Insurance Fraud: CG Group Ordered to Refund Rs 240 Million in Excess Claim

The Nepal Insurance Authority has directed three companies under the Chaudhary Group (CG) to return approximately Rs 240 million in excess fire insurance payments to the insurance company.

The order follows a court ruling that found the insured parties, insurer, and surveyor had colluded to inflate the actual damage and claim an excessive payout.

The case stems from a fire that broke out in 2012 at a warehouse in Satungal, Kathmandu, belonging to CG Impex, EOL Pvt. Ltd., and CG Electronics Pvt. Ltd. The then United Insurance processed a total insurance claim of Rs 587 million. However, after allegations of fraudulent overestimation, the then Insurance Board of Nepal (now the Nepal Insurance Authority) investigated the claim and determined that only Rs 349.6 million should be paid.

The matter was taken to the Patan High Court, which upheld the Insurance Board’s directive. Subsequently, CG Impex, EOL Pvt. Ltd., CG Electronics Pvt. Ltd., United Insurance, and several insurance employees and surveyors filed 11 different cases challenging the decision. However, the Supreme Court recently ruled in favor of the Nepal Insurance Authority, reinforcing previous verdicts.

On March 4, a joint bench of Supreme Court Justices Nahakul Subedi and Mahesh Sharma Poudel upheld the Insurance Board’s decision. As a result, the three CG Group companies must now return the overpaid amount, confirmed NIA Director Shambharaj Lamichhane.

The insurance policy was reinsured by India’s GIC Re, and United Ajod Insurance (formerly United Insurance, before merging with Ajod Insurance) had already received the reinsurance payout. Consequently, the excess amount must now be refunded to the reinsurance company based on the reinsurance company’s risk coverage.

However, the court ruled that only the principal amount needs to be returned, overturning the board’s earlier directive to include interest. Additionally, the Supreme Court nullified the previous decision to bar the company from issuing fire insurance policies.

The court also upheld fines of Rs 3,000 each imposed on surveyors Surya Joshi and Rajan Thapa for their role in assessing the damages. Similarly, it maintained penalties on employees Prabin Koirala and Gopal Saraf, who were involved in processing the claim.

According to Lamichhane, the Insurance Authority’s investigation found multiple irregularities in the underwriting process. It was revealed that the insurance policy had not been properly assessed, and the company had insured the property in a manner that created a conflict of interest. The inquiry further discovered that although only one of the company’s three warehouses was affected by the fire, claims were submitted for all three. Additionally, the stock of goods was not properly accounted for.

United Insurance, which had Chaudhary Group as an investor, has been operating as United Ajod Insurance since April 2023 following its merger with Ajod Insurance.

To prevent conflicts of interest in the insurance sector, the Nepal Insurance Authority had already introduced the Institutional Governance Guidelines for Insurance in 2018, prohibiting insurance companies from underwriting businesses owned by their operators and settling claims in such cases.