Double insurance: the second insurer can refuse a claim when the loss has been fully compensated by another insurer

The Supreme Court recently ruled that in cases of overlapping insurance policies, where the insured’s defined loss is fully indemnified by one insurer, the second insurer is not liable for the claim for the same loss.

“An insurance contract is and always remains a contract for indemnification of the defined damage, no more and no less. In the case of specific risks, such as those resulting from a loss due to fire, etc., the insured cannot profit and take advantage by double insurance.”

A bench comprising Judges UU Lalit, S. Ravindra Bhat and PS Narasimha allowed the appeal against the order of the National Consumer Dispute Redress Commission (NCDRC), which ordered the insurance company to pay Rs. 1.78 crores towards the claim raised by the insured. While finding that the insurance company was not liable to pay, the Apex Court noted that in this case the issue was one of “double insurance” https://www.livelaw.in/ “overlapping policy”, in which the entity requests coverage of the same or similar incident risks from two insurance policies.

Factual background

United India Insurance Co. Ltd. (insurer) has issued a Standard Fire and Special Perils Policy (SFSP Policy) to Levis Strauss (India) Pvt. ltd. (insured) covering its stock in stock, first for a period from 01.01.2007 to 31.12.2007 then from 01.01.2008 to 31.12.2008. Levis Strauss & Co., the insurer’s parent company, has obtained a global policy (STP Policy) from Allianz Global Corporate & Specialty (Allianz) for the period from 01.05.2008 to 30.04.2009. It covered the inventories of all its subsidiaries, including the insurer. Another “all risks” policy (AR Policy) was issued by Allianz for the period from 01.05.2008 to 01.05.2009 covering the actions of its subsidiaries throughout the world.

On 13.07.2008, a fire broke out in one of the warehouses containing the insured’s stocks. On 18.07.2008, the insured claimed Rs. 12.20 crores from the insurer. Subsequently, on 11.09.2009, the insurer rejected the claim stating that condition No. 4 of the SFSP policy excludes liability for losses payable under the marine policy, i.e. the STP font. The insured approached the NCDRC, which upheld his complaint, without deciding whether the STP policy was a marine policy. Reading Section 47 of the STP policy, he noted that said policy excludes the scope covered by the national policy. It held that if the loss of profit that the insured would have made on the sale of the damaged stock was borne by Allianz, the loss suffered up to the cost of the goods would be borne by the insurer. He allowed the claim to the extent of Rs. 1.78 crores as the insured had received 19.52 crores from Allianz.

Grounds raised by the appellant

The lawyer, Mr. AK De, appearing on behalf of the insurer, argued that the foreign policy, i.e. the STP policy, covered the risk of fire of the stock during transport, as well as in store and elsewhere. He attacked the NCDRC’s interpretation of SFSP Policy Condition #4 and STP Policy Clause 47 to argue that loss to property was covered by the SFSP policy while the STP policy covered the lack to win. It was claimed that the loss suffered being composite, it could not be divided. Mr. De pointed out that the demand was for Rs. 12.4 crores, against which he received Rs. 19.52 from Allianz. Therefore, he argued that the insured had received more money than the admitted loss.

Arguments raised by the respondent

The lead solicitor, Mr Joy Basu, appearing on behalf of the insured, argued that under section 2(c)(b) of the Insurance Act 1938 and section 25 of nationalization law, there is an obligation to take out insurance through a national insurer. . It was pointed out that the insured had a contractual obligation to have its risk covered by a national policy and that under clause 47 of the STP policy, the main obligation rested with the national insurer. He argued that coverage under both policies was mutually exclusive – the SFSP policy expressly excluded non-manufacturing losses arising from fire; which was covered by the STP policy. Otherwise, it would indicate that the insurer was collecting premiums without any liability.

