Case BriefsSupreme Court

Supreme Court: In an interesting case regarding insurance claim, the Division Bench comprising Hemant Gupta and V. Ramasubramanian*, JJ., reversed the NCDRC’s decision directing the insurance company to indemnify the insured of a Marine Insurance Policy on the sole ground of delay in repudiating claim.

The Court held,

“The delay in processing the claim and delay in repudiation could be one of the several factors for holding an insurer guilty of deficiency in service. But it cannot be the only factor.”

The instant appeal had been filed under Section 23 of the Consumer Protection Act, 1986 against the impugned order of the National Consumer Disputes Redressal Commission (NCDRC) directing the appellant-insurer to make payment of the sum assured under a Marine Insurance Policy.

Factual Matrix

The complainant took a policy of insurance for a sum of Rs.1,62,70,000 from the insurer, covering risks to the Mechanical Sailing Vessel MSV Sea Queen for the period 04-10-2010 to 03-10-2011.

On 30-05-2011, the subject vessel allegedly sank in the high sea between Oman and Pakistan, due to bad weather and rough tides, which damaged the lower portion of the vessel. Consequently, the complainant lodged a claim with the insurer. Since the claim was neither admitted nor repudiated, the complainant filed a consumer complaint before NCDRC.

Meanwhile, the insurer repudiated the claim by a letter dated 04-09-2013 on the ground that the subject vessel was engaged in illegal activities and was hijacked by Somali pirates and that in any case, the Meteorological reports of Oman and India showed absolutely fair-weather conditions on 29-05-2011 and 30-05-2011.

Findings of NCDRC

The NCDRC allowed the claim on the basis of the following findings:

(i) Though the incident took place on 30-05-2011, the surveyor was appointed on 03-06-2011 and a Final Survey Report was sent on 25-03-2013, the claim was repudiated by the appellant only on 04-09-2013, i.e., after more than two years, therefore, the inordinate delay violating Regulation 9 of the Insurance Regulatory and Development Authority (Protection of Policyholders’ Interests) Regulations, 2000, constituted deficiency in service;

(ii) Though the insurer raised a dispute with regard to the place and nature of the incident, the claim of the complainant was supported by the statement of the crew members of the subject vessel which was recorded by the Superintendent of Customs and the Immigration Officer;

(iii) The Report of the Meteorological Departments relied upon by the insurer had nothing to do with the place of the accident;

(iv) The plea of the complainant that SOS/ distress calls were made from the subject vessel, was corroborated by the statement of the crew members; and

(v) It was too late for the insurer to raise a dispute with regard to the value of the subject vessel.

In view of the above findings, the NCDRC directed the insurer to pay the complainant, the sum assured of Rs.1,62,70,000 together with interest at 9% per annum.

Factual Analysis by the Court

The complainant’s version was that the subject vessel left Djibouti on 21-05-2011 on its return journey to India but on 30-05-2011, it encountered bad weather and rough tides when it was between Oman and Pakistan. The crew of the subject vessel made a distress call, which was received by the crew of another vessel-MSV Chetak.

Since the statements of the crew members of the subject vessel were also corroborated by the Captain of the rescuing vessel MSV Chetak, the NCDRC found the version of the complainant had been proved. The Court remarked,

“But what the NCDRC failed to see was that there were more questions that remained unanswered in the version of the complainant and that there were more missing links.”

Can receipt time of SOS message and the actual time of rescue be the same?

The head of the rescuing vessel revealed to have heard the SOS call at 10:00 am but according to the head of the subject vessel, they were rescued at 10:00 am. The Court opined that this crucial contradiction had been completely overlooked by the NCDRC. The Court noted that surprisingly, the inquiry by the Surveyors with Muscat Radio revealed that no SOS calls were made nor was any response from the rescuing vessel reported. Similarly, the Meteorological Departments of both countries namely Oman and India confirmed that the weather for the specific area coordinates, Latitude 23=40° N and Longitude 61 =43° E, was fair.

Hence, the Court remarked,

“It is common knowledge that the time of receipt of the SOS message by the rescuing vessel and the actual time of rescue of the crew of the sinking vessel cannot be the same. Even according to the complainant, the subject vessel MSV Sea Queen could travel only at a speed of 67 knots. Unless the rescuing vessel is in close proximity, the time of the SOS call and the time of rescue cannot be the same.”

Deviation from the set route

Admittedly, the normal practice for the Indian Dhows trading from Indian West Coast to the Arabian Gulf Ports and Yemen/Africa, in the month of May is to sail along the coast of Southern Oman and after crossing Kuria Muria Islands and Ras Madraka and set course North easterly to Gujarat. But the coordinates provided by the rescuing vessel showed that the rescuing vessel was positioned at 200 miles North. Therefore, the Court observed that the Surveyor was rightly compelled to draw the inference that subject vessel could not have been in the area where she reportedly sank.

