New India Assurance Company Ltd. and Others vs Ghulam Hassan Mir

Hasnain Massodi, J.—The controversy involved in all the three above captioned Civil 1st. Miscellaneous Appeals is by a large identical and

the appeals are thus together taken up for disposal.

Challenge in CIMA No. 106/2008 is to the judgment of State Consumer Disputes Redressal Commission (""State Commission"" for short) dated

22.09.2008, in complaint titled Ghulam Hassan Mir v. New India Insurance Company whereby the State Commission has directed the Appellant

to pay an amount of Rs. 17,15,729 along with interest at the rate of 8% per annum from 27.09.2002 i.e. the date of loss till final payment of the

award amount and further allowed litigation costs in the amount of Rs. 5,000/-.

The Civil 1st. Miscellaneous Appeal No. 181/2009 calls in question judgment of the State Commission dated 05.08.2009 whereby the

Appellant Insurance Company has been directed to pay an amount of Rs. 13,33,065/- to the Respondent with 8% annual interests with effect from

the date two months after the receipt of the Surveyors report till the final payment is made and also to pay Rs. 10,000/- to the Respondent as

litigation charges.

The Appellant-Respondent in CIMA No. 106/2008 through the medium of CIMA No. 27/2009 seeks modification of the State Commission

judgment dated 22.09.2008 as regards the quantum of compensation directed to be paid to him by the Appellant company as also rate of interest

awarded by the State Commission.

The admitted facts are as under:

CIMA No. 106/2008

The Respondent on 12.05.2002 obtained an Insurance Policy bearing No. 48-94170 from the Appellant company for an amount of Rs. 23.00

lacs for his residential building and further for an amount of Rs. 4.00 lacs in respect of household goods. The Appellant Company agreed to

indemnify the Respondent subject to the terms and conditions laid down therein, the loss if any to the insured building and goods due to fire and

allied perils during the period of 12 months with effect from noon 02.05.2002 to noon 01.05.2003. As ill luck would have it, the insured building

and goods on 27.09.2002 during the validity of the insurance policy, suffered extensive loss on account of cross firing/shelling between the Security

Forces and unidentified gunmen. The occurrence led to registration of case FIR 116/2002 at local police station. The Respondent reported the

loss to the Appellant insurance company. The report prompted appointment of M/s. Allaqband & Associates as preliminary Surveyor followed by

appointment of Sh. AJ. Dillon, Surveyor, for assessment of loss to the insured property. The Surveyor assed the loss at Rs. 18, 30,000-00. The

Appellant Company taking the loss assessed as exorbitant remitted the assessment report to the Surveyor for a second look and not even satisfied

with the reassessed loss of Rs. 17,27,000-00 got it re-examined by Shri Vinod Bhan who re-assed and reduced it to Rs. 13.00 lacs.

CIMA No. 181/2009

The Respondent on 3rd April 2005 took out an insurance policy from the Appellant company for an amount of Rs. 19.00 lacs for stock trade of

pesticides and allied items of his business concern run under the name and style of M.S. A.R. Enterprises, College Road Sopore. The insurance

was effective from 3rd April 2005 to 2nd April 2006. While the insurance policy was operational and in force, an encounter took place between

the Security Forces and militants near the insured property and in the Security Forces operation the insured property got damaged. The

occurrence led to registration of an FIR at local police station. The fire mis hap was reported to the Appellant company. The Surveyor was

appointed and loss to the insured property assessed at Rs. 13,33,065/-

CIMA No. 27/2009

The Surveyor appointed by the Respondent company (Appellant in CIMA 106/2008) assessed the loss to the insured property at Rs.

18,30,886/-. The Respondent company found the loss assessed excessive and referred the matter for reassessment to the Surveyor. The loss on

review was reassessed as Rs. 17, 27,000/-. The Appellant aggrieved that the assessment did not reflect the loss to the insured property, and that it

was a case of total loss seeks reimbursement of the loss to the extent the property was insured i.e. full amount under the insurance policy.

By the time the decision could be taken regarding payment of assessed amount to the Respondent, it dawned on the Appellant Company that in

terms of Tariff Advisory Committee? Statutory Authority under the Insurance Act, Circular dt. 13th March 2002 effective 01.04.2002, the

terrorism cover was to be issued as a separate cover in conjunction with Riot, Strike and Malicious Damage (RSMD) cover. The Circular was

made applicable to all the claims arising out of the policies issued from 1st. April 2002. The Circular incorporated a Terrorism, Damage, Exclusion,

Warranting Clause in the Insurance Policies issued from 01.04.2002 that reads as under:

Notwithstanding any Provisions to the contrary within this Insurance, it is agreed that this Insurance excludes loss, damage, cost, or expense of

what so ever in nature directly or indirectly by, resulting from or in connection with any act of terrorism regardless of any other cause or event

contributing concurrently or any other consequence to the loss....

