Supreme Court of India
THE AMRAVATI DISTRICT CENTRAL CO-OPERATIVE BANK LTD.versusUNITED INDIA FIRE AND GENERAL INSURANCE CO. LTD.
- Citation
- 2010 INSC 211
- Decided
- 15 April 2010
- Disposal
- Dismissed
- Bench
- R V RAVEENDRAN
Holding
The excess clause applies to each and every loss, including those under contingency 4, so the insurer’s liability is limited to 25% of each individual embezzlement (or Rs.11,500 whichever is higher); aggregation is not permitted.
Summary
The Amravati District Central Co‑operative Bank held an insurance policy with United India Fire & General Insurance covering losses caused by its employees. An employee embezzled several amounts totalling Rs.3.44 lakh. The insurer assessed a reimbursable loss of Rs.29,000, but the bank claimed the full amount. An arbitrator, hearing ex‑parte, aggregated the embezzlements and applied the policy’s excess clause to the total, ordering the insurer to pay Rs.2.58 lakh after the bank bore 25% of the aggregate. The High Court set aside that award, holding that the excess clause – which states the insured shall bear 25% of the loss or Rs.11,500 whichever is higher – applies to each individual loss even under contingency 4, prohibiting aggregation. The Supreme Court affirmed the High Court’s interpretation, dismissing the appeal.
Issues considered
- The proper construction of the excess clause in the insurance policy, particularly whether the words ‘each and every loss’ apply to losses under contingency 4.
- Whether the insurer may aggregate multiple embezzlements into a single loss for the purpose of applying the excess clause.
- Whether the arbitrator’s ex‑parte award interpreting the clause was valid under the Arbitration Act, 1940.
Legislation cited
- Arbitration Act, 1940s. 14, s. 17, s. 30
Subjects
Insurance contractExcess clauseInterpretationAggregation of lossesArbitration awardEmployee embezzlementEach and every loss
Judgment
(2010] 4 S.C.R. 661
THE AMRAVATI DISTRICT CENTRAL CO-OPERATIVE A
BANK LTD.
v.
UNITED INDIA FIRE AND GENERAL INSURANCE CO.
LTD.
(Civil Appeal No. 3307 of 2010) B
APRIL 15, 2010
1
[R.V. RAVEENDRAN AND K.S. RADHAKRISHNAN, JJ .]
Contract of Insurance: Insurance policy - Interpretation C
of - Excess clause of the policy stipulated that for each and
every Joss under contingency 1, 2 and 3, insurer would bear
Rs. 11500 for each Joss but under contingency 4, insurer
would bear 25% of the Joss or Rs. 115001- whichever was
higher - Employee of insured committed series of D
embezzlements which were covered by contingency 4 -
Arbitrator held that the amount embezzled had to be
aggregated and insurer could not apply excess clause to each
and every Joss separately - Held: Arbitrator interpreted the
excess clause wrongly - Insured has to bear 25% of the E
amount embezzled (or 115001- whichever is higher) in regard
to each and every embezzlement, and not by aggregation of
the embezzlements - Deeds and documents.
W9rds and phrases: Term "Excess" in the Excess
clause of the insurance policy - Meaning of F
The respondent-insurer issued an insurance policy
insuring the appellant-Bank against losses caused by
acts or omission of Bank's employees. In terms of the
"Excess clause" of the policy, the insured was to bear the G
amount of excess stipulated in the Schedule in respect
of each and every loss if the loss was under
contingencies 1, 2 or 3 of the Insurance Policy. In respect
of losses under contingencies 4 or 5, the insured was to
661 H
662 SUPREME COURT REPORTS [2010) 4 S.C.R.
A bear 25% of the amount of the loss or the amount of
excess stipulated in the Schedule whichever was higher.
Contingency 4 covered loss of money or securities by
reason of dishonest or criminal act of any employee of
the insured wherever committed and whether committed
B directly or in connivance with others.
An employee of the Bank committed series l
of
embezzlements. The Bank claimed indemnity from the
insured in terms of the policy for a sum of Rs.3.58 lacs
embezzled by the said employee. Insurer assessed the
C reimbursable loss was Rs.29000. Bank did not agree to
the assessed amount and referred the matter to
arbitration. Insurer did not participate in the arbitration
proceedings. The arbitrator proceeded ex-parte and
made an award. The arbitrator found that there were
D series of embezzlements by the employee, which were
connected together by a common modus operandi. The
arbitrator held that in all Rs.3.44 lacs was embezzled by
various accounts of Bank's constituents with the Bank.
The arbitrator held that these losses were covered under
E contingency (4) of the policy. He noted that proviso (1)
of the policy referring to Excess Clause used the words
"each and every loss" when referring to losses under
contingencies 1, 2 or 3 but did not use the said words
when referring to losses under contingency (4).
F Therefore, the Arbitrator held that the insurer could not
apply the Excess clause to each and every loss
separately; that having regard to the terms of the policy,
the amounts embezzled had to be aggregated; and that
out of the total loss, the Bank had to bear 25% and the
G insurer was liable to pay the balance. The Arbitrator thus
deducted 25% from Rs.3.44 lacs and made an award
directing the insurer to pay Rs.2.58 lacs to the Bank.
Civil Court upheld the award and dismissed the
petition under Section 30 of the Act for setting aside the
H
AMRAVATI DISTI. CENTRAL CO-OP. BANK LTD. v. UNITED INDIA 663
FIRE & GENL. INSURANCE CO. LTD.
award and directed that the award be made a rule of the A
court. On appeal, High Court remitted the matter to
arbitrator for deciding claim afresh holding that the
arbitrator ought to have considered each item of
embezzlement separately and could not aggregate the
embezzled amounts for arriving at the claim. Hence the B
appeal.
Dismissing the appeal, the Court
HELD: 1.1. "Excess" clauses are commonly used in
Insurance contracts. In insurance parlance, the term C
"Excess" in the Excess clause in the policy refers to "that
part of the amount of loss, under each claim, which is not
covered by the policy" or the "amount that the policy
holder has, by agreement, to bear or contribute to each
insurance claim". [Para 10) [673-D) D
General Assurance Society Ltd. v. Chandumull Jain AIR
1966 SC 1644; Oriental Insurance Co. Ltd v. Sony Cheriyan,
1999 (6) sec 451, relied on.
Central Bank v. New India Assurance Co.Ltd. AIR 1981 E
Bombay 397, referred to.
Philadelphia National Bank v. Price (1938) 2 All ER 199,
referred to.
F
1.2. It is no doubt true that the first part of Proviso
(1) uses the words "each and every loss" while referring
to the losses covered by contingencies 1, 2 and 3 and
does not specifically repeat the said words in the second
part of Proviso (1) relating to Contingency 4. But a careful G
reading of the Excess clause shows that the non-
repetition of the words was not because the intention was
to apply those words only to losses under contingencies
1, 2, and 3, but because the structure of the sentence did
not require repetition of the words and the context
H
664 SUPREME COURT REPORTS [2010] 4 S.C.R.
A showed that the words were applicable even to losses
under contingency 4. In respect of each and every loss
under Contingencies 1, 2 and 3, the Insurer had to bear
the amount of excess stipulated in the Schedule, that is
at the flat rate of Rs.11, 500/-. But in regard to each and
B every loss under Contingency 4, the Insured had to bear
25% of the amount of the loss or the amount of excess
(Rs.11, 500/-) stipulated in the Schedule, whichever was
higher. Proviso (1) was divided into two parts only to
differentiate between the quantum that had to be borne
c by the Insured in respect of each and every claim. It was
therefore necessary to identify each act of embezzlement
by the employee in regard to each account, as the loss
on account of each embezzlement formed a separate
claim. The Bank was to bear 25% of the amount
embezzled (or 11500/- whichever is higher) in regard to
0
each and every embezzlement, and not by aggregation
of the emllezzlements. If in regard to each act, the
amount embezzled was less than Rs.11, 500/- the Bank
had to bear the entire amount and no part had to be borne
by the Insurer. Only where a single act of embezzlement
E was in excess of Rs.11, 500/-, the Insurer's liability would
arise. As the matter falls under Contingency (4), the
Insurer has to bear 25% of the each and every claim or
Rs.11, 500/- whichever is higher on DAR. [Paras 13 and
15] [675-D-F; 675-G-H; 676-A-B; 678-A-B; 678-F-G]
F
1.3. The award of arbitrator is liable to be set aside
as there is a clear error apparent on the face of the award.
