2010 (4) TMI 1179 - SC - Indian Laws

Summary

Issues Involved:
1. Validity of the Arbitrator's Award
2. Interpretation of the Excess Clause in the Insurance Policy
3. Aggregation of Embezzlements for Claim Calculation

Summary:

1. Validity of the Arbitrator's Award:
The Bank sought indemnity from the Insurer for Rs. 3,58,000/- embezzled by an employee. The Insurer assessed the reimbursable loss as Rs. 29,000/-. The Bank appointed an arbitrator who proceeded ex parte and awarded Rs. 2,58,337/40 to the Bank. The Civil Court upheld the award, but the High Court set it aside, remitting the matter for fresh consideration. The Supreme Court upheld the High Court's decision, noting that the Arbitrator's interpretation was contrary to the express words of the contract and insurance principles.

2. Interpretation of the Excess Clause in the Insurance Policy:
The policy's Proviso (1) required the Insured to bear a fixed amount of Rs. 11,500/- for each loss under Contingencies 1, 2, and 3, and 25% of the amount of the loss or Rs. 11,500/-, whichever was higher, for Contingency 4. The Supreme Court emphasized that the term "each and every loss" applied to all contingencies, and the Insured had to bear the stipulated amount for each separate embezzlement.

3. Aggregation of Embezzlements for Claim Calculation:
The Arbitrator aggregated the embezzlements, which the High Court found incorrect. The Supreme Court agreed, stating that each act of embezzlement should be treated separately. For each embezzlement, the Bank had to bear 25% of the amount or Rs. 11,500/-, whichever was higher. The award was set aside due to the lack of detailed records of each embezzlement.

Conclusion:
The Supreme Court dismissed the appeal, upholding the High Court's decision to remit the matter for fresh arbitration. If the Bank chose not to proceed afresh, it could accept the Insurer's offer of Rs. 29,000/-.