Hon'ble Mr. Justice Uday Umesh Lalit
Civil Appeal No1299./2019 @ SLP(C)No.27695/2018
Sumit Kumar Saha vs. Reliance General Insurance Co. Ltd.
1
Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.1299 OF 2019
(Arising out of Special Leave Petition (Civil)No.27695 of 2018)
SUMIT KUMAR SAHA ……Appellant
VERSUS
RELIANCE GENERAL INSURANCE COMPANY LTD. ..…. Respondent
JUDGMENT
Uday Umesh Lalit, J.
1. Leave granted.
2. This appeal arises out of final judgment and order dated 16.02.2018
passed by the National Consumers Disputes Redressal Commission (‘the
National Commission’, for short) in First Appeal No.182 of 2014.
3. On 27.03.2007 the appellant purchased one Volvo Hydraulic
Excavator for a sum of Rs.49,75,000/- with VAT amounting to Rs.1,99,000/-,
the total purchase value thus being Rs.51,74,000/-. Immediately after the
purchase said Hydraulic Excavator was insured with the respondent vide
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Sumit Kumar Saha vs. Reliance General Insurance Co. Ltd.
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“Contractor, Plants & Machinery Insurance Policy” bearing number
150719225001168. The insurance policy thereafter stood renewed. For the
period 22.07.2009 to 21.07.2010, the sum insured was Rs.46,56,600/- on
payment of premium of Rs.33,700/-. The column regarding ‘coverage’
mentioned the ‘year of make’ of said Excavator as ‘2007’. Under the caption
– PROVISIONS, the policy contained following stipulations:-
“1. SUM INSURED –
It is a requirement of this insurance that the sum insured shall be
equal to the cost of replacement of the insured property by new
property of the same kind and same capacity, which shall mean
its replacement cost including freight, dues and customs duties if
any and erection costs.
2. BASIS OF INDEMNITY -
a) In cases where damage to an insured item can be repaired the
Company will pay expenses necessarily incurred to restore the
damaged machine to its condition immediately prior to the
accident/loss plus the cost of dismantling and re-erection
incurred for the purpose of effecting the repairs as well as
ordinary freight to and from a repair-shop, customs duties and
dues if any, to the extent such expenses have been included in the
sum insured. If the repairs are executed at a workshop owned by
the insured, the Company will pay the cost of materials and
wages incurred for the purpose of the repairs plus a reasonable
percentage to cover overhead charges.
No deduction shall be made for depreciation in respect of parts
replaced, except those with limited life, but the value of any
salvage will be taken into account. If the cost of repairs as
detailed hereinabove equals or exceeds the actual value of the
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Sumit Kumar Saha vs. Reliance General Insurance Co. Ltd.
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machinery insured immediately before the occurrence of the
damage, the settlement shall be made on the basis provided for in
(b) below.
b) In cases where an insured item is totally destroyed the
Company will pay the actual value of the item immediately
before the occurrence of the loss, including costs for ordinary
freight, erection and customs duties if any, provided such
expenses have been included in the sum insured, such actual
value to be calculated by deducting proper depreciation form the
replacement value of the item. The Company will also pay any
normal charges for dismantling of the machinery destroyed but
the salvage shall be taken into account.
Any extra charges incurred for overtime, night-work, work on
public holiday, express freight, are covered by this insurance only
if especially agreed to in writing.
In the event of the Makers’ drawing, patterns and core boxes
necessary for the execution of a repair, not being available, the
Company shall not be liable for the cost of making any such
drawings, patterns and core boxes.
The cost of any alteration, improvements or overhauls shall not
be recoverable under this Policy.
The cost of any provisional repairs will be borne by the Company
if such repairs constitute part of the final repairs, and do not
increase the total repair expenses.
If the sum insured is less than the amount required to be insured
as per Provision-I herein above, the Company will pay only in
such proportion as the sum insured bears to the amount required
to be insured. Every item, if more than one, shall be subject to
this condition separately.
The Company will make payments only after being satisfied,
with the necessary bills and documents, that the repairs have
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Sumit Kumar Saha vs. Reliance General Insurance Co. Ltd.
