Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2010 Supreme(SC) 323

2010 (3) Supreme 113
SUPREME COURT OF INDIA
R V Raveendran and K S Radhakrishnan, JJ.
The Amravati District Central Co-operative Bank Ltd. — Appellant
versus
United India fire & General Insurance Co.Ltd. — Respondent
Civil Appeal No. 3307 of 2010
(Arising out of SLP (C) No.23557 of 2008)
Decided on : 15-04-2010

Advocates Appeared:
For the Appellants : Gagan Sanghi, J.B. Kant, Rameshwar Prasad Goyal, Advs., for the Appellants.
For the Respondents:Ravi Bakshi, Rajeev Kumar Bansal, Akshay K. Ghai, Sanjeev Bansal, Ms. Ruby Khan, Advs., for the Respondents.

IMPORTANT POINT
Excess” clauses limits the liability of the insurer in regard to each claim, only to the amount of loss, in excess of the sum specified in the Excess clause, which the insured has agreed to bear either himself or by securing other insurance coverage.

Headnote:Arbitration Act, 1940 –Sections14,17,30-In pursuance of a Banker’s Indemnity Insurance Proposal from the appellant ‘Bank’, respondent `Insurer’ issued a Renewal Insurance Policy which indemnified and insured the Bank against losses caused by acts or omission of the Bank’s employees - An employee of the Bank committed a series of embezzlements- Bank claimed indemnity from the Insurer in terms of policy in respect of Rs.3,58,000/- embezzled by the said employee- On dispute between parties Bank sought arbitration and appointed its arbitrator-Insurer however did not appoint its Arbitrator-Arbitrator proceeded ex parte and made an award- Arbitrator held that insurer could not apply the Excess clause to each and every loss separately; that having regard to the terms of the policy, amounts embezzled had to be aggregated; and that out of the total loss, Bank had to bear 25% and insurer was liable to pay the balance-Insurer filed a petition under Section 30 of the said Act for setting aside the ex parte award- Civil Court dismissed said petition -Appeal-Allowed by High Court holding that Arbitrator ought to have considered each item of embezzlement separately and could not aggregate the amounts embezzled for the purpose of arriving at the claim and fixing liability of the insurer-Appeal- Proviso (1) of Insurance policy was divided into two parts, that is the first part with reference to Contingencies 1,2 and 3, and the second part in regard to Contingencies 4 (and 5 where it was applicable), only to differentiate between the quantum that had to be borne by Insured in respect of each and every claim which was a fixed Rs.11,500/- for each and every loss under Contingencies 1, 2 and 3, whereas it was 25% of the amount of the loss or Rs.11,500/- whichever was higher in regard to each and every claim under Contingency 4 (and 5)- It was therefore necessary to identify each act of embezzlement by in regard to each account, as the loss on account of each embezzlement formed a separate claim- The Bank had to bear 25% of the amount embezzled (or 11500/- whichever is higher) in regard to each and every embezzlement, and not by aggregation of the embezzlements- Award of the arbitrator held liable to be set aside as there was a clear error apparent on the face of the award-Award extracted the relevant clauses of the insurance policy including the excess clause and then proceeded to put an interpretation thereon which was contrary to the express words of the contract and opposed to the well recognised insurance practices and principles- Award was rightly set aside by High Court-Appeal dismissed. (Paras 13 to 18)
       Excess” clauses –Scope and ambit of-Excess” clauses are commonly used in Insurance contracts- In insurance parlance, the term “EXCESS” in the Excess clause in the policy refers to “that part of the amount of loss, under each claim, which is not covered by the policy” or the “amount that the policy holder has, by agreement, to bear or contribute to each insurance claim”- In other words it limits the liability of the insurer in regard to each claim, only to the amount of loss, in excess of the sum specified in the Excess clause, which the insured has agreed to bear (either himself or by securing other insurance coverage). (Para 10)
       Facts of the Case :
       In pursuance of a Banker’s Indemnity Insurance Proposal from the appellant ‘Bank’, respondent `Insurer’ issued a Renewal Insurance Policy which indemnified and insured the Bank against losses caused by acts or omission of the Bank’s employees herein in the instant case. An employee of the Bank committed a series of embezzlements. Bank claimed indemnity from the Insurer in terms of policy in respect of Rs.3,58,000/- embezzled by the said employee. On dispute between parties Bank sought arbitration and appointed its arbitrator. Insurer however did not appoint its Arbitrator. Arbitrator proceeded ex parte and made an award. Arbitrator held that insurer could not apply the Excess clause to each and every loss separately; that having regard to the terms of the policy, amounts embezzled had to be aggregated; and that out of the total loss, Bank had to bear 25% and insurer was liable to pay the balance.Insurer filed a petition under Section 30 of the said Act for setting aside the ex parte award. Civil Court dismissed said petition .Appeal thereagainst was Allowed by High Court holding that Arbitrator ought to have considered each item of embezzlement separately and could not aggregate the amounts embezzled for the purpose of arriving at the claim and fixing liability of the insurer.
       2.Present appeal has been filed against said order of High Court.
       Findings of the Court :
       Proviso (1) of Insurance policy was divided into two parts, that is the first part with reference to Contingencies 1,2 and 3, and the second part in regard to Contingencies 4 (and 5 where it was applicable), only to differentiate between the quantum that had to be borne by Insured in respect of each and every claim which was a fixed Rs.11,500/- for each and every loss under Contingencies 1, 2 and 3, whereas it was 25% of the amount of the loss or Rs.11,500/- whichever was higher in regard to each and every claim under Contingency 4 (and 5).It was therefore necessary to identify each act of embezzlement by in regard to each account, as the loss on account of each embezzlement formed a separate claim.The Bank had to bear 25% of the amount embezzled (or 11500/- whichever is higher) in regard to each and every embezzlement, and not by aggregation of the embezzlements. Award of the arbitrator was held liable to be set aside as there was a clear error apparent on the face of the award. Award extracted the relevant clauses of the insurance policy including the excess clause and then proceeded to put an interpretation thereon which was contrary to the express words of the contract and opposed to the well recognised insurance practices and principles. Award was rightly set aside by High Court. Appeal dismissed.