The award is a speaking award. It extracts the relevant
clauses of the insurance policy including the excess
G clause. It then proceeds to put an interpretation thereon
which is contrary to the express words of the contract
and opposed to the well recognised insurance policies
and principles. Hence the award was rightly set aside by
the High Court. If the amount of each and every
H embezzlement had been separately recorded in the
AMRAVATI DISTI. CENTRAL CO-OP. BANK LTD. v. UNITED INDIA 665
FIRE & GENL. INSURANCE CO. LTD.
award of the Arbitrator, the court could have calculated A
the amount that was due, instead of remitting the matter
to the Arbitrator for fresh decision. But that was not
possible, as the particulars were not available. If however
the appellant is not interested in proceeding afresh before
the arbitrator after all these years and is willing to accept B
Rs.29000/- offered by the insurer, it may inform the insurer
accordingly in which event, the insurer shall pay the
same to the appellant-Bank if it had not already been paid.
[Paras 16, 17, 18] [678-A-D; 678-H]
Case Law Reference:
c
AIR 1981 Bombay 397 referred to Para 7
AIR 1966 SC 1644 relied on Para 9
1999 (6) sec 451 relied on Para 9 D
(1938) 2 All ER '199 referred to Para 11
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
3307 of 2010.
E
From the Judgment & Order dated 18.2.2008 of the High,
Court of Bombay, Nagpur Bench in First Appeal No. 581 of
1990.
Gagan Sanghi, J.B. Kant, Rameshwar Prasad Goyal for
the Appellant. F
Ravi Bakshi, Rajeev Kumar Bansal, Akshay K. Ghai,
Sanjeev Bansal, Ruby Khan for the Respondent.
The Judgment of the Court was delivered by G
R.V. RAVEENDRAN, J. 1. Leave granted. Heard the
learned counsel.
2. In pursuance of a Banker's Indemnity Insurance Proposal
dated 1. 7 .1976 from the appellant ('Bank'), the respondent H
666 SUPREME COURT REPORTS [2010] 4 S.C.R.
A ('Insurer') issued a Renewal Insurance Policy covering the
period 1.7.1976 to 1.7.1977. The policy indemnified and
insured the Bank against losses caused by acts or omission
of the Bank's employees to a limit of Rs.6 lacs (Basic cover)
plus Rs. 9 lacs (cash in safe). The Bank furnished to the Insurer
B a list of its branches to be covered by the insurance which
included Dhamangaon Branch and the names of the employees
working in those branches. The operative portion of the policy
is extracted below:-
"THE COMPANY HEREBY AGREES subject to the terms
c and conditions contained herein or endorsed or otherwise
expressed herein that if the Insured shall discover any
direct LOSS of Money and/or Securities sustained by the
Insured by CONTIGENCIES as provided hereinafter at any
time during the period of insurance stated herein or any
D subsequent period in respect of which the Insured shall
have paid or agreed to pay and the company shall have
accepted or agreed to accept the premium required for
the renewal thereof, the company will indemnify the Insured
in respect of all such direct losses but not exceeding,
E
(a) the total sum insured hereby in respect of any loss or
losses caused by acts or omissions of any one person
whether Officer, Clerk or Employee of the Insured or acts
or omissions in which such person is concerned or
F implicated or in respect of any one casualty or event
irrespective of the total amount of such loss.
(b) in any one period of insurance twice the total sum
insured hereby in respect of all such losses."
G In lieu of Cover Note No: RENEWAL Policy No:264/52/1/00402
H
AMRAVATI DISTI. CENTRAL CO-OP. BANK LTD. v. UNITED INDIA 667
FIRE & GENL. INSURANCE CO. LTD. [R.V. RAVEENDRAN J.]
Schedule A
INSURED NAME: THE AMRAVATI DISTI. Date of
CENTRAL COOP. BANK LTD., Proposal &
HEAD OFFICE, Declaration
ADDRESS: AMRAVATI 1.7.76
B
TOTAL SUM Rs.6, 00, 0001- (Basic cover) PREMIUM
INSURED And Rs.9, 00, 0001- (Cash in Rs. 34, 443/-
Safe) H.O. Amravati
EXCESS 25% on each and every claim RETRO-
Rs.11, 500/- or Rs.11, 500/- whichever is ACTIVE DATE
higher on D.A.R. (PROVISO 3) c
- 2 YEARS
PERIOD OF From 1st July, 1976 to 1st
INSURANCE July, 1977
SPECIAL Contingency No.5 of the policy stand deleted.
