Insurance company cannot take defence which did not form the basis of repudiation of claim

JSK INDUSTRIES PVT. LTD. versus ORIENTAL INSURANCE COMPANY LIMITED
SUPREME COURT OF INDIA
CIVIL APPEAL NO. 7630 OF 2022

THE APEX COURT: an insurance company cannot take defence which did not form the basis of repudiation of claim.

THE BRIEF FACTS

1. The repudiation of a claim in respect of a "Marine CargoOpen Policy" gives rise to this appeal and the appellants are the claimants before us.

2. The policy initially covered a sum of rupees two hundred crores. Under the heading "Risk Details", against Sl.No.1 of the policy document, next to the column "Voyage", it was indicated "from anywhere in India to anywhere in India".

3. Period of Insurance was from 29th October 2009 to Midnight on 28th October 2010.There was subsequent addition of terms and raising of insurance coverage as well.

4. Fresh endorsement schedules were issued incorporating the changes. These endorsement schedules, however, carried the expression "Attached to and forming part of policy No.12012/21/2010/876" (that being the original policy number).

5. The endorsement schedule dated 25th November 2009 described the policy as "On the Sales Turnover basis". This endorsement became effective from 14:50 hrs on 25th November 2009. The next endorsement was made on 8th April 2010, also attached to the original policy, by which sum insured was raised by a further rupees two hundred crores.

6. The appellants are traders and manufacturers of aluminium products. They claim to have purchased, by high seas sale agreement dated 22nd June 2010, eight containers of aluminium ingots. These containers had arrived at Jawaharlal Nehru Port Trust (JNPT) and from there, they were sent to the appellants' factory unit at Silvassa by a transporter by road.

7. The appellants' case is that out of the eight containers, one was stolen and the incident of theft took place on 2nd July 2010.

8. According to the appellants, value of stolen goods was rupees thirty-four lakhs ninety two thousand and eighty one.

9. Their claim was lodged with the respondent on 18th March 2011 but this was repudiated by the latter.

10. The appellants then approached the State Consumer Disputes Redressal Forum (Maharashtra) against the insurance company. We shall henceforth refer to the said forum as the State Commission.

11. The appellants' initial Complaint Case no. CC/12/177 was rejected by the State Commission, by an order passed on 27th July 2012 and the appeal against that dismissal order registered as Appeal No. 700 of 2012, was also dismissed by the National Consumer Disputes Redressal Commission ("National Commission") by an order pronounced on 15th January 2018.

OBSERVATIONS AND DECISION

12. After the appellants lodged the claim, the insurance company by a communication dated 7th September 2011, raised certain queries. These included:-

"1. The above stock turn over policy was issued on 29.10.2009 for a sum insured of Rs. 200 crores. As per the documents and statements submitted the above sum insured has exhausted as on 22.12.2009 & no balance was available to cover further declarations.

2. Endorsement for increase in sum insured was passed on 08.04.2010 for Rs. 200 crores which was fully utilized to cover declarations for the period 08.04.2010 till May 2018 as per the documents and statements submitted.

3. The above loss has occurred between 10.07.2010 & 12.07.2010 and as per 1& 2 above there is no sufficient balance to cover the above declarations and/ or loss. However you being given one more opportunity to substantiate your claim in view of the grounds of repudiation mentioned before a final decision is taken of cure end your representation/ clarification must reach us within 2 weeks from the date of receipt of this letter, Please note that in case we have response from you within 2 weeks from the date of receipt of this letter the claim shall stand repudiated for the reasons indicated above without further advices from us."

13. As it would be evident from the aforesaid communication, the appellants were given an opportunity to explain their stand in the light of the preliminary view of theinsurance company that their claims were not tenable. The appellants took a stand that their insurance coverage was enhanced to Rs.400 crores and in a table contained in their response dated 20th September 2011, it was explained by them that the aforesaid coverage of Rs.400 crores was not exhausted.

