Beneficiaries of insurance services come under the ambit of ‘Consumers’ even if they are not parties to the insurance contract: SC

A Supreme Court bench of Justices Deepak Gupta and S. Abdul Nazeer ruled that although beneficiaries of a contract of insurance are not parties to the contract, they still are deemed to be consumers as they are beneficiaries of the policy taken by the insured.

In this case, some farmers had stored their agricultural produce in a cold store. The cold store was insured with the United India Insurance Company Limited (the insurance company). A tripartite agreement had been entered into by each one of the farmers while taking a loan from the Bank and hypothecating the agricultural produce which was stored in the cold store. The farmers, the Bank, and the cold store were parties to the tripartite agreement.

In 2014 a fire broke out by which the entire building of the cold store and the entire stock of agricultural produce was destroyed.

The cold store raised a claim with the insurance company but the claim of the cold store was repudiated by the insurance company mainly on the ground that the fire was not an accidental fire. The farmers had also issued notice to the insurance company in respect of the plant, machinery and building but the claim was repudiated by the insurance company on the additional ground that the farmers had no locus standi to make the claim as the insured was the cold store and not the farmers. The insurance company pleaded that there was no privity of contract between the farmers and the insurance company.

The insurance company argued that nobody in his right mind would store agricultural produce for such a long period of time. Therefore, the very genuineness of the tripartite agreement was challenged.

The cold store claimed the amount payable by the insurance company. The Bank supported the claim of the farmers with the caveat that the amount should be paid to it so that it could set it off against the loans advanced to the farmers.

The State Commission found that as per the tripartite agreement entered into between the farmers, the Bank and the cold store, it was mandatory for the cold store to insure the goods so hypothecated by the farmers with the Bank. The State Commission held the insurance company liable to pay the amount to the farmers. The National Commission concurred with the findings of the State Commission.

On appeal to the Supreme Court, it was contended that the farmers were not consumers and therefore the consumer fora have no jurisdiction to decide the dispute. It was also contended that there is no privity of contract between the farmers and the insurance company and that a contract of insurance is to be strictly construed between the parties to the contract. The Counsel for the insurance company submitted that there was no insurable interest of the farmers and the tripartite agreement entered between the Bank, the farmers and the cold store was never disclosed to the insurance company.

The Supreme Court held that the definition of consumer under the Consumer Protection Act, 1986 (Act) is very wide and it includes beneficiaries who can take benefit of the insurance availed by the insured. The Court held that an insured could be a person who hires or avails of the services of the insurance company but there could be many other persons who could be the beneficiaries of the services. It is not necessary that those beneficiaries should be parties to the contract of insurance. They are the consumers not because they are parties to the contract of insurance but because they are the beneficiaries of the policy taken out by the insured.

According to the Court, the cold store was bound to insure the goods, indemnify the produce, to cover the risk and cover the loan amount. The insurance policy had to be taken at the cost of the second party (the farmer). Therefore, there can be no manner of doubt that the farmer is a beneficiary under the policy. The Court stated, “The farmer is, therefore, definitely a consumer and we uphold the orders of both the Commissions that the complaint under the Act is maintainable.”

The Supreme Court thus directed the insurance company to indemnify the cold store with regard to the value of goods and since the farmers are the beneficiaries, they were entitled to get the amount payable under the policy.

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