The Supreme Court has taken a strict view of fraudulent motor accident insurance claims, directing every state to constitute dedicated Special Investigation Teams (SITs) to investigate suspected fraud. The court has also directed insurance companies to refer every claim showing indications of fraud to the concerned state SIT. It warned that the top management of an insurance company could be held accountable if suspicious claims are selectively referred for investigation.
In its August 17 order, a bench of Justice Ahsanuddin Amanullah and Justice PB Varale directed states to provide adequate personnel to the SITs and disclose the procedure adopted for investigating such complaints. The proceedings arise from The Oriental Insurance Co. Ltd. v. Tuni Pati & Ors.
One Vehicle Allegedly Shown in Multiple Accidents
The proceedings before the Supreme Court initially concerned a dispute over whether the vehicle shown in an insurance claim was actually involved in the accident. During the proceedings, the court was confronted with indications of a larger pattern in which the same vehicle was allegedly shown as being involved in multiple accidents to facilitate fraudulent insurance claims.
The bench described the apparent fraud as being of an enormous proportion and expanded the scope of the proceedings to examine the broader problem. The court observed that fraudulent claims not only cause financial losses to insurance companies but can also affect genuine policyholders by contributing to higher insurance premiums.
Insurance Companies Put Under Greater Accountability
The Supreme Court directed insurers to forward all claims indicating possible fraud to the SIT established by the respective state. The court specifically warned that if an insurance company selectively refers suspicious claims while leaving others out, its top management could face accountability.
The court further directed insurance companies to initiate appropriate departmental proceedings against their officials if a state SIT recommends action against them or an FIR is registered against them in connection with fraudulent claims.
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Uttar Pradesh’s Action Cited Before Court
During the hearing, the court was informed about measures already taken in Uttar Pradesh. The state has constituted a special SIT to verify suspected fraudulent insurance claims.
According to the information placed before the court, Uttar Pradesh had received 2,188 complaints. Of these, 1,029 cases had been investigated, while 231 FIRs had been registered against 533 accused persons.
The Supreme Court appreciated the action taken by Uttar Pradesh and directed other states to adopt a similar mechanism for dealing with suspected fraudulent motor accident claims.
Government Databases May Be Integrated
The bench also considered the possibility of integrating government databases to strengthen verification of accident and vehicle information. During the proceedings, suggestions were made for creating a common portal containing insurance claim information and linking it with existing government databases.
The E-Detailed Accident Report (EDAR) portal of the Ministry of Road Transport and Highways, along with VAHAN and SARATHI, were cited as potential sources of information. Such integration could enable insurers to verify whether the same vehicle or individual had previously appeared in multiple accident claims.
The court also directed insurers to conduct internal investigations 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.
Insurance Company Heads Face Court Action
The Supreme Court also issued show-cause notices to the heads of several insurance companies who had previously been directed to appear physically before the court but failed to do so.
The bench noted that it had considered initiating contempt proceedings against them. However, as an extraordinary indulgence, the court refrained from taking that step for the time being.
The matter will next be heard on September 23. Until then, states and insurance companies will be required to proceed in accordance with the directions issued by the Supreme Court.
The order could lead to a nationwide mechanism for identifying and investigating fraudulent motor accident insurance claims, with greater coordination among state investigation agencies, insurers and government databases.
