B.K.SETHI vs BRANCH MANAGER, ORIENTAL INSURANCE CO.LTD

BRIEF facts of the case are that Indu Video Films Pvt. Ltd. appears to have raised a loan from Delhi Financial Corporation and for re-payment of the loan mortgaged a residential house No. B120 A & B, Malviya Nagar, New Delhi, belonging to Smt. Sushila Devi Sethi, mother and Mr. Mohan Lai Chopra, uncle of Mr. B.K. Sethi, Managing Director-cum-Chairman of the said company. Delhi Financial Corporation had been taking out insurance policy to cover the plant and machinery at the works of the Company at A-9 Okhla Industrial Area, Phase-1, New Delhi which had been rented by the Company and the aforesaid residential house, which had been mortgaged as collateral security for repayment of the loan. During the relevant year, the Delhi Financial Corporation took out insurance from the Oriental Insurance Company, O.P. 1, for the period 9.11.90 to 8.11.91. The policy was to the tune of Rs. 27,10,149/- regarding the machinery and accessories at the works at Okhla and to the extent Rs. 15 lacs regarding the residential building at Malviya Nagar. An earthquake took place on 20.10.91 at about 2.55 a.m. with devastating effect around Uttarkashi. The same earthquake shook buildings and structures in Delhi. Some of the buildings including the one at Malviya Nagar, was damaged. A claim was lodged on 30.10.91. The opposite party appointed Deepak Anand & Associates as Surveyors. The Surveyors submitted their report dated 15.12.92 assessing the loss to be Rs. 1,76,400 /- but adding that as the policy issued was Fire policy ''C, earthquake stood excluded and the claim was, therefore, not payable. It was also stated by the Surveyor that the building belongs to Mrs. Sushila Sethi and Mr. Mohan Lai Chopra and the insurance cover having been taken in the name of M/s. Indu Video Films Pvt. Ltd. and none of the aforesaid owners being Directors in the said Assured Compary, the question of insurable interest may be considered by the Insurance Company. The claim was repudiated by the O.P. by letter dated 12.1.93 on the ground that earthquake was not covered in the Fire policy ''C which had been issued in favour of the insured. The present complaint was instituted on 27.4.93 claiming Rs. 1,86,000/- as proposed by the Surveyor besides refund of the excess premium of Rs. 7,500/- illegally charged from the insured alongwith interest @ 24% p.a. The total claim made in the original complaint was Rs. 3,96,060/-.

WRITTEN version was filed by the O.P. It was stated that Indu Video Films Pvt. Ltd. had no insurable interest in the residential building. It was also stated that the Fire policy ''C''did not cover loss to property by earthquake. Another objection taken was that the complaint had not been filed by the insured, Indu Video Films Pvt. Ltd., but by the Managing Director thereof in his own name and as such the same was not maintainable. It was further stated that the claim had been duly processed and Surveyor was appointed and after due application of mind the claim had been repudiated and as such there was no deficiency in service on the part of the O.P. The claim for payment of Rs. 3,96,060/- was stated to be wholly mis-conceived. In the rejoinder filed by the complainant, it was stated that the premium chargeable for plant and machinery was @ Rs. 5.53 per thousand and for the residential building it could be charged @ 65 ps. per thousand. Infact the Insurance Company had wrongly and illegally charged premium @ 5.53 per thousand for the residential building as well and thus they had charged Rs. 7,500/- in excess which was recoverable alongwith the remaining claim. It was further stated that the complainant had filed a complaint as Managing Director of the Company and he had been duly authorised by Board of Directors to file the present complaint. With regard to the building, it was started that the same belongs to the mother and uncle of the Managing Directorcum-Chairman of the insured Company and the same had been mortgaged by way of collateral security for the re-payment of the loan raised by the Company.

On September 23,1994, the complainant made an application for impleading Delhi Finan cial Corporation as O.P. 2. The said application having been allowed, Delhi Financial Corporation was impleaded as O.P. 2. The complainant filed amended complaint dated 25.2.94 and the case of O.P. 1 is that several unauthorised amendments were made without any permission which were of substantial nature.