Supreme Court analysis

The STP policy is a shipping policy

Section 4 of the Marine Insurance Act 1963 posits that a marine insurance contract may, by its express terms or by usage of the trade, be extended so as to protect the insured against losses on inland waters or against any land risk which may be incidental to any maritime voyage. Referring to a series of judgments, the Court noted that marine insurance policies in India include warehouse risks, combined with voyage and other maritime risks. The STP policy also states that it covers both maritime and other risks. In addition, the policy describes itself as an “open marine insurance contract”. She observed that the policy includes maritime risks and therefore constitutes maritime cover.

Pursuant to condition 4 of the SFSP policy, the insurer was not required to pay

The Court noted that Condition No. 4 of the SFSP policy provided that on the occurrence of an insurance risk, if the insured was entitled to a claim under a marine policy, the insurer would not could be held responsible. Relying on Export Credit Guarantee Corporation of India Ltd. vs. Garg Sons International (2014) 1 SCC 686; Vikram Greentech India Ltd v New India Assurance Co. (2009) 5 SCC 599; Sikka Papers Ltd c. National Insurance Co (2009) 7 SCC 777; Impact Funding Solutions Ltd. vs. Barrington Support Services Ltd. (2016) UKKSC 57, the Court was of the view that the party wishing to limit its liability must do so in clear terms and that the insured cannot claim more than what is covered by the insurance policy. On a strict interpretation of Condition 4, the Court held that the insurer had excluded its liability for the risk covered by a marine policy, which in this case was the STP policy. The Court also noted that there was no legal or contractual obligation for the insurer to obtain a national police in the conduct of its business and therefore the NCDRC had wrongly applied clause 47.

Double insurance

The insured had raised a claim of Rs. 12.2 crores with the insurer. Against the claim of Rs. 12.2 crores, he had already received around Rs. 19 crores from Allianz. Considering the same, the Court observed that a contract of insurance is a contract of indemnity for definite loss. In the event of specific risks, the insured cannot benefit from double insurance. In this regard, Castetion v. Prestton (1833) 11 QBD 380 was mentioned, which held that in the event of loss the insured would be fully indemnified, but never more than fully indemnified. The Court held –

“Levi could not have claimed more than he did, and in no way more than he received from Allianz. His effort to distinguish between the STP police and the SFSP police, it that is, the former covered the loss of profits, and the latter, the value of the manufactured goods, is not borne out by an interpretation of the terms of the two policies Even the facts here clearly show that Levi received amounts substantial to the selling price of its damaged products, in addition to manufacturing costs.”

Business name: United India Insurance Co. Ltd. vs. Levis Strauss (India) Pvt. ltd.

Reference: 2022 LiveLaw (SC) 487

Case No. and Date: Civil Appeal No. 2955 of 2022 | May 2, 2022

Coram: judges UU Lalit, S. Ravindra Bhat and PS Narasimha

Summaries:

Marine Policy – Section 4 of the Marine Insurance Act, 1963 – A contract of marine insurance may by its express terms, or by usage of trade, be extended so as to protect the insured against loss on inland waters or on any land risk which may be incidental to any voyage at sea – warehouse risks, combined with voyage and other maritime risks, are considered part of marine insurance policies in India (paragraph 19 ).

Insurance Law – Exclusion of Liability in Insurance Policies – as a general rule it is well settled that if a party, otherwise liable, wishes to exclude or limit its liability to the other party, it must do so in clear terms; and that the contract should have the meaning that it would give to a reasonable person having all the basic knowledge reasonably available to the person or class of persons to whom the document is addressed (paragraph 19).

Insurance law – Double insurance – where an entity seeks to cover risks for the same or similar incidents through two different – overlapping policies – two or more insurers must have insured the same insured against of the same risk on the same interest in the same subject matter – once the first insurer has paid full indemnity to the insured, the second insurer would be entitled to decline liability – in the case of specific risks, such as those resulting from loss due to fire, etc., the insured cannot and do benefit from double insurance (paragraphs 46 and 47).

Click here to read/download the judgment

About Warren Dockery

Check Also

DGDA signs MoU with Al Rajhi Bank to help finance home buyers

Riyadh: The Diriyah Gate Development Authority (DGDA) has signed a Memorandum of Understanding with Al …