Biocon, Lupin, Wockhardt, Cadila Healthcare lose Insurance Battle in Delhi High Court

Mumbai:In a court setback to many big drugmakers in India, a petition filed by pharma majors including Biocon, Wockhardt, Lupin and Cadila Healthcare against General Insurance Corporation of India (GIC Re) regarding a new increased rate of insurance premium has been rejected by the Delhi High Court.

With the court dismissing the petition, the increased premium rates for the companies purchasing insurance covers for their machinery, plants and properties are here to stay.

A month ago, Justice Vibhu Bakhru of the Delhi High Court, while dismissing the petition of pharma companies, stated that "Plainly, it would not be permissible for this court to supplant its opinion regarding quantum of premium that ought to be charged by GIC. GIC is fully entitled to determine the rates at which it offers re-insurance in respect of risks covered by various insurance companies."

The matter originated when the country's largest reinsurer, GIC Re floated an endorsement through circulars on February 12 and 21. The firm stated that insurers who are willing to utilize treaty (an arrangement where capital is pooled by various reinsurers to provide reinsurance support to insurance companies) are supposed to quote higher premium rates effective from March 1.

The new rates were determined based on claims data with the Insurance Information Bureau, an insurance data repository.

The circular issued by GIC, was only applicable to eight occupancies including companies engaged in manufacturing rubbers goods, plastics, textiles, chemical manufacturing below 32 degrees centigrade flash point, transporters' godowns, steel plants and thermal power plants.

According to the GIC Re circular, all non-life insurance companies were instructed to add the cost of procurement/management costs to the IIB-identified rates and then quote accordingly to their corporate clients. As a result, companies saw a three- to nine-fold rise in their insurance cost.

The steep rise in the insurance premium aggrieved the pharma majors and in order to seek a judicial review into the quantum of the premium fixed by the insurance company a petition was filed by the companies.

For instance, the petition from Wockhardt Limited said that it had bought an annual insurance policy from private insurer Future Generali India Insurance Company Limited paying a premium of Rs 1.32 crore. However, on account of the impugned circulars issued by GIC Re, the said premium has increased steeply from Rs 1.32 crore to Rs 5.83 crore, excluding GST.

The counsel representing the pharma companies contended that the GIC circulars insisting upon the premium to be charged by insurers trimmed the freedom of the insurers to charge insurance premium as per their prudence, and was an unfair exercise of the dominance enjoyed by GIC Re.

However in its order dated April 12, the Delhi High Court noted that insurance companies are required to mandatorily re-insure only 5 per cent of the risk covered by them and "the premise that GIC had fixed the insurance premium chargeable by various general insurance companies, is erroneous and the petitioners challenge founded on this premise must necessarily fail."