IN its written version O.P. 2, Delhi Financial Corp. inter-alia stated that it had given clear instructions to the INsurance Company, O.P. 1, to issue seperate insurance policies to cover the risk to the machinery etc. and the mortgaged residential house as per its letter dated 2.7.90 but contrary to the instructions, the INsurance Company had issued one composite insurance policy being Fire Policy ''C instead of a separate Fire Policy ''A'' regarding the residential house which was on account of an apparent mistake on the part of the INsurance Company. This was pointed out to the INsurance Company and a rectification sought, though after the loss but to no purpose. Apart fronfthe affidavits filed on behalf of the parties, the complainant also served interrogatories. We have carefully gone through the record and have heard Mr. B.K. Sethi, complainant, Mr. G.N. Rathi, Advocate for O.P. 1 and Mr. Vijay Prakash, Advocate for O.P. 2. Before coming to the main contentions, we may dispose of a few objections which do not require elaborate discussion. The first objection is that the insured was Indu Video Pvt. Ltd. which is a legal entity and the complaint had been filed by Mr. B.K. Sethi as an individual and the same is, therefore, not maintainable. We find that the complainant has been described as B.K. Sethi, Chairman and Managing Director, Indu Video Films Pvt. Ltd. In our view the defect, if at all, it can be called a defect of the form and not of substance. The complainant could be described in one of the two ways namely (a) Indu Video Films Pvt. Ltd. through Mr. B.K. Sethi, Chairman and Managing Director; and (b) B. K. Sethi, Chairman and Managing Director of Indu Video Films Pvt. Ltd. The description at (a) is undoubtedly more accurate. But in our view the second mode of describing the complainant in substance meets the requirement of law and we do not think that the complainant should be non-suited on this technical ground. We, therefore, take it that the present complaint has been filed by the aforesaid Private Limited Company through its Chairman-cum-Managing Director.

THE next objection of Mr. Rathi is that the only prayer made in the application dated 23.9.94 was to add Delhi Financial Corporation, in the amended complaint however apart from introducing certain consequential facts, the complainant had put forward an enhanced claim of Rs. 5,84,250/- for which no permission had been obtained at any stage. THEre is no permission seeking amendnent of any part of the complaint and the only application which was allowed, was to add Delhi Financial Corporation. We would, therefore, proceed on the footing that no other material part of the complaint was amended and the complainant must be held bound by the original complaint dated 27.4.93. It will be convenient to dispose of yet another objection regarding relegating the complainant to the Civil Court after dealing with the main contentions. This brings us to a consideration of the main contentions. The first main contention of Mr. Rathi is that the complainant had no insurable interest in the residential building which was subject matter of the insurance policy. He submitted that as reported by the Surveyor, the building belongs to the mother and uncle of Mr. B.K. Sethi and neither of them had anything to do with M/s. Indu Video Films Pvt. Ltd. He emphasised that the mere fact that the said owners were related to Mr. B.K. Sethi or that the said owners had mortgaged the residential building in favour of Delhi Financial Corporation as a collateral security by itself did not clothe the insured Company with the character of either insured or having an insurable interest. We have carefully considered this contention and we are unable to accept the same. Mr. Rathi took time to cite the relevant case law on the point of insurable interest and as a result of his study he has produced an extract from E.R. Hardy lvamy on law relating to insurance. The relevant part reads as follows : "To constitute an insurable interest capable of supporting a contract of fire insurance, three conditions must be fulfilled : 1. There must be a physical object capable of being destroyed by fire; 2. Such physical object must be the subject-matter of insurance; and 3. The insured must stand in some relation thereto recognised by law in consequence of which relation be may benefit by its safety, or may be prejudiced by its loss. Where the insured is the owner of such object, possessing the whole legal property in it, he has undoubtedly an insurable interest in it, and a part owner is in the same position. An insurable interest is not, however, confined to the interest arising from ownership. It includes every kind of interest that may subsist in or be dependent upon an object exposed to danger from fire. It need not, therefore be a legal interest, an equitable or beneficial interest of any kind being equally insurable. It must, nevertheless, be more than a mere expectation, however probable."

A reading of the above extract shows that insurable interest is not confined to the owner of the property. In the facts of the present case, if the property suffers a loss, the Financial Corporation is likely to call upon the insured loanee to furnish another collateral security. That being so, the loanee had an interest in the property in that he benefited by the safety of the property and suffered by its loss and this case would, therefore, be clearly covered under the proposition No. 3 laid-down by the learned author. Apart from this the question of insurable interest should have been raised by the Insurance Company at the time when the insurance policy was issued and it cannot be permitted to be raised at this stage. Reference may be made with advantage to the observations of the National Commission in United India Insurance Company v. Hasan Sultan Nadaf, III (1992) CPJ 64 (NC)=1993 (1) CTJ 15 (NC). We, therefore, reject this contention.

