UNITED INDIA INSURANCE CO. LTD. vs HIMACHAL PRADESH STATE CO-OPERATIVE BANK

The respondent / complainant which is a Cooperative bank purchased a Bankers Indemnity policy from the petitioner company for the period from 01.4.2004 to 31.3.2005 and got the said policy renewed for the period from 01.4.2005 to 27.3.2006. The aforesaid policy inter-alia covered the risk of loss to the respondent bank caused by fraud, embezzlement etc. on the part of its employees. During audit for the period from 01.4.2004 to 31.3.2005, it was detected that the Manager of Moorang Branch of the respondent bank had committed several acts of fraud and embezzlement, resulting in a loss of Rs.3,10,521/- to the respondent bank. The respondent bank submitted a claim to the insurer, for reimbursement of the loss sustained by it. The claim however, was repudiated on the ground that the policy had not been renewed beyond March, 2006, when the bank purchased a new policy from another insurance company. Being aggrieved, the respondent bank approached the concerned District Forum by way of a consumer complaint. The complaint was resisted by the insurer, primarily on the ground on which the claim had been repudiated.

The District Forum, vide its order dated 28.8.2010 dismissed the complaint. Being aggrieved the complainant approached the concerned State Commission by way of an appeal. Vide impugned order dated 07.3.2012, the State Commission allowed the appeal and consequently directed the insurer to pay a sum of Rs.3,10,521/- along with interest @ 9% per annum from the date of the complaint and cost of litigation quantified at Rs.10,000/-. Being aggrieved from the aforesaid order, insurer is before this Commission by way of this revision petition.

A perusal of the FIR lodged against the bank officer who allegedly embezzled the money would show that the said embezzlement comprised (i) the fake loss against PLI amounting to Rs.48,832/-, (ii) fake loan against BOD amounting to Rs.1,11,689/- and (iii) a fake draft of Rs.1,50,000/-, aggregating to Rs.3,10,521/-.

The insurance policy which the complainant had taken from the insurer, to the extent it is relevant, reads as under: "(C) Retroactive period of cover: The company shall not be liable: For losses not discovered within the period of insurance;

In the event of non-renewal or cancellation of this policy, for losses not discovered within six calendar months next following date of expiry or date of cancellation as the case may be (provided only that if there be any other insurance in force during the said six calendar months whether effected by the Insured or otherwise this policy shall not cover or contribute to any loss covered by such other Insurance) whether effected by the insured or otherwise this policy shall not cover or contribute any losses covered by such other insurances.The Reinstatement provision will not apply to such losses discovered within six calendar months form the date of non-renewal or cancellation.

For losses sustained prior to a retroactive period of two years from the date of discovery of loss.Further, provided that the losses which become payable under this clause shall be subject to the terms, conditions, exceptions of the policy currently in force on the date of discover, provided that in such Retroactive period the insurance was continuously in force, within the same company, but in no event the company shall be liable to pay any claim in respect of a loss or damage sustained prior to the inception of the Original Policy ."

The State Commission interpreted the above referred clause to mean that the insurer was liable for the loss detected within six months of the expiry of the policy unless the said loss was covered under any other policy taken by the insurer during the said period. I am fully in agreement with the interpretation given by the State Commission to the above referred term of the insurance policy. Therefore, the insurer would be liable for reimbursement of any loss discovered within six calendar months of the expiry of the policy, subject of course, to the condition that the said loss had happened during the policy taken from the petitioner company, and was not covered under the policy taken by the bank from National Insurance Company.

A perusal of the audit report would show that the audit commenced on 17.6.2006. The fraud / embezzlement therefore, was detected within six months of the policy taken by the bank having not been renewed. Therefore, the first condition required to be fulfilled for claiming reimbursement form the insurer stood fulfilled. The next question therefore would be whether the above referred loss to the bank was covered under the insurance policy taken by the complainant bank from National Insurance Company or not. The insurance policy from National Insurance Company was taken with effect from 03.4.2006. The audit report shows that the aforesaid loss to the bank had happened before that date. Therefore, the second condition requisite for seeking compensation form the insurer also stood fulfilled in this case.

A perusal of the audit report shows that the amount of Rs.48,832/- towards loan against PLI was pointed out in the audit report for 2004-05. The insurance policy from the petitioner company was taken with effect from 01.4.2004. There is no material on record to indicate that the loss had happened prior to 01.4.2004. Therefore, it cannot be said that the loss of Rs.48,832/- on account of loan against PLI had occurred to the bank before the insurance policy was taken with effect from 01.4.2004. There is no material on record to show that other two losses to the bank had happened prior to 01.4.2004 when the policy was taken for the first time. In the absence of such a material, it would be difficult to dispute the liability of the insurer. In fact, the insurer itself alleged in para 8 of the reply filed before the District Forum that the fraud and embezzlement as alleged had been committed in the year 2004-05. If this is so, the policy having been taken with effect from 01.4.2004, the loss to the bank had taken place during the subsistence of the policy.

For the reasons stated hereinabove, I find no merit in the revision petition, which is accordingly dismissed with no order as to costs.