JUDGMENT

R. V. Raveendran, J. —

Leave granted. Heard the learned counsel.

2.In pursuance of a Banker’s Indemnity Insurance Proposal dated 1.7.1976 from the appellant (‘Bank’), the respondent (‘Insurer’) issued a Renewal Insurance Policy covering the period 1.7.1976 to 1.7.1977. The policy indemnified and insured the Bank against losses caused by acts or omission of the Bank’s employees to a limit of Rs.6 lacs (Basic cover) plus Rs. 9 lacs (cash in safe). The Bank furnished to the Insurer a list of its branches to be covered by the insurance which included Dhamangaon Branch and the names of the employees working in those branches. The operative portion of the policy is extracted below:-

“THE COMPANY HEREBY AGREES subject to the terms and conditions contained herein or endorsed or otherwise expressed herein that if the Insured shall discover any direct LOSS of Money and/or Securities sustained by the Insured by CONTIGENCIES as provided hereinafter at any time during the period of insurance stated herein or any subsequent period in respect of which the Insured shall have paid or agreed to pay and the company shall have accepted or agreed to accept the premium required for the renewal thereof, the company will indemnify the Insured in respect of all such direct losses but not exceeding,

(a) the total sum insured hereby in respect of any loss or losses caused by acts or omissions of any one person whether Officer, Clerk or Employee of the Insured or acts or omissions in which such person is concerned or implicated or in respect of any one casualty or event irrespective of the total amount of such loss.

(b) in any one period of insurance twice the total sum insured hereby in respect of all such losses.”

CONTINGENCIES INSURED

1. By reason of any Money and/or Securities for which the Insured are responsible or the custody of which they have undertaken and which now are or are by them supposed or believed to be or at any time during the period of insurance may be in or upon their own premises or upon the premises of their Bankers in any recognised place of safe deposit in India or lodged or deposited in the ordinary course of business for exchange, conversion or registration with the issuers thereof, or with any agents of such issuers or with any person employed to procure or manage the exchange, conversion or registration thereof, being (while so in or upon such premises or so placed, lodged or deposited as aforesaid) lost, destroyed or otherwise made away with by Fire, Burglary, or House breaking, Theft, Robbery or Hold-up, whether with or without violence and whether from within or without and whether by the Officers, Clerks or Employees of the Insured or any other person or persons whomsoever.

2. By reason of any Money and/or Securities being lost, stolen, mislaid, misappropriated or made away with, whether due to the negligence or fraud of the officers, Clerks or Employees of the Insured or otherwise, whilst in transit in the hands of such Officers, Clerks or Employees within India, such risk of transit to commence from the moment when the person into whose hands the same may be delivered on behalf of the Insured shall leave the premises at which he receives the same and to continue until delivery thereof at destination.

3.By reason of the payment made whether received over the Counter or through the Clearing House or by Mail in respect of forged or raised Cheques and/or Drafts or (genuine) Cheques and/or Drafts bearing forged endorsements or the establishment of any credit to any customer on the faith of such documents.

4.By reason of the dishonest or criminal act of any Officer, Clerk or Employee of the Insured with respect to the loss of Money and/or Securities wherever committed and whether committed directly or in connivance with others.

5.[Deleted]

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PROVISOS

“1. EXCESS - The Insured shall bear the amount of excess stipulated in the Schedule in respect of each and every loss if the loss is under Contingencies 1, 2 or 3 insured by

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2010 Supreme(SC) 323

IMPORTANT POINT Excess” clauses limits the liability of the insurer in regard to each claim, only to the amount of loss, in excess of the sum specified in the Excess clause, which the insured has agreed to bear either himself or by securing other insurance coverage.

Cases Referred (2)

IMPORTANT POINT
Excess” clauses limits the liability of the insurer in regard to each claim, only to the amount of loss, in excess of the sum specified in the Excess clause, which the insured has agreed to bear either himself or by securing other insurance coverage.