Fidelity Insurance Claim Dispute: Collateral Management Co. vs. Insurance Company

In the legal case of Collateral Management Company vs. Insurance Company, a fidelity insurance claim dispute arose regarding the unauthorized removal of urad and substitution of water in mentha oil barrels. The National Commission allowed a claim for the mentha oil loss but rejected the claim for urad. The insurance policy of fidelity guarantee was meant to protect against breach of fidelity by trusted individuals, and allegations were made against employees of the insured company for fraudulent activities. Let’s delve into the details of this complex insurance dispute.


  • The complainant, a Collateral Management Company, discovered unauthorized removal of urad and substitution of water in mentha oil barrels from the warehouse at Gadarpur.
  • Investigation revealed omissions and commissions by employees in connivance with borrowers, causing significant financial loss to banks.
  • The complainant lodged a claim with the insurance company for the loss covered under the fidelity guarantee insurance policy.
  • The National Commission allowed a claim of Rs. 3,46,87,113 with 9% interest per annum for the loss of mentha oil but rejected the claim for urad.
  • The insurance claim was made on the basis of employees committing criminal breach of trust.
  • An FIR was registered based on the complaint lodged by the complainant at the Police Station.
  • The insurance claim was contested and opposed by the appellant, leading to the dispute being taken to the National Commission.

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  • Appellant argues that the respondent failed to prove involvement of employees in replacing mentha oil with water in barrels stored in the godown.
  • Appellant also points out that there was no specific employee named in the complaint for tampering with the oil.
  • Appellant claims that National Commission erred in allowing the claim for loss of mentha oil without proper evidence.
  • Appellant states that the seals were intact as per investigation reports, casting doubt on the veracity of the complaint.
  • Appellant alleges that the respondent violated the insurance contract terms by not making the claim immediately.
  • Employees were involved in the removal/substitution of mentha oil with water.
  • The survey report indicated the need for prosecuting both borrowers and employees of the respondent.
  • Sampling was undertaken when mentha oil substitution was discovered, and the investigation report was promptly submitted to the respondent-complainant.
  • Rejection of the claim and the subsequent order was challenged through an amendment.
  • The judgments cited by the learned counsel for the respondent, though on insurance claims, do not directly relate to the issues in this case.
  • The fidelity guarantee insurance policy was in force during the relevant time, obtained by the respondent-complainant.
  • Fidelity Guarantee is distinct from contingency guarantee.
  • No merit was found in the contentions advanced by learned counsel for the appellant after thorough examination of the impugned order and other material.
  • Key judgments related to insurance claims have no direct relevance to this case.

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  • The insurance policy of fidelity guarantee is meant to protect against breach of fidelity by a trusted person.
  • 601 barrels of mentha oil were stored in a warehouse under this insurance.
  • Allegations were made against employees of the insured company for the substitution of mentha oil with water.
  • Survey report indicated the involvement of company employees in removing the oil barrels.
  • Security guard allowed the owner to lift the stock, implicating internal involvement.
  • Argument against liability was based on lack of proof of employee involvement.
  • Delay in lodging the complaint was a contested issue violating insurance contract conditions.
  • Sampling revealed all barrels were filled with water instead of mentha oil, despite intact seals.
  • Request made to take action against specific employees for the crime under the Indian Penal Code.
  • Overall, there was clear employee involvement in substituting mentha oil barrels with water.
  • Fidelity insurance is a form of insurance where the insurer guarantees the fidelity of an officer, agent, or employee of the assured.
  • The insurer undertakes to indemnify the assured for losses due to dishonesty or lack of fidelity of the insured individual.
  • This type of insurance provides protection against financial losses resulting from dishonest acts of employees.
  • No delay on the part of the respondent in lodging the claim observed
  • No breach of condition no. 1 of the policy found
  • The appeal lacks merit and the impugned order is upheld

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  • 1.1
  • The appeal has been dismissed with no order as to costs.


Case Number: C.A. No.-010409-010409 / 2016

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