The Supreme Court has observed that in case of Double Insurance, once the first insurer has paid a complete indemnity to the assured, the second insurer would be entitled to decline liability.
The full-bench Justice UU Lalit, Justice S. Ravindra Bhat and Justice P.S. Narasimha held that contract of insurance is and always continues to be one for indemnity of the defined loss, no more no less and not for making profits out of loses with double-insurance.
The present appeal assailed the NCDRC order allowing the insurance claim of Levi and directing it to pay Rs. 1.78 crores.
Facts of the Case
Levi approached NCDRC with its complaint under Sections 21 and 22 of the Consumer Protection Act, 1986. It was alleged that in view of Section 25 of the General Insurance Business (Nationalization) Act, 1972, it was obligated to obtain a policy issued by a domestic insurer to cover various risks, and that as a consequence, the condition in Clause 47 of the STP Policy (which guaranteed coverage of the foreign policy in the event that the insured was obliged to seek domestic policy) was met.
It was further argued that the SFSP policy was to cover loss exclusive of $50 million inventory, which was the limit indicated in the STP Policy. Levi alleged that claim repudiation on the ground that the risk was covered by the global insurance policies (the STP Policy included) was contrary to Clause 41 (on ‘other insurance clauses’) of the STP Policy. In fact, Levi also argued that Clause 41 provided that if any fire insurance was specifically available to it, the STP Policy would be void to the extent of such being available.
The insurer argued the fire policy issued by it, therefore excluded liability in respect of property covered by marine policy. The further argument was that in Condition No. 4 of the SFSP Policy, coverage under the marine policy i.e., the STP policy, was excluded. It was submitted that Levi could (and did) recover loss from the STP Policy. In this regard it was argued that Clause 47 of the STP Policy would continue to cover the insured if the local laws or other conditions obligated the insured (i.e., Levi) to arrange insurance locally. In the present case, it was submitted that Levi was not obliged to secure a domestic policy.
The impugned order allowed Levi’s complaint. The NCDRC did not finally decide whether the STP Policy was a marine policy. It held, on a consideration of Clause 47 of the STP Policy, that to the extent of the insured risk being covered by the domestic policy, coverage by the STP Policy stood excluded. The impugned order was based on the reasoning that there was difference in the perils insured and the conditions and / or limits of liability under the domestic policy and the STP Policy. Therefore, the loss of profit which Levi would have earned on sale of the damaged/destroyed cost was payable to it by Allianz, whereas the loss suffered by Levi to the extent of the cost of those goods would be reimbursable under the domestic policy issued by the insurer.
The Counsel for the appellant-insurer argued that the insurer was liable to the extent of the local policy applicable and cited M/s. Galada Power and Telecommunication Ltd. Vs. United India Insurance Co. Ltd. and Another Etc, 2016 Latest Caselaw 527 SC to submit that the insurer could not be allowed to travel beyond the grounds on which the claim was repudiated by it.
Supreme Court's Analysis
Whether the STP Policy was a marine policy?
The Court noted that Section 4 of the Marine Insurance Act, 1963 postulates that a contract of marine insurance may, by its express terms, or by usage of trade, be extended so as to protect the assured against losses on inland waters or on any land risk which may be incidental to any sea voyage.
It referred to New India Assurance Co. Ltd Vs. M/s Hira Lal Ramesh Chand & Ors, 2008 Latest Caselaw 516 SC, Export Credit Guarantee Corpn. Of India Ltd. Vs. M/s Garg Sons International, 2013 Latest Caselaw 55 SC, Vikram Greentech (I) Ltd. & ANR. Vs. New India Assurance Co. Ltd., 2009 Latest Caselaw 308 SC, and noted:
"The STP Policy was a marine policy which comprehensively covered voyage, transit, transportation and warehouse perils. As can be seen from the description of the policy, and other express stipulations, all kinds of risks, including marine risks were covered. In fact, different limits for “retail locations” were provided; further Clause 6 also extended to warehouse risks. In these circumstances, and having regard to the law declared by this Court, what is material is not whether the insurable event occurred during the voyage; rather, the focus is on the nature of the cover. The cover in this case, clearly and unequivocally included marine perils. Therefore, it was a marine cover."
Was Levi Obligated by Indian Law to Cover its Risks?
The Court noted that regardless of whether domestic legislation in a particular country mandates the taking out of a policy issued by local insurer, the global insurer, i.e., Allianz would still continue to be liable.
It stressed that there should be a mandate in law or in contract or by contract (which is covered by the expression “or otherwise”). It added that the expression “obligated by law” or “obliged by law” means that there should be an express requirement in law, which compels the insured to obtain a policy.
The Court thus opined that NCDRC was clearly wrong in holding that Clause 47 applied and it had to be read in the way it was.
"A mere prohibition in Section 25 of the Nationalization Act clearly did not apply to Levi’s parent company, which conducts business overseas (and not only in India) and obtain a marine cover which catered to all risks, (including marine risks as well as risks to the goods in transit and when they were warehoused). Therefore, the prohibition in Section 25 per se does not apply. Equally, there was no specific provision requiring Levi to obtain a domestic policy, in the conduct of its business."
The Court went on to note that the issue in the present case has been characterized as “double insurance”, i.e., where an entity seeks to cover risks for the same or similar incidents through two 16 different - overlapping policies.
"There is a wealth of international jurisprudence on the various nuances of double insurance. Such double insurance is per se not frowned upon in law. The courts however, adopt a careful approach in considering policies which seeks to exclude liability on the part of the insurer"
Based on one such case, the Court held that a contract of insurance is and always continues to be one for indemnity of the defined loss, no more no less. In the case of specific risks, such as those arising from loss due to fire, etc., the insured cannot profit and take advantage by double insurance.
"Levi could not have claimed more than what it did, and not in any case, more than what it received from Allianz. Its endeavour to distinguish between the STP Policy and the SFSP Policy, i.e., that the former covered loss of profits, and the latter, the value of manufactured goods, is not borne out on an interpretation of the terms of the two policies. Even the facts here clearly show that Levi received substantial amounts towards the sale price of its damaged goods, over and above the manufacturing costs."
The appeal was accordingly allowed.
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