1996 JTR(SC) 1298
1997 AIR(SC) 408 ; 1996 AIR(SCW) 3787 ; 1996 2 APLJ 82 ; 1996 3 CCC(SC) 365 ; 1998 92 CompCas 331 ; 1996 3 CPJ(SC) 8 ; 1996 3 CurCC(SC) 365 ; 1996 DNJ 373 ; 1996 3 ICC 829 ; 1996 7 JT 503 ; 1996 3 PLR(SC) 720 ; 1997 1 RCR(Civ) 32 ; 1996 6 Scale 258 ; 1996 6 SCC 428 ; 1996 SCR 20 ; 1996 6 Supreme 620 ; 1996 7 Supreme 166
SUPREME COURT OF INDIA
G.B.Pattanaik : K.Ramaswamy
United India Insurance Company Limited: M.K.J.Corporation
Versus
M.K.J.Corporation: United India Insurance Company Limited
Case No. : .
Date of Decision : 8/21/96
Advocates Appeared: Chhabra Sanjay : Dayal Pramod : Raghavan S. : Rajan K.B.S. : Rajan Pushpa : Suri S.M.
Act Referred :INSURANCE ACT : S.64(u)
(A) The Insurance Act, specifically Section 64(u), authorises the Tariff Advisory Committee to formulate model policy clauses, including those covering riot, strike, and malicious damage, which are incorporated into fire policies for stock in process. These clauses operate as exclusions if loss arises from total or partial cessation of work or interruption of operational processes, but such exclusion cannot be invoked unless the insured has been given proper notice and the coverage expressly includes the peril. The statutory framework and the tariff recommendations directly govern the interpretation of the fire policy relied upon by the appellant-insurer in denying liability for spoilage of leather caused by a workers strike.
(B) Key legal principles include the paramount duty of utmost good faith in insurance contracts, the requirement of clear disclosure and notice of exclusionary clauses, the binding nature of Statutory Advisory Committee recommendations when incorporated into a policy, and the temporal limitation for computing interest from the date of claim rejection. Materiality of facts is assessed at the time of contracting, and an insurer cannot rely on an exclusion not expressly brought to the insureds attention.
Facts of the case:
The respondent held two consecutive fire insurance policies covering leather in process, during which an employee strike caused spoilage of the stock. Claims were made for the loss, the tribunal accepted them and awarded payment with interest, and the respondent also sought consequential damages. The appellant-insurer contended that the Tariff Advisory Committee clause excluded loss due to strike, but had not incorporated the clause into the policy. The Commission rejected the exclusion argument.
Findings of Court:
The Commission correctly held that the exclusion clause was not part of the contract, that the insurer was liable under the riot, strike, and malicious damage coverage, and that interest should accrue from a reasonable date after claim rejection, calculated at 12% per annum.
Issues:
Whether loss caused by a workers strike is covered under the fire policy, whether an unincorporated Tariff Advisory Committee exclusion clause can be enforced, and from what date interest on claim rejection is payable.
Ratio Decidendi:
An insurer cannot rely on an exclusionary clause not expressly incorporated into the policy, and must be deemed to have accepted the risk of strike damage when issuing a riot and strike endorsed policy; interest runs from a reasonable time after claim rejection when the insurer delays decision without justification.
Result:
The appeals are disposed of without costs; the insurer is liable to pay the claimed amount with interest at 12% per annum from 1 January 1991.
(A) The Insurance Act, specifically Section 64(u), authorises the Tariff Advisory Committee to formulate model policy clauses, including those covering riot, strike, and malicious damage, which are incorporated into fire policies for stock in process. These clauses operate as exclusions if loss arises from total or partial cessation of work or interruption of operational processes, but such exclusion cannot be invoked unless the insured has been given proper notice and the coverage expressly includes the peril. The statutory framework and the tariff recommendations directly govern the interpretation of the fire policy relied upon by the appellant-insurer in denying liability for spoilage of leather caused by a workers strike.
