The Oriental Insurance Co. vs Krishna Rani and Another

P.C. Balakrishna Menon, C.J.—This Civil Revision by the Defendant, namely, The Oriental Insurance Co. is against the finding of the court below, on issue No. r2, in the suit for recovery of a sum of Rs. 1,19,255,14 P. as compensation for the loss sustained by the Plaintiff in an accident '' to his vehicle insured with the Defendant., The accident was on 14-1-1983. The Plaintiff submitted a claim to the Defendant on 5-9-1983. The Defendant repudiated the claim on 18-6-1984; The suit was filed on 18-1-1986. Issue NoV2"mthe suit is ''''Whether the claim is within time"? The court below of following the decision of the Karnataka High Court in AIR 1988 Kar 185, The Secretary Taluka Agricultural Produce Co-operative Marketing Society Ltd. Shidlaghatta v. The Custodian New India Assurance Co. Ltd. Bombay and Anr., decided the issue against the Defendant and has held that the suit is within time.

Ex. RA is the Policy of Insurance of the vehicle involved in the accident. "The Policy "contains a clause stipulating that the Insurance Company shall not be liable for any loss or '' damage if no suit is filed within 12 months after the date of the disclaimer. The present suit is filed long after 12 months after the disclaimer and the Insurance Co. has raised the contention that the Insurer is not liable for any loss or damage to the vehicle. The Court below has held that the period of limitation is three years under Article 44 (b) of the Limitation Act and the suit is within time.

The decisions in AIR 1914 Bom 225, The Baroda Spinning and Weaving Co. Ltd. v. Satyanarayan Marine and Fire Insurance Co. Ltd. AIR 1934 Ran 15, A. N. Chose v. Reliance Co. and Anr. AIR 1949 Cal 390, Dawood: Tar Mahomed Bros and Ors. v. Queensland Insurance Co. Ltd. AIR 1950 P&H 352 . The Pearl Insurance Co. Vs. Atma Ram, (Full Bench), Pearl Insurance Co., v. Atma Ram, had considered a similar question and it was held that an agreement restricting the insurer''s liability with reference to the time within which the claim is to be enforced is perfectly valid in law. The decisions in AIR 1914 Bom 225; AIR 1949 Cal 390, and AIR 1950 P&H 352 (supra) were approved by the Supreme Court in The Vulcan Insurance Co. Ltd. Vs. Maharaj Singh and Another,

A.N. Ghose''s case in AIR 1934 Ran 15, (supra) arose out of a suit on a policy of Fire Insurance. It was a condition of the Policy that the Insurer will not be liable for any'' loss or damage after the expiry of 12 months from the happening of the loss or damage unless the claim was the subject of a pending action or arbitration. The question was whether the suit filed within the period of three years provided for under Article 86 of the Limitation Act, 1908 but after the 12 months period provided for in the policy of insurance was within time. After considering the decisions in AIR 1926 Ran 3, G. Rainey v. Burma Fire and Marine Insurance Co. Ltd. AIR 1914 Bom 225 , and Girdharilal Honuman Bux Vs. Eagle Star and British Dominions Insurance Co. Ltd., Leach, J. as he then was) came to the following conclusion at page 17.

It is not a case of the clause stating that the insured shall not have the right to sue after 12 months. If it did that, it would, in my opinion, be void, but it is a case, where the parties have agreed that in certain, circumstances the insurance company shall be under no liability under its policy. The policy-holder is prohibited from bringing a suit, but having brought it the insurance company is entitled to say: "We are under no liability by reason of the provisions of the policy." I, therefore, hold that the clause in question does not contravene the provisions of Section 28 Contract Act. For the same reasons I hold that it does not offend against Article 86 of the Limitation Act. I also hold that the clause is not contrary to public policy and does not defeat the provisions of any law. The decision of the preliminary issue being against the Plaintiff the suit must be dismissed with costs.