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been effected or replacement have taken place, as the case may
be. The Company may, however, not insist for bills and
documents in case of total loss where the insured is unable to
replace the damaged equipment for reasons beyond their control.
In such a case claims can be settled on ‘Indemnity Basis’.”
4. Said Hydraulic Excavator was hired and was to be used at a different
location. The appellant duly intimated the change of location. On 30.06.2010
the Hydraulic Excavator was badly damaged in a fire while it was at such
changed location. An FIR was lodged on 01.07.2010 with the local police and
the respondent was also immediately intimated about the damage and was
requested to survey the damage and settle the claim.
5. On 07.07.2010 a surveyor came to be appointed by the respondent to
survey and assess the loss and damage. Though the survey was undertaken,
the claim of the appellant was not getting settled and as such reminders were
sent by the appellant on 18.08.2010 and 10.02.2011. Thereafter, on
13.04.2011 the appellant was intimated that the loss was assessed by the
surveyor at Rs.25,24,273/-. The relevant portion from the report of the
surveyor Cunningham Lindsey was to the following effect :-
“GROSS LOSS Both types of claim settlement
possibilities viz. in Partial Loss and
Constructive Total Loss basis were
explored. Finally, it was established
that PL i.e. repairing of the whole
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Sumit Kumar Saha vs. Reliance General Insurance Co. Ltd.
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excavator will involve much higher
than its insured value. Hence, we have
considered it as case of Constructive
Total Loss.
Considering the above, the Gross Loss
comes around Rs.5,100,000.00, which
is the present new replacement cost of
same type and capacity of excavator.
Refer attached quotation for new
machine.
MARKET VALUE OF
LOSS
Since procurement, i.e. 27th March
2007 and the date of loss i.e. 30th June
2010 the subject excavator was in
operation for 3 years and 3 months. As
such, considering the life of such
excavator as 10 years, the depreciation
for 3 years and 3 months works out to
32.5% . Hence, the depreciated value
or Market Value of the excavator is
Rs.3,442,500.00
SALVAGE
REALISATION
The matter of salvage was first
discussed with the insured, who
refused to retain the same.
Immediately, we informed all the
details of the affected machine to the
insurer for appropriate action on the
salvage disposal through their
concerned department. As a result of
the same, the insurer vide their mail
dated 21st February 2011, confirmed
that they had recovered Rs.650,000
from the subject excavator, which we
opine to be extremely fair and
reasonable considering the extent of
damage to the excavator and
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Sumit Kumar Saha vs. Reliance General Insurance Co. Ltd.
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remoteness of the location of loss.
ASSESSED LOSS Rs.2,792,500.00 (as net of salvage)
UNDER INSURANCE The present new replacement cost of an
excavator of same type and capacity is
Rs.5,100,000.00, whereas the sum
insured taken for the same is of
Rs.4,656,000.00. On comparing those
two, it is worked out that the property
is under insured by 8.71%.
ADJUSTED LOSS Rs.2,549,273.25 (as net of under
insurance)
DEDUCTIBLE For Individual Value over Rs.25 lakhs
upto Rs.50 lakhs Rs.25,000.00 (Flat
Excess) for claims arising out of perils
other than AOG perils.
NET ADJUSTED
LOSS
Rs.2,524,273.00 (as net of policy
excess)
RECOMMENDATION We recommend payment of the net
adjusted amount of Rs.2,524,273 under
Policy No.1507192215001168 in full
discharge of the claim subject to
Agreed Bank Clause.”
6. The appellant being aggrieved, filed case No.CC/18/11 before the
State Consumer Disputes Redressal Commission, West Bengal (‘the State
Commission’, for short). The appellant submitted that the Excavator was a
total loss and that he was entitled to the insured amount of Rs.46,56,600/-
Civil Appeal No1299./2019 @ SLP(C)No.27695/2018
Sumit Kumar Saha vs. Reliance General Insurance Co. Ltd.
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along with interest @ 12% p.a. and compensation as claimed in the complaint.
