• PAGE ONE
• INDEX
• HOME

SC rules in favour of insurance claimant

Our Legal Correspondent

NEW DELHI, Dec. 5

IN a significant judgment, the Supreme Court has held that a contract of insurance, being a contract of utmost good faith, the conditions of the insurance should be made clear to the insured before the policy is issued to him.

``No deficiency on the part of the insured can be found or alleged at a subsequent stage to defeat the claim of the insured'', the court said.

The ruling was given by a Division Bench comprising Mr Justice M.J. Rao and Mr Justice K.J. Balakrishnan while directing Oriental Insurance Company Ltd to pay Hanil Era Textiles Ltd Rs 1,20,77,614 with 12 per cent interest per annum from March 14, 1997 _ the date when the company filed its claim before the National Consumer Disputes Redressal Commission.

The court, thereby, allowed an appeal by the company. The appeal was directed against a judgment of the National Commission which had dismissed its claim.

The appellant company had taken 12 fire insurance policies in 1994 for a total assured sum of Rs 125.72 lakh from January, 1994 to October, 1995 and were later renewed from time to time.

The policies covered raw materials, stocks, plant and machinery, accessories, spares, building etc.

The appellant paid an additional premium of Rs 93,316 as demanded by the insurance company for the blow-room in Mill `B' as it attracted a higher premium.

A major fire broke out in Mill `B' destroying the stocks, machinery and building. The blow-room was, however, not affected by the fire.

The surveyors of the insurance company assessed the net claim of Rs 3,68,60,231 after several months. The company put the loss suffered by it at around Rs 7 crore.

The insurance company, on January 24, 1995, demanded an additional premium of Rs 49,89,463 as the Tariff Advisory Committee (TAC)-approved type automatic diversion system or Co2 flooding system in the chute feeding arrangement between the blow-room and t he carding section was not installed in the mill and absence of the fire protection system as prescribed under the TAC Regulation for the entire factory with effect from January 1, 1995 excluding the raw material in godown.

Subsequently, the additional premium was raised to Rs 1,13,13,344. The company did not pay the additional premium. The insurance company, however, settled the claim for Rs 2.94,10,834 and after deducting customs liability and Rs 1,20,77,614 towards alleg ed short-charged premium, the company received a cheque for Rs 1,71,33,220 out of a total claim of Rs 3,68,60,231.

Aggrieved by the action of the insurance company, the appellant filed a claim petition before the National Consumer Commission, which came to be dismissed.

The apex court, in its 15-page judgment, rejected the plea of the insurance company that the appellant had not taken effective steps to segregate the blow-room.

``The respondent-insurance company has also not produced any correspondence to show that when the insurance policies in question were issued, the appellant was informed about the precautions to be taken or that it refused to comply with the requirements, '' the judges observed.

The court said it was clear that the respondent insurance company recovered the premium at a higher rate for the blow-room and this could only be on the basis of the acceptance of the fact that the blow-room was a separate unit.

Therefore, the contention of the respondent that the blow-room and the rest of the area was a single communicating structure cannot be accepted.

The subsequent additional premium was sought to be recovered from the appellant apparently much after the lapse of the validity period of those policies.

``Therefore, we hold that a sum of Rs 1,20,77,614 due to the appellant was illegally withheld by the respondent,'' the judges said and directed the payment of the same with interest.