Case Study 31 - Changing business premises without insurer's nod kills policy

Insurance firms are not liable to pay damages for losses incurred in a business venture if the business premise has been changed without the insurance firm's prior written consent, the country's apex consumer forum has ruled.

The National Consumer Disputes Redressal Commission (NCDRC) gave this ruling, setting aside the Andhra Pradesh State Consumer Commission's verdict asking the National Insurance Company to compensate a footwear businessman forlosses suffered by him due to submergence of his footwear stocks in rain water after he shifted them to a different business premise.
"There was no opportunity for the insurance company to examine whether the new business place was safe enough to continue the insurance cover. In other words, there was no renovation of the contract of insurance policy," the NCDRC bench of justices V R Kingaonkar and Vinay Kumar ruled, allowing the insurance firm's appeal.
"The compensation ought not to have been granted to the businessman when there was no valid contract existing between the insurance company and him as the change of the premises and shifting of the stock was done without prior consent of the insurance company and it amounted to violation of the insurance policy terms," the NCDRC bench held.
The NCDRC gave the ruling, scrapping the relief given to a Hyderabad-based footwear firm Venketshwera Distributor, which had obtained a business loan from the State bank of Hyderabad and as per the bank's norms, had also got its stock of footwears insured.
But in July 2000, it got the stock shifted from one place to another and in August 2000 reported heavy loss to the bank and insurance firm due to their submergence in rain waters.
Though the insurance firm surveyor too confirmed the losses, the insurance firm refused to settle its claim for damages, saying the act of shifting the business premises was in violation of the policy stipulations.
The footwear distribution firm, in turn, argued it had intimated the insurance firm about the change of its address and continuation of insurance policy despite this intimation implies consent of the insurance firm to continue the insurance cover.
On the business firm's plea, the state consumer forum had held it was entitled to damages worth over Rs 6 lakhs.

Source - financialexpress.com