Noting that the Directorate General (DG) of Shipping had issued a Circular dated 31-03-2010 prohibiting the operations/trading in waters South or West of the line joining Salalah and Male, the Court opined that the Circulars issued by the DG Shipping, especially with regard to the safety and security of the vessels and the crew are to be read as part and parcel of the policy conditions.

Allegation of Piracy Attack

Regarding the allegation of a piracy attack, the Court noted that there was a query on 25-10-2010 from both the coast guard and DG Shipping about a piracy attack on the subject vessel, and the same was denied by the complainant in its reply.

Again on 27-10-2010, a query was made through email about the position of the vessel on 23-10-2010, the current position of the Dhow, and the crew list. To which the complainant had replied on the same day that the vessel was near Madarka Yemen on 25-10-2010 and that the exact position on 23-10-2010 was not known.

Hence, it was clear that there was no piracy attack. However, the Court held that the exchange of emails about the suspected piracy attack demonstrated that at least the vessel was plying in the prohibited location.

Discrepancies on the Part of the Complainant

After analysing the facts of the case, the Court noted the following discrepancies on the part of the complainant:

(i) The complainant did not state anywhere in the complaint where exactly the mishap had happened.

(ii) The complainant relied on Column 47 of the Marine Casualty Report issued by the Indian Marine Mercantile Department, to show that the vessel sank due to bad weather. But interestingly, column 47 of the report does not contain any detail except stating broadly that there was rough weather.

(iii) Moreover, Columns 50 to 53 exposed the falsity of the statements made by the captains of both the ships to the Customs Authorities as according to Columns 50 and 51, the incident happened at 4:00 a.m. local time on 30-05-2011 but the captains of both the ships state that the incident had happened at approximately 10:00 a.m.

Conclusion

In view of the above, the Court held that the delay on the part of the Insurance Company in securing the Final Survey Report and the further delay in issuing the letter of repudiation, could not per se lead to the complaint being allowed. The Court opined,

“The Consumer Forum which has a limited jurisdiction to find out if there was any deficiency in service, could not have allowed the complaint on the basis of sketchy pleadings supported by doubtful evidence.”

Consequently, the Court concluded that the NCDRC was in error in allowing the complaint since there was no categorical evidence of any deficiency in service on the part of the insurer. Hence, the appeal was allowed and the impugned order was set aside.

[New India Assurance Co. Ltd. v. Shashikala J. Ayachi, 2022 SCC OnLine SC 874, decided on 13-07-2022]

*Judgment by: Justice V. Ramasubramanian


Advocates who appeared in this case :

Gaurav Agrawal, Advocate, for the Appellant;

Senior Advocate Siddhartha Dave, Advocate, for the Insured.


*Kamini Sharma, Editorial Assistant has reported this brief.

Case BriefsSupreme Court

Supreme Court: In a case relating to double insurance, the 3-Judge Bench comprising of Uday Umesh Lalit, S. Ravindra Bhat* and Pamidighantam Sri Narasimha, JJ., reversed the impugned order of National Consumer Disputes Redressal Commission (NCDRC) which allowed the insurance claim of Levi Strauss (India) Pvt. Ltd. which was repudiated by the insurer.  The Bench opined,

“Levi could not claim more than what it did, and not in any case, more than what it received from Allianz.”

The United India Insurance Co. Ltd. (insurer) had issued a Standard Fire & Special Perils Policy (SFSP Policy) to Levi, covering Levi’s stocks while in storage for the sum of Rs. 30 crores. Meanwhile, the parent company of Levi (Levi Strauss & Co.) had obtained a global policy from Allianz Global Corporate & Specialty (Allianz) covering stocks of all its subsidiaries, including Levi. The coverage through this stock throughout policy (STP Policy) was for $10 million in any one vessel or conveyance, and $50 million in any one location. The parent company also got another “all risks” policy (AR Policy) issued by Allianz covering the stocks of its subsidiaries throughout the world being commercial lines policy. The limit of liability of the AR Policy was up to $ 100 million.

Repudiation of Claim

During subsistence of all these policies, a fire broke out in one of the warehouses containing Levi’s stocks. Levi claimed Rs. 12.20 crores from the insurer. However, the insurer repudiated the claim stating that it was not liable to indemnify the insured in view of the policies issued by Allianz, since Condition 4 in the SFSP Policy clearly stated that the fire policy issued by it excluded liability in respect of property covered by marine policy.

The insurer’s defence was that the SFSP Policy did not cover any loss or damage to the property which at the time of the happening of such loss or damage was insured, by any marine policy or policies.

