Insurance Act, 1938 – s.64(VB) – Appellants hypothecated goods with first respondent-bank under an agreement for cash credit facility – Appellants were obligated to insure the goods hypothecated to the Bank – Bank, as a routine practice, obtained policies for all its borrowers and upon receipt of intimation, would remit the premium payable on behalf of the borrowers – Bank obtained first insurance policy for 1998-99 in sum of Rs.60 lakhs, from insurer-third respondent, which covered specific location (“12/1123-1124, Basement, Meghdoot Apartment, Surat”) of the borrower where goods were stored – From 2001, the insurance policy was renamed as ‘Standard Fire and Special Perils Policy’ – Perils insured included those by storm, tornado, flood & inundation, together referred as ‘STFI Perils’ – Value of insurance was also enhanced by Rs.25 lakhs – For 2002-03, the insurer issued policy in sum insured of Rs.25 lakhs in terms of the aforesaid location however, separate insurance cover of Rs.60 lakhs was issued in respect of goods stored at another location – Similar was the case for 2003-04, 2004-05 – However, for 2005-06, location in the insurance cover of Rs.60 lakhs was changed back to the premises at Meghdoot Apartment, Surat – Same position continued for 2006-07 – In Aug.2005, the bank while filling up proposal form handed a cheque to the insurer for a cover also extending to STFI perils – Premium of Rs.992 covering STFI perils was refunded by insurer to the bank – In 2006, appellants claimed loss of Rs.78,66,857/- due to floods – Insurer paid claim of Rs.23 lakhs under the policy cover of Rs.25 lakhs but repudiated entire claim under the policy cover of Rs.60 lakhs – State Commission allowed the complaint only against the bank and its manager – Reversed by National Commission – Held: Address mentioned in the policy for 2004-05 differs from that of 2005-06 – Insurer proceeded on the basis that this was a ‘fresh contract of insurance’– Proposal does not conclude the contract – Terms of the policy will govern the contract between parties – Insurance policy for 01.08.05 to 31.07.06 was issued with exclusion of STFI perils– Sub-sec.(3) of s.64(VB) provides for refund of premium amount to the insured in case of cancellation or alteration of the terms & conditions of the policy – Insurer while issuing the new policy specifically excluded STFI perils and refunded the premium of Rs.992 to the bank which deposited it in appellants’ account – Insured at the time when the loss occurred was covered by a policy that excluded STFI perils – Thus, insurer cannot be held liable – Appellants had knowledge of this exclusion as they were provided a copy of the policy and received refund of the premium– No merit in appeal.
Insurance – Contract of Insurance – Interpretation of – Held: Court while interpreting the contract of insurance must interpret the words of the contract by giving effect to the meaning and intent which emerges from the terms of the agreement – Court through its interpretative process cannot rewrite or create a new contract between the parties – Court has to simply apply the terms and conditions of the agreement as agreed between the parties. Dismissing the appeal, the Court
HELD: 1.1 This Court, while interpreting the contract of insurance must interpret the words of the contract by giving effect to the meaning and intent which emerges from the terms of the agreement. The court through its interpretative process cannot rewrite or create a new contract between the parties. The court has to simply apply the terms and conditions of the agreement as agreed between the parties. In the present case, the policy of insurance with a cover of Rs 60 lakhs for the period 2004-05 was issued for the location at B 205, Plot No 17-B, Village Karnaj. The insurance policy for 2005-06 was sought for different premises situated at 12/1123-1124, Basement, Meghdoot Apartment, Surat. The address mentioned in the policy for 200405 differs from that of 2005-06. The insurer proceeded on the basis that this was a ‘fresh contract of insurance’. The insurance policy for 1 August 2005 to 31 July 2006 was issued with the exclusion of STFI perils. This is clear from the use of words “Warranted that STFI risk is excluded from the risk” in the above insurance policy. The terms of the policy will govern the contract between the parties. The STFI risks were specifically excluded from the coverage of the policy. The extra premium of Rs 992 was refunded by the insurer to bank and the bank deposited the amount in the appellants’ account. [Paras 20, 21][369-D, F-H; 370-A-B]
1.2. Section 64(VB), Insurance Act, 1938 states that no risk can be assumed by the insurer unless the premium payable is received in advance. Sub-Section (3) of Section 64 (VB) provides for refund of the premium amount to the insured in case of cancellation or alteration of the terms and conditions of the policy. In the present case, the premium of Rs 992 to cover STFI perils was refunded by the insurer to the bank and the amount was deposited in the insured’s account. The proposal does not conclude the contract. A contract postulates an agreement between the parties. In the present case, the insurer while issuing the new policy at a fresh location specifically excluded STFI perils and refunded the premium. The insured at the time when the loss occurred was covered by a policy that excluded STFI perils. Therefore, the insurer cannot be held to be liable. To hold to the contrary would be rewriting the agreement between the parties and creating a fresh contract to which the parties had not agreed. The appellants in their rejoinder did not specifically deny the averment that they were furnished with a copy of the policy. The appellants have also not denied the fact that the premium on account of STFI perils which was refunded by the insurer was credited to their account. This being the position, it is not open to the appellants to disavow knowledge of the exclusion of the STFI perils in the insurance cover of Rs 60 lakhs which was issued for 2005-06 and renewed for 2006-07. [Paras 23, 24][371-B-D, G-H]
1.3. The terms and conditions of the new policy specifically excluded STFI perils and evidently there was a change in the obligations of the insurer. There was no renewal but the issuance of a new policy. The change in the location of the premises in the present case led to the issuance of a new policy. It was open to the insurer to specifically exclude STFI perils as a commercial decision. The appellants had knowledge of the exclusion of the STFI perils as they were provided with a copy of the policy and also received the refund of the premium. Having lodged no protest with the insurer during 2005-06 or in the renewed term of 2006-07, the insured cannot lay a claim that they had no knowledge that the STFI cover was excluded from the insurance cover. Nothing prevented the appellants from either approaching the insurer or any other insurance company for obtaining a policy that covered STFI perils. [Para 26][373-B-D]
Biman Krishna Bose v. United India Insurance Co Ltd. (2001) 6 SCC 477 : [2001] 1 Suppl. SCR 255 –
distinguished.
General Assurance Society Ltd. v. Chandumull Jain, AIR 1966 SC 1644 : [1966] SCR 500 – followed.
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.
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