THE second contention of Mr. Rathi is that the Fire Folicy'' C issued in the present case, does not cover risk on account of earthquake which has been specifically excluded from the various types of risks covered by the policy. In support of this contention Mr. Rathi invited our attention to the letter of Delhi Financial Corporation dated 2/7.11.90 containing the proposal for the issue of insurance policy. He pointed out that in the subject in the heading of the letter the insurance sought was against fire, riot, strike. In the body of the letter again the said risks were reiterated. In other words, the point sought to be made is, that the risk of earthquake was not included .He further emphasised that at no stage was a request made that instead of policy in Form ''C, policy in Form ''A'' should be issued. THE rectification which was sought at the instance of Delhi Financial Corporation was after the loss and it was, therefore, meaningless. We do not accept the above contention. A careful perusal of the letter aforesaid shows that the Delhi Financial Corporation wrote to the Insurance Company to issue insurance policy for a specified amount and proceeded to specifically mentioning that the said policy was to cover residential building to the extent of Rs. 15 lacs, the building being of first class construction situated at B-120, A & B, Malviya Nagar, New Delhi. Mr. Rathi conceded that if a person were to approach the Insurance Company and ask for a fire insurance policy in respect of a residential house it is only fire policy ''A'' which is issued and not fire policy ''C. Infact, the tariff rates for residential buildings, on the one hand, and commercial or industrial premises etc. on the other hand are different. What was, therefore, requested in the letter was, that two policies be issued, one, covering the plant and machinery etc. of Indu Video Films Pvt. Ltd., situated at A9, Phase-I, Okhla Industrial Area, New Delhi and the other to the extent of Rs. 15 lacs in respect of residential building at Malviya Nagar. Instead of issuing two separate policies as Fire Policy ''C in respect of plant and machinery and Fire Policy ''A'' in respect of the residential building, the Insurance Company issued the present composite Policy as Fire Policy ''C. In other words, this is a clear case of a mistake on the part of the Insurance Company when it was specifically brought to its notice in the proposal letter that insurance to the extent of Rs. 15 lacs was to be in respect of residential building, the Insurance Company was bound to issue insurance policy in Form ''A''. There is no dispute that tariff for residential building is 65 paisa per one thousand rupees as against Rs. 5.53 for industrial or commercial premises. Admittedly, the Insurance Company charged premium @ Rs. 5.53 per thousand even for the residential portion of the proposal. In other words, this is not a case in which the insurance premium chargeable under the tariff may not have been received by the Insurance Company. On the contrary, the Insurance Company has charged excess premium on the residential component of the proposal which they had no right to do and which they are liable to refund.

There is no dispute that if in pursuance of the proposal Fire Policy ''A'' had been issued, the same would have covered earthquake. We therefore, find that the Insurance Company cannot be permitted to repudiate the liability to indemnify the insured on account of its own mistake in having issued Fire Policy ''C instead of Fire Policy ''A'' and the Insurance Company is, therefore, liable to indemnify the complainant on the footing that the policy issued was Fire Policy ''A'' which covers earthquake. The Surveyors in their report have examined the question of loss suffered by the building in detail and the said report has not been assailed before us.

MR. Rathi relied on M/s. United India Insurance Co. Ltd. v. Upadhyayula Mohan Rao & Anr. I (1993) CPJ 23 (NC)=Consumer 121 (NS) This was a case where a technocrat started a small scale industry under Self Employment Scheme by taking loan from Financial Corporation and a Bank and the Financial Institutions obtained insurance cover for the goods and properties. On a claim made by the Financial Corporation the Insurance Company promptly settled the claim. The claim put forward by the Bank was, however, repudiated by another Insurance Company from whom insurance policy had been taken. The ground for repudiation was the risk of flood was not covered under the policy issued by them. The State Commission held that there was negligence on the part of the Insurance Company, in not including the flood risk in the insurance policy and allowed 18% interest to the insured. The National Commission held that premium paid was not of the policy that had a flood coverage. It, therefore followed that the insurance policy did not cover risk of flood and the Insurance Company was not liable to pay anything over and above when they had persuaded the Board of Directors to agree to pay as a gesture towards helping a small scale industry an ex-gratia payment. The order of the State Commission for granting interest was set aside. This authority is clearly distinguishable on the ground already discussed in the earlier part of this order, the main question being that the premium paid even exceeded the premium which was chargeable under Policy ''A'' which was not so in the case relied on by MR. Rathi. Lastly, it was submitted that the claim had been repudiated after due application of mind and several disputed questions had been raised and the complainant should be referred to the Civil Court. For the reasons discussed above, we find that the repudiation in this case cannot be considered to be bonafide and after due application of mind and this is a case of deficiency in service.

FOR the foregoing reasons, the complaint is allowed and OP-1 is directed to pay Rs. 1,86,000/- as the claim under the policy. In addition, the Insurance Company, OP-1, shall pay Rs. 7,500/- as excess premium charged for which there was no justification. The above-mentioned amounts would carry @ 18% interest from the date of the claim namely 30.10.91 tiil the date of payment. The O.P. shall also pay Rs. 5,000/- on account of costs and compensation in addition to the interest mentioned above. A copy of this order be sent to both the parties. Complaint allowed with costs.