CONDITIONS D
xxxxxx
CONTINGENCIES INSURED
E
1. By reason of any Money and/or Securities for which
the Insured are responsible or the custody of which
they have undertaken and which now are or are by
them supposed or believed to be or at any time
during the period of insurance may be in or upon
their own premises or upon the premises of their F
Bankers in any recognised place of safe deposit
in India or lodged or deposited in the ordinary
course of business for exchange, conversion or
registration with the issuers thereof, or with any
agents of such issuers or with any person employed G
to procure or manage the exchange, conversion or
registration thereof, being (while so in or upon such
premises or so placed, lodged or deposited as
aforesaid) lost, destroyed or otherwise made away
with by Fire, Burglary, or House breaking, Theft, H
668 SUPREME COURT REPORTS [2010] 4 S.C.R.
A Robbery or Hold-up, whether with or without
violence and whether from within or without and
whether by the Officers, Clerks or Employees of the
Insured or any other person or persons
whomsoever.
B
2. By reason of any Money and/or Securities being
lost, stolen, mislaid, misappropriated or made away
with, whether due to the negligence or fraud of the
officers, Clerks or Employees of the Insured or
otherwise, whilst in transit in the hands of such
c Officers, Clerks or Employees within India, such risk
of transit to commence from the moment when the
person into whose hands the same may be
delivered on behalf of the Insured shall leave the
premises at which he receives the same and to
D continue until delivery thereof at destination.
3. By reason of the payment made whether received
over the Counter or through the Clearing House or
by Mail in respect of forged or raised Cheques and/
E or Drafts or (genuine) Cheques and/or Drafts
bearing forged endorsements or the establishment
of any credit to any customer on the faith of such
documents.
4. By reason of the dishonest or criminal act of any
F Officer, Clerk or Employee of the Insured with
respect to the loss of Money and/or Securities
wherever committed and whether committed
directly or in connivance with others.
G 5. [Deleted]
xxxxxx
PROVISOS
H "1. EXCESS - The Insured shall bear the amount of
AMRAVATI DISTT. CENTRAL CO-OP. BANK LTD. v. UNITED INDIA 669
FIRE & GENL. INSURANCE CO. LTD. [R.V. RAVEENDRAN J.]
excess stipulated in the Schedule in 'respect of each and A
every loss if the loss is under Contingencies 1, 2 or 3
insured by the Policy. In respect of losses under
contingencies 4 or 5, the Insured shall bear 25% of the
amount of the loss or the amount of excess stipulated in
the Schedule whichever is the higher." B
xxxxxx
(emphasis supplied)
3. An employee of the Bank by name Lodaya working in c
its Dhamangaon Branch committed a series of embezzlements.
On receiving a report dated 28.2.1977 from its Special Auditor
about the same, the Bank reported the matter to the police and
also to the Insurer. The employee concerned was suspended
on 16.3.1977 and eventually dismissed from service on
0
19.3.1978.
4. The Bank claimed indemnity from the Insurer in terms
of the policy in respect of Rs.3, 58, 000/- embezzled by the said
employee. After prolonged correspondence, the Insurer
informed the Bank that its assessors had assessed the E
reimbursable loss as Rs.29, 000/- and offered the said sum in
full settlement of the claim subject to payment of premium of
Rs.538/-. The Bank was not agreeable and that gave rise to a
dispute. The Bank sought arbitration and appointed its
arbitrator. The Insurer however did not appoint its Arbitrator. F
Therefore, the Arbitrator appointed by the Bank entered upon
the reference as sole arbitrator. In spite of due notice, the
Insurer did not participate in the arbitration proceedings.
