Rights of the Insured after paying Premium

As stated in the author’s column recently, the Supreme Court of India in the case of Smt. Sulakshna ...v. Oriental Insurance Co. Ltd. & Anr. (2022), pulled up the NCDRC for denying a person’s claim when the premium was paid on 31.12.2006 and the group organiser issued cover note on 31.12.2006. That the group organiser paid the insurer only on 09.03.2027, did not vitiate the claim of the insured person who died on 17.02.2007. The SC was very clear that “It may be true that respondent No. 2 might have remitted the premium with the insurance company belatedly. However, for the same insured cannot be made to suffer.”

See Premium Payment from the Insured’s Point of View

This brings on the question as to how to interpret Sec. 64VB of the Insurance Act. It would appear that the Supreme Court would look at premium remittance from the customer end and not merely the insurer’s actually receiving it, after the insured has paid to an authorised intermediary. This is the tenor the Supreme Court view in other cases as well, that the person paying premium has rights and no technicality can come in the way.

The premium paying person is insured even if the name is not on the Policy

A clear illustration of this comes in the case Canara Bank vs M/S United India Insurance Co. Ltd (2020) where the Supreme Court stood solidly behind the farmers who were not formally named as insured in the policy issued by the insurer. In the case it was submitted by the insurer that since only the insurance company and the cold store (insured) were parties to the contract of insurance, the insurance company will not be liable to pay any claim to the farmers (para 17). The SC observed: “As far as the present case is concerned, if we read the tripartite agreement along with the terms of the policy it is obvious that the Bank insisted that the stock be insured. The farmers were told that they would pay the premium. The cold store while fixing the rent obviously factored the premium into the rent. It was obvious that the intention of the parties was that they would be compensated by the insurance company in case of any untoward loss.”

In para 28 the SC stated: “The aforesaid clause in unambiguous terms binds the cold store to insure the goods, to indemnify the produce, to cover the risk and cover the loan amount. This insurance policy has to be taken at the cost of the second party which is the farmer. Therefore, there can be no manner of doubt that the farmer is a beneficiary under the policy.”

Insurable Interest should not be denied

The insurer raised the argument that the goods were held in trust by the cold store, the insurance company is not liable, under exclusion 5. The SC noted: 33. In the present case, as pointed out above, the farmer had agreed to pay consideration to the cold store and, therefore, the goods were not held in trust per se but the goods were held by cold store as bailee of the goods for consideration. The possession of the farm produce was handed over by the bailor, i.e. farmer to the cold store i.e. the bailee, in terms of the contract. There may be inter se rights and liabilities between the farmer and the cold store but it cannot be said that the goods were held ‘in trust’. The goods were also not held ‘on commission’. No commission was payable and only rental was paid.”

Value of Property to be as at the time of loss

Courts many times raised fundamental principles which insurers had buried in traditional entrenched beliefs. Thus, in the case Canara Bank vs M/S United India Insurance Co. Ltd, the Supreme Court upheld the policy terms with regard to the value of stocks. In para 50 the SC stated: The farmers in their appeal have claimed that in terms of the policy of insurance the value of the goods was to be assessed on the date of fire and the value was not to be assessed as mentioned on the date when the goods were stored in the cold store. In this regard, we may make reference to the opening portion of the insurance policy wherein the insurance company has agreed to insure the goods….” After quoting from the policy the SC stated that the indemnity has to be the value of the property at the time of happening of its destruction or damage. In the case in hand the market value of the stock had gone up at the time of claim as against at the time of taking cover.

What is not stated in the Policy cannot be used against the Insured

Finally, however sacred the source, the SC has upheld the principle good faith by the insurer. In the case United India Insurance Co. Ltd vs M.K.J. Corporation (1996) the Supreme Court of India stated: “It is a fundamental principle of Insurance Law that utmost good faith must be observed by the contracting parties. Good faith forbids either party from concealing (non-disclosure) what he privately knows, to draw the other into a bargain, from his ignorance of that fact and his believing the contrary. Just as the insured has a duty to disclose, "similarly, it is the duty of the insurers and their agents to disclose all material facts within their knowledge, since obligation of good faith applies to them equally with the assured.” In this case the insurer assumed that the terms contained in the Tariff Advisory Committee tariff, were part of the contract by the insurer, but the SC clarified that the insurer had “not incorporated the above quoted clause as part of the policy undertaken with the insured. Consequently, the insured is not bound by this exclusionary clause of liability since the appellant-insurer, admittedly, had undertaken liability for the riot or strike, damage due to riot or strike.”