CEYLINCO INSURANCE PLC AND OTHERS

VS.

ISPAT CORPORATION (PVT) LTD AND OTHERS

SUPREME COURT
EVA WANASUNDERA P.C.J.
ANIL GOONERATNE J,
H.N.J. PERERA J.
SC CHC APPEAL 21/2010
HC (CIVIL) NO. 98/2002(1)
29.07.2016.

Malicious Damage/ insurance Policy- Referred by Supreme Court to mediation-Termination of Management Agreement- Notice of Claim- Loss Adjustor- Time Bar- Malicious Damage- Fraud?- Cause of action- When did it arise?.

This is an appeal from a Judgment of the Commercial High Court Colombo. Hearing of this appeal was accelerated in 2010. Thereafter at the conclusion of submission of Parties court made order that this is fit case to refer to mediation and order was made on 08.05.2014. Supreme Court named Hon. Justice Nimal Dissanayaka as mediator to conclude proceedings in 3 months, from date of reference. However Justice Dissanayaka made order that mediation was not successful and informed the Supreme Court accordingly.

Plaintiff Respondent Company was engaged in the business of manufacturing 'sheet structural'. The Plaintiff- Respondent Company's name was changed in 2002 to "Ispat Corporation (Pvt) Ltd. The Company's had ceased operating in 1999 temporally due to a shortage of working capital. At that time Plaintiff Company owed money to the 2nd and 3rd Defendant-Respondent Bank. The 3rd Defendant advised Plaintiff Company to handover the management to another Company in order to restructure the loan. Plaintiff-Respondent Company agreed to this. Orison Management Services (Pvt) Ltd entered into a management Agreement and a MOU and by which Plaintiff-Respondent Company handed over management of manufacture and sale to the above named company for a 6 years period. 15th Defendant issued a Fire Insurance Policy in favour of Plaintiff Company. After sometime due to non performance of the above management agreement it was terminated.

Plaintiff Company took over the possession of the factory in the presence of representatives of 2nd and 3rd Defendant Bank.

The factory was non operational due to removal of plant and machinery by the Orison Management Services (Pvt) Ltd. The I Defendant gave Notice of loss and damage caused by malicious damage caused by Orison Management Services Company. This matter was heard in the Commercial High Court, and the trial Judge held in favour of the Plaintiff- Respondent Company.

HELD:

1. Fraud has not been proved by the Pt Defendant who alleges that the claim was fraudulent as the loss and damage was occasioned by the willful act with the connivance of the insured.

2. A claim can only be fraudulent if the assured is dishonest or at the very least culpably reckless. Mere negligence on the part of the assured will not suffice. Exaggerated Loss does not amount to Fraud.

The amount of a loss may be inflated by the assured for a number of reasons: the assured may be seeking to make a profit from his loss; he may be presenting a bargaining claim in the belief that ultimate compromise agreement reached with the insurer will approximately represent his actual loss; or he may genuinely have overestimated the value of his property by e.g. including an element for consequential loss not covered by the policy.

3. The mere fact that a claim has been inflated is not conclusive evidence of fraud and the bargaining claims and innocent overvaluation will not defeat the assured. In the absence of independent evidence of the assured's state of mind, the decisive dividing factor between fraud and innocence will generally be the degree to which the claim has been inflated, as the greater the inflation the easier it becomes to impute a fraudulent intent to the assured.

Per Eva Wanasundera P.C., J.:

"I am of the view that the loss and damage to the insured property was done by a third party acting maliciously according to the aforementioned

Interpretation contained in the Insurance Policy regarding 'Malicious Damage".

Per Eva Wanasundera P.C., J.: