2020 (1) TMI 1683 - SC - Indian Laws

Insurance cover pertaining to goods hypothecated by the appellants with the first respondent under a cash credit facility - HELD THAT - The terms and conditions of the new policy specifically excluded STFI perils and evidently there was a change in the obligations of the insurer. There was no renewal but the issuance of a new policy. The change in the location of the premises in the present case led to the issuance of a new policy. It was open to the insurer to specifically exclude STFI perils as a commercial decision. The appellants had knowledge of the exclusion of the STFI perils as they were provided with a copy of the policy and also received the refund of the premium. Having lodged no protest with the insurer during 2005-06 or in the renewed term of 2006-07, the insured cannot lay a claim that they had no knowledge that the STFI cover was excluded from the insurance cover. Nothing prevented the appellants from either approaching the insurer or any other insurance company for obtaining a policy that covered STFI perils. There is no merit in the present appeal - Appeal dismissed.

Issues Involved:
1. Validity of the National Commission's reversal of the State Commission's decision.
2. Obligation to insure hypothecated goods under the cash credit facility agreement.
3. Exclusion of STFI perils from the insurance policy.
4. Liability of the insurer and the bank for the repudiation of the insurance claim.
5. Interpretation of the insurance contract and applicability of Section 64(VB) of the Insurance Act, 1938.
6. Applicability of the IRDA regulations and the precedent set by Biman Krishna Bose v United India Insurance Co Ltd.

Issue-wise Detailed Analysis:

1. Validity of the National Commission's Reversal of the State Commission's Decision:
The National Consumer Disputes Redressal Commission reversed the State Commission's decision, which had awarded compensation to the appellants. The State Commission had found the bank liable for depositing the refunded premium without inquiry and for errors in the proposal form. However, the National Commission observed that the insurer was entitled to exclude STFI perils and that both the bank and the borrower were estopped from questioning the policy terms after accepting the policy and the refunded premium without protest.

2. Obligation to Insure Hypothecated Goods Under the Cash Credit Facility Agreement:
Clause 15 of the agreement between the appellants and the first respondent (bank) required the appellants to insure the hypothecated goods. If the appellants failed to do so, the bank could secure insurance and recover the costs. The bank routinely obtained insurance policies for its borrowers, including the appellants, and remitted the premiums on their behalf.

3. Exclusion of STFI Perils from the Insurance Policy:
The insurance policy for 2005-06 excluded STFI perils, which was communicated through the policy document and the refund of the premium for STFI coverage. The appellants did not protest this exclusion when they received the policy and the refunded premium. The National Commission noted that the exclusion was permissible under the regulations, and the insurer was within its rights to issue a new policy with different terms for a new location.

4. Liability of the Insurer and the Bank for the Repudiation of the Insurance Claim:
The insurer repudiated the claim under the Rs 60 lakhs policy due to the exclusion of STFI perils. The State Commission held the bank liable for not inquiring about the refunded premium and for errors in the proposal form. However, the National Commission found no deficiency of service by the bank, as the appellants had knowledge of the policy terms and the refunded premium. The insurer was not held liable as the policy explicitly excluded STFI perils.

5. Interpretation of the Insurance Contract and Applicability of Section 64(VB) of the Insurance Act, 1938:
The court emphasized that the terms of the insurance contract must be interpreted as agreed between the parties. Section 64(VB) mandates that no risk can be assumed without receiving the premium in advance. The insurer refunded the premium for STFI perils, and the appellants accepted this without protest, indicating their acceptance of the policy terms.

6. Applicability of the IRDA Regulations and the Precedent Set by Biman Krishna Bose v United India Insurance Co Ltd:
The appellants argued that the insurer violated IRDA regulations by not providing material information about the exclusion of STFI perils and not furnishing the proposal form within 30 days. However, the court distinguished the present case from Biman Krishna Bose, noting that the exclusion of STFI perils was a commercial decision, and the appellants had knowledge of this exclusion. The court held that there was no arbitrary refusal to renew the policy, and the appellants could have sought a different policy covering STFI perils.

Conclusion:
The appeal was dismissed, affirming the National Commission's decision. The court held that the insurer was not liable due to the explicit exclusion of STFI perils in the policy, and the bank was not deficient in its service as the appellants had accepted the policy terms and the refunded premium without protest.

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