5. The arbitrator proceeded ex parte and made an award
dated 17.8.1983. The Arbitrator found that there were a series G
of embezzlements by Lodaya, which were connected together
by a common modus operandi. The Arbitrator held that in all a
sum of Rs.3, 44, 449/86 was embezzled from the various
accounts of Bank's constituents with the Bank, by resorting to
H
670 SUPREME COURT REPOHTS [2010] 4 S.C.R.
A forgery. The Arbitrator found that the following amounts were
embezzled from the following accounts of account holders1
constituents of the Bank :
S.No. Name of the Account-holders Amount embezzled
B 1. Purohit 44, 615.84
2. Bhutada 60, 751.80
3. Mohata 38, 483.84
c 4. Kothari 46, 293.24
5. Roy 8, 423.01
6. Bhat 57, 506.92
D 7. Jasraj Mundhada 1, 916.35
8. Radhabai Mundhada 1, 911.00
9. M.Darda 1, 105.15
E 10. Kamlabai Darda 2, 216.25
11. G.H. Darda 3, 210.15
12. M.S. Coop. Bank 39, 781.26
F The Arbitrator held that these losses were covered under
contingency (4) of the policy. He noted that proviso (1) of the
policy used the words "each and every loss" when referring to
losses under contingencies 1, 2 or 3 but did not use the said
words when referring to losses under contingency (4). Therefore,
G the Arbitrator held that the insurer could not apply the Excess
clause to each and every loss separately; that having regard
to the terms of the policy, the amounts embezzled had to be
aggregated; and that out of the total loss, the Bank had to bear
25% and the insurer was liable to pay the balance. The
H Arbitrator therefore deducted 25% from Rs.3, 44, 449/86 and
AMRAVATI DISTT. CENTRAL CO-OP. BANK LTD. v. UNITED INDIA 671
FIRE & GENL. INSURANCE CO. LTD. [R.V. RAVEENDRAN J.]
made an award directing the insurer to pay Rs.2, 58, 337/40 A
to the Bank.
6. The Bank made an application under Sections 14 and
17 of the Arbitration Act, 1940 ('Act' for short) in January, 1984.
The Insurer filed a petition under Section 30 of the said Act for B
setting aside the ex parte award. Both petitions were heard
together and the Civil Court by Judgement dated 27 .6.1990
upheld the award and dismissed the petition under Section 30
of the Act for setting aside the award and directed that the
award be made a rule oft.he court.
c
7. Feeling aggrieved, the Insurer filed an appeal in the
High Court of Bombay. By Judgment dated 18.2.2008 the
appeal was allowed, the judgment of the Civil Court and the
award of the Arbitrator were set aside and the matter was
remitted to the Arbitrator for deciding the claim afresh, after D
granting due opportunity to both the parties to lead further
evidence and submit their statements before the Arbitrator, if
they so desired. The High Court following the decision of a
learned Single Judge of that Court in Central Bank v. New India
Assurance Co.Ltd. - AIR 1981 Bombay 397, held that the E
Arbitrator ought to have considered each item of embezzlement
separately and could not aggregate the amounts embezzled by
Lodaya at Dhamangaon Branch, for the purpose of arriving at
the claim and fixing liability of the insurer. The High Court held
that the Excess Clause in the policy did not envisage F
consolidation or aggregation of several losses sustained by the
acts of embezzlement by the employee and deduction 25%
thereof to arrive at the liability of the insurer, but envisaged the
deduction from every claim, that is every single amount
embezzled, 25% of the amount embezzled or Rs.11, 500/- G
whichever was higher, to arrive at the liability of the insurer.
8. The said judgment is challenged in this appeal by
special leave. The appellant submitted that the proviso relating
to Excess in the Insurance Policy consists of two parts; that the
H
672 SUPREME COURT REPORTS [2010) 4 S.C.R.
A first part requires the Insurer to bear the amount of excess
stipulated in the Schedule in respect of each and every loss,
if the loss was under Contingencies 1, 2 and 3; that if the loss
was under Contingency 4, the Insured was required to bear
25% of the amount of the loss or the amount of excess
B stipulated in the Schedule whichever was higher. It was
contended that the use of the words "each and every loss" in
the first part of proviso (1) .while referring the Contingencies 1,
2 and 3, and the omission to use the said words in the second
part thereof when referring to losses under Contingency 4, when
c considered with the use of the words "insured shall bear 25%
of the amount of the loss or the amount of excess stipulated in
the Schedule whichever is higher'', in regard to losses under
contingency (4), would clearly indicate that the 25% of the
aggregate of the losses had to be borne by the Bank and the
balance had to be paid by the Insurer. As Lodaya had
0
embezzled several amounts and the aggregate of such
embezzlements during the period of the insurance, was Rs.3,
44, 449/86, having regard to Proviso (1) of the Insurance Policy,
the Bank contended that 25% thereof will have to be deducted
therefrom and the Insurer should be made liable to pay the
E balance of Rs.2, 58, 337/40. It was therefore submitted that the
High Court ought not to have set aside the well-reasoned award
of the Arbitrator nor remitted the matter for fresh consideration,
after nearly a quarter century.