Warranty also excludes loss, damage, cost or expanses whatsoever in nature directly or indirectly caused by, resulting from or in connection with

any action taken in-controlling, preventing, suppressing or in any way relating to action taken in respect of any act of terrorism.

The Appellant Company opining that the insurance claim put forth by the Respondent fell within the Terrorism, Damage, Exclusion warranty

Clause, repudiated the insurance claim and conveyed its decision to the Respondent vide communication dated 17th June 2004. The Respondent

aggrieved of the communication dated 17th June 2004 requiring the Respondent to prove that the Terrorism, Damage, Exclusion warranty Clause

did not apply to the claim in question, filed a complaint u/s 2(g), 2(o) read with Section 15 of the Jammu and Kashmir Consumer Protection Act,

1987 with the State Commission. The Respondent complained that the inaction on the part of Appellant company in settling the claim amounted to

deficiency in service"" and sought a direction to the Appellant company to pay the principle insurance amount along-with interest at the rate of 18%

on account of loss suffered as also the compensation of Rs. 1.00 lace as litigation costs. The Appellant Company in its written version reiterated its

stand that the case fell within the ambit of Terrorism, Damage Exclusion Warranty Clause and that the Appellant Company was not under an

obligation to indemnify the Respondent.

The State Commission held the Terrorism, Damage, Exclusion, Warranty Clause to be extraneous to the terms and conditions of Insurance

Contract and in the facts and circumstances of the case not binding on the parties and concluded that there was deficiency in service on part of the

Insurance Company in settling the lawful claim of the Respondent under the Insurance Contract. The State Commission allowed the claim to the

extent of Rs. 17,15,729/- with interest at the rate of 8% per annum from the date of loss till final payment of award amount.

The State Commission award is questioned on the grounds that the State Commission failed to appreciate the controversy involved, in its right

perspective. The Commission is said to have failed to notice that the Terrorism, Damage, Exclusion, warranty Clause, in terms of the Circular

issued by Tariff Advisory Committee had become operational in respect of all the insurance policies with effect from 01.04.2002 and that as the

insurance policy in question was issued on 2nd May 2002, the aforesaid Clause was operational in respect of the insurance policy obtained by the

Respondent. It is contended that the Appellant company was not under any obligation to append the copy of the Circular dated 13th March 2002

with the insurance policy in question or provide copy of the Circular to the Respondent and mere failure to provide copy of the Circular to the

Respondent would not by itself exclude its application to the insurance policy in question. The Appellant Company also is aggrieved with interest

awarded by the State Commission on the award amount and claims it to be in conflict with the law occupying the field. It is insisted, that the

interest on the award amount may be awarded with effect from the date three months after the receipt of survey report and not the date of the loss.

We have gone through the memorandum of appeal and perused the State Commission record.

We have heard Learned Counsel for the parties.

The Tariff Advisory Committee, Circular No. FT/1/2002 dated 13th March 2002, admittedly was effective from 01.04.2002. The Circular

made the revised Provision applicable in case of insurance policies taken out after from 1st. April 2002. In terms of Circular, Riot, Strike,

Malicious and Terrorism Damage cover under the Standard Fire and Special Perils Policy (Material Damage) was renamed as Riot, Strike,

Malicious, Damage Cover. The Circular in effect excluded Terrorism, Damage from the Riot, Strike, Malicious, Damage Cover under the

Standard Fire and Special Perils Policy and provided for a Terrorism cover as a separate cover. The Circular also shifted onus of proving

contrary, to the insured in the event Insurance Company alleged that the loss or damage was caused due to action taken in controlling, preventing,

suppressing or in any way, relied to action taken in respect of any act of terrorism.

The Respondent took out the insurance policy from the Appellant company on 2nd May 2002 i.e. about seven weeks after Tariff Advisory

Committee Circular dated 13th March 2002 was issued and four weeks after the circular came into force. The Appellant company nonetheless did

not inform the Respondent at the time the Respondent took out the insurance policy that terms and conditions of the Insurance Contract were

revised by Circular No. FT/1/2002 dated 13th March 2002 to the extent it related to loss on account of terrorist activities. The Appellant

company did not only withhold the information from the Respondent, but receive an amount of Rs. 810/- as premium to cover damage/loss on

account of terrorist acts as additional amount of premium over and above the Fire and Special Perils Premium. The Appellant Company did not

inform the Respondent, change in terms and conditions of the policy when the loss was reported and not even a little less than two years thereafter.

