Insurance – Householder Insurance – Appellant purchased a householder insurance policy from the respondent-Insurance Company, wherein coverage of articles/items in the house of the appellant was “as per list” – However, “as per list” policies were discontinued by the respondent and fresh policies were issued for consolidated amounts, which were also taken by appellant– After an incident of burglary in appellant’s house, he claimed householder insurance – Plea of Insurance Company that a large number of items claimed to be stolen were not insured and there was a lot of under-insurance – Held: Under-insurance means that the insured has taken an insurance policy in which he has valued the insured items for a sum less than the actual value of the insured item – This is done to pay a lesser premium – However, it is harmful to the policy holder because even if the entire insured property is lost, the policy holder, at the maximum can only get the sum for which the property was insured – But, when all the goods are not destroyed, the Insurance Company can apply the principle of averaging out i.e. the insured is paid an amount proportionate to the extent of insurance as compared to the actual value of the goods insured – Therefore, when a group of items is insured under one heading and only some of the items and not all items are lost/stolen then the principle of under-insurance will apply – However, if all or most of the items of value covered under the policy are stolen, then the insurance company is bound to pay the value of the goods insured – Applying this principle, appellant directed to be paid accordingly – In addition, claimant awarded Rs.25,000/- as compensation and litigation expenses with interest @12% p.a. w.e.f. 01.01.2009 till payment – Insurance Company shall be entitled to adjust/deduct the amounts already paid/deposited by it – Consumer Protection Act, 1986.
Insurance – Insurance Companies – Plea taken by the Insurance Company that the appellant-claimant did not produce invoices for the items claimed to be stolen – Held: On facts, the claim should not have been rejected only on the ground that invoices were not produced – Once the insurance company itself changed its policy from ‘as per list policies’ to ‘policies for consolidated amounts’, then an insured is not expected to give the item-wise details along with the valuation – Consumer Protection Act, 1986. Insurance – Insurance Companies – Duty of – Held: Insurance company must at the time of accepting the premium advise the policy holder properly – It cannot accept the premium without asking for any details and later deny its liability on the ground that such details were not given – Consumer Protection Act, 1986. Doctrines/Principles – Principle of ‘under-insurance’ – Explained.
Disposing of the appeal, the Court
HELD: 1.1 Under-insurance basically means that the insured has taken out an insurance policy in which he has valued the insured items for a sum which is less than the actual value of the insured item. In a country like India this is normally done to pay a lesser premium. This is, in fact, harmful to the policy holder and not to the Insurance Company because even if the entire insured property is lost, the policy holder will only get the maximum sum for which the property has been insured and not a paisa more than the sum insured. For example, in case a person takes out the householder policy covering fire insurance and gives the value of the structure of his house and goods stored therein at Rs.50,00,000/- even though the value of the same is Rs.1,00,00,000/- then even if the entire house and goods are completely lost in a fire, he cannot get an amount above Rs.50,00,000/- even though the value may be more. [Para 8] [577F-H; 578-A-B]
1.2 If all the insured goods are lost then there is no problem as then the insurance company is bound to pay the value of the goods insured. The insured is entitled to the amount for which the goods were insured even if that be less than the actual value of the goods. In case a person gets a painting insured for Rs.1,00,000/- though the value of the same is Rs.10,00,000/-, if the painting is lost the insured is entitled to Rs.1,00,000/- only. If all the insured goods falling under one head are stolen or lost then the insurance company cannot apply the principle of averaging out because, though the loss may be Rs.10,00,000/-, the claimant will get only one Rs.1,00,000/-as per the value assessed and the insurance premium paid by him. [Para 9] [578-B-D]
1.3 The Insurance Company can however apply the principle of averaging out when all the goods are not destroyed. Supposing the entire house was insured for Rs.50,00,000/-, but on valuation it is found that the value of the structure and the goods was Rs.1,00,00,000/- and if the policy holder claims that he has suffered loss of Rs.40,00,000/- then he will be entitled to only Rs.20,00,000/-, by applying the principle of averaging out. What this means is that if the value of the goods is more than the sum for which they are insured then it is presumed that the policy holder has not taken out insurance policy for the un-insured value of the goods. The claim is allowed by applying the principle of averaging out, i.e. the insured is paid an amount proportionate to the extent of insurance as compared to the actual value of the goods insured. [Para10] [578-D-F]
1.4 Applying the aforesaid principle to the present case, it is now dealt as underi) Jewellery and valuables - The entire jewellery and valuables were insured for Rs.1,00,500/- but the claimant claimed that the value of jewellery stolen was Rs.1,84,150/-. In this case the entire jewellery was stolen. Therefore, the averaging out clause will not apply and the claimant is entitled to a sum of Rs.1,00,500/- under this head.
ii) Silver cutlery sets - The case of the claimant was that these were insured under the head of ‘kitchenware/crockery/cutlery’ items. According to him, the value of these sets is Rs.31,000/-. Obviously kitchenware/crockery/cutlery will include many other items lying in the kitchen and in the dining room. Silver cutlery sets would normally fall under the head ‘jewellery and valuables’ and since the claimant has been awarded the maximum amount payable under that head, now he cannot divert the claim for silver cutlery to the head ‘kitchenware/crockery/cutlery’. This Court can take judicial notice of the fact that in any middle class household kitchenware/crockery/cutlery would value more than Rs.18,000/-. It is obvious that silver cutlery valuing Rs.31,000/- could not be insured under the head kitchenware/crockery/cutlery’ which was valued only for Rs.18,000/-. Therefore, the National Commission was right in holding that there was no coverage for this item.
iii) Clothing - The appellant claimed that he had suffered a loss of Rs.87,000/-, as against the coverage of Rs.55,000/-. However, on perusing the statement of the appellant himself it is found that he had shown Rs.87,000/- to be the value of only six items of clothing. There must have been many other items of clothing in the house and when all the clothing was insured under one heading, it would include clothing items of all types, both expensive and in-expensive. Admittedly, all items of clothing were not stolen and, therefore, in this case the principle of underinsurance will have to apply and the National Commission was right in directing that the payment be made after applying principle of under-insurance.
iv) Electrical/Mechanical appliances- The coverage under this head was Rs.1,82,500/- and the claimant claimed only Rs.66,000/- and he gave the details of the items. This claim was rejected only on the ground that he had not produced invoices of the same. The case of the appellant was that those items were gifted by his son. The claim should not have been rejected only on the ground that invoices were not produced. Once the insurance company itself changed its policy from ‘as per list policies’ to ‘policies for consolidated amounts’, then an insured is not expected to give the item-wise details along with the valuation. If the insurance company desires that item-wise valuation should be given for items over and above a certain value then it is the duty of the insurance company to advise the insured at the time of issuing the first policy of insurance and at the time of each renewal. The insurance company must at the time of accepting the premium advise the policy holder properly. The insurance company cannot accept the premium without asking for any details and later deny its liability on the ground that such details were not given. Therefore, the claim of the claimant is accepted and he is entitled to Rs.66,000/- under this head. v) Miscellaneous items - The appellant claimed Rs.28,000/for loss of miscellaneous item including watches valuing Rs. 20,000/- as against the coverage of Rs.41,000/-. On the same reasoning as given for electrical/mechanical appliances, the claim of the appellant of Rs.20,000/- for loss of four watches is accepted and, therefore, he is entitled to Rs.28,000/- under this head.
vi) Repair of locks, doors, latches, safe etc.- The claimant is already awarded Rs.7,000/-under this head. [Para 12] [579-AH; 580-A-F]
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
This page is for informational and research purposes only and does not constitute legal advice. Consult a qualified advocate for advice specific to your situation.