F 9. What therefore falls for consideration is the
interpretation of Proviso (1) of the Insurance Policy. In General
Assurance Society Ltd. v. Chandumull Jain (AIR 1966 SC
1644) a Constitution Bench of this Court laid down the principle
relating to interpretation of Insurance Contracts. This Court held:
G
"In interpreting documents relating to a contract of
Insurance, the duty of the court is to interpret the words in
which the contact is expressed by the parties, because it
is not for the court to make a new contract, however
reasonable, if the parties have not made it themselves."
H
AMRAVATI DISTI. CENTRAL CO-OP. BANK LTD. v. UNITED INDIA 673
FIRE & GENL. INSURANCE CO. LTD. [R.V. RAVEENDRAN J.]
In Oriental Insurance Co. Ltd vs. Sony Cheriyan - 1999 A
(6) SCC 451, this Court held :
''The insurance policy between the insurer and the insured
represents a contract between the parties. Since the
insurer undertakes to compensate the loss suffered by the B
insured on account of risks covered by the insurance
policy, the terms Qf the agreement have to be strictly
construed to determine the extent of liability of the insurer.
Tpe insured cannot claim anything more than what is
covered by the insurance policy. That being so, the insured C
has also to act strictly in accordance with the statutory
limitations or terms of the policy expressly set out therein."
10. "Excess" clauses are commonly used in Insurance
contracts. In insurance parlance, the term "EXCESS" in the
Excess clause in the policy refers to "that part of the amount of D
loss, under each claim, which is not covered by the policy" or
the "amount that the policy holder has, by agreement, to bear
or contribute to each insurance claim". In other words it limits
the liability of the insurer in regard to each claim, only to the
amount of loss, in excess of the sum specified in the Excess E
clause, which the insured has agreed to bear (either himself
or by securing other insurance coverage).
11. Excess clauses in insurance policies have been
interpreted in several English decisions. We may refer to one
F
of them. In Philadelphia National Bank v. Price reported in
(1938) 2 All ER 199, the Court of Appeal was concerned with
a case where a policy of insurance indemnified the bank
against loss sustained by reason of making advances against
forged or invalid documents subject to an excess of $25, 000
"by each and every loss and occurrence". Credit facilities were G
granted by the Bank to a trader on the security of invoices
assigned to the bank. Each day, the trader assigned a bundle
of invoices and the Bank advanced a sum corresponding to the
total of the invoices. The invoices turned out to be false and
H
674 SUPREME COURT REPORTS [2010] 4 S.C.R.
A the bank was unable to recover advances of over $400, 000 in
the aggregate, although no single daily loss amounted to more
than $25, 000. The Court of Appeal held that a separate loss
had occurred in respect of each day's advance and the loss
cannot be treated as one loss, as each production of documents
B led to a fresh loss and must be treated as number of losses
occasioned by a number of advances. The claim of the Bank
was therefore dismissed as loss in each case was below the
excess limit of $250001-.
12. A learned Single Judge of Bombay High Court in
C Central Bank of India Ltd. v. New India Assurance Co.Ltd. (AIR
1981 Bombay 397) interpreted the word 'claim' in the Excess
clause therein, which provided that the Bank shall be considered
co-insurer to the extent of 25% subject to the minimum excess
of Rs.250001- for each and every claim. Negating the contention
D of the Bank that in view of the said clause, its liability as co-
insurer was not in respect of each and every loss, but in regard
to each claim (that is, the aggregate of several losses which
constituted a 'claim'), the learned Judge held :
E "The word is of common occurrence in the field of
insurance and may mean either the right to make a claim
or an assertion of a right. The plain object of the clause,
as stated earlier, is to exempt the insurance company from
the liability to pay small claims which the Bank has to bear
F itself. The word, "claim" in this clause means the
occurrence of a state of facts which justifies a claim on
·insurer and does not mean the assertion of a claim on
company. In other words, in my judgment, the operation of
the Excess Clause is determined by the facts which give
rise to the claim and not by the form in which the claim is
G
asserted.
