United India Insurance Co. Ltd. vs Smt. Nagarathna and Others

Ramesh, J.—This appeal u/s 30 of the Workmen''s Compensation Act, 1923 is by the United India Insurance Co. Ltd., and is directed against the judgment dated 28-01-2002 in case No. 31/2000 on the file of the Commissioner for Workmen''s Compensation, Bangalore Sub-Division-1, Bangalore in so far as it directs the appellant/insurer to pay interest on the compensation amount awarded.

The Commissioner for Workmen''s Compensation, by the impugned judgment has awarded a compensation of Rs. 1,97,060.00 to the dependants of the deceased-Suresh Kumar who died in an accident on 02-05-2000 while he was working on a construction site. The Commissioner has also awarded interest @ 12% p.a. on the aforesaid compensation amount from 02-06-2000 i.e. after expiry of one month from the date of accident till the date of deposit. The Commissioner has made both the employer and the appellant/Insurance Company jointly and severally liable for the compensation and interest amount. As stated above, the Insurance Company has presented this appeal questioning only its liability to pay interest.

Learned Counsel for the appellant Insurance Company submitted that the Commissioner had erred in law in not considering its plea that it does not become liable to pay interest as such a liability, according to the Counsel, is specifically excluded under the Insurance policy produced as Ex.R-2-1 and is also not compulsorily required to be covered in law.

Supporting the impugned order, learned Counsel for respondent Nos. 1 to 5 (claimants) submitted that since the liability of the employer to pay the award amount is statutory in nature, the appellant/insurer would also become liable in law to pay interest, it being the statutory liability of the employer.

In view of the rival contentions, the two points that fall for determination are:

(i) whether the appellant/Insurer is statutorily required to cover the liability of interest in respect of the subject matter of Insurance i.e, liability of an employer arising out of death of or bodily injury to an employee while engaged in construction work.

(ii) If not, whether the said liability of interest is factually covered under Insurance policy?

Re point No. (i) Statutory liability in Insurance Contracts:

In a contract of insurance, unless regulated by statute, the nature of risk and the extent of liability to be covered by an Insurer is determined by the terms of contract as agreed to by the Insurer and Insured.

A motor accident Insurance would illustrate a statutory Insurance commonly known as ''compulsory Insurance''. In a Motor accident Insurance contract, an Insurer is compulsorily required to cover liabilities of the Insured, as stipulated in the relevant provisions of the Motor Vehicles Act, 1988, arising out of death of or bodily injury to any person or damage to any property of a third party caused by or arising out of the use of a motor vehicle.

The Public Liability Insurance Act, 1991 is another important statute requiring the owner of any hazardous substance to take out Insurance cover before he starts handling any such substance. Similarly, the Employees'' State Insurance Act, 1948 makes it compulsory for an employer to insure his workmen falling within the ambit of the Act.

In this context, it is relevant to refer to the following observations made by the Hon''ble Supreme Court in an unreported judgment dated 8.8.2003 in P.J. NARAYAN v. UNION OF INDIA AND ORS. W.P. Civil No. 341/2003 relied on by the appellant''s learned Counsel in support of his submission.

"This Writ Petition is for the purpose of directing Insurance Company to delete the clause in the Insurance Policy which provides that in cases of compensation under the workmen''s Compensation Act, 1923, the Insurance Company will not be liable to pay interest. We see no substance in the Writ Petition. There is no statutory liability on the Insurance Company. The statutory liability under the Workmen''s Compensation Act is on the employer. An insurance is a matter of contract between the Insurance Company and the insured. It is always open to the Insurance Company to refuse to insure. Similarly, they are entitled to provide by contract that they will not take on liability for interest. In the absence of any statute to that effect. Insurance Company cannot be forced by Courts to take on liabilities which they do not want to take on. The Writ Petition dismissed. No order as to costs."

(underlining is mine)

It is relevant to state that there is no statutory enactment regulating the terms of contract regarding the nature of risk and the extent of liability to be compulsorily covered by the appellant/ insurer in respect of the subject matter of Insurance i.e., liability of an employer arising out of death of or bodily injury to an employee during the course of employment while engaged in construction work. Hence, there is no statutory compulsion to the appellant to coyer all liabilities of the employer in respect of the subject matter of insurance referred to above. Therefore, the rights and liabilities of the parties relating to the nature and extent of the insurance cover in question are governed by the terms of the contract of Insurance produced as Ex. R2-1.

Re-Point No. (ii) factual Coverage;

On this aspect, the relevant term of the Insurance policy produced as Ex.R-2-1 requires to be noticed:

"The Company shall not be liable to pay interest and penalty if any, awarded by WC Commissioner for failure to comply with provisions of the WC Act by the insured."

A perusal of the aforesaid term of the policy, makes it obvious that the Commissioner was not right in making the Insurance Company liable for interest. The Commissioner has not discussed this aspect of the matter and the relevant evidence produced In this regard. The Commissioner has erred in ignoring the relevant term of the policy and in making the appellant-Insurance Company liable for interest. The direction of the Commissioner to the appellant/insurer to pay the interest amount is contrary to one of the terms of the Policy of Insurance referred to above. It is liable to be set aside.

In the result, I make the following order:

i) The impugned judgment in so far as it relates to the liability fastened on the appellant-Insurance Company to pay the interest is set-aside.

ii) In all other respects, the judgment of the Commissioner shall stand affirmed.

iii) The appeal is allowed in the above terms. No order as to costs.