During the pendency of the matter, the appellant placed on record the report
of a surveyor appointed by him. Said surveyor had assessed the loss on two
counts, namely “loss assessed on repairing basis” at Rs.94,64,357.70 and on
“total loss basis” at Rs.41,90,940.00. The relevant portion from the report of
said surveyor named Subbiah Jeyakarthigesan was as under :-
“LOSS ASSESSED ON REPAIRING BASIS Rs.9,464,357.70
(Rupees Ninety four lacs sixty four thousand three hundred fifty
seven & seventy only).
ASSESSMENT ON TOTAL LOSS BASIS
Present depreciated cost of the Excavator
as declared to the Insurance Company and
accepted by them Nu. 4,656,600.00
Less: 10% Depreciation for usage from
the date of insurance to the date of accident Rs. 465,660.00
______________
Assessed on Total Loss Basis Rs. 4,190,940.00
(Rupees Forty one lacs ninety thousand nine hundred forty only.)
UNDER INSURANCE
In my opinion the under insurance in this case will not be
applicable as the total machine has been totally burnt. The
machine has been insured for Rs.46,56,600.00 which is after
application of depreciation from the period of purchase to the last
renewal of the insurance policy, as such I have not applied any
under insurance in this case.”
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7. The State Commission allowed the complaint. The relevant portions
of its order dated 04.12.2013 are as under :-
“Thirdly, the loss assessed by the Surveyor appointed by
the insurance company has taken into consideration the
depreciation value @ 32% of the original purchase value
of Rs.51,74,000/- only, but the premium as on 7th July
2009 was made after fixing depreciation value. It is
quite reasonable that the depreciation value, as pointed
out by the surveyor appointed by the insured in reply to
question No.8 of the OP, that the depreciation has been
applied by the OP at the time of renewal of policy and
depreciation can be applied only once, only from the
period from the date of renewal of insurance to the date
of accident. Again, in reply to question No.9 of the OP,
it has been held that under insurance @ 8.71% is
incorrect as the insurance company has put in their own
value at the time of renewing the policy without
obtaining the proposal form from the owner of the
excavator machine. We also agree with the view taken
by the surveyor appointed by the insured as stated in his
reply to question No.10 of the OP that salvage wreck is
the property of the insurance company and it cannot be
forced upon the owner of the damaged
machine…………….
Ordered
That the complaint be and the same is allowed on
contest against O.P.Nos. 1 & 2 who are hereby directed
to pay a sum of Rs.41,90,940/- (Forty one lakh ninety
thousand nine hundred and forty only) with interest @
Rs.8% p.a. from the date of filing of the claim. The said
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Sumit Kumar Saha vs. Reliance General Insurance Co. Ltd.
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OPs. are also directed to pay a sum of Rs.1,00,000/-
(One lakh only) as compensation for harassment, mental
agony and financial loss, apart from another sum of
Rs.5,000/- (Five thousand only) as costs. The entire
amount shall be paid by OP Nos.1 & 2 within 45 days
from the date of this order in default whereof, interest
@9% p.a. shall be payable till full realisation.”
8. The respondent, being aggrieved filed First Appeal No.182 of 2014
which was partly allowed by the National Commission vide its judgment and
order dated 16.02.2018. The National Commission held as under:
“… … …The Insurance Company is responsible to
indemnify the loss on the basis of the replacement of
the damaged machine in the same condition at which it
was at the day of the accident. In the present case,
though IDV of Rs.46,56,000/- was mentioned in the
policy and was agreed between the parties, however, if
the new machine is available for Rs.51,00,000/- then
on that basis the same machine of 3.25 years age could
be available on the approximate price being arrived at
by deducting the depreciation for 3.25 years from the
current price of the new machine. Obviously, the
insurance Company shall go for this price for
replacement as this is less than the IDV. On this basis,
the surveyor has calculated depreciated price of the
new machine fit for replacement as Rs.34,42,500/-
after applying depreciation of 10% p.a. since the
purchase of the machine on the current price of new
machine till the date of accident.”
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Sumit Kumar Saha vs. Reliance General Insurance Co. Ltd.
