I. C. SHARMA versus THE ORIENTAL INSURANCE CO. LTD. on 10 January 2018

[2018] 1 S.C.R. 571

I. C. SHARMA

v.

THE ORIENTAL INSURANCE CO. LTD.

(Civil Appeal No. 3167 of 2017)

JANUARY 10, 2018

[MADAN B. LOKUR AND DEEPAK GUPTA, JJ.]

Insurance – Householder Insurance – Appellant purchaseda householder insurance policy from the respondent-InsuranceCompany, wherein coverage of articles/items in the house of theappellant was “as per list” – However, “as per list” policies werediscontinued by the respondent and fresh policies were issued forconsolidated amounts, which were also taken by appellant– Afteran incident of burglary in appellant’s house, he claimed householderinsurance – Plea of Insurance Company that a large number ofitems claimed to be stolen were not insured and there was a lot ofunder-insurance – Held: Under-insurance means that the insuredhas taken an insurance policy in which he has valued the insureditems for a sum less than the actual value of the insured item – Thisis done to pay a lesser premium – However, it is harmful to thepolicy holder because even if the entire insured property is lost, thepolicy holder, at the maximum can only get the sum for which theproperty was insured – But, when all the goods are not destroyed,the Insurance Company can apply the principle of averaging outi.e. the insured is paid an amount proportionate to the extent ofinsurance as compared to the actual value of the goods insured –Therefore, when a group of items is insured under one heading andonly some of the items and not all items are lost/stolen then theprinciple of under-insurance will apply – However, if all or most ofthe items of value covered under the policy are stolen, then theinsurance company is bound to pay the value of the goods insured– Applying this principle, appellant directed to be paid accordingly– In addition, claimant awarded Rs.25,000/- as compensation andlitigation expenses with interest @12% p.a. w.e.f. 01.01.2009 tillpayment – Insurance Company shall be entitled to adjust/deductthe amounts already paid/deposited by it – Consumer ProtectionAct, 1986.

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AInsurance – Insurance Companies – Plea taken by theInsurance Company that the appellant-claimant did not produceinvoices for the items claimed to be stolen – Held: On facts, theclaim should not have been rejected only on the ground that invoiceswere not produced – Once the insurance company itself changedits policy from ‘as per list policies’ to ‘policies for consolidatedBamounts’, then an insured is not expected to give the item-wise detailsalong with the valuation – Consumer Protection Act, 1986.

Insurance – Insurance Companies – Duty of – Held: Insurancecompany must at the time of accepting the premium advise the policyholder properly – It cannot accept the premium without asking forCany details and later deny its liability on the ground that such detailswere not given – Consumer Protection Act, 1986.

Doctrines/Principles – Principle of ‘under-insurance’ –Explained.DDisposing of the appeal, the Court HELD: 1.1 Under-insurance basically means that theinsured has taken out an insurance policy in which he has valuedthe insured items for a sum which is less than the actual value ofthe insured item. In a country like India this is normally done toEpay a lesser premium. This is, in fact, harmful to the policy holderand not to the Insurance Company because even if the entireinsured property is lost, the policy holder will only get themaximum sum for which the property has been insured and not apaisa more than the sum insured. For example, in case a persontakes out the householder policy covering fire insurance and givesFthe value of the structure of his house and goods stored thereinat Rs.50,00,000/- even though the value of the same isRs.1,00,00,000/- then even if the entire house and goods arecompletely lost in a fire, he cannot get an amount aboveRs.50,00,000/- even though the value may be more. [Para 8] [577-GF-H; 578-A-B]

1.2 If all the insured goods are lost then there is no problemas then the insurance company is bound to pay the value of thegoods insured. The insured is entitled to the amount for whichthe goods were insured even if that be less than the actual valueof the goods. In case a person gets a painting insured forH

Rs.1,00,000/- though the value of the same is Rs.10,00,000/-, ifthe painting is lost the insured is entitled to Rs.1,00,000/- only.If all the insured goods falling under one head are stolen or lostthen the insurance company cannot apply the principle of averagingout because, though the loss may be Rs.10,00,000/-, the claimantwill get only one Rs.1,00,000/-as per the value assessed and theinsurance premium paid by him. [Para 9] [578-B-D]

1.3 The Insurance Company can however apply the principleof averaging out when all the goods are not destroyed. Supposingthe entire house was insured for Rs.50,00,000/-, but on valuationit is found that the value of the structure and the goods wasRs.1,00,00,000/- and if the policy holder claims that he has sufferedloss of Rs.40,00,000/- then he will be entitled to onlyRs.20,00,000/-, by applying the principle of averaging out. Whatthis means is that if the value of the goods is more than the sumfor which they are insured then it is presumed that the policyholder has not taken out insurance policy for the un-insured valueof the goods. The claim is allowed by applying the principle ofaveraging out, i.e. the insured is paid an amount proportionate tothe extent of insurance as compared to the actual value of thegoods insured. [Para10] [578-D-F]

1.4 Applying the aforesaid principle to the present case, itis now dealt as under-

i) Jewellery and valuables - The entire jewellery andvaluables were insured for Rs.1,00,500/- but the claimant claimedthat the value of jewellery stolen was Rs.1,84,150/-. In this casethe entire jewellery was stolen. Therefore, the averaging outclause will not apply and the claimant is entitled to a sum ofRs.1,00,500/- under this head.

ii) Silver cutlery sets - The case of the claimant was thatthