The Supreme Court has held that a contract of insurance is a personal contract only between the insured and the insurance company, and no third party can raise any claims pursuant to that contract. Even if the insured person had surrendered the vehicle to the appellant, the appellant could not be considered the owner of the vehicle, and the insurance company could not be forced to indemnify the appellant.
The Court therefore affirmed that, in the absence of privity of contract between the appellant and the insurer, the insurer could not be compelled to accept the appellant’s claim. Accordingly, the Supreme Court held that the National Commission was correct in holding that there was no privity of contract between the appellant and the respondent insurance company, found no good reason to interfere with the impugned order.
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A Two-Judge Bench comprising Justice Sandeep Mehta and Justice Vijay Bishnoi observed that the National Commission had rightly held that there was no privity of contract between the appellant and the insurance company, since the agreement was entered solely between the appellant and the insured person and the insurance company was not made a party to that agreement. The Bench further observed that even after execution of the agreement, no copy was supplied to the insurance company, and since the insurance company did not have any notice of any agreement between the parties, it could not be called upon to make good the loss of the appellant.
The Bench also observed that the insured person had been absconding and no communication of the alleged agreement between the appellant and the insured person was made to the insurance company. It further held that the letter of subrogation issued by the appellant could not be acted upon because it was issued by the appellant and not by the insured person himself. The Bench noted additionally that the nature of the agreement/endorsement was not clearly specified as being a hire-purchase, hypothecation, or lease agreement, and that the appellant had not provided documents showing that the insured person had surrendered the vehicle to him, nor details regarding the alleged theft such as the place, date, and time, which conduct cast aspersions on the appellant’s own case.
Briefly, the appeal was directed against the order of the National Consumer Disputes Redressal Commission, which set aside the concurrent findings of the District Commission and the State Commission on the ground that there was no privity of contract between the appellant-financier and the respondent insurance company. The appellant had financed the purchase of a vehicle of the insured person, and the vehicle was covered under a comprehensive insurance policy for the period from February 08, 2003 to February 07, 2004. Owing to default in repayment, the insured person surrendered the vehicle to the appellant on December 13, 2003; the appellant alleged that while the vehicle was in his custody, it was stolen, following which a police complaint was lodged on December 15, 2003 and, upon failure to trace the vehicle, a ‘C’ report was filed.
The appellant then lodged a claim with the respondent insurance company along with an undertaking to execute a letter of subrogation/undertaking for any future claim by the insured person, but the claim was repudiated. The District Commission allowed the complaint and held that the arrangement between the appellant and the insured person was a hypothecation agreement and not a hire-purchase agreement and therefore, in terms of IMT-7, the appellant being a pledgee was an interested person in the insurance money.
The State Commission dismissed the insurer’s appeal and held that since the loss or damage to the vehicle could not be made good by repair or replacement, the pledgee was entitled to get the insurance money otherwise payable to the insured person in terms of IMT-7. However, the National Commission reversed these findings, observing that though there was an endorsement on the policy regarding hire purchase/hypothecation/lease in favour of the appellant, the insurance company was not a party to the terms and conditions of the agreement between the appellant and the insured person, and no copy of that agreement had been placed on record.