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The National Commission further observed that the salvage value to
the tune of Rs.6,50,000/-, which was realized by the respondent could not
have been deducted from the aforesaid sum of Rs.34,42,500/. The National
Commission, thus directed the respondent to pay a sum of Rs.34,17,500/- for
settlement of the insurance claim of the appellant. It was found that since the
respondent was willing to settle the matter for Rs.25,42,273/-, the respondent
would be liable to pay interest on the differential amount of Rs.8,93,227/- @
8% p.a.
9. The decision of the National Commission is presently under appeal.
We heard Mr. Soumya Roop Sanyal, learned Advocate for the appellant and
Mr. Joy Basu, learned Senior Advocate for the respondent. The appellant
contended that it was a case of a total loss as accepted by both the surveyors
and going by the “sum insured” as agreed by the parties, the appellant was
entitled to Rs.46,56,000/-. It was submitted that the Insurance Company was
well aware that the Excavator was of 2007 make and after deducting
appropriate depreciation the value that was arrived at for the purposes of
cover of insurance was Rs.46,56,600/-. Countering said submission, the
respondent submitted that despite stipulation of such amount as sum insured,
the Insurance Company would not be disentitled in the present case from
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Sumit Kumar Saha vs. Reliance General Insurance Co. Ltd.
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contending that the actual value after suffering appropriate depreciation ought
to be one that was indicated by its surveyor. Reliance was placed upon the
decision of this Court in Sikka Papers Limited v. National Insurance
Company Limited and others1
.
10. It is common ground that as a result of fire, the Excavator was a “total
loss” and the insured would be entitled to the replacement cost of the
Excavator. The point, however, is what is the amount or value that the
insured is entitled to.
11. The policy in question indicates 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. In this regard the conclusion arrived at
and the observations made in Dharmendra Goel v. Oriental Insurance
Company Limited2
are noteworthy. In that case a vehicle was bought in the
year 2000 and the relevant period of coverage was 2002-2003. The vehicle
1
(2009)7 SCC 777
2
(2008) 8 SCC 279
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Sumit Kumar Saha vs. Reliance General Insurance Co. Ltd.
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met with an accident. The surveyor found it to be a total loss which was
assessed at Rs.1,80,000/-. In an action instituted in the Consumer Forum, the
National Commission had granted compensation at said level of Rs.1,80,000/-
with interest. Questioning such assessment, the insured was in an appeal and
submitted, inter alia, that he was entitled to the sum insured, namely,
Rs.3,54,000/-. Paragraphs 5 and 7 of the decision bring out the principle that
the Insurance Company having accepted the value of the vehicle to be
Rs.3,54,000/-, was bound by that value. Said paragraphs 5 and 7 were as
under:
“5. We have heard the learned counsel for the parties and have
gone through the record very carefully. The facts as narrated
above remain uncontroverted. Admittedly, the accident had
happened on 10-9-2002 during the validity of the insurance
policy taken on 13-2-2002 insuring the vehicle for Rs
3,54,000 on a premium of Rs 8498. It is also the admitted
position that the vehicle had been declared to be a total loss
by the surveyor appointed by the Company though the value
of the vehicle on total loss basis had been assessed at Rs
1,80,000. We are, in the circumstances, of the opinion that as
the Company itself had accepted the value of the vehicle at
Rs 3,54,000 on 13-2-2002, it could not claim that the value of
the vehicle on total loss basis on 10-9-2002 i.e. on the date of
the accident was only Rs 1,80,000.
… … …
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7. It must be borne in mind that Section 146 of the Motor
Vehicles Act, 1988 casts an obligation on the owner of a
vehicle to take out an insurance policy as provided under
Chapter XI of the Act and any vehicle driven without taking
such a policy invites a punishment under Section 196 thereof.
It is, therefore, obvious that in the light of this stringent
provision and being in a dominant position the insurance
companies often act in an unreasonable manner and after
having accepted the value of a particular insured good disown
that very figure on one pretext or the other when they are
called upon to pay compensation. This “take it or leave it”
attitude is clearly unwarranted not only as being bad in law
but ethically indefensible. We are also unable to accept the
submission that it was for the appellant to produce evidence
to prove that the surveyor’s report was on the lower side in
the light of the fact that a price had already been put on the
vehicle by the Company itself at the time of renewal of the
policy. We accordingly hold that in these circumstances, the
Company was bound by the value put on the vehicle while
renewing the policy on 13-2-2002.”
