In CIVIL APPEAL NO.2955 OF 2022-SC- In case of specific risks, insured cannot profit and take advantage by double insurance: Supreme Court Justices Uday Umesh Lalit, S. Ravindra Bhat and Pamidighantam Sri Narasimha [02-05-2022]

Read Judgment: UNITED INSURANCE CO.LTD. Vs. LEVIS STRAUSS PVT.LTD. 

Mansimran Kaur

New Delhi, May 04, 2022: Allowing the appeal filed against the order passed by the NCDRC whereby the insurance claim of Levi Strauss was allowed, the Supreme Court has observed that a contract of insurance is and always continues to be one for indemnity of the defined loss, no more no less.

The Larger Bench of Justice Uday Umesh Lalit, Justice Ravindra Bhat and Justice Pamidighantam Sri Narasimha was considering an appeal which questioned the order passed by the National Consumer Disputes Redressal Commission dated August 1, 2019 whereby the insurance claim of Levi Strauss, the insured, was allowed. Prior to the said order, the United Insurance Co.Ltd, the appellant in the instant case rejected the aforesaid policy issued to the insured.

The facts that emerged from the present appeal were that the insurer issued a Standard Fire and Special Perils Policy to Levi commencing from the period January 1, 2007 to December  31, 2007. It covered the stocks in storage for the sum of Rs 30 crores. Another policy for the period of January 1, 2008 to December 31, 2008 was taken up by Levi on similar terms. 

Thereafter a fire broke out on July 13, 2008 in one of the warehouses containing Levi’s stocks. Consequently Levi claimed 12.20 crores from the insurer. However, as per the instructions of the global insurer of the parent company a status  report was submitted stating that the loss was of a higher figure. Thereafter the insurer, the appellant appointed its professional surveyor for an assessment. Accordingly, the final survey report dated August 8, 2009 assessed the net loss at Rs. 11.34 crore was submitted. 

The insurer however contended the claim by submitting that Levi was not entitled to receive the claim in view of the fourth condition contemplated in the SFSP policy, due to the policy issued by Allianz. Thus after considering the survey report and the conditions of the policies, the insurer refused the claim to Levi on September 11, 2009. 

Aggrieved by the same, Levi instituted a complaint with the NCDRC under Section 21 and 22 of the Consumer Protection Act, 1986. It was submitted by Levi that by virtue of Section 25 of the General Insurance Business Act, 1972 it was obligated to obtain a policy issued by a domestic insurer to cover several risks. 

It was the case of Levi that the claim repudiation on the ground that the risk was covered by the global insurance policies (STP Policy included) was contrary to Clause 41 (on ‘other insurance clauses’) of the STP Policy. Indeed, 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 impugned order allowed the complaint filed by Levi. NCDRC in its ruling took into consideration clause 47 of the STP policy.

After hearing the submissions of the rival parties, the Apex Court dealt with the first issue concerning the nature of the STP policy issued by Allianz as the insurer contended the same to be a marine policy, however the NCDRC observed otherwise. 

To adjudicate upon the same, the Top Court considered the relevant provisions of the Marine Insurance Act.  Reliance was also placed to the case of New India Assurance Co. Ltd. vs. Hira Lal Ramesh Chand & Ors., wherein the definition of marine policy was described. It was stated that as a contract of marine insurance may, however, by its express terms or by trade usage, be extended so as to protect the assured against losses on inland waters or against any land risk which may be incidental to a sea voyage. Further, it was observed that warehouse risks, combined with voyage and other marine risks are considered as part of marine insurance policies in India and the same was held in cases, Peacock Plywood Pvt. Ltd. v. The Oriental Insurance Co. Ltd  and United India Insurance Co. Ltd. v Great Eastern Shipping Co.

Thus, in view of the same the Court observed that the first two recitals of the STP policy as well as the warehouse-to-warehouse transit Clause 6 and other stipulations clearly stated that the policy covers both marine and other risks.

In the light of the above discussion, the Court opined that on a plain and reasonable construction of the fourth condition of the SFSP policy it was deduced that once it is established that Levi – or on its behalf, in this case, its parent company – was covered for the risk under a marine policy, (the STP Policy) and was entitled to claim under it, the appellant insurer’s liability was excluded. Therefore, on a plain construction of the terms of the policy issued by Allianz, it was a marine policy. Therefore, the fourth condition operated to exclude the insurer’s liability.

The second issue before this Court was to determine the meaning of the term “obligated by legislation”. The Court observed that the said expression was an integral part of Clause 47 of the STP Policy.  It was further observed that irrespective of the fact that 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 was further observed that Levi in the instant case was not bounded by any legislation that compelled it to obtain insurance to cover risks which it sought to get covered by the SFSP policy.  It was also observed that in the present case the restriction stated under Section 25 of the Nationalization was not applicable to Levi’s parent company. Also there was no specific provision requiring Levi to obtain a domestic policy in the conduct of its business, the Court submitted. Thus, NCDRC erred in its ruling by observing that clause 47 was applicable. 

The Bench said, “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.”

It was affirmed that the issue in this present case was that of  “double insurance”, i.e., where an entity seeks to cover risks for the same or similar incidents through two 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 seek to exclude liability on the part of the insurer, the Court noted. 

Lastly the Court observed that Levi could not have claimed more than what it did, and not in any case, more than what it received from Allianz. Its endeavor 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, was not borne out on an interpretation of the terms of the two policies, the Court added. 

Accordingly the appeal was allowed and the impugned judgment of NCDRC was set aside.