14. The insurance company, however, stuck to their stand and formally repudiated their claim by a letter issued on 24th January 2012. The ground for repudiation was that there was no sufficient balance to cover the declaration and/or loss. The repudiation letter recorded:- "The reply submitted by you have been examined and the Competent Authority has concluded that no new facts have been brought/furnished by you which could satisfactorily answer the issues raised in our above letter. Your claim therefore has been repudiated for the reason mentioned in our above letter i.e. "there is no sufficient balance to cover the above declaration and/or loss".

DECISION

15. Addressing the merits of the present case, we find that the National Commission mainly rejected the appeal of the appellant on the ground that they had converted "from anywhere in India to anywhere in India" policy into the sales turnover policy covering transportation of goods only from two locations specified in the endorsement made on 25th November 2009 .

16. The repudiation of the appellants' claim was on the ground of exhaustion of insurance coverage and the State Commission also determined the issue primarily on that ground. Both the National Commission and the State Commission had referred to, in their respective decisions, the nature of the policy but the State Commission did not come to a specific finding as to whether the goods otherwise remained insured from the JNPT port to the appellants' factory. It was the finding of the National Commission on the other hand that the policy was only applicable on supplies made from the two locations at Silvassa.

We have quoted this passage from the order of the National Commission earlier in this judgment. As regards financial limit of the policy, the appellants' stand before the National Commission was that there was available coverage of Rs. 3.89 crores to accommodate their claim. On this count, the observation of the National Commission was that if exhaustion of the coverage limit was the sole reason for repudiation of the claim, the matter could have been remanded to the State Commission for the decision of the complaint on merits.

17. In our opinion, that was the course which ought to have been directed by the National Commission because the only ground on which repudiation of the claim was made was lack of financial coverage. Thus, following the ratio of the decision of the Coordinate Bench in the case of Saurashtra Chemicals Ltd. (supra), the National Commission ought not to have gone beyond the grounds of repudiation and into the nature of coverage, which according to the National Commission had effectively changed from "anywhere in India to anywhere in India" to a sales turnover policy, limiting the policy coverage of the subject-goods from the points of departure at the two locations at Silvassa. These are all terms of art applicable to the insurance trade but we do not consider it necessary to dilate on this aspect of the dispute having regard to the decision of this Court in the case of Saurashtra Chemicals Ltd. (supra).

18. Under these circumstances, we set aside the decisions of the National Commission as also of that State Commission and remand the matter to the State Commission for taking a decision afresh on the claim of the appellants on the grounds which formed the basis of repudiation and determine as to whether at the material point of time there was sufficient balance to cover the claim on account of declaration made as regards loss suffered by the appellants.

LET'S CONSIDER DECISION OF APEX COURT IN Saurashtra Chemicals Ltd. (supra). In that case, it was a claim relating to standard fire and special perils policy. Repudiation was solely on the ground that a spontaneous combustion did not result into fire  and loss had not been caused by the fire as stipulated by policy conditions.

The insured had approached the National Commission. One of the defences taken by the insurance company in the Commission was that the intimation of claim was with delay for over a month. This delay, according to the insurance company vitiated condition 6(i) of the general conditions of the policy, as applicable in that case.

The insurance company was successful before the National Commission.

The insured preferred an appeal which was heard and decided by a Coordinate Bench. Before the Bench, the main point on which the case turned was that the insurance company was taking a defence which did not form the basis of repudiation of the claim.

It is in that context this Court held this was impermissible. The reasoning of the Court appeared in paragraph 23 of the report, which we have quoted above

CONCLUSION 

The above decision of the Apex Court in various cases clearly point out the importance of drafting of Repudiation Letter by insurance companies. A Repudiation Letter is an important document in a suit of insurance claim. The wordings of Repudiation Letter should be clear and includes all possible ,valid grounds of repudiation. Since in later stages or in court of law an insurance company cannot take stand other than ,what is mentioned in the Repudiation Letter.