Bank v. Insurer: Exclusion of STFI Perils in Insurance Cover

In the case of Bank v. Insurer regarding the exclusion of STFI perils in the insurance cover, the Supreme Court of India delivered a significant judgment. The dispute between the bank and the insurer over the coverage terms has been thoroughly analyzed. Let’s delve into the details of this crucial legal battle.

Facts

The bank stated that the primary duty of obtaining insurance for the hypothecated goods was on the borrowers.
The first respondent filled a proposal form on 3 August 2005 and handed over a cheque for cover extending to STFI perils.
Insurance cover details for 2005-06 and 2006-07 were provided, showing a change in location with different sum insured amounts.
The claim under the insurance cover for hypothecated goods was repudiated by the insurer.
The insurer accepted part of the claim under one policy cover but repudiated the entire claim under a different policy cover.
The bank acted as a corporate agent for the insurer and obtained policies for all its borrowers.
Correspondence between the bank and insurer raised questions about exclusion of STFI perils in a specific policy cover.
The insurance policy covered specific locations of the borrower where goods were stored, with perils including storm, flood, and more.
A consumer complaint was filed alleging unfair trade practice by the insurer in repudiating the claim under a specific policy cover.
The defence of the insurer included the exclusion of STFI perils in the policy cover for a certain period.
The National Commission held that accepting the policy without the STFI cover estopped both the bank and the borrower from questioning its terms.
No rule or regulation mandating the insurer to accept the entire proposal was brought to the National Commission’s notice.
Deletion of STFI perils from a policy was permissible when a new policy was issued.
Despite the argument that the insurer could not have excluded STFI cover during renewal, the National Commission found that the exclusion was permissible according to regulations.
The appellants did not take up the issue of STFI peril exclusion with the insurer or the bank.
Reliance on general rules and regulations by the Tariff Advisory Committee showed that excluding STFI perils at the inception of the policy was permissible.
A new policy was issued for 2004-05 with a new location address, allowing the insurance company to exclude the STFI cover.
The National Commission overturned the State Commission’s order, holding the bank not liable for the exclusion of STFI perils from the policy.
The bank had given a copy of the insurance policy to the borrowers, and the refunded premium amount was credited to their account.
The bank, however, was held liable for depositing the cheque for the premium refund without proper enquiries from the insurer.

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Arguments

Appellants argued that the policy issued in 2005-06 was a renewal and the risk commencement date discrepancy was due to the bank’s actions.
Appellants were not made aware of the proposal by the bank, acting as the corporate agent of the insurer.
Cheque payment was encashed by the insurer, but a partial amount was later returned without proper intimation of exclusion of STFI perils.
Appellants contended that policies for 2005-06 and 2006-07 were renewals and therefore the insurer could not exclude STFI perils based on the prior policies.
Biman Krishna Bose v United India Insurance Co Ltd judgment was cited in support of the renewal argument.
Duty of obtaining insurance cover was primarily on the appellants as borrowers under the hypothecation agreement.
Insurer did not inform about the exclusion of STFI perils during policy renewals in 2005-06 or 2006-07.
Bank denied entering an incorrect or different address in the proposal form.
Bank stated that a copy of the policy had been provided to the insured.
Counsel for the appellants referred to specific clauses of an IRDA notification in support of their argument.
Proposal form was not submitted to the bank or the appellants within the specified time frame.
Mr. Bhat argued that the insurer’s decision to exclude STFI perils from the insurance cover was a commercial choice.
The insurer refunded a portion of the premium that covered STFI perils, indicating the exclusion to the appellants.
The appellants received the policy from the bank, so they cannot claim ignorance of the exclusion or the premium payment.
The bank deposited the returned premium amount of Rs 992 into the appellants’ account, solidifying their knowledge of the STFI perils exclusion.
Mr. K K Bhat, representing the third respondent, emphasized that the insurance cover of Rs 60 lakhs specifically did not include STFI perils.

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Analysis

The insurer cannot be held liable as no risk can be assumed without receiving the premium in advance.
The contract of insurance must be interpreted based on the agreement between the parties.
Section 64(VB) of the Insurance Act 1938 is relevant in this case.
The insurance policy issued for 1 August 2005 to 31 July 2006 excluded STFI perils.
The parties cannot disavow knowledge of the exclusion of STFI perils in the insurance cover for the relevant period.
The change in premises led to the issuance of a new policy with exclusion of STFI perils.
The terms and conditions of the new policy governed the contract between the parties.
The insurer’s decision to exclude STFI perils was a commercial one.
The Court cannot rewrite or create a new contract between the parties
The interpretative process of the Court should not involve reconstructing the terms of the contract
Judicial interpretation should stick to the terms of the existing contract
The role of the Court is to interpret the contract, not rewrite it
The appellants rely on the decision of the Court in Biman Krishna Bose v United India Insurance Co Ltd.
The case involved a mediclaim policy where insurer’s refusal to renew the policy was deemed arbitrary.
The appellants could have approached the insurer or another insurance company for a policy covering STFI perils.
The appeal is dismissed with no order as to costs.
The appellants were aware of the exclusion of STFI perils as they had received a copy of the policy and a premium refund.
Since the insured did not protest to the insurer in 2005-06 or 2006-07, they cannot claim they had no knowledge of the exclusion.