Findings of NCDRC

On a consideration of Clause 47 of the STP Policy, the NCDRC held that to the extent of the insured risk being covered by the domestic policy, coverage by the STP Policy stood excluded. Therefore, the NCDRC concluded that the loss of profit which Levi would have earned on sale of the damaged/destroyed cost was payable to it by Allianz, whereas the loss suffered by Levi to the extent of the cost of those goods would be reimbursable under the domestic policy issued by the insurer. After noting that Levi had received $4.54 million (Rs. 19.52 crores); the claim was allowed to the extent of Rs. 1.78 crores.

Was the STP Policy a Marine Policy?

Section 4 of the Marine Insurance Act, 1963 clarifies that a contract of marine insurance may, by its express terms, or by usage of trade, be extended so as to protect the assured against losses on inland waters or on any land risk which may be incidental to any sea voyage. Similarly, in Peacock Plywood Pvt. Ltd. v. Oriental Insurance Co. Ltd, 2006 Supp (10) SCR 140, and United India Insurance Co. Ltd. v Great Eastern Shipping Co. Ltd., 2007 (9) SCR 350, it was held that warehouse risks, combined with voyage and other marine risks, are part of marine insurance policies in India.

Further, in the instant case, the first two recitals of the STP Policy, as well as the warehouse-to-warehouse transit (Clause 6) and other stipulations clearly stated that the policy covers both marine and other risks. In fact, the STP describes itself as “Open Marine Insurance Contract”.

Hence, the Bench held that the STP Policy was a marine policy which comprehensively covered voyage, transit, transportation and warehouse perils. Even otherwise, the insurance cover clearly and unequivocally included marine perils, making it a marine cover.

Factual Analysis

Condition 4 of the SFSP Policy, which constituted a contract between the parties, precisely contemplated a situation whereby in the event of occurrence of an insurance risk, if Levi (or someone on its behalf, like in the present case the parent company) was entitled to claim under a marine policy, the insurer was not to be held liable.

In Export Credit Guarantee Corporation of India Ltd. v. Garg Sons International, (2014) 1 SCC 686, it had been held that, “the insured cannot claim anything more than what is covered by the insurance policy. The terms of the contract have to be construed strictly, without altering the nature of the contract as the same may affect the interests of the parties adversely. The clauses of an insurance policy have to be read as they are.”

Hence, the Bench held that on a plain and reasonable construction of Condition 4 of the SFSP policy, once it is established that Levi – or its parent company – was covered for the risk under a marine policy, (the STP Policy) and was entitled to claim under it, the appellant insurer’s liability was excluded. Therefore, Condition 4 operated to exclude the insurer’s liability.

Double Insurance – Overlapping policies

Noticeably, as against the claim of Rs. 12.2 crores made upon the insurer, Levi ultimately received equivalent of over Rs. 19 crores from Allianz and yet kept seeking damages form the other insurer, therefore, the Bench observed,

“What is in issue in this present case has been characterized as “double insurance”, i.e., where an entity seeks to cover risks for the same or similar incidents through two different – overlapping policies.”

The Bench opined that a contract of insurance is and always continues to be one for indemnity of the defined loss, no more no less and in the case of specific risks, such as those arising from loss due to fire, etc., the insured cannot profit and take advantage by double insurance. Reliance, in this regard was placed on the Court on the opinion of Brett LJ in Castettion v Preston, (1833) 11 QBD 380, wherein he said that:

“The contract of insurance … is a contract of indemnity, …, and this contract means that the assured, in the case of a loss …, shall be fully indemnified, but shall never be more than fully indemnified.”

Conclusion

In the light of above, the Bench held that Levi could not claim more than what it did, and not in any case, more than what it received from Allianz. Its endeavour to distinguish between the STP Policy and the SFSP Policy, i.e., that the former covered loss of profits, and the latter – the value of manufactured goods; is not borne out on an interpretation of the terms of the two policies.

Since, Levi had already received substantial amounts towards the sale price of its damaged goods, over and above the manufacturing costs, the Bench allowed the appeal and set aside the impugned order.

[United India Insurance Co. Ltd. v. Levis Strauss (India) (P) Ltd., 2022 SCC OnLine SC 537, decided on 02-05-2022]


*Judgment by: Justice S. Ravindra Bhat


Appearance by:

For the Appellant: A.K. De, Advocate

For the Respondent: Joy Basu, Senior Advocate


Kamini Sharma, Editorial Assistant has put this report together

Jammu and Kashmir and Ladakh High Court
Case BriefsHigh Courts

Jammu & Kashmir and Ladakh High Court: Sanjeev Kumar, J., applied the principle of strict liability to grant compensation to the petitioners who had lost their son due to negligence of the Power Development Department.

The petitioners were the parents of one Parvez Ahmad Gujjar, aged 12 years, who got electrocuted on 09-06-2008 when he incidentally touched the standing green tree touching electricity transmission line. An FIR was registered against the Department of Power Development on the allegation that 33 KV transmission line maintained by the Department of Power Development (PDD) was touching a green tree which created a short circuit in which the son of the petitioners died.