(B) Key legal principles include the paramount duty of utmost good faith in insurance contracts, the requirement of clear disclosure and notice of exclusionary clauses, the binding nature of Statutory Advisory Committee recommendations when incorporated into a policy, and the temporal limitation for computing interest from the date of claim rejection. Materiality of facts is assessed at the time of contracting, and an insurer cannot rely on an exclusion not expressly brought to the insureds attention.
Facts of the case:
The respondent held two consecutive fire insurance policies covering leather in process, during which an employee strike caused spoilage of the stock. Claims were made for the loss, the tribunal accepted them and awarded payment with interest, and the respondent also sought consequential damages. The appellant-insurer contended that the Tariff Advisory Committee clause excluded loss due to strike, but had not incorporated the clause into the policy. The Commission rejected the exclusion argument.
Findings of Court:
The Commission correctly held that the exclusion clause was not part of the contract, that the insurer was liable under the riot, strike, and malicious damage coverage, and that interest should accrue from a reasonable date after claim rejection, calculated at 12% per annum.
Issues:
Whether loss caused by a workers strike is covered under the fire policy, whether an unincorporated Tariff Advisory Committee exclusion clause can be enforced, and from what date interest on claim rejection is payable.
Ratio Decidendi:
An insurer cannot rely on an exclusionary clause not expressly incorporated into the policy, and must be deemed to have accepted the risk of strike damage when issuing a riot and strike endorsed policy; interest runs from a reasonable time after claim rejection when the insurer delays decision without justification.
Result:
The appeals are disposed of without costs; the insurer is liable to pay the claimed amount with interest at 12% per annum from 1 January 1991.
(1) WE have heard learned counsel on both sides.
(2) BOTH the appeals are heard and disposed of together since claims arising out of them arise out of the same cause of action.
(3) THESE appeals arise from the orders dated 12/1/1995 of the National Consumer Redressal Commission ("the Commission", for short) made in Original Petitions Nos. 62 and 102 of 1993. Admittedly, the respondent was holding two policies. First policy covered the period from 31/3/1986 to 31/3/1987 and the second policy covered the period from 1/4/1987 to 31/3/19888. During the said period, admittedly, due to the employees strike the leather in process was damaged due to the spoilage. The respondent laid claims for damages caused during the first period for a sum of Rs. 4,99,453.23 and for the second period for Rs. 5,000.00 which amount to a total of Rs. 5,04,453.23 with interest from the date of the claim. The tribunal accepted the claim and directed payment of the said amount with interest at 18% from one month after the date of the claim. The respondents Appeals Nos. 11443-44 of 1995, though arise from the impugned order, are for the claim of consequential loss in the sum of rs 14,00,000.00.
(4) SHRI Suri, the learned counsel for the appellant-Company, contended that insurance coverage is only for riots and strikes and malicious damages and spoilage "under spoilage Item 8" clearly enumerates as under:
"STOCKS or leather of all kinds in process during soaking, liming, fleshing, tanning, wet blue, sammying, splitting, shaving, dye liquering, setting, vacuuming, drying."
(5) THE learned counsel relying upon these clauses, seeks to read clause (b) of "Section 2 - Fire Policy C of Part II - Fire Policies, Endorsements, Clauses and Warranties" as recommended by Tariff Advisory Committee constituted under Section 64(U) of the Insurance Act, 1938. Since these recommendations are made by the Advisory Committee which is a statutory authority they bind the appellant-insurer as they are an integral part of the policies referred to hereinbefore. Resultantly, by operation of clause (b), the insurance does not cover if loss or damage results from total or partial cessation of work or the retarding or interruption or cessation of any process of operation or omissions of any kind. According to the learned counsel, since the damage was caused due to the strike organised by the workmen of the insured, by operation of clause (b), the appellant-insurer is not liable for the loss to the goods while the leather remains unattended in its process during the period of strike. We are unable to agree with the learned counsel. It is true that the Advisory Committee is a statutory body which has gone in and recommended the policies for riot, strike and malicious damages. The clause would exclude the insurance company from the coverage, if the loss or damage resulted from total or partial cessation of work or the retarding or interruption or cessation of any process of operation or omissions of any kind which would include strike by its workers. This may be due to either the operational inconvenience due to non-supply of the electricity or strike by the employees or any cause but the insured must be put on notice of this clause.
