NCDRC Upholds State Commission Order Against Reliance General Insurance Co. Ltd., Citing Wrongful Repudiation Of Policy

The NCDRC upheld the Maharashtra State Consumer Commission’s order which allowed the complaint and directed the Insurance Company to pay Rs. 68,60,789/- with interest @12% per annum as the insurance claim, on a deposit of Rs. 6,87,316/- as premium by the Complainant, Rs.1 Lakh as compensation for mental agony, and Rs. 25,000/- as litigation costs.

Brief Facts:

The Complainant, a shipping company, was approached by the Insurance Agent to obtain a 'Marine Hull Insurance Policy' for their tanker vessel named 'MT Crystal'. The policy had a premium of Rs.6,72,528, payable in quarterly installments of Rs.1,68,132, along with a stamp duty of Rs.14,788 which was paid by the Complainant on time. The Insurance Company issued the policy insuring the vessel's hull and machinery for Rs.14,78,75,000.

The 'MT Crystal’s’ main engine suffered damage, leading to a drop in lube oil pressure since white metal had entered the crankcase and caused damage. The Complainant informed the Insurance Agent about the damage and the need to tow the vessel to a port for repairs. The Agent notified the Insurance Company which confirmed the towage charges.

The Complainant engaged AI Mubarak Overseas for towing the vessel to Mumbai which issued an invoice for USD 252,343.75. After the repairs, the Complainant submitted an insurance claim and Dhiraj Offshore Surveyors & Adjusters Pvt. Ltd. was appointed as the surveyor by the Insurance Company.

The Insurance Company sought details of previous claims of the Complainant on other vessels over the last five years. It rejected the claim, alleging that the company had concealed information about two insurance claims made on another vessel 'M.T. Twinkle' within the past two years. It also argued that the said act constituted a violation of Warranty No.8.

The Complainant argued that the proposal form had inquired specifically about "accidents during the past three years to any vessel owned by the insured", to which an accurate response was given.

The Insurance Company informed the Complainant the policy was void ab initio and refunded the premium. Despite legal notices and survey reports assessing the loss, the Insurance Company remained unresponsive.

The Complainant filed a complaint before the NCDRC, which was redirected to the State Commission due to jurisdictional issues. The case was argued before the State Commission which which allowed the complaint and directed the Insurance Company to pay Rs. 68,60,789/- with interest @12% per annum as the insurance claim, on a deposit of Rs. 6,87,316/- as premium by the Complainant, Rs.1 Lakh as compensation for mental agony, and Rs. 25,000/- as litigation costs.

Contentions of the Insurance Company:

The Insurance Company argued that the Complainant deliberately concealed crucial information in the Proposal Form which had a specific question as to the accidents that have taken place during the past three years to any vessel owned by it to which it responded "Not Applicable". The Complainant submitted the completed proposal form with Warranty No.8 stipulating that "No claim has been made on Seven Island Fleet during the last 5 years" and paid the installements.

The Insurance Company discovered that the Complainant had an insurance policy for another vessel from IFFCO Tokio General Insurance Company Limited and had filed insurance claims for the incidents. It declared the policy to be void ab initio and refunded the premium which the complainant cashed without objection.

It also placed reliance on Section 20 of the Marine Insurance Act, 1963 emphasizing the requirement for full disclosure of all known circumstances and Failure to such disclosure empowers the insurer to invalidate the contract. The Insurance Company, further, asserted that the complaint was filed after a lapse of nearly two years and is thus not maintainable.

Observations of the Commission:

The NCDRC rejected the appeal and upheld the State Commission’s order holding that Warranty No. 8 was not violated. It observed that upon a review of a letter from IFFCO Tokio General Insurance Company Limited it was indicated that the complainant had filed two claims and were submitted after the issuance of policy with the Insurance Company.

The Commission pointed that there is no proven concealment of the material fact in the proposal form since the term 'accident' refers to an unexpected unfortunate event causing damage or injury. Further, the letter from IFFCO Tokio General Insurance Company Limited indicated that two claims were filed by the complainant for damage to the 'main engine turbo charger': one for an incident before filling out the Proposal Form in question, and another for an incident after filling out the Form. As such, there is no evidence to suggest that the damage to the 'main engine turbo charger' resulted from an accident, which implies external force, rather than normal wear and tear, covered by the insurance policy.

The Commission concluded that the repudiation of the policy as void ab initio were unlawful. It placed reliance on Supreme Court decision in General Assurance Society Ltd. vs. Chandumull Jain which was also upheld in United India Insurance Company Limited vs. Pushpalaya Printer, held that in case of ambiguity in a proposal form, it should be interpreted against the insurer, who drafted the form. NCDRC observed that cases i.e Contship Container Lines Limited vs. D.K. Lall and Oriental Insurance Company Limited vs. Mahendra Construction, relied upon by the Insurance Company do not apply to the current case's circumstances.

Case Title: Reliance General Insurance Co. Ltd. vs. Seven Islands Shipping Ltd. & Anr.

Counsel for the Complainant: Mr. Amitava Majumdar, Advocate, and Mr. Arvind Kumar Gupta, Advocate

Counsel for the Insurance Company: Mr. Vishnu Mehra, Advocate

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