1. Insurance claim for total loss of machinery due to fire — Dispute over indemnity amount based on agreed sum insured versus depreciated market value. (Para 3 , 4 , 5 )
Back
Next 
2019 Supreme(SC) 90
SUPREME COURT OF INDIA
Uday Umesh Lalit, R. Subhash Reddy, JJ.
Sumit Kumar Saha - Appellant
Versus
Reliance General Insurance Company Ltd. - Respondent
Civil Appeal No. 1299 of 2019 (Arising out of Special Leave Petition (Civil) No. 27695 of 2018)
Decided On : 30-01-2019
Advocates Appeared:
For Appellant(s) : Mr. Subhro Sanyal, AOR
For Respondent(s): Mr. Parijat Kishore, AOR
For Appellant(s) : Mr. Subhro Sanyal, AOR
For Respondent(s): Mr. Parijat Kishore, AOR
IMPORTANT POINT
The figure stipulated as ‘sum insured’ cannot be disregarded.
Headnote:Insurance law – Excavator insured for Rs.46,56,600/- – Suffering total loss due to fire – Year of make 2007 policy subsisting for the period 22.07.2009 to 21.07.2010 – Insured amount representing value of Excavator on date of insurance – Loss ought to be assessed on that basis – Held, surveyor appointed by the insured was right in deducting 10% as depreciation after the date of coverage and in arriving at the figure of Rs.41,90,940/- as total loss. (Para 11, 15, 16, 17)
(2008) 8 SCC 279 – Relied upon
(2009)7 SCC 777 – Distinguished
Facts of the case:
On 27.03.2007 the appellant purchased one Volvo Hydraulic Excavator for a sum of Rs.49,75,000/- with VAT amounting to Rs.1,99,000/-, the total purchase value thus being Rs.51,74,000/-. Immediately after the purchase said Hydraulic Excavator was insured with the respondent vide “Contractor, Plants & Machinery Insurance Policy”. The column regarding ‘coverage’ mentioned the ‘year of make’ of said Excavator as ‘2007’.
Said Hydraulic Excavator was hired and was to be used at a different location. The appellant duly intimated the change of location. On 30.06.2010 the Hydraulic Excavator was badly damaged in a fire while it was at such changed location. An FIR was lodged on 01.07.2010 with the local police and the respondent was also immediately intimated about the damage and was requested to survey the damage and settle the claim.
The appellant was intimated that the loss was assessed by the surveyor at Rs.25,24,273/-.
The appellant being aggrieved, filed case before the State Consumer Disputes Redressal Commission, West Bengal. The appellant submitted that the Excavator was a total loss and that he was entitled to the insured amount of Rs.46,56,600/- along with interest @ 12% p.a. and compensation as claimed in the complaint. During the pendency of the matter, the appellant placed on record the report of a surveyor appointed by him. Said surveyor had assessed the loss on two counts, namely “loss assessed on repairing basis” at Rs.94,64,357.70 and on “total loss basis” at Rs.41,90,940.00.
The State Commission allowed the complaint.
The respondent filed First Appeal No.182 of 2014 which was partly allowed by the National Commission. The National Commission directed the respondent to pay a sum of Rs.34,17,500/- for settlement of the insurance claim of the appellant. It was found that since the respondent was willing to settle the matter for Rs.25,42,273/-, the respondent would be liable to pay interest on the differential amount of Rs.8,93,227/- @ 8% p.a.
Finding of the Court:
The assessment made by the State Commission was quite correct and that made by the National Commission was completely incorrect.
Result: Appeal allowed.