The decision in AIR 1949 Cal 390 (supra) also related to a policy of fire insurance. Clause 19 of the policy extracted at page 393 was in the following terms:

In no case whatever shall the company be liable for any loss or damage after the expiration of twelve months from the happening of the loss or damage unless the claim is the subject of pending action or arbitration.

Following the decision of Loach J. in (AIR 1934 Ran 15), Mc Nair, J. at page 393 held: "The Plaintiff is of limited as to the time within which he may bring a suit, the restriction is on the time during which the company will accept liability for loss

AIR 1950 P&H 352, (supra) also related to a policy of fire insurance where Clause 19 was in similar terms as AIR 1949 Cal 390 (supra). Following the decisions in AIR 1914 Bom 225 (supra) and Girdharilal Honuman Bux Vs. Eagle Star and British Dominions Insurance Co. Ltd., the learned Judge held at page 553:

I do not see how such a clause is void as contravening the Law of Limitation. It is open to any two parties to agree that the promissory would only be liable if he is informed of the indemnification within the stipulated period, and there seems to be a great deal of sense in if particularly in the case of fire insurance or insurance against accident where the liability to the extent of the damage caused, when the matters are fresh, can be measured with a certain amount of accuracy Lapse of time in such cases may result in all kinds of Claims which are not capable of determination with any amount of exactitude and when memories of men may become rather hazy.

A Full Bench of the Punjab High Court Pearl Insurance Co. Vs. Atma Ram, construing Clause 19 in the policy of Insurance, similarly worded came to the following conclusion at page

As a result of the above discussion on principle and authority the validity of a clause similar to Clause 19 must be upheld principally on following grounds; (1) The primary duty of a Court of law is to enforce a promise which the parties Have made, and to uphold the sanctity of contracts into which parties have an unfettered right to enter provided they are not opposed to public policy or are not hit by any provision of the law of the land.

(1) The object arid exigencies of insurance are such that promptitude in asserting or enforcing a claim and also in its settlement was of the essence. The Insurance Companies would thus be justified in putting a time limit with which the claim must be enforced otherwise all rights under the policy would come to an

(2) A clause of this nature does not provide a different period of limitation from the one prescribed by the Indian Limitation Act. Notwithstanding the existence of the clause, it is open to the insured to maintain an action within three years as prescribed by the Limitation Act subject to the Company waiving the clause although under the Limitation Act the suit must be dismissed if instituted after the expiry of the prescribed period and the waiver is wholly ineffective.

(3) A contract may contain within itself the elements of its own discharge express or implied for its determination in certain circumstances.

As, the clause does not limit the time within which the insured could to force his fights and only limits the time during which the contract will remain alive it is not hit by the provisions of Section 28 of the Contract Act.

The decision of the Supreme Court in The Vulcan Insurance Co. Ltd. Vs. Maharaj Singh and Another, related, to a policy of insurance which by Clause 13 provided that unless an action or suit is commenced within three months after the rejection of the claim or within three months after the arbitrator has made his award, all benefits under the policy would be forfeited Clause 18. of the Policy provided for arbitration in case of dispute as to the amount of any loss of damage and Clause 19 stipulated that the Insurance Company shall not be liable for any loss or damage after the expiration of twelve months from the happening of the loss or damage unless the claim is the subject of pending action or arbitration. On the repudiation of the claim, by the Insurer, the insured filed an f application u/s 20 of the Arbitration Act for filing the and for appointment of an arbitrator to adjudicate upon the dispute. Construing the relevant clauses of the policy of insurance referred to above, the Supreme Court held that the arbitration clause would apply only in case of difference regarding the amount of compensation and not in the case where the claim itself is repudiated by the insurer. It was in that context that the Supreme Court'' observed at page 293 :

We do not propose, as it is not necessary to decide whether the action commenced by Respondent No. 1 u/s 20 of the Act for the filing of the arbitration agreement and for appointment of arbitrators was barred under Clause 19 of the Policy. It has been repeatedly held that such a clause is clause is not hit by Section 28 Of the Contract Act and is valid; vide The Baroda Spinning and Weaving Co . Ltd. v. The Satyanarayan Marine and Fire Insurance Co. Ltd. ILR 38 Bom. 344 ;AIR 1914 Bom. 225 (2): Dawood Tar Mahomed Bors. v. Queensland Insurance Co. Ltd. AIR 1949 cal. 390 and the Ruby general Insurance Co. Ltd. v. The Bharat Bank Ltd. AIR 1950 P&H 352.

