Double Insurance : Second Insurer Can Decline Claim When Loss Has Been Fully Indemnified By Other Insurer - Supreme Court

The Supreme Court, recently, held that in cases of overlapping insurance policies, when the defined loss of the insured is fully indemnified by one insurer, the second insurer is not liable for the claim towards the same incident. "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."A Bench comprising Justices UU Lalit, S. Ravindra Bhat and P.S. Narasimha allowed appeal assailing the order of the National Consumer Disputes Redressal Commission (NCDRC), which directed the insurance company to pay Rs. 1.78 crores towards the claim raised by the insured. While opining that the insurance company was not liable to pay, the Apex Court noted that in the present case the issue was that of 'double insurance'/'overlapping policy', wherein the entity seeks coverage of risks of the same or similar incidents from two insurance policies. Factual Background United India Insurance Co. Ltd. (insurer) issued a Standard Fire and Special Perils Policy (SFSP Policy) to Levis Strauss (India) Pvt. Ltd. (insured) covering its stock in storage, first for a period of 01.01.2007 to 31.12.2007 and then 01.01.2008 to 31.12.2008. Levis Strauss & Co., the parent company of the insurer obtained a global policy (STP Policy) from Allianz Global Corporate & Speciality (Allianz) for the period of 01.05.2008 to 30.04.2009. It covered stocks of all its subsidiaries, including the insurer. Another 'all risks' policy (AR Policy) was issued by Allianz for the period of 01.05.2008 to 01.05.2009 covering stocks of its subsidiaries across the globe. On 13.07.2008, fire broke out in one of the warehouses containing the stocks of the insured. On 18.07.2008, the insured claimed Rs. 12.20 crores from the insurer. Subsequently, on 11.09.2009, the insurer repudiated the claim stating that Condition No. 4 of the SFSP Policy, excludes liability for loss payable under marine policy i.e. STP Policy. The insured approached the NCDRC, which allowed its complaint, without deciding whether the STP policy was a marine policy. On perusal of Clause 47 of the STP Policy, it noted that the said policy excludes the extent covered by the domestic policy. It held that though the loss of profit which the insured would have earned on the sale of the damaged stock was payable by Allianz, the loss suffered to the extent of cost of the goods would be payable by the insurer. It allowed the claim to the extent of Rs. 1.78 crores as the insured had received 19.52 crores from Allianz. Contentions raised by the appellant Advocate, Mr. A.K. De, appearing on behalf of the insurer, submitted that the foreign policy, i.e., STP Policy covered fire risk to the stock while in transit and also in store and elsewhere. He assailed the interpretation of Condition No. 4 of the SFSP Policy and Clause 47 of the STP Policy by NCDRC to hold that loss caused to goods was covered by SFSP Policy while STP Policy covered loss of earnings. It was asserted that the loss suffered being a composite one could not have been bifurcated. Mr. De highlighted that the claim was for Rs. 12.4 crores, against which it received Rs. 19.52 from Allianz. Therefore, he argued that the insured had received more money than admitted loss. Contentions raised by the respondent Senior Advocate, Mr. Joy Basu, appearing on behalf of the insured, submitted that under Section 2(c)(b) of the Insurance Act, 1938 and Section 25 of the Nationalisation Act there is an obligation to arrange insurance through a domestic insurer. It was pointed out that the insured was under a contractual obligation to get its risk covered under a domestic policy and under Clause 47 of the STP Policy, the primary obligation was on the domestic insurer. He submitted that the coverage under the two policies were mutually exclusive - SFSP Policy expressly excluded loss other than manufacturing as a result of fire; which was covered by the STP Policy. If not so, then it would indicate that the insurer was collecting premia without any liability. Analysis of the Supreme Court STP Policy is a marine policy 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. Referring to a catena of judgments, the Court noted that marine insurance policies in India include warehouse risks, combined with voyage and other marine risks. The STP policy also stipulates that it covers both marine and other risks. Moreover, the Policy describes itself as, 'Open Marine Insurance Contract'. It observed that the policy includes marine perils and is therefore a marine ...

Double Insurance : Second Insurer Can Decline Claim When Loss Has Been Fully Indemnified By Other Insurer - Supreme Court

Sohini Chowdhury

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