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Insurance claims will be partly or fully rejected if there are issues or accidents in the future

When car companies recall their vehicles to fix problems such as jammed windows or dysfunctional wipers, the exercise may seem a hassle. But the devil lies in the details — if there is a problem in the car due to these small issues, the insurer is likely to reject your claim. For instance, car brakes control the rear tyres of a car. If there is an accident in which the tyres could not be controlled due to faulty brakes, the insurer will only partially honour or not honour claims at all, as the insured was aware of the defect. Similarly, if a power steering is jammed or too loose, then, too, the wheels could be impacted.

The solution: If your car company is recalling your model, go ahead and resolve the issue, irrespective of whether the problem is big or small. Last week, Maruti Suzuki India recalled 1,492 cars across four models — Ertiga, Swift, Dzire and A-Star — to inspect possible defects in the steering column; it recalled the models manufactured between October 19 and October 26 this year. The last major recall by the company was in February 2010, when it recalled about 100,000 units of its export model A-Star to replace a faulty fuel pump part. This year, both Ford India and Nissan recalled a number of their models. A recall does not mean the vehicle is substandard. Most of the issues are small ones and often, these defects can be fixed in a single day.

"If you know there is a problem with the car and the car in involved in an accident because of the defect, any loss would be consequential. The claim filed for such a loss would not be honoured because of ’gross negligence’ on the part of the insured," says Mukesh Kumar, head (strategic planning), human resources and marketing, HDFC Ergo. But this is true only if the time to fix a defect has passed, says Amarnath Ananthanarayanan, chief executive of Bharti AXA General Insurance.

"There is a specific time given to a car owner to get the faulty part rectified. If an accident takes place within that period, the car manufacturer has to pay for the losses incurred by the car owner." If the cause of the accident is not the defective part, then, too, your claim may be honoured, depending on the survey of the vehicle — it may be possible the defective part is the cause of the accident, albeit indirectly.

One may wonder how an insurance company would know a car model has been recalled. Though it’s true that most insurers do not have a fool-proof information system, why take a risk? If an accident takes place long after the recall has been announced and the insurer’s survey shows the accident happened due to a manufacturing defect, it would enquire about a recall before deciding on the claim.