When you buy a cell phone, you are often told by the dealer that the handset carries with it a free insurance cover that will protect you against theft. However, if the handset actually gets stolen and you try to claim the insurance money, you are told that the exclusion clause in the insurance cover prevents indemnification of the loss. What is this exclusion clause? That the insurance company will not be liable to pay if the theft has taken place without the use of force or violence or threat. But the person to whom the insurance is issued is never informed of this exclusion clause. He learns about it only when he is denied the claim.

Disgusted with this kind of fraud, two owners of mobile handsets filed cases before the consumer court. In its verdict delivered on May 15 this year, the apex consumer court asked the insurance company to pay not only the insured amount, but also compensation and costs of litigation.

The detailed order, which examines the exclusion clause and also the regulations pertaining to the protection of policy holders’ interest drawn up by the Insurance Regulatory and Development Authority (IRDA), lays down a general principle that the insurance companies which violate the IRDA regulations have to take responsibility for the consequences of such action.

The IRDA (Protection of Policy Holders’ interest) Regulations 2002, mandate that the insurance companies or their agents or intermediaries clearly and explicitly explain to the policy holder at the time of selling the policy, all the terms and conditions including the exclusion clauses. The apex consumer court has made it clear that if insurance companies fail to inform the consumer of the exclusion clauses, then later they cannot bind the consumer to them.

In these two cases, both D.P. Jain, whose mobile was stolen from his daughter’s purse and Manjeet Kumar, whose cell phone was stolen from his car, had never been told of the exclusion clause and came to know of it only when the insurer refused to indemnify the loss. Since not informing the policy holder of the exclusion clause was a violation of the IRDA regulations, the apex consumer court said the insurer has to pay.

For too long, insurance companies have escaped liability by pointing to exclusion clauses that have never been brought to the notice of the consumer. This order of the apex consumer court should put a stop to such practices (National Insurance Company vs Shri D.P. Jain, RP No. 186 of 2007 and National Insurance Company vs Shri Manjeet Kumar, RP No. 187 of 2007).