12. Mr. Basu, learned Senior Advocate, however relied upon the decision
of this Court in Sikka Papers (supra). In that matter a diesel generating set
purchased in the year 1997 for Rs.45 lakhs was insured for Rs.35 lakhs for the
period from 08.04.1999 to 07.04.2000. Said diesel generating set broke
down. The complainant demanded what it had paid i.e. Rs.25 lakhs for the
repairs but the insurer, relying upon the report of the Surveyor, did not agree.
According to the Surveyor the net loss was Rs.14,45,000/-. But the Surveyor
found that the generating set was under insured and as such the figure of net
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loss that was assessed ought to suffer deduction of 25.71%. The net assessed
loss was, therefore, at the level of Rs.10,47,491/-. This Court raised two
questions:
“(1) Whether the insurer was justified in accepting report
dated 15-5-2000 submitted by the surveyor who had assessed
the loss of Rs.14,45,000/- after deducting about Rs.10,55,000/-
from Rs.25,00,000/- i.e. actual amount paid by the
complainant for repairing the diesel generating set?
(2) Whether the insurer was justified in deducting an
amount of Rs.3,71,509.50 (25.71%) as under insurance from
the loss assessed at Rs.14,45,000/- by the surveyor in its report
dated 15-5-2000?”
As regards first question, this Court found that insurer would not be
liable in respect of wearing out of machinery from normal use or exposure
and the cost of replacement of insured property by new property of the same
kind and same capacity would be subject to the exception that repair or
replacement would not extend to the machinery or parts which had undergone
normal wear and tear. With regard to the second question, on facts it was
found that there was an element of under insurance and the surveyor was
justified in deducting 25.71%.
13. We do not see how the decision in Sikka Papers (supra) could
be of any relevance in the present matter. The cases of “under insurance”
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Sumit Kumar Saha vs. Reliance General Insurance Co. Ltd.
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stand on a completely different footing. In such cases the Insurance Company
stands denied of appropriate premium. If the sum insured is, in any way,
lesser than the real value of the subject matter of insurance, and if there be
cases of partial replacement or partial loss, it is well accepted that the
Insurance Company is entitled to proportionate deduction representing the
proportion of undervaluation. It is this facet of the matter which weighed
with the Court in Sikka Papers (supra) in affirming the surveyor’s report in so
far as 25.71% deduction was concerned. Even in the present matter under the
caption “Provisions”, the stipulation in para 2 is to the effect that if the sum
insured “is less than the amount required to be insured ……. the company
will pay only in such proportion as the sum insured bears to the amount
required to be insured.”
14. It is not the case of the Insurance Company that there was any
“under insurance” in the present matter. On the other hand, the contention is
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 we go 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.
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15. It is precisely in this set of facts that the question in the present
matter arises. 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, is it
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. One may understand cases where there is non-disclosure of material
facts which may go to the root of the matter and as such the sanctity of the
agreement itself may get affected. But 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. This was the idea and the underlying principle
in Dharmendra Goel (supra)
16. The relevant stipulation in the present case, namely clause (b)
of Provision -Basis of Indemnity speaks of calculation of actual value by
deducting “proper depreciation”. The Surveyor of the Insurance Company
has 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,
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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 aforesaid 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
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disregard the figure stipulated as ‘sum insured’. The loss had to be assessed
in the present case, keeping said figure in mind.
17. Having considered the entire matter, in our view, 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 other issue which
weighed with the surveyor appointed by the Insurance Company regarding
deduction of salvage value was rightly answered by the National Commission
and as such does not require any elaboration. We, thus, find that the
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assessment made by the State Commission was quite correct and that made by
the National Commission was completely incorrect.
18. We, therefore, allow this appeal, set aside the decision of the National
Commission and restore the judgment and order passed by the State
Commission. No costs.
………..…..……..……J.
(Uday Umesh Lalit)
..………….……………J.
(R. Subhash Reddy)
New Delhi,
January 30, 2019
