Consumer Protection Act, 1986 – Loss – Calculation of, basis – Appellant purchased an Excavator in the year 2007 for a total purchase value of Rs.51.74 lacs and immediately got it insured – Insurance policy was renewed for the period 22.7.2009 to 21.7.2010 and the sum insured was Rs.46.56 lacs – The Excavator was hired and was used at a different location and the change of location was duly intimated – On 3.6.2010, the Excavator was badly damaged in a fire while it was at such changed location – Surveyor of Insurer assessed the loss and damage at Rs.25.24 lacs – Complaint filed by appellant before the State Commission – Appellant submitted that the Excavator was a total loss and that he was entitled to insured amount of 46.56 lacs along with interest and compensation – Appellant’s surveyor assessed loss on “total loss basis” at Rs.41.90 lacs – State Commission allowed the complaint and directed to pay Rs.41.90 lacs with interest – National Commission partly allowed respondent’s appeal and directed it to pay Rs.34.17 lacs – On appeal, held: It was common ground that as a result of fire, the Excavator was a “total loss” – Both the sides had arrived at a particular figure to be the real value of the subject matter of insurance – It was not open to any party to dispute said sum and contend that the real value was something different from what was declared by the parties to be the sum insured – If the parties had agreed and arrived at an understanding, which understanding was otherwise not vitiated by any misrepresentation, fraud or coercion, the parties must be held bound by such figure – The Surveyor of the Insurer worked out depreciation by starting with the figure of Rs.51 lakhs as the cost of a new Excavator and then deducting 32.5% by way of depreciation assuming the life of Excavator to be 10 years – The Surveyor of the Insurer disregarded the figure stipulated as ‘sum insured’ – Depreciation has to be always computed keeping the figure of “sum insured” in mind – The starting figure, therefore, in this case had to be the figure which was stipulated as “sum insured” – Since Excavator, after the policy was taken out was used for eleven months, some reasonable depreciation ought to be deducted from the “sum insured” – The surveyor appointed by the insured was right in deducting 10% and in arriving at the figure of Rs.41.90 lacs – The decision of the National Commission is dismissed and the judgment and order passed by the State Commission is restored.
Allowing the appeal, the Court
HELD: 1. The policy in question indicated that the “year of make” of the Excavator was “2007” while the policy was for the period 22.07.2009 to 21.07.2010. The parties were aware that the Excavator was purchased in the year 2007 for Rs.51.74 lakhs. If the contract mentioned the sum insured to be Rs.46,56,600/- the parties must be deemed to be aware about the significance of that sum and the fact that it represented the value of the Excavator as on the date when the coverage was obtained. It is not the case of the Insurance Company that there was any “under insurance” in the instant matter. On the other hand, the contention was that as against the sum insured which was Rs.46,56,600/- the depreciated value was Rs.34,42,500/-. So according to the Insurance Company, if at all it was a case of over insurance. If going by the idea of receipt of premium, then the Insurance Company had received more than what according to it the real value would have justified. If both the sides, with their eyes open, had arrived at a particular figure to be the real value of the subject matter of insurance, it is not open to any party to dispute said sum and contend that the real value was something different from what was declared by the parties to be the sum insured. If both the parties had agreed and arrived at an understanding, which understanding was otherwise not vitiated by any misrepresentation, fraud or coercion, the parties must be held bound by stipulation of such figure. [Paras 11, 14 and 15][773E-F; 776-B-E]
2.1 The Surveyor of the Insurance Company worked the figure of depreciation by starting with the figure of Rs.51 lakhs as the cost of a new Excavator and then deducting 32.5% by way of depreciation assuming the life of Excavator to be 10 years. In his assessment, therefore, the stipulation of the figure of Rs.46,56,600/- on the day the contract was entered into, had no significance. Was he right and justified and how could he assume the life of the Excavator to be 10 years? If that was the understanding between the parties, the figure of sum insured could have been different. If the surveyor was calculating the depreciation from the day when the policy was entered into till the date when the accident occurred, such exercise could certainly be justified. But the exercise undertaken was in the nature of not only considering the depreciation post the policy but even including the period prior thereto. That exercise was already undertaken by the parties and in their assessment the real value of the Excavator as on the day when the policy was taken out was Rs.46,56,600/-. In the face of such agreement and understanding, the surveyor could not have calculated depreciation for a period prior to the date of policy or contract. The purport of said clause was to arrive at proper valuation as on the day when there was total destruction. He could have undertaken the exercise post the date of policy to assess the real value of the insured property as on the date when the fire actually took place. And for such purposes, the assessment must start with the amount described as “sum insured” on the day when the contract was entered into. It was not open to the Surveyor or to the Insurance Company to disregard the figure stipulated as ‘sum insured’. The loss had to be assessed in the instant case, keeping said figure in mind. [Para 16][776-G-H; 777-A-D]
2.2 Except in cases where the agreement on part of the Insurance Company is brought about by fraud, coercion or misrepresentation or cases where principle of uberrima fide is attracted, the parties are bound by stipulation of a particular figure as sum insured. Therefore, the surveyor and the Insurance Company were not justified in any way in questioning and disregarding the amount of “sum insured”. Further depreciation, if any, can always be computed keeping the figure of “sum insured” in mind. The starting figure, therefore, in this case had to be the figure which was stipulated as “sum insured”. Since Excavator, after the policy was taken out was used for eleven months, there must be some reasonable depreciation which ought to be deducted from the “sum insured”. The surveyor appointed by the insured was right in deducting 10% and in arriving at the figure of Rs.41,90,940/-. The assessment made by the State Commission was quite correct and that made by the National Commission was completely incorrect. [Para 17][777-D-H]
Dharmendra Goel v. Oriental Insurance Company
Limited (2008) 8 SCC 279 : [2008] 11 SCR 578 – relied on.
Sikka Papers Limited v. National Insurance Company Limited and others (2009) 7 SCC 777 – held
inapplicable.
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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