What Legal Actions Can You Take for a Short-Settled Insurance Claim

 

“Ninety Five Percent”

 

This Staggering statistic belongs to the ‘Council for Insurance Ombudsmen (CIO) 2023-24 report’... For the percentage of health insurance complaints

 

“95% of health insurance complaints were because insurers partially or completely denied claims.” states BasuNivesh in their September 2025 article. 

A short settlement is not a gesture of “partial help.” It is a deduction. A decision that must be legally justified — in writing, with reference to specific policy clauses and regulatory limits. This guide breaks down why short settlements happen, what the law says, and the practical and legal routes available to challenge them effectively.

1. What a Short Settlement Really Means

A short settlement occurs when the insurer approves your claim but reduces the payout. Legally, such deductions must be transparent. Insurers cannot rely on internal assumptions or unpublished benchmarks unless they can justify them.

But why do insurers reduce payments?

1.  “Reasonable & Customary Charges”

Insurers compare the hospital’s bill to their internal rate list or benchmark. If the amount is higher, they deduct the difference. However, insurers must disclose how they arrived at these benchmarks when questioned. Unsupported benchmarks cannot be grounds for arbitrary deductions.

2.  Consumables, Non-payables, and Exclusions

Items like gloves, PPE kits, stents, implants, syringes, certain diagnostics, etc., are frequently listed as non-payable. But exclusions are and must be explicit, not implied. Ever.

3.  Vague explanations

Terms such as “reasonable,” “customary,” and “policy norms” cannot be used as sweeping categories for deductions. High Courts have noted that insurers must demonstrate the basis for their discretion, not merely assert it.

4.  Under-assessment

In property, motor, or fire insurance, the insurer may undervalue the damage. If the surveyor’s assessment is incomplete, contradictory, or inconsistent with the evidence, the policyholder is entitled to challenge it.

2. What the Law & Regulators Say

Insurance contracts in India are governed by statutory duties, not just commercial practices.

●     Claims must be settled within 30 days of receiving all necessary documents. Delays beyond this period attract penal interest.

●     For a Health insurance claim-

1.         Cashless claims: Within three hours.

2.         Non-cashless claims: Within 15 days.

●     For Life insurance (Death claims)

1.         Claims that DO NOT require investigation: Within 15 days

2.         Claims that DO require investigation: Within 45 days

●     Policyholders have the right to escalate unresolved complaints to:

1.         Insurer’s Grievance Cell

2.         IRDAI’s Bima Bharosa

3.         The Insurance Ombudsman (CIO)

The Supreme Court consistently reaffirms “Doctrine of Contra Proferentem”, meaning that any ambiguity in policy wording must always be interpreted in favour of the consumer (the insured) to protect policyholders who have little to no bargaining power against large corporations, especially without a Subject Matter Expert.

3. What To Do When You Receive a Short Settlement

When you get a payout that feels incomplete, your immediate response shapes the outcome.

1.  Ask for a Detailed Breakdown

Request a written explanation showing:

●     Each deduction

●     The clause supporting the deduction

Once the insurer puts these details on record, the scope for arbitrary decisions narrows significantly.

2.  Build a Clear Case Timeline

Record key dates:

●     Hospitalisation

●     Claim submission

●     Document submission

●     Claim Settlement issuance

●     Follow-up communication

This timeline becomes crucial for escalations.

3.  Organise Your Evidence File

Keep both physical and digital copies of:

●     Itemised bills

●     Doctor’s notes

●     Discharge summaries

●     Pre-authorization forms

●     Emails and call logs

Documentation strengthens your claim more than any argument.

4.  Challenge Deduction in Writing

Write a concise, factual appeal for any Insurance claim related issues you are facing, asking for clarification. Once the question is formal, the insurer is obligated to respond with reasons, not assumptions.

4. Escalation Pathways (If the Insurer Does Not Resolve It)

1.  Internal Grievance Redressal

Every insurer has a grievance cell. Register your complaint in writing with a clear subject:

“Appeal Against Short Settlement of Claim No. XXXXX”

Ask for a formal review and keep the acknowledgement.

2.  IRDAI’s Bima Bharosa

If the insurer does not resolve the issue, escalate it to IRDAI — the regulator monitors delays, mismatched settlements, and unfair deductions.

3.  Insurance Ombudsman

A free and faster forum designed specifically for consumers. Ombudsman decisions are binding on insurers.

4. Consumer Court or Civil Court

For high-value disputes or repeated misconduct, policyholders can approach consumer courts. Courts examine:

●     Whether deductions were justified

●     Whether the insurer acted fairly

●     Whether the policy wording supports the decision

Here is your Dos & Don’ts

DO:

✔    Ask for everything in writing (promises, clarifications, approvals)

✔    Keep both physical and digital copies of every bill or communication

✔    Review policies annually — your needs change, and so should coverage 

✔ Seek help early — don’t wait until bills become overdue or money is gone

DON’T:

✘ Assume that a partial payment means “that’s it”

✘ Rely on verbal explanations from call center agents

✘ Throw away supporting docs just because the settlement came in

✘ Let silence from the insurer be treated as acceptance

✘ Try to fight alone if the matter is large or complex

 5. When to Bring in a Subject Matter Expert

Insurance companies operate with dedicated legal, underwriting, and technical teams. An experienced Subject Matter Expert operates with deep knowledge of  Insurance claim related issues, claim rejection related issues and mis-soldinsurance policies, making sure any Complaintabout Insurance company is vehemently supported by expertise. 

A subject matter expert can:

●     Interpret your policy bond and identify clauses misused by the insurer

●     Prepare escalation paperwork professionally

●     Cite IRDAI circulars and Ombudsman precedents appropriately

●     Represent you in hearings or negotiations

●     Reduce your emotional and administrative burden

Insurance companies have teams trained in minimizing payouts. You deserve someone trained in maximizing them.

 A Final Perspective

A reduced settlement shouldn’t become an additional burden. The law, the regulator, and established judicial principles all reinforce one idea: policyholders deserve clear, fair, and complete settlements.

You invested in security. Now let that investment fight for you — fully, fairly, and with clarity.

As the renowned American Supreme Court Justice, Oliver Wendell Holmes Jr. once said, “The law is the witness and external deposit of our moral life.”