Supreme Court of India
SUMIT KUMAR SAHAversusRELIANCE GENERAL INSURANCE COMPANY LTD.
- Citation
- 2019 INSC 114
- Decided
- 30 January 2019
- Disposal
- Appeal(s) allowed
- Bench
- UDAY UMESH LALIT
Holding
In the absence of fraud, misrepresentation or coercion, the insurer is bound by the agreed sum insured and must calculate depreciation from that amount, resulting in payment of Rs 41,90,940 (plus interest).
Summary
The appellant purchased a hydraulic excavator in 2007 and insured it for Rs 46,56,600 for the period 22‑07‑2009 to 21‑07‑2010. The excavator was totally destroyed by fire in June 2010. While the insurer’s surveyor calculated depreciation from the original purchase price, the appellant’s surveyor deducted only 10% depreciation from the agreed sum insured, arriving at a total‑loss value of Rs 41,90,940. The State Consumer Commission awarded this amount, but the National Commission reduced the award to Rs 34,17,500 based on its own depreciation calculation. The Supreme Court held that, absent fraud or misrepresentation, the parties are bound by the sum insured stipulated in the policy and depreciation must be computed from that figure, not from the pre‑policy purchase price, thereby restoring the State Commission’s award. The appeal was allowed, setting aside the National Commission’s decision.
Issues considered
- Whether the insurer is bound by the sum insured stipulated in the policy for a total loss claim
- Whether depreciation should be calculated on the sum insured rather than the original purchase price
- Whether the insurer can invoke under‑insurance or over‑insurance provisions to reduce the claim
- Whether the parties’ agreement on the sum insured can be challenged on grounds of fraud, misrepresentation or lack of uberrima fide
Legislation cited
Subjects
InsuranceTotal lossSum insuredDepreciationConsumer Protection ActUnderinsurancePolicy interpretationContractual obligation
Judgment
[2019] 1 S.C.R. 763 763
SUMIT KUMAR SAHA A
v.
RELIANCE GENERAL INSURANCE COMPANY LTD.
(Civil Appeal Nos. 1299 of 2019)
JANUARY 30, 2019 B
[UDAY UMESH LALIT AND R. SUBHASH REDDY, JJ.]
Consumer Protection Act, 1986 – Loss – Calculation of, basis
– Appellant purchased an Excavator in the year 2007 for a total
purchase value of Rs.51.74 lacs and immediately got it insured –
C
Insurance policy was renewed for the period 22.7.2009 to 21.7.2010
and the sum insured was Rs.46.56 lacs – The Excavator was hired
and was used at a different location and the change of location
was duly intimated – On 3.6.2010, the Excavator was badly damaged
in a fire while it was at such changed location – Surveyor of Insurer
assessed the loss and damage at Rs.25.24 lacs – Complaint filed by D
appellant before the State Commission – Appellant submitted that
the Excavator was a total loss and that he was entitled to insured
amount of 46.56 lacs along with interest and compensation –
Appellant’s surveyor assessed loss on “total loss basis” at Rs.41.90
lacs – State Commission allowed the complaint and directed to pay
E
Rs.41.90 lacs with interest – National Commission partly allowed
respondent’s appeal and directed it to pay Rs.34.17 lacs – On
appeal, held: It was common ground that as a result of fire, the
Excavator was a “total loss” – Both the sides had arrived at a
particular figure to be the real value of the subject matter of
insurance – It was not open to any party to dispute said sum and F
contend that the real value was something different from what was
declared by the parties to be the sum insured – If the parties had
agreed and arrived at an understanding, which understanding was
otherwise not vitiated by any misrepresentation, fraud or coercion,
the parties must be held bound by such figure – The Surveyor of the
G
Insurer worked out depreciation by starting with the figure of Rs.51
lakhs as the cost of a new Excavator and then deducting 32.5% by
way of depreciation assuming the life of Excavator to be 10 years –
The Surveyor of the Insurer disregarded the figure stipulated as
‘sum insured’ – Depreciation has to be always computed keeping
H
763
764 SUPREME COURT REPORTS [2019] 1 S.C.R.
A the figure of “sum insured” in mind – The starting figure, therefore,
in this case had to be the figure which was stipulated as “sum
insured” – Since Excavator, after the policy was taken out was used
for eleven months, some reasonable depreciation ought to be
deducted from the “sum insured” – The surveyor appointed by the
insured was right in deducting 10% and in arriving at the figure of
B
Rs.41.90 lacs – The decision of the National Commission is dismissed
and the judgment and order passed by the State Commission is
restored.