The employer committed several acts of fraud and
defalcation and each such separate act caused loss and
gave distinct and separate cause of action to the Bank. It
H is true that all these acts of defalcation were discovered
AMRAVATI DISTT. CENTRAL CO-OP. BANK LTD. v. UNITED INDIA 675
FIRE & GENL. INSURANCE CO. LTD. [R.V. RAVEENDRAN J.]
only on October 18, 1972 but the fact of discovery on one A
day would not enable the Bank to claim that several acts
of defalcation constitute one single or composite
loss ........... The mere fact that several acts of defalcation
were discovered on one day would not lead to the
conclusion that several losses under different acts could B
be treated as one composite loss.
In accordance with the objects and interpretation of the
terms and conditions of the policy, in my judgment, the
Bank is liable to be considered as co-insurer to the extent C
of 25% subject to minimum excess of Rs.25, 000/- in
respect of each loss sustained by each set of defalcation
by its employee, and it is not permissible to aggregate the
total loss for working out of Excess Clause."
13. It is no doubt true that the first part of Proviso (1) uses D
the words "each and every loss" while referring to the losses
covered by contingencies 1, 2 and 3, and does not specifically
repeat the said words in the second part of Proviso (1) relating
to Contingency 4. But a careful reading of the shows that the
non-repetition of the words was not because the intention was E
to apply those words only to losses under contingencies 1, 2,
and 3, but because the structure of the sentence did not require
repetition of the words and the context showed that the words
were applicable even to losses under contingency 4. This is also
evident from the Schedule to the policy that 'Excess" is F
specified as Rs.11500/- with a further stated "25% of each and
every claim or Rs.11, 500/- whichever is higher on DAR".
Proviso (1) also reiterates the position, both in regard to
contingencies 1, 2 and 3 as also in regard to Contingencies 4
and 5. The difference between the two parts of proviso (1), G
however, is this: In respect of each and every loss under
Contingencies 1, 2 and 3, the Insurer had to bear the amount
of excess stipulated in the Schedule, that is at the flat rate of
Rs.11, 500/-. But in regard to each and every loss under
Contingency 4, the Insured had to bear 25% of the amount of H
676 SUPREME COURT REPORTS [2010] 4 S.C.R.
A the loss or the amount of excess (Rs.11, 500/-) stipulated in
the Schedule, whichever was higher. Proviso (1) was divided
into two parts, that is the first part with reference to
Contingencies 1, 2 and 3, and the second part in regard to
Contingencies 4 (and 5 where it was applicable), only to
B differentiate between the quantum that had to be borne by the
Insured in respect of each and every claim which was a fixed
Rs.11, 500/- for each and every loss under Contingencies 1, 2
and 3, whereas it was 25% of the amount of the loss or Rs.11,
500/- whichever was higher in regard to each and every claim
c under Contingency 4 (and 5) .
...
14. Having regard to the wording of Proviso (1), in regard
to losses referable to Contingencies 1, 2 and 3, the Insured had
to bear a fixed amount i.e. Rs.11, 500/- in regard to each and
every loss. Therefore the words "25% on each and every claim
D or Rs. 11, 500/- whichever is higher on DAR" were not
applicable in regard to the claims under Contingencies 1, 2 and
3 as what was to be borne in such cases was a fixed flat sum
of Rs.11, 500/- per every loss. The said words "25% on each
and every claim or Rs.11, 500/- whichever is higher on DAR"
E applied only in regard to losses referable to Contingencies 4
and 5; and in regard to losses thereunder, what was to be borne
by the Insured was 25% of the amount of the loss or the amount
of excess stipulated whichever was higher. Therefore, the
words "each and every claim" were used in the Schedule with
F reference to losses under Contingency 4 by describing the
Excess as "25% on each and every claim or Rs.11, 500/-
whichever is higher on D.A.R." This also clearly shows that the
stipulated exemption from indemnity is in regard to each and
every loss. We may illustrate the effect of this proviso by the
G following examples:
H
AMRAVATI DISTT. CENTRAL CO-OP. BANK LTD. v. UNITED INDIA 677
FIRE & GENL. INSURANCE CO. LTD. [RV. RAVEENDRAN J.]
