearing on the liability of insurance companies.

The court remarked,

“The Insurance Company is bound to pay the claim against the sum insured. It is not the business of the Insurance Company to see whether the person suffering damages has been paid some sort of relief from other source or not.”

Additionally Tlthe court referenced Sudesh Dogra vs. Union of India (2014) and rulings from the Srinagar Wing of the High Court. In National Insurance Co. Ltd. vs. Kh. Gh. Mohd. Shah (1979) and United India Insurance vs. Gh. Mohd. Mir (1998), wherein the court had previously held that ex gratia relief from the government cannot be deducted from insurance payouts, as these payments are acts of goodwill with no legal obligation on insurers to reduce their liabilities.

In alignment with these observations the appeal filed by Oriental Insurance Company was dismissed, and the award of along with interest and litigation costs, as previously ordered by the Consumer Disputes Redressal Commission, was upheld.

Case Title: Oriental Insurance Company Vs M/S Shalimar Wine Shop

Citation: 2024 LiveLaw (JKL) 277

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