It is further held at page 294:

But in this case on a careful consideration of the matter we have come to the definite conclusion that the difference which arose between the parties on the company''s repudiation of the claim made by Respondent No. 1 was not one to which the arbitration clause applied and hence die arbitration agreement could not be filed and no arbitrator could be appointed u/s 20 of the Act. Respondent Mo. 1 was ill advised to commence an action u/s 20 instead of instituting a suit within three months of the date of repudiation to establish the company''s liability.

A Division Bench of the Kerala High Court in Kerala Electrical and Allied Engineering Co. Ltd. Vs. Canara Bank and Others, has held that a condition in a bank guarantee that a suit or action to enforce claims under the guarantee is to be filed within six months after the- expiry of the guarantee is not hit by Section 28 of the Contract Act and the guarantee can be enforced only within the time specified therein.

in light of these decisions, it is clear that a condition in the policy of insurance Ex. RA that the insurance company with liable for any claim for loss or damage not made within 12 months after its disclaimer is perfectly valid claim in the suit filed beyond the period of 12 month disclaimer cannot be enforced against the Defendant decision of the Karnataka High Court in AIR 1981 Kar 185 (supra) relied on by the lower court related to of question whether a clause in the policy of insurance for arbitration would bar the suit for loss or damage filed against the insurer. The Karnataka High Court construing the relevant clause in the policy of insurance at page 189 held:

Therefore, the quantum of damages claimed by the Plaintiff attracted arbitration under Clause 18. Therefore, the view of the learned Civil Judge that the plain tiff was not entitled to maintain the suit cannot be held to be incorrect.

After coming to the above conclusion, the Karnataka High Court made the certain observations which were quite unnecessary for the decision of the case. The observations are exacted below :

However, we proceed to make the observation that the learned Civil Judge has committed an error of law in. holding that the suit has been filed 12 months after the occurrence of the loss due to fire, contrary to Condition No. 19 of the policy and, therefore, the suit was barred by time, We must state the correct position in law. Perhaps the insurance forms were all printed long prior to the coming into force of the present Limitation Act on 1-4-1964. under Article 44 of the Schedule to the Limitation Act, three years'' period is provided for filing a suit to recover damages sustained on account of any loss under the Insurance Policy. The time Starts running against the Plaintiff only on the date of the occurrence causing the loss or the date on which the claim is denied by the Insurance Company. There fore, the view expressed by the learned Civil Judge is not sustainable in law, as well as on the ground that the Defendants did not plead that, nor was an issue raised for the trial court to come to a conclusion.

The view expressed by the Karnataka High Court cannot be sustained in the light of the decision of the Supreme Court in The Vulcan Insurance Co. Ltd. Vs. Maharaj Singh and Another, which has approved the decisions in AIR 1914 Bom 225; AIR 1949 Cal 390, and AIR 1950 (East) Punjab 352 (supra).

The clause in the policy of Insurance limiting the period of time within which a suit or other proceeding to enforce the claim after its disclaimer is to be filed is an integral part of the contract of insurance, as per which the parties have agreed that the insurer will not be liable for any loss or damage after the stipulated time, such a clause is not opposed to Section 23 or Section 28 of the Indian Contract Act and it is perfectly valid and binding between the parties.

For the aforesaid reasons, I set aside the finding of the court below on issue 2 and dismiss the suit as not maintainable. The Civil Revision is allowed. The parties will suffer their respective costs.