Insurance policyholders: Liquidity damages now payable only during a certain period of time

LAHORE: Policyholders are entitled only to receive the liquidated damages from the date of filing the claim till the date when the principal amount was received by them, said industry sources.

According to the sources, the insurance tribunals started pointing out in recent past that the higher appellate forums had been silent over the period of payment of liquidated damages to the policyholders earlier.

Therefore, the insurance companies were being penalised to pay the liquidated damages till the date when the execution petition was finalised by the insurance tribunals.

It was generally understood that the insurance corporations have had retained the amount of liquidity damages for no reason and have invested or utilised in their commercial activities or retained in banks to earn profits, the sources added.

Accordingly, it was a common practice on the part of policyholders to challenge non-payment of liquidated damages after receiving the principal claims happily and without lodging any protest regarding non-payment of damages.

The controversy regarding the liquidity damages used to be contested by the parties up to the level of the apex court, and the policyholders, in most of the cases, used to get a favourable order to initiate execution proceedings before the tribunals. Usually, the liquidity damages are fixed by the tribunals at 5% higher rate against the prevailing base rate.

The insurance companies were objecting to the practice of not determining the period of payment for the liquidated damages over the recent past, which has finally been addressed by the insurance tribunals by highlighting the discrepancy in the judgments of the highest appellate forums by pointing out that all the judgments are silent on the period of payment.

It has been held in recent decisions of tribunals where the principal amount has neither been retained nor utilised by the insurance companies into commercial activities to earn profits, the corporations are not liable to pay the liquidated damages after the payment of the principal amount to the claimant.

The policyholders would be eligible to receive the liquidated damages from the date of filing of the claim till the receiving of the principal amount, said leading practitioners of the insurance laws.

Copyright Business Recorder, 2023