Allowing the appeal, the Court
C HELD: 1. The policy in question indicated that the “year
of make” of the Excavator was “2007” while the policy was for
the period 22.07.2009 to 21.07.2010. The parties were aware
that the Excavator was purchased in the year 2007 for Rs.51.74
lakhs. If the contract mentioned the sum insured to be
Rs.46,56,600/- the parties must be deemed to be aware about
D the significance of that sum and the fact that it represented the
value of the Excavator as on the date when the coverage was
obtained. It is not the case of the Insurance Company that there
was any “under insurance” in the instant matter. On the other
hand, the contention was that as against the sum insured which
E was Rs.46,56,600/- the depreciated value was Rs.34,42,500/-. So
according to the Insurance Company, if at all it was a case of over
insurance. If going by the idea of receipt of premium, then the
Insurance Company had received more than what according to it
the real value would have justified. If both the sides, with their
eyes open, had arrived at a particular figure to be the real value
F of the subject matter of insurance, it is not open to any party to
dispute said sum and contend that the real value was something
different from what was declared by the parties to be the sum
insured. If both the parties had agreed and arrived at an
understanding, which understanding was otherwise not vitiated
G by any misrepresentation, fraud or coercion, the parties must be
held bound by stipulation of such figure. [Paras 11, 14 and 15][773-
E-F; 776-B-E]
2.1 The Surveyor of the Insurance Company worked the
figure of depreciation by starting with the figure of Rs.51 lakhs
H as the cost of a new Excavator and then deducting 32.5% by way
SUMIT KUMAR SAHA v. RELIANCE GENERAL INSURANCE 765
COMPANY LTD.
of depreciation assuming the life of Excavator to be 10 years. In A
his assessment, therefore, the stipulation of the figure of
Rs.46,56,600/- on the day the contract was entered into, had no
significance. Was he right and justified and how could he assume
the life of the Excavator to be 10 years? If that was the
understanding between the parties, the figure of sum insured
B
could have been different. If the surveyor was calculating the
depreciation from the day when the policy was entered into till
the date when the accident occurred, such exercise could certainly
be justified. But the exercise undertaken was in the nature of
not only considering the depreciation post the policy but even
including the period prior thereto. That exercise was already C
undertaken by the parties and in their assessment the real value
of the Excavator as on the day when the policy was taken out was
Rs.46,56,600/-. In the face of such agreement and understanding,
the surveyor could not have calculated depreciation for a period
prior to the date of policy or contract. The purport of said clause
D
was to arrive at proper valuation as on the day when there was
total destruction. He could have undertaken the exercise post
the date of policy to assess the real value of the insured property
as on the date when the fire actually took place. And for such
purposes, the assessment must start with the amount described
as “sum insured” on the day when the contract was entered into. E
It was not open to the Surveyor or to the Insurance Company to
disregard the figure stipulated as ‘sum insured’. The loss had to
be assessed in the instant case, keeping said figure in mind. [Para
16][776-G-H; 777-A-D]
2.2 Except in cases where the agreement on part of the F
Insurance Company is brought about by fraud, coercion or
misrepresentation or cases where principle of uberrima fide is
attracted, the parties are bound by stipulation of a particular figure
as sum insured. Therefore, the surveyor and the Insurance
Company were not justified in any way in questioning and
disregarding the amount of “sum insured”. Further depreciation, G
if any, can always be computed keeping the figure of “sum
insured” in mind. The starting figure, therefore, in this case had
to be the figure which was stipulated as “sum insured”. Since
Excavator, after the policy was taken out was used for eleven
months, there must be some reasonable depreciation which ought H
766 SUPREME COURT REPORTS [2019] 1 S.C.R.
A to be deducted from the “sum insured”. The surveyor appointed
by the insured was right in deducting 10% and in arriving at the
figure of Rs.41,90,940/-. The assessment made by the State
Commission was quite correct and that made by the National
Commission was completely incorrect. [Para 17][777-D-H]
B Dharmendra Goel v. Oriental Insurance Company
Limited (2008) 8 SCC 279 : [2008] 11 SCR 578 – relied
on.
Sikka Papers Limited v. National Insurance Company
Limited and others (2009) 7 SCC 777 – held
C inapplicable.
Case Law Reference
(2009) 7 SCC 777 held inapplicable Para 9
[2008] 11 SCR 578 relied on Para 11
D CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1299
of 2019.
