Supreme Court orders States to set up SITs to probe fraudulent motor accident insurance claims

The Supreme Court recently directed all States to constitute dedicated Special Investigation Teams (SITs) to investigate suspected fraudulent motor accident insurance claims [The Oriental Insurance Co. Ltd. v. Tuni Pati & Ors.].

By way of an order passed on August 17, a bench of Justices Ahsanuddin Amanullah and PB Varale also directed insurance companies to refer all claims indicating fraud to the respective State SITs.

The Court warned that the top management of insurance companies would be held accountable if cases are selectively referred.

The proceedings before the top court started with a dispute over whether a vehicle shown as being involved in an accident was actually the vehicle involved.

However, the case revealed a larger pattern in which the same vehicle was allegedly shown as being involved in multiple accidents to facilitate fraudulent claims.

The Court said the apparent fraud was of an “enormous proportion” and that it had therefore expanded the scope of the proceedings to examine and check such claims.

The Bench noted that fraudulent claims not only put financial pressure on insurance companies but could also affect genuine consumers through higher premiums.

Thus, it directed every State to set up a dedicated SIT and forward all complaints received from insurance companies to the body for expeditious investigation. States have also been asked to provide sufficient personnel to the SITs and disclose the procedure adopted for investigating such complaints.

The Court further made insurance companies responsible for ensuring that all claims indicative of fraud are referred to the SITs.

It warned that the top management of an insurance company would be held accountable if the Court found that suspicious claims had been selectively referred for investigation.

The Court also directed insurers to initiate appropriate departmental action against their officials if a State SIT recommends action against them or an FIR is registered against them.

The directions came after the Court was informed about steps already taken in Uttar Pradesh. The State told the Bench that a special SIT had been constituted to verify suspected fraudulent claims.

As of recently, 2,188 complaints had been received in Uttar Pradesh. Of these, 1,029 had been investigated and 231 FIRs had been registered against 533 accused persons, the Court was told.

The Bench appreciated the action taken by Uttar Pradesh but said all States should now adopt a similar mechanism.

The Court also directed the Insurance Regulatory and Development Authority of India (IRDAI), the Ministry of Finance, the Ministry of Road Transport and Highways and the General Insurance Council to participate in the proceedings.

The Court was told that various government databases could potentially be integrated to help insurers verify accident and vehicle details.

Advocate Jagdish Chandra Solanki suggested creating a common portal containing insurance claims, while advocate Rupali Samuel, counsel for Tamil Nadu, pointed to the Ministry of Road Transport and Highways’ E-Detailed Accident Report (EDAR) portal.

Solanki's suggestions further included integrating such databases with existing VAHAN and SARATHI portals to allow insurers to cross-check whether the same vehicle or person had been involved in repeated claims.

The Court also directed insurance companies to internally investigate cases where a Motor Accident Claims Tribunal rejects a claim on grounds of fraud or collusion. Such cases must also be immediately referred to the SIT of the State where the claim was made.

The Bench additionally issued show-cause notices to the heads of several insurance companies who had earlier been directed to appear physically before the Court but failed to do so.

The Court noted that it had considered issuing contempt notices but, as an “extraordinary indulgence”, refrained from doing so for the present.

The matter will be heard next on September 23.

[Read Order]