Delhi High Court directs insurers to probe fake cover notes, act against ‘errant officers’

The court observed that an insurance company is duty-bound to take appropriate legal action upon discovering a false or fake cover note, including lodging a complaint and pursuing the matter in accordance with law.

The order also stated, “It would be incumbent upon insurance companies to initiate internal inquiries to investigate why such a cover note has been issued without due process, or procured, and take disciplinary or penal action against errant officers.”

It noted that issuance of fake cover notes is a serious issue, as it affects not only compensation proceedings but also the insurer’s assessment and assumption of risk.

Victim’s family challenged tribunal’s decision

The case arose from a fatal road accident in December, 2007, when a man was riding his motorcycle towards his office in Mangolpuri, Delhi. Near Suraj Mal Stadium on Rohtak Road, a truck allegedly hit him, causing injuries that resulted in his death.

Justice Anish Dayal heard the matter on September 18.

The victim’s family members filed a compensation claim before the MACT. The tribunal held that the accident was caused by the rash and negligent driving of the truck and awarded Rs 41.23 lakh as compensation.

However, it exonerated Oriental Insurance Company after accepting its contention that the cover note produced by the claimants was forged and fabricated. Liability was instead fixed jointly and severally on the truck’s driver and owner.

The claimants challenged the MACT’s decision before the high court, arguing that the cover note was genuine and that the insurer should be made liable to pay the compensation.

Appearing for the claimants, advocate Manish Maini contended that the same cover-note numbers appeared to have been issued for different vehicles and persons, and that the insurer had delayed lodging a police complaint regarding the allegedly fake document.

The insurance company, on the other hand, maintained that the cover note relied upon by the claimants had not been issued for the offending truck. It produced evidence showing that the relevant cover-note numbers related to other vehicles and persons, while no original cover note, insurance policy or proof of premium payment for the truck was produced.

Action needed against errant officers: Order

The court upheld the MACT’s decision exonerating the Oriental Insurance Company from liability, holding that the cover note relied upon by the claimants was a forged and fabricated photocopy.
The court observed that a mere photocopy of a cover note cannot establish a valid policy when the insurer produces evidence showing the cover note number pertained to different vehicles and individuals.

“If vehicle owners choose to procure fake cover notes, or fail to ensure that insurance has been obtained through the proper process of payment of premium and issuance of a valid policy by the insurance company, albeit through an agent, they are either negligent or have themselves been deceived,” the ruling held.

Regarding the delay in complaint by the insurance company, the order said that the delay or omission on the part of the insurance company to diligently pursue its criminal complaint regarding a fake cover note does not, by itself, turn a fabricated document into a genuine and valid insurance cover.

The court emphasised that insurance companies have an imperative duty to sanitise their internal processes upon discovering fake cover notes. Insurers must conduct internal inquiries, get to the bottom of how such cover notes exist, and take disciplinary or penal action against errant officers.