From the Judgment and Order dated 16.02.2018 of the National
Consumer Disputes Redressal Commission, New Delhi in First Appeal
No. 182 of 2014.
E Soumya Roop Sanyal, Ms. Heena Rohra, Nirnay Guptak, Subhro
Sanyal, Advs. for the appellant.
Joy Basu, Sr. Adv., Navneet Kumar, Vikas Bhadana, Kanak Bose,
Parijat Kishore, Advs. for the respondent.
F The Judgment of the Court was delivered by
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
G 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
H
SUMIT KUMAR SAHA v. RELIANCE GENERAL INSURANCE 767
COMPANY LTD. [UDAY UMESH LALIT, J.]
with the respondent vide “Contractor, Plants & Machinery Insurance A
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
B
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 C
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 D
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 E
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 F
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.
G
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
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768 SUPREME COURT REPORTS [2019] 1 S.C.R.
A 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
B 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
C 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
D 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
E 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 for bills and documents in
F case of total loss where the insured is unable to replace the
damaged equipment for reasons beyond their control. In such a
case claims can be settled on ‘Indemnity Basis’.”
4. Said Hydraulic Excavator was hired and was to be used at a
different location. The appellant duly intimated the change of location.
G 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.
H
SUMIT KUMAR SAHA v. RELIANCE GENERAL INSURANCE 769
COMPANY LTD. [UDAY UMESH LALIT, J.]
5. On 07.07.2010 a surveyor came to be appointed by the A
respondent to survey and assess the loss and damage. Though the survey
was undertaken, the claim of the appellant was not getting settled and as
such reminders were sent by the appellant on 18.08.2010 and 10.02.2011.
Thereafter, on 13.04.2011 the appellant was intimated that the loss was
assessed by the surveyor at Rs.25,24,273/-. The relevant portion from
B
the report of the surveyor Cunningham Lindsey was to the following
effect :-
C
D
E
F
G
H
770 SUPREME COURT REPORTS [2019] 1 S.C.R.
A
B
C
D
6. The appellant being aggrieved, filed case No.CC/18/11 before
the State Consumer Disputes Redressal Commission, West Bengal (‘the
State Commission’, for short). The appellant submitted that the Excavator
was a total loss and that he was entitled to the insured amount of
E
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.
F The relevant portion from the report of said surveyor named Subbiah
Jeyakarthigesan was as under :-
“LOSS ASSESSED ON REPAIRING BASIS
Rs.9,464,357.70 (Rupees Ninety four lacs sixty four thousand
three hundred fifty seven & seventy only).
G ASSESSMENT ON TOTAL LOSS BASIS
Present depreciated cost of the Excavator
as declared to the Insurance Company and
accepted by them Nu. 4,656,600.00
H
SUMIT KUMAR SAHA v. RELIANCE GENERAL INSURANCE 771
COMPANY LTD. [UDAY UMESH LALIT, J.]
Less: 10% Depreciation for usage from A
the date of insurance to the date of accident Rs. 465,660.00
______________
Assessed on Total Loss Basis Rs. 4,190,940.00
(Rupees Forty one lacs ninety thousand nine hundred forty only.)
B
UNDER INSURANCE
In my opinion the under insurance in this case will not be applicable
as the total machine has been totally burnt. The machine has
been insured for Rs.46,56,600.00 which is after application of
depreciation from the period of purchase to the last renewal of C
the insurance policy, as such I have not applied any under insurance
in this case.”
7. The State Commission allowed the complaint. The relevant
portions of its order dated 04.12.2013 are as under :-
“Thirdly, the loss assessed by the Surveyor appointed by the D
insurance company has taken into consideration the depreciation
value @ 32% of the original purchase value of Rs.51,74,000/-
only, but the premium as on 7th July 2009 was made after fixing
depreciation value. It is quite reasonable that the depreciation
value, as pointed out by the surveyor appointed by the insured in E
reply to question No.8 of the OP, that the depreciation has been
applied by the OP at the time of renewal of policy and depreciation
can be applied only once, only from the period from the date of
renewal of insurance to the date of accident. Again, in reply to
question No.9 of the OP, it has been held that under insurance @
8.71% is incorrect as the insurance company has put in their own F
value at the time of renewing the policy without obtaining the
proposal form from the owner of the excavator machine. We
also agree with the view taken by the surveyor appointed by the
insured as stated in his reply to question No.10 of the OP that
salvage wreck is the property of the insurance company and it G
cannot be forced upon the owner of the damaged
machine…………….
