Dispute Over Settlement of Coronavirus Insurance Claims Reaches Supreme Court

The dispute over the payment of approximately Rs 11.5 billion in insurance claims to the general public affected by the COVID-19 pandemic has reached the Supreme Court. The Nepal Insurers’ Association, an umbrella organization representing non-life insurance companies, filed a writ petition against the government on Sunday, citing the government’s failure to meet its obligations as per the Coronavirus Insurance Standard 2020.

The writ, filed by Ashok Kumar Khadka, general secretary of the Nepal Insurers’ Association, lists the Government of Nepal and the Office of the Prime Minister and the Council of Ministers as defendants. The petition calls for an order to enforce the government's commitment to pay out claims under the coronavirus insurance scheme.

The dispute has escalated as the insured individuals began taking legal action due to non-payment of claims. Recently, the Biratnagar High Court, in response to a case filed by the Morang chapter of the Federation of Nepalese Journalists, ordered Ajod Insurance to settle the insurance claim of a COVID-19-infected policyholder as per their agreement. Following this order, insurance companies collectively filed a lawsuit against the government, citing operational challenges due to these legal pressures.

Nepal Insurers’ Association President Chunkey Chhetri stated that the government’s failure to fulfill its financial obligations left insurance companies unable to settle claims. According to the Coronavirus Insurance Standard, non-life insurance companies were responsible for payments up to Rs 1 billion, reinsurance companies for claims between Rs 1 billion and Rs 2 billion, and Non-Life Insurance Companies’ disaster fund for claims between Rs 2 billion and Rs 2.5 billion. Claims between Rs 2.5 billion and Rs 3.5 billion were to be covered by the then Insurance Board, while claims exceeding Rs 3.5 billion were to be borne by the government.

According to the Auditor General's report, by June 2022, Rs 6.1 billion had been paid under COVID-19 insurance claims, while Rs 11.34 billion remained outstanding.

After facing public criticism for its inaction, the government in October 2022 negotiated a revised agreement with the insurance companies. It stipulated that 55% of the claims would be covered by the government, 12% by Nepal Reinsurance Company, 25% by insurance companies, and 8% by the Insurance Board. The government has since provided Rs 1 billion for claims settlement but has not released any additional funds.

The Office of the Auditor General raised concerns in its report about the government’s unlimited liability for COVID-19 claims, which had been approved by a secretary-level committee. The report also instructed the Nepal Insurance Authority to ensure the payment of outstanding claims made by insurance companies.

Coronavirus insurance policies were first introduced in March 2020, when the then Insurance Board issued a directive to companies to start offering these policies. Despite initially being offered as a social responsibility measure, the insurance companies faced immense financial pressure as the number of infections surged. The companies attempted to halt sales of the policies after three months. However, the government, under pressure from the Ministry of Finance, continued the scheme by offering subsidies.