Waiver of Policy Conditions: Supreme Court’s Landmark Decision

In a significant legal ruling by the Supreme Court of India, a notable judgment was delivered on the issue of waiver of policy conditions in the insurance sector. The case involved a dispute between an insurance company and the claimant over the repudiation of a claim for loss of stock of coal and lignite. The Court’s decision sheds light on the critical aspect of policy enforcement and the implications of waiver in insurance contracts.

Facts

• The appellant lodged a claim for loss of stock of coal and lignite due to spontaneous combustion, which was repudiated by the insurer on the grounds that loss had not been caused by fire as stipulated in the policy.
• Appellant approached NCDRC seeking various reliefs including the demanded claim amount, compensation for pain and suffering, and interest on the claim amount.
• Intimation of loss was given to the insurer on 12.09.2006 after the stock was diminished due to spontaneous combustion between 11.8.2006 to 20.8.2006.
• Surveyor assessed the total loss to be Rs. 63,43,679/-.
• NCDRC rejected the claim citing contravention of Clause 6(i) of the General Conditions of Policy.
• Appellant had a standard fire and special perils policy with an additional premium to cover spontaneous combustion.
• Insurance cover ceased to operate as the factory remained closed from 17.02.2006 to 09.08.2006 due to the increased risk of loss.
• Claim intimation was sent with a delay of over a month, violating the policy conditions.
• Grounds (i) and (ii) were not accepted by NCDRC, but ground (iii) favoring the insurer was upheld based on breach of policy conditions.
• Insurer’s defense was based on the policy terms stating that damage caused by fire due to fermentation, natural heating, or spontaneous combustion is not covered.

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Arguments

• Respondent company appointed a surveyor, waiving its right to advance the plea of delayed intimation as per Clause 6(i) of the General Conditions of Policy.
• The letter of repudiation did not mention delayed intimation or delayed claim as a defence to the claim.
• The NCDRC erred in holding the claim as defeated due to delayed intimation under Clause 6(i) of the Policy.
• The respondent-insurer did not waive the condition regarding delay in intimation as per the General Conditions of Policy.
• The judgment in Galada case was considered in Sonell Clocks and Gifts Ltd. case, where it was distinguished based on the specific facts of the cases.
• The two main issues in this appeal are: (1) Whether the respondent-insurer waived the condition on delay by appointing a surveyor. (2) Whether the absence of mention of delay in the repudiation letter allows it to be used as a defense before the NCDRC.
• Merely appointing a surveyor does not prevent the insurer from raising a defense based on the violation of policy conditions leading to claim repudiation.

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Analysis

• The Court analyzed the appointment of a surveyor by the insurer and its implications.
• The Court emphasized that the appointment of a surveyor cannot be seen as a waiver of the terms and conditions of the insurance policy.
• The Court referred to the Galada Power case and distinguished it from the facts of the present case.
• It was highlighted that the insurer raised the issue of delayed claim intimation for the first time in its reply before NCDRC.
• The Court discussed the significance of the duration clause in determining the existence of the policy.
• The Court examined the clauses of the Standard Fire and Special Perils Policy and their relevance to the present case.
• It was noted that the appointment of a surveyor by the insurer does not automatically waive the right to raise a violation of policy conditions.
• The Court analyzed the repudiation letter and the reasons cited for rejecting the claim.
• The Court identified the necessity of fulfilling the stipulations in the General Conditions of the Policy for maintaining a valid claim.
• It was reiterated that an insurance company cannot base the repudiation on grounds not mentioned in the letter of repudiation.
• The Court concluded that the insurer’s actions indicated a waiver of the delay condition for claim intimation.
• The insurer had waived the right to enforce the duration clause due to appointing a surveyor
• The dictum in Galada case was distinguished in Sonnel Clocks and Gifts Ltd. case
• The appointment of a surveyor does not estop the insurer from raising a violation of policy conditions plea
• Galada case considered Clause 5 of a Marine Insurance Policy regarding insurance cover extinguishment
• Mr. Mukherjee, Senior Counsel for the Appellant, referred to the High Court of Delhi’s decision in Krishna Wanti v. LIC.
• The High Court observed that if an aspect was not mentioned in the letter of repudiation, it could not be considered as a stand in the final decision.
• The insurer did not mention delay in intimation as a ground for repudiation in their letter.
• Insurer cannot raise new grounds, such as delay in intimation, at the NCDRC hearing if not mentioned in the repudiation letter.
• NCDRC failed to consider this aspect and cannot justify rejecting the claim based on it.
• The appeal was allowed and the NCDRC judgment was set aside.

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Decision

• Payment to be made within eight weeks from today.
• Respondent – insurer directed to pay Rs. 63,43,679/- to the appellant as assessed by the surveyor.
• Interest of 8% to be applied from the date of filing of the claim petition until the date of payment.

Case Title: SAURASHTRA CHEMICALS LTD.(PRESENTLY KNOWN AS SAURASHTRA CHEMICALS DIVISION OF NIRMA LTD.) Vs. NATIONAL INSURANCE CO. LTD.

Case Number: C.A. No.-002059-002059 / 2015

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