Ordered
That the complaint be and the same is allowed on contest against
O.P.Nos. 1 & 2 who are hereby directed to pay a sum of H
772 SUPREME COURT REPORTS [2019] 1 S.C.R.
A Rs.41,90,940/- (Forty one lakh ninety thousand nine hundred and
forty only) with interest @ Rs.8% p.a. from the date of filing of
the claim. The said OPs. are also directed to pay a sum of
Rs.1,00,000/- (One lakh only) as compensation for harassment,
mental agony and financial loss, apart from another sum of
Rs.5,000/- (Five thousand only) as costs. The entire amount shall
B
be paid by OP Nos.1 & 2 within 45 days from the date of this
order in default whereof, interest @9% p.a. shall be payable till
full realisation.”
8. The respondent, being aggrieved filed First Appeal No.182 of
2014 which was partly allowed by the National Commission vide its
C judgment and order dated 16.02.2018. The National Commission held
as under:
“… … …The Insurance Company is responsible to indemnify
the loss on the basis of the replacement of the damaged machine
in the same condition at which it was at the day of the accident.
D In the present case, though IDV of Rs.46,56,000/- was mentioned
in the policy and was agreed between the parties, however, if the
new machine is available for Rs.51,00,000/- then on that basis the
same machine of 3.25 years age could be available on the
approximate price being arrived at by deducting the depreciation
E for 3.25 years from the current price of the new machine.
Obviously, the insurance Company shall go for this price for
replacement as this is less than the IDV. On this basis, the
surveyor has calculated depreciated price of the new machine fit
for replacement as Rs.34,42,500/- after applying depreciation of
10% p.a. since the purchase of the machine on the current price
F of new machine till the date of accident.”
The National Commission further observed that the salvage value
to the tune of Rs.6,50,000/-, which was realized by the respondent could
not have been deducted from the aforesaid sum of Rs.34,42,500/. The
National Commission, thus directed the respondent to pay a sum of
G 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.
H
SUMIT KUMAR SAHA v. RELIANCE GENERAL INSURANCE 773
COMPANY LTD. [UDAY UMESH LALIT, J.]
9. The decision of the National Commission is presently under A
appeal. We heard Mr. Soumya Roop Sanyal, learned Advocate for the
appellant and Mr. Joy Basu, learned Senior Advocate for the respondent.
The appellant contended that it was a case of a total loss as accepted by
both the surveyors and going by the “sum insured” as agreed by the
parties, the appellant was entitled to Rs.46,56,000/-. It was submitted
B
that the Insurance Company was well aware that the Excavator was of
2007 make and after deducting appropriate depreciation the value that
was arrived at for the purposes of cover of insurance was Rs.46,56,600/-.
Countering said submission, the respondent submitted that despite
stipulation of such amount as sum insured, the Insurance Company would
not be disentitled in the present case from contending that the actual C
value after suffering appropriate depreciation ought to be one that was
indicated by its surveyor. Reliance was placed upon the decision of this
Court in Sikka Papers Limited v. National Insurance Company
Limited and others1.
10. It is common ground that as a result of fire, the Excavator D
was a “total loss” and the insured would be entitled to the replacement
cost of the Excavator. The point, however, is what is the amount or
value that the insured is entitled to.
11. The policy in question indicates that the “year of make” of the
Excavator was “2007” while the policy was for the period 22.07.2009 to E
21.07.2010. The parties were aware that the Excavator was purchased
in the year 2007 for Rs.51.74 lakhs. If the contract mentioned the sum
insured to be Rs.46,56,600/- the parties must be deemed to be aware
about the significance of that sum and the fact that it represented the
value of the Excavator as on the date when the coverage was obtained.
In this regard the conclusion arrived at and the observations made in F
Dharmendra Goel v. Oriental Insurance Company Limited2 are
noteworthy.In that case a vehicle was bought in the year 2000 and the
relevant period of coverage was 2002-2003. The vehicle met with an
accident. The surveyor found it to be a total loss which was assessed at
Rs.1,80,000/-. In an action instituted in the Consumer Forum, the National G
Commission had granted compensation at said level of Rs.1,80,000/-
with interest. Questioning such assessment, the insured was in an appeal
and submitted, inter alia, that he was entitled to the sum insured, namely,
1
(2009)7 SCC 777
2
(2008) 8 SCC 279
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774 SUPREME COURT REPORTS [2019] 1 S.C.R.
