Kathmandu. The Supreme Court on Tuesday upheld the verdict of the Insurance Committee of Nepal (INSURANCE AUTHORITY) in a case related to the insurance claim of the Chaudhary Group’s CG Electronics campus fire a decade ago. With this decision of the Supreme Court, it has been confirmed that there is negligence in the assessment of the damage in the non-life insurance sector of Nepal and the tendency of the insurer to work only for the interests of the investors.
Following the court’s order, United Insurance will now have to recover around Rs 40 million as additional claim given to Chaudhary Group in fire insurance. Five years after the case was registered, the Chaudhary group will not suffer financial losses even if the Supreme Court’s verdict has to return partial of the amount claimed. Because he has earned interest and return by making full use of the claim amount for a decade. Here the loss is in the image of the entire insurance sector of Nepal.
Such was the fire case
A massive fire broke out in the warehouse of CG Electronics complex at Satungal in Kathmandu on October 1, 2009. Chaudhary Group claimed to have incurred a loss of Rs 840 million in the fire that destroyed electrical appliances in the warehouses of CG Impex, EOA and CG Electronics. However, the insurance surveyor reported that the claim payment of Rs 589.77 million could be made. Based on the survey report, United Insurance (now United Ajod Insurance) had provided claim payment of Rs 340 million and bank guarantee of the remaining Rs 240 million for the first time on September 20, 2018 and later.
The study committee formed by the insurance committee had recommended a total of Rs 340 million in its report after pressure was exerted to investigate the surveyor’s report as suspicious. After United Insurance filed an appeal in the Patan High Court against this decision of the insurance committee, the court had directed the insurance committee to recover Rs 240 million from The Chaudhary Group. The court issued the order on the basis of the report of the insurance committee.
Committee heated after pressure from authority
The committee moved forward only after the Commission for the Investigation of Abuse of Authority (CIAA) wrote a letter to the insurance committee seeking action against United Insurance. The Commission had written a letter to the insurance committee on February 1, 2019 to take action against the report submitted by the committee’s on-site study committee alleging irregularities in the fire insurance claim of the then United Insurance, which owns 27 percent shares of Chaudhary Group (CG Corp Global). About 14 months after receiving the CIAA directive, the insurance committee took action against United Insurance and banned the sale of fire insurance.
Following the order of the Patan High Court, United Insurance had filed a writ petition against the insurance committee while CG Impex, CG Electronics and EOL Pvt Ltd had filed a writ petition in the Supreme Court against both the insurance committee and United Insurance on May 15 and May 15, 2018.
United Insurance had provided fire insurance to the goods of the warehouses located at five different places including Satungal and Bhainsepati under the Chaudhary Group. The insurance committee had deputed a study committee after the mass media continued to report on the fire that the insurance claim was suspicious. The study committee found 10 different cases in the insurance claims.
According to the study report of the Insurance Committee, a total of 75 percent of the amount of insurance was paid, 20 percent discount was given on the amount of insurance fee even if the fire extinguisher was not installed, an additional 15 percent discount was given, the goods of bhainsepati warehouse were also stored in Satungal, insurance was not filled without filling the insurance proposal form, the insurance surveyor determined the damage on the basis of insurance instead of evaluating the damage on the basis of on-site study and available evidence. It was pointed out that there was no access deduction and lack of institutional good governance.
In addition, United Insurance had also disobeyed the provision of section 45 of the Insurance Act, 2049 to inform the director about his financial interest within 30 days of the appointment of the director. According to the report of the study committee, information was given only in the case of one of the three insured companies and information was not given in the case of the remaining two companies. The license of the insurance agent who had taken the agent commission of fire insurance had not been renewed since 2067 BS.
The insurance committee had decided to ban the sale of fire insurance from March 1, 2019, until good governance was implemented in United Insurance. Based on the interim order of the Appellate Court Patan, United continued to sell fire insurance.
Who gets the money back?
According to insurers familiar with the CG Electronics fire case, out of the Rs 380 million paid by United Insurance, rs 40 million will have to be refunded by the CG group. The refunded amount will not come to the account of United Insurance but will be available to co-insurer Siddhartha Insurance and reinsurer GIC India. United Insurance had re-insured the risk beyond its risk-bearing limit with other insurers, so the additional claim amount was paid by the co-insurer and reinsurer. On the basis of this, Siddhartha Insurance is now going to get back Rs 19 million. The remaining amount will be shared by Indian reinsurer GIC Ri and its co-reinsurance.
Action against surveyor also sad
The supreme court has also upheld the action taken by the insurance committee against the then surveyors Surya Prasad Joshi and Rajan Thapa. The surveyors had also filed a petition in the Supreme Court against the insurance committee to cancel the decision.
Nepal’s insurance sector discredited due to CG’s interests
Due to the financial interests of chaudhary group, the fake claims in fire insurance have tarnished the reputation of the entire insurance sector of Nepal. Nepal’s insurance company has conveyed the message that any reinsurance claim should be analyzed minutely and the claim should not be paid on the basis of trust with the insurer.
In this case, the reinsurer did not file a case alleging fraud in the claim. “Now the money will be refunded not to the domestic but to the foreign insurers,” said a former CHIEF executive officer. ’
Major fire incidents have also been reported at Megha Ulan Mill Birgunj of CG Group, Pashupati Biscuit Industries of Sunsari and cg brewery warehouse of Nawalparasi. “At that time, the chairman of United Insurance was out. He asked the CEO to hand over the compensation cheque in the presence of journalists, saying it was the biggest claim payment in nepal’s insurance history. ’