(6) IT is a fundamental principle of Insurance law that utmost good faith must be observed by the contracting parties. Good faith forbids either party from concealing (non-disclosure) what he privately knows, to draw the other into a bargain, from his ignorance of that fact and his believing the contrary. Just as the insured has a duty to disclose, "similarly, it is the duty of the insurers and their agents to disclose all material facts within their knowledge, since obligation of good faith applies to them equally with the assured".
(7) THE duty of good faith is of a continuing nature. After the completion of the contract, no material alteration can be made in its terms except by mutual consent. The materiality of a fact is judged by the circumstances existing at the time when the contract is concluded. In the present case, the introduction of the Tariff Advisory Committee document materially affects the terms of the policy, resulting in the denial of the very indemnity of claim. And this was what the appellant sought to do, at the stage of clearing of the complaint. The Commission rightly rejected the appellants plea. Notwithstanding this, on behalf of the appellant, it was insisted that the instructions of the Tariff Advisory Committee form part of the contract. Admittedly, the appellant-insurer had not incorporated the above-quoted clause as part of the policy undertaken with the insured. Consequently, the insured is not bound by this exclusionary clause of liability since the appellant-insurer, admittedly, had undertaken liability for the riot or strike, damage due to riot or strike.
(8) SINCE the surveyor had submitted a report after due verification that the damage to the leather was caused due to the strike organised by the workmen, in our considered view, the insurance is covered by the RSD and MD clause. Accordingly, the appellant-insurer is liable to pay the insured amount for the spoilage of the leather caused due to strike organised by the workmen,
(9) IT is then contended that the appellant is not liable to pay interest from the time of the loss which occurred only from the date of the claim rejected by the appellant-insurer. It is difficult to accept the contention in toto. It is axiomatic that the insured requires to lay specific claim for damages giving details of the damages caused to the leather due to the strike organised by the workmen. On preferring claim thereof, admittedly, the surveyor, which is an independent agency, should inspect the factory and submit a report. From the record, it would be clear that the claim was made for the first time on 13/11/1989. Thereafter, all the particulars were furnished by the insured- respondent in August 1990. Thereon, the surveyor inspected and submitted his report on 30/10/1990. Thereafter, the insurance company is required to take a decision. Admittedly, 5 months have elapsed for taking decision to reject the claims. We think that a reasonable time of two months would be justified for them to take a decision whether claim requires to be settled or rejected in accordance with the policy. Therefore, two months would be computed from 30/10/1990. Accordingly, we give the benefit of the time taken to decide the claim up to 31/12/1990. The appellant-insurer is liable to pay interest from 1/1/1991 till date of payment.
(10) THE next question is what rate of interest the insured-respondent is entitled to get? In common parlance, when the insured-respondent is deprived of the right to enjoy his money or invest the money in business, necessarily the loss has to be compensated by way of payment of interest by the insurance company. We are informed that as per the directions of the government of India the appellant-insurance company has no option but to invest the money in the securities specified by the government of India under which the insurance company is securing interest on investment at the rate of 11.3% per annum. Under these circumstances, the appellant- insurance company is liable to pay interest at 12% per annum from 1/1/1991 till date of payment. It is then contended that as per the policy, the respondent is entitled to consequential loss as per the independent policy. The Commission no doubt did not give any independent reason for the same but all the claims were heard and disposed of together. Under these circumstances, we are of the view that the claims must be deemed to have been rejected.
(11) THE appeals are accordingly disposed of but, in the circumstances, without costs.