A Rs.3,54,000/-. Paragraphs 5 and 7 of the decision bring out the principle
that the Insurance Company having accepted the value of the vehicle to
be Rs.3,54,000/-, was bound by that value. Said paragraphs 5 and 7
were as under:
“5. We have heard the learned counsel for the parties and have
B gone through the record very carefully. The facts as narrated
above remain uncontroverted. Admittedly, the accident had
happened on 10-9-2002 during the validity of the insurance policy
taken on 13-2-2002 insuring the vehicle for Rs 3,54,000 on a
premium of Rs 8498. It is also the admitted position that the vehicle
had been declared to be a total loss by the surveyor appointed by
C the Company though the value of the vehicle on total loss basis
had been assessed at Rs 1,80,000. We are, in the circumstances,
of the opinion that as the Company itself had accepted the value
of the vehicle at Rs 3,54,000 on 13-2-2002, it could not claim that
the value of the vehicle on total loss basis on 10-9-2002 i.e. on the
D date of the accident was only Rs 1,80,000.
… … …
7. It must be borne in mind that Section 146 of the Motor Vehicles
Act, 1988 casts an obligation on the owner of a vehicle to take out
an insurance policy as provided under Chapter XI of the Act and
E any vehicle driven without taking such a policy invites a punishment
under Section 196 thereof. It is, therefore, obvious that in the light
of this stringent provision and being in a dominant position the
insurance companies often act in an unreasonable manner and
after having accepted the value of a particular insured good disown
F that very figure on one pretext or the other when they are called
upon to pay compensation. This “take it or leave it” attitude is
clearly unwarranted not only as being bad in law but ethically
indefensible. We are also unable to accept the submission that it
was for the appellant to produce evidence to prove that the
surveyor’s report was on the lower side in the light of the fact
G that a price had already been put on the vehicle by the Company
itself at the time of renewal of the policy. We accordingly hold
that in these circumstances, the Company was bound by the value
put on the vehicle while renewing the policy on 13-2-2002.”
H
SUMIT KUMAR SAHA v. RELIANCE GENERAL INSURANCE 775
COMPANY LTD. [UDAY UMESH LALIT, J.]
12. Mr. Basu, learned Senior Advocate, however relied upon the A
decision of this Court in Sikka Papers(supra). In that matter a diesel
generating set purchased in the year 1997 for Rs.45 lakhs was insured
for Rs.35 lakhs for the period from 08.04.1999 to 07.04.2000. Said
diesel generating set broke down. The complainant demanded what it
had paid i.e. Rs.25 lakhs for the repairs but the insurer, relying upon the
B
report of the Surveyor, did not agree. According to the Surveyor the net
loss was Rs.14,45,000/-. But the Surveyor found that the generating set
was under insured and as such the figure of net loss that was assessed
ought to suffer deduction of 25.71%. The net assessed loss was,
therefore, at the level of Rs.10,47,491/-. This Court raised two questions:
“(1) Whether the insurer was justified in accepting report dated C
15-5-2000 submitted by the surveyor who had assessed the loss
of Rs.14,45,000/- after deducting about Rs.10,55,000/- from
Rs.25,00,000/- i.e. actual amount paid by the complainant for
repairing the diesel generating set?
(2) Whether the insurer was justified in deducting an amount of D
Rs.3,71,509.50 (25.71%) as under insurance from the loss
assessed at Rs.14,45,000/- by the surveyor in its report dated 15-
5-2000?”
As regards first question, this Court found that insurer would not
be liable in respect of wearing out of machinery from normal use or E
exposure and the cost of replacement of insured property by new property
of the same kind and same capacity would be subject to the exception
that repair or replacement would not extend to the machinery or parts
which had undergone normal wear and tear. With regard to the second
question, on facts it was found that there was an element of under F
insurance and the surveyor was justified in deducting 25.71%.
13. We do not see how the decision in Sikka Papers (supra)
could be of any relevance in the present matter. The cases of “under
insurance” stand on a completely different footing. In such cases the
Insurance Company stands denied of appropriate premium. If the sum G
insured is, in any way, lesser than the real value of the subject matter of
insurance, and if there be cases of partial replacement or partial loss, it
is well accepted that the Insurance Company is entitled to proportionate
deduction representing the proportion of undervaluation. It is this facet
of the matter which weighed with the Court in Sikka Papers (supra) in
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776 SUPREME COURT REPORTS [2019] 1 S.C.R.