~mount of loss Amount of loss to be Amount of loss to be A
of insured borne in case of borne in case of
(each claim) Contingencies 1, 2 and Contingency 4
3 (Excess is (Excess is 25% of the
Rs.11, 500) amount of loss or
Rs.11500 whichever B
is higher)
To be To be paid To be To be paid
borne by by Insurer borne by by Insurer
Insured Insured
c
Rs.10, 000 10,000 - 10,000 -
Rs.11, 500 11, 500 - 11, 500
Rs.15, 000 11, 500 3500 11,500 3500 D
Rs.30, 000 11, 500 18,500 11, 500 18,500
Rs.40, 000 11, 500 28,500 11, 500 28,500
E
Rs.46, 000 11,500 34,500 11, 500 34,500
Rs.50, 000 11, 500 38,500 12,500 37,500
Rs.80, 000 11,500 68,500 20,000 60,000 F
Rs.1, 00, 000 11,500 88,500 25,000 75,000
[Note : for any loss upto Rs.46, 000/-, the amount of liability will
be the same, whether the loss is under Contingency 1 to 3 or G
under Contingency 4. But where the loss is more than Rs.46,
0001-, the liability of the insured will remain constant in regard
to Contingencies 1, 2 and 3, whereas it will be 25% of the loss
in regard to each claim in regard to Contingency No.4.]
H
I
678 SUPREME COURT REPORTS [2010] 4 S.C.R.
A 15. It is therefore necessary to identify each act of
embezzlement by Lodaya in regard to each account, as the
loss on account of each embezzlement forms a separate claim.
The Bank has to bear 25% of the amount embezzled (or 11500/
- whichever is higher) in regard to each and every
B embezzlement, and not by aggregation of the embezzlements.
The Arbitrator has stated the total of the amount of
embezzlements in regard to each account. He has not given
the details of every embezzlement. For example with reference
to the account of Purohit, the amount embezzled is shown as
c Rs.44, 615/84. But this does not constitute a single
embezzlement. The Arbitrator has stated thus in regard to this
account:
"The account of Shri Purohit:
D On 22.6.76 Rs.4700/- were debited to the above T.D.
ledger and credited to an account opened in the name of
Shri Purohit. The credit slip was prepared by Shri Lodaya,
who himself, signed in place of the Agent. Then he
withdraw and made away with same of this money.
E Similar misdeed was repeated on 3.6.76 (Rs.4000/-) and
7.8.76 (Rs.1110-30)."
It is thus clear that the amount of embezzlement shown as
Rs.44, 615/84 with reference to the account of Purohit is not a
single act, but a series of embezzlements. If in regard to each
F act, the amount embezzled is less than Rs.11, 500/- the Bank
had to bear the entire amount and no part had to be borne by
the Insurer. Only where a single act of embezzlement was in
excess of Rs.11, 500/-, the Insurer's liability would arise. As
noticed above, as the matter falls under Contingency (4), the
G Insurer will have to bear 25% of the each and every claim or
Rs.11, 500/- whichever is higher on DAR.
16. The award of the arbitrator is liable to be set aside as
there is a clear error apparent on the face of the award. The
H
AMRAVATI DISTI. CENTRAL CO-OP. BANK LTD. v. UNITED INDIA 679
FIRE & GENL. INSURANCE CO. LTD. [R.V. RAVEENDRAN J.]
award is a speaking award. It extracts the relevant clauses of A
the insurance policy including the excess clause. It then
proceeds to put an interpretation thereon which is contrary to
the express words of the contract and opposed to the well
recognised insurance practices and principles. Hence the
award was rightly set aside by the High Court. 8
17. If the amount of each and every embezzlement had
been separately recorded in the award of the Arbitrator, the
court could have calculated the amount that was due, instead
of remitting the matter to the Arbitrator for fresh decision. But C
that is not possible, as the particulars are not available.
18. In view of the above, we uphold the decision of the High
Court and dismiss the appeal. If however the appellant is not
interested in proceeding afresh before the arbitrator after all
these years, and is willing to accept the sum of Rs.29, 000/-, D
offered by the insurer, it may inform the insurer accordingly in
which event, the insurer shall pay the same to the appellant -
Bank, if it had not already been paid.
D.G. Appeal dismissed.
E
Search Indian case law
Ask in plain English, not just keywords. 25,000 AI words free, no card.
Try "Insurance contract"Sign in to search