Legal Category Hierarchy
Table of Contents
2. Whether the insurer is bound by the agreed sum insured or entitled to deduct depreciation from the date of purchase to the date of loss. (Para 9 )
3. The sum insured agreed at renewal represents the value at that time; depreciation cannot be calculated for the period prior to the policy's inception. (Para 11 , 14 , 15 , 16 )
4. Parties are bound by the stipulated sum insured unless the agreement was vitiated by fraud, coercion, or misrepresentation. (Para 15 , 17 )
5. Appeal allowed — National Commission's order set aside — State Commission's judgment restored. (Para 18 )
6. Is an insurance company bound by the sum insured agreed upon during policy renewal?
Yes, if both parties agreed to a specific sum insured without fraud, coercion, or misrepresentation, the insurance company is bound by that figure and cannot later claim the real value was lower. (Para 11 , 15 , 17 )
7. How should depreciation be calculated when a sum insured is already stipulated in the policy?
Depreciation should be computed starting from the sum insured stipulated at the time the contract was entered into, rather than from the original purchase price of the asset. (Para 16 , 17 )
8. Does the principle of proportionate deduction for under-insurance apply when the insurer accepts a specific sum insured?
Proportionate deduction applies when the sum insured is less than the real value (under-insurance). It does not apply when the insurer has accepted a value that may be higher than the depreciated market value. (Para 13 , 14 )
JUDGMENT :
Uday Umesh Lalit, J.
1. Leave granted.
2. This appeal arises out of final judgment and order dated 16.02.2018 passed by the National Consumers Disputes Redressal Commission (‘the National Commission’, for short) in First Appeal No.182 of 2014.
3. On 27.03.2007 the appellant purchased one Volvo Hydraulic Excavator for a sum of Rs.49,75,000/- with VAT amounting to Rs.1,99,000/-, the total purchase value thus being Rs.51,74,000/-. Immediately after the purchase said Hydraulic Excavator was insured with the respondent vide “Contractor, Plants & Machinery Insurance Policy” bearing number 150719225001168. The insurance policy thereafter stood renewed. For the period 22.07.2009 to 21.07.2010, the sum insured was Rs.46,56,600/- on payment of premium of Rs.33,700/-. The column regarding ‘coverage’ mentioned the ‘year of make’ of said Excavator as ‘2007’. Under the caption – PROVISIONS, the policy contained following stipulations:-
“1. SUM INSURED –
It is a requirement of this insurance that the sum insured shall be equal to the cost of replacement of the insured property by new property of the same kind and same capacity, which shall mean its replacement cost including freight, dues and customs duties if any and erection costs.
2. BASIS OF INDEMNITY –
(a) In cases where damage to an insured item can be repaired the Company will pay expenses necessarily incurred to restore the damaged machine to its condition immediately prior to the accident/loss plus the cost of dismantling and re-erection incurred for the purpose of effecting the repairs as well as ordinary freight to and from a repair-shop, customs duties and dues if any, to the extent such expenses have been included in the sum insured. If the repairs are executed at a workshop owned by the insured, the Company will pay the cost of materials and wages incurred for the purpose of the repairs plus a reasonable percentage to cover overhead charges.
No deduction shall be made for depreciation in respect of parts replaced, except those with limited life, but the value of any salvage will be taken into account. If the cost of repairs as detailed hereinabove equals or exceeds the actual value of the machinery insured immediately before the occurrence of the damage, the settlement shall be made on the basis provided for in (b) below.
(b) In cases where an insured item is totally destroyed the Company will pay the actual value of the item immediately before the occurrence of the loss, including costs for ordinary freight, erection and customs duties if any, provided such expenses have been included in the sum insured, such actual value to be calculated by deducting proper depreciation form the replacement value of the item. The Company will also pay any normal charges for dismantling of the machinery destroyed but the salvage shall be taken into account.
Any extra charges incurred for overtime, night-work, work on public holiday, express freight, are covered by this insurance only if especially agreed to in writing.
In the event of the Makers’ drawing, patterns and core boxes necessary for the execution of a repair, not being available, the Company shall not be liable for the cost of making any such drawings, patterns and core boxes.
The cost of any alteration, improvements or overhauls shall not be recoverable under this Policy.
The cost of any provisional repairs will be borne by the Company if such repairs constitute part of the final repairs, and do not increase the total repair expenses.
If the sum insured is less than the amount required to be insured as per Provision-I herein above, the Company will pay only in such proportion as the sum insured bears to the amount required to be insured. Every item, if more than one, shall be subject to this condition separately.
The Company will make payments only after being satisfied, with the necessary bills and documents, that the repairs have been effected or replacement have taken place, as the case may be. The Company may, however, not insist f