A affirming the surveyor’s report in so far as 25.71% deduction was
concerned. Even in the present matter under the caption “Provisions”,
the stipulation in para 2 is to the effect that if the sum insured “is less
than the amount required to be insured ……. the company will pay only
in such proportion as the sum insured bears to the amount required to be
insured.”
B
14. It is not the case of the Insurance Company that there was
any “under insurance” in the present matter. On the other hand, the
contention is that as against the sum insured which was Rs.46,56,600/-
the depreciated value was Rs.34,42,500/-. So according to the Insurance
Company, if at all it was a case of over insurance. If we go by the idea
C of receipt of premium, then the Insurance Company had received more
than what according to it the real value would have justified.
15. It is precisely in this set of facts that the question in the present
matter arises. If both the sides, with their eyes open, had arrived at a
particular figure to be the real value of the subject matter of insurance,
D is it open to any party to dispute said sum and contend that the real value
was something different from what was declared by the parties to be
the sum insured. One may understand cases where there is non-
disclosure of material facts which may go to the root of the matter and
as such the sanctity of the agreement itself may get affected. But if
E both the parties had agreed and arrived at an understanding, which
understanding was otherwise not vitiated by any misrepresentation, fraud
or coercion, the parties must be held bound by stipulation of such figure.
This was the idea and the underlying principle in Dharmendra Goel
(supra)
F 16. The relevant stipulation in the present case, namely clause (b)
of Provision -Basis of Indemnity speaks of calculation of actual value by
deducting “proper depreciation”. The Surveyor of the Insurance
Company has worked the figure of depreciation by starting with the
figure of Rs.51 lakhs as the cost of a new Excavator and then deducting
32.5% by way of depreciation assuming the life of Excavator to be 10
G years. In his assessment, therefore, the stipulation of the figure of
Rs.46,56,600/- on the day the contract was entered into, had no
significance. Was he right and justified and how could he assume the
life of the Excavator to be 10 years? If that was the understanding
between the parties, the figure of sum insured could have been different.
H
SUMIT KUMAR SAHA v. RELIANCE GENERAL INSURANCE 777
COMPANY LTD. [UDAY UMESH LALIT, J.]
If the surveyor was calculating the depreciation from the day when the A
policy was entered into till the date when the accident occurred, such
exercise could certainly be justified. But the exercise undertaken was
in the nature of not only considering the depreciation post the policy but
even including the period prior thereto. That exercise was already
undertaken by the parties and in their assessment the real value of the
B
Excavator as on the day when the policy was taken out was Rs.46,56,600/
-. In the face of such agreement and understanding, the surveyor could
not have calculated depreciation for a period prior to the date of policy
or contract. The purport of aforesaid clause was to arrive at proper
valuation as on the day when there was total destruction. He could
have undertaken the exercise post the date of policy to assess the real C
value of the insured property as on the date when the fire actually took
place. And for such purposes, the assessment must start with the amount
described as “sum insured” on the day when the contract was entered
into. It was not open to the Surveyor or to the Insurance Company to
disregard the figure stipulated as ‘sum insured’. The loss had to be
D
assessed in the present case, keeping said figure in mind.
17. Having considered the entire matter, in our view, except in
cases where the agreement on part of the Insurance Company is brought
about by fraud, coercion or misrepresentation or cases where principle
of uberrima fide is attracted, the parties are bound by stipulation of a
particular figure as sum insured. Therefore, the surveyor and the E
Insurance Company were not justified in any way in questioning and
disregarding the amount of “sum insured”. Further depreciation, if any,
can always be computed keeping the figure of “sum insured” in mind.
The starting figure, therefore, in this case had to be the figure which
was stipulated as “sum insured”. Since Excavator, after the policy was F
taken out was used for eleven months, there must be some reasonable
depreciation which ought to be deducted from the “sum insured”. The
surveyor appointed by the insured was right in deducting 10% and in
arriving at the figure of Rs.41,90,940/-. The other issue which weighed
with the surveyor appointed by the Insurance Company regarding
deduction of salvage value was rightly answered by the National G
Commission and as such does not require any elaboration. We, thus,
find that the assessment made by the State Commission was quite correct
and that made by the National Commission was completely incorrect.
H
778 SUPREME COURT REPORTS [2019] 1 S.C.R.
A 18. We, therefore, allow this appeal, set aside the decision of the
National Commission and restore the judgment and order passed by the
State Commission. No costs.
Devika Gujral Appeal allowed.
B
C
D
E
F
G
H
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