A bank must ensure insurance coverage of hypothecated goods and cannot evade liability for losses due to its negligence.

ORAL JUDGMENT

The captioned appeal is by the unsuccessful defendant No.2-The Karnataka Bank Ltd., (for short, 'Bank') assailing the judgment and decree rendered in O.S.No.307/2004.

2. For the sake of brevity, the ranks of the parties are referred as per their ranking before the Trial Court.

3. The facts leading to the case are as under:

The plaintiff instituted the suit against the Oriental Insurance Company Limited (defendant No.1) and Karnataka Bank Limited (defendant No.2), seeking recovery of a sum of Rs.13,87,687.97/- together with interest at the rate of 18% per annum. The plaintiff claims to be the proprietor of Venkateshwara Distributors, engaged in the wholesale distribution of pharmaceutical and allied products. According to the plaintiff, he had availed an overdraft facility from defendant No.2 bank, and as a condition precedent for sanction of the said facility, the bank required him to secure insurance coverage for the hypothecated stock.

4. The plaintiff asserts that, in compliance with the said requirement, defendant No.2 bank arranged for insurance coverage of the hypothecated goods through defendant No.1 insurance company and ensured automatic debit of the insurance premium from the plaintiff’s account. It is further contended that defendant No.2 had been consistently deducting insurance premiums every year towards renewal of the policy covering the hypothecated stock. According to the plaintiff, it was the obligation of defendant No.2 to ensure continuous insurance coverage for the goods to their full market value.

5. It is the further case of the plaintiff that on 07.12.2001, a theft occurred in the godown belonging to him. A complaint was lodged on the following day, i.e., 08.12.2001, and after securing the First Information Report, the plaintiff approached both defendants seeking indemnification under the insurance policy. However, defendant No.1 declined to settle the claim on the ground that the godown from which the theft had occurred was not covered under the insurance policy. According to the plaintiff, this repudiation was solely attributable to the failure of defendant No.2 bank to intimate defendant No.1 about the shifting of the godown and to secure appropriate insurance coverage. Despite issuance of a legal notice, the claim was not settled, compelling the plaintiff to file the present suit.

6. Upon service of summons, both defendants entered appearance and contested the suit. Defendant No.1 insurance company contended that the insurance policy covered only the shop premises situated at No.82, Mezzanine Floor, D. Devaraj Urs Road, Mysore, and not the godown where the alleged theft occurred. It was specifically pleaded that the policy did not extend coverage to the new godown and, therefore, defendant No.1 was not liable to indemnify the plaintiff for the alleged loss.

7. Defendant No.2 bank also filed a written statement contesting the claim. While admitting that the plaintiff had executed an agreement of hypothecation in respect of the stock, defendant No.2 contended that it was the exclusive responsibility of the plaintiff to insure the hypothecated goods, particularly upon shifting the godown. It was specifically pleaded that there was no obligation on the part of the bank to secure insurance coverage for the goods stored in the newly shifted godown.

8. On completion of pleadings, the Trial Court framed the necessary issues and the parties were called upon to adduce their respective oral and documentary evidence.

9. The plaintiff examined himself as P.W.1 and relied upon documentary evidence marked as Exs.P.1 to P.35. On behalf of the def