The Supreme Court warned all insurance companies on Wednesday that if they do not comply with Clauses (3) and (4) of the Regulatory and Development Authority (Protection of Policy Holder's Interests, Regulation 2002) Act (IRDA Regulation, 2002), their right to repudiate insurance contracts based on any terms and conditions, including exclusion clauses, will be revoked.

The court observed: "Any non-compliance (with IRDA Regulations), obviously would lead to the irresistible conclusion that the offending clause, be it an exclusion clause, cannot be pressed into service by the insurer against the insured as he may not be in knowhow of the same", "...we would like to extend a word of caution to all the insurance companies on the mandatory compliance of Clause (3) and (4) of the IRDA Regulation, 2002. Any non-compliance on the part of the insurance companies would take away their right to plead repudiation of contract by placing reliance upon any of the terms and conditions included there under."

A bench of Justices Surya Kant and M.M. Sundresh stated this in a decision in which the insurer invoked an exclusion clause in the insurance contract without first complying with the IRDA Regulation, 2002. The Bench stated that an exclusion clause that destroys the main contract rights at the outset is unfair and cannot be enforced. The Supreme Court observed that most insurance contracts are adhesion contracts, also known as standard-form contracts. Despite the fact that the contract is voluntary, the insurer dictates the terms of the contract, and the insured has insufficient bargaining power. It was argued that the concept of contract freedom is meaningless in insurance contracts. The Court noted that the premium is paid with the legitimate expectation of reimbursement to cover future contingencies.

Furthermore, the court also added that the main contract once signed would eclipse the offending exclusion clause when it would otherwise be impossible to execute it. A clause or a term is a limb, which has got no existence outside, as such, it exists and vanishes along with the contract, having no independent life of its own. It has got no ability to destroy its own creator, i.e. the main contract."

While partially allowing the appeal, the Court upheld the NCDRC order to the extent that it set aside the direction to pay the insured Rs 2.5 lakh in compensation.

Case Details:-

M/s. Texco Marketing Pvt. Ltd. v. TATA AIG General Insurance Company Ltd. And Ors.

CIVIL APPEAL NO. 8249 OF 2022

Read the Complete judgment on the following Link:-

https://main.sci.gov.in/supremecourt/2018/21218/21218_2018_5_1505_39573_Judgement_09-Nov-2022.pdf