The police, after investigation, proved the case under Section 304-A RPC against the PDD and the medical opinion on record clearly demonstrated that the cause of death of son of the petitioners was due to electrocution.

Opining that the danger of these green trees touching the live wires and creating short circuit cannot be ruled out, the Bench stated,

“The maintenance of electric lines would include cutting and pruning of trees, for, there is likelihood of such trees and their branches coming into contact with live wires during rainy season or otherwise.”

Hence, the Bench held that apart from being vicariously liable for the negligent acts of its employees, who were maintaining and distributing the electricity through transmission lines essentially dealing with a dangerous activity which, having regard to its nature, was hazardous, the department was liable to compensate the petitioners on the principle of strict liability as it was the duty of the respondents to take all care and caution to prevent any mishap.

Reliance was placed by the Court on its recent decision in Abdul Aziz Bhat v. State of J&K, 2013 SCC OnLine J&K 182, wherein it had been held that “…a hazardous or an inherently dangerous activity can be tolerated only on the condition that such an enterprise would indemnify all those who suffer on account of carrying on of such dangerous activity, regardless of whether it is carried on with reasonable and due care. Therefore, even in a case where due care and caution had been taken…”

Accordingly, considering the policy of payment of ex-gratia relief to the Departmental or non-Departmental persons killed or grievously incapacitated due to electric related incidents promulgated vide Order No. 328-PDD/2011 dated 24-11-2011, the Bench held that the petitioners would be entitled to payment of lump-sum compensation of Rs 3.00 lac along with interest at the rate of 6% interest per annum to be calculated from the date of the death. Taking an stricter view, the Bench added, if the compensation awarded is not paid within eight the amount shall become payable along with interest at 9% per annum. [Jamal-ud-Din Gujjar v. State of J&K, 2021 SCC OnLine J&K 771, decided on 07-10-2021]


Kamini Sharma, Editorial Assistant has reported this brief.


Appearance by:

For the Petitioners: B.S.Bali, Advocate

For the State of J&K: F.A.Natnoo AAG

Canada SC
Case BriefsForeign Courts

Supreme Court of Canada: A Full Bench of Abella, Moldaver, Karakatsanis, Côté, Brown, Rowe and Martin, JJ. allowed the present appeal.

In the present case, there was a pulp and paper mill that produced chemicals to bleach the paper by using mercury and waste was dumped into rivers. The mercury poisoned people. In 1977, two First Nations bands sued for damage from mercury contamination. First, the mill was owned by a company called Reed. Great Lakes Forest Products, was interested in buying the properties but because of the lawsuit, it didn’t want to be held responsible for past pollution. The provincial government wanted the sale to go through therefore it gave indemnity to great lakes. The sale, with the indemnity agreement, went through in 1979.

The present case involved contamination of a river by a pulp and paper mill which was owned by Reed company. Another company,  Great Lakes Forest Products,  Thus First Nation Band sued for the discharge of mercury. In 1985 the lawsuit ended and the government gave Great Lakes and Reed a new indemnity covering all claims for previous pollution damage. It covered all claims due to previous pollution damage, including the mercury. It replaced the one from 1979 (and another from 1982). It applied to anyone who might take over the mill later. In 2009, Bowater owned the waste disposal site, and filed for bankruptcy. As part of this process, a court allowed it to abandon the site in 2011. But the Ontario Ministry of the Environment said Bowater and Weyerhaeuser (the previous owner) still had responsibilities. It ordered them to repair the waste disposal site, keep monitoring and testing, and take steps to prevent and deal with leaks.

The appellant Weyerhaeuser and Bowater (Resolute Forest Products) contended that the indemnity from the 1985 settlement applied to the order and the provincial government had to pay for all the costs of complying. 

The majority of judges at the Supreme Court said the indemnity didn’t apply to the order. That meant Resolute and Weyerhaeuser had to cover the costs of complying with it. It was observed that the 1985 agreement didn’t say the government would cover the company’s costs of following environmental rules. It also wasn’t meant to cover claims between the government and the company. It was only supposed to cover claims by third parties i.e. people who didn’t sign the agreement.

It was also observed that the indemnity referred to “pollution claims.” But this wasn’t a pollution claim. There were no leaks and so no new pollution had happened as said by the motion judge. The order was about monitoring and testing to prevent more pollution. The majority said the indemnity was meant to cover claims for new pollution or for mercury already present in the environment from before. It didn’t mean claims for the mercury safely contained in the waste disposal site. 

Therefore it was declared that Weyerhaeuser enjoys no benefit under the Ontario Indemnity and held that the companies can still be responsible for following environmental rules even when they go bankrupt and hence the court allowed the appeal of Resolute. [R. v. Resolute FP Canada Inc., 2019 SCC OnLine Can SC 59, decided on 06-12-2019]