Insurers are not liable for employee fraud unless reported within stipulated time, emphasizing strict adherence to policy terms.

COMMON JUDGMENT: (per Hon’ble Smt. Justice Tirumala Devi Eada)

These two appeals are filed by the appellants aggrieved by the judgment and decree dated 18.08.2005 passed in O.S.No.582 of 2001 by the learned X Additional Chief Judge, City Civil Court, Hyderabad (hereinafter referred to as ‘the trial Court’).

2. C.C.C.A.No.251 of 2005 is filed by the plaintiff as his suit in O.S.No.582 of 2001 was partly decreed against defendant No.2 while defendant No.1 – the Insurance Company was exonerated.

3. C.C.C.A.No.138 of 2006 is filed by defendant No.2 seeking to set aside the decree passed by the trial Court, directing him to pay the suit claim of Rs.26,00,000/- together with interest @ 18% per annum on Rs.20,65,824/- from the date of suit till the date of decree and thereafter @6% per annum from the date of decree till the date of realization while the suit against defendant No.1 is dismissed.

4. Since the facts and pleadings are common in both the cases, C.C.C.A.No.251 of 2005 is taken as the lead case.

5. For convenience and clarity, the parties herein are referred to as they were arrayed before the trial Court.

6. The case of the plaintiff before the trial Court is that it is a Partnership firm carrying on business of sales and service of Hero Honda Motor Cycles, Sri Ram Honda Gen Sets and Daewoo Motor Cars. The said firm was represented by the GPA holder, dated 28.06.1989 executed by both the partners. It is their case that the plaintiff has been taking money Insurance Policies from defendant No.1 and that plaintiff has taken a policy for Rs.7.00 Crores by paying premium of Rs.19,845/- and that in the schedule of the policy, the limit of any one single loss is Rs.5.00 Lakhs only and that the plaintiff firm appointed one Mr.Raja as Assistant Accountant and as his services were satisfactory, he was promoted as Cashier and has been serving as such for more than a decade, as on the date of detection of fraud. It is their case that the said cashier was enjoying the confidence of the company and his duty was to remit the cash collected by sale of vehicles with the firm’s banker i.e. Andhra Bank, Himayathnagar Branch. It was his duty to deposit the cash collected everyday, which will be the opening balance for the next day. That the money insurance policy taken by the plaintiff with defendant No.1 covers the loss due to fraud or dishonesty of the cash carrying employee of the plaintiff under the head “exclusions” in the third condition in the policy:

“The loss of money where the insured or his employee is involved as principal or accessory, except loss due to fraud or dishonesty of the cash carrying employee of the insured, occurring while in transit and discovered within 48 hours”.

7. The plaintiff company has agreed to the terms and conditions of the policy and that defendant No.1 has indemnified their company as per the said terms and conditions. It is their case that defendant No.2 has dishonestly misappropriated a huge amount of Rs.20,65,824/- which came to their notice on 21.05.1999. The time limit of 48 hours in informing the company after the detection of fraud is highly unreasonable and that misappropriation involves swindling of money over a considerable period of time, but does not pertain to one or two days and thus, intimating the insurance company within 48 hours would be impossible. The plaintiff further averred that the approach of the defendant No.1 company is too technical by imposing such a condition, and not honouring their claim. They further submitted that only in the case of theft or fire accident, it would be possible to detect immediately, but in case of such misappropriation, it would not be possible to detect it within 48 hours and report to the concerned company. The plaintiff’s managerial staff requested defendant No.1 many a times to settle the claim but it went on postponing the settlement and has finally getting vexed with the attitude of defendant No.1 company, it has filed the present suit for recovery of an a