The Appellant company in the circumstances, can not wriggle out of its liability under the Insurance Contract to indemnity the loss to the insured

property as assessed by its Surveyor and Loss Assessor on the ground of changes in terms and conditions of the Insurance Contract neither

incorporated in Insurance Contract nor communicated/conveyed to the Respondent.

The Commission was right in rejecting the case set up by the Appellant company to escape liability to indemnify the Respondent. It needs no

emphasis, that contract of Insurance including one of fire insurance has principle of good faith as its edifice. It is a contract of uberrimae fidie. The

parties to Insurance Contract are expected nay required to observe utmost good faith while entering into such contract. The principle of good faith

does not only bind down the party taking out an insurance policy, but also the Insurance Company. The manner insured as compared with the

insurer, is expected to have better knowledge about the subject matter of insurance and required to disclose all material facts regarding the subject

matter insurer, same way the insurer is expected to be well aware of different aspects of the insurance cover including the extent and limitation of

liability under the Insurance policy and duty bound to disclose all material facts in respect of the insurance policy to the insured. The principle

obligates the contracting parties to disclose and transmit all material information so that the contracting parties take an informed decision while

taking out or selling an insurance policy, is done, with vital information held or kept back can not be said to have been done in good faith. The

Appellant company in the present case while withholding Tariff Advisory Committee Circular dated 13th March 2002 and not incorporating the

revised clause in the insurance policy can not be said to have acted in good faith and insist that the Circular revised clause was binding on the

Respondent. The conclusion drawn by the State Commission and the reasons record in support thereof, are thus in conformity with law.

The grounds urged in CIMA No. 27/2009 to question the State Commission judgment dated 22.09.2008 to the extent it relates to quantum of

compensation the Respondent company has been directed to pay to the Appellant, are devoid of any substance. Mere fact, that the Surveyor on

review of the earlier assessment made reassessment of the loss at a little less than the earlier assessment is no reason to question the reassessment

made in absence of any malafide's not pleaded in the appeal. The Respondent company was well within its power to go through the Surveyors

report and in the event any discrepancies were found, request the Surveyor to reassess the loss. The Appellant fails to realise that the loss to the

insured property on its second reassessment was found by Sh. Vinod Bhan to be Rs. 13.00 lacs. The State Commission did not take notice of the

second reassessment by Sh. Vinod Bhan, and instead relied on the first reassessment by the Surveyor who had earlier assessed the loss at Rs. 18,

30,000-00. The story of total loss sought to be set up by the Appellant does not sound convincing and inspire confidence. The grievance as

regards rate of interest is also misplaced. The State Commission as a matter of fact has awarded interest from the date earlier to the date with

effect from which it ought to have been awarded. The State Commission has awarded the interest from the date of loss while as the interest is to be

awarded from a reasonable interval after the date of receipt of the Surveyors report. Needless to mention that it is the Surveyors report that

concretizes the matter as regards indemnification/payment of compensation to the insured. The State Commission, it needs to be pointed out, has in

judgment rendered on 22.09.2008 in Complaint titled Ghulam Hassan Mir v. Divisional Manager New India Assurance Company (Complaint No.

28/2004) awarded interest on compensation amount with effect from date of loss and in judgment rendered on 05.08.2007 in complaint titled M/s.

A. R. Enterprises v. New India Assurance Company (Complaint No. 54/2008) awarded interest on compensation amount with effect from two

months after the receipt of Purveyors report.

For the reasons discussed the CIMA's 181/2009 and 27/2009 are meritless, and liable to be dismissed. There is no merit in the CIMA

106/2008 except to the extent it calls in question the date of award of interest. There appears to be substance in the case set up by the Appellant

that the State Commission ought to have awarded interest on the awarded amount with effect from the date three months after the report of the

Surveyor/loss Assessor was received, and not from the date of the loss. In the circumstances CIMA's 27/2009, 181/2009 are dismissed. In

CIMA 106/2008 while up-holding the State Commission Award dated 22.09.2008, interest on the award amount is directed to be paid by the

Appellant company with effect from the date three months after the date of receipt of the report of the Surveyor/Loss Assessor whereby Rs.

17,15,72/- is assessed as loss to the insured property.

CIMA 27/2009 and CIMA 181/2009 dismissed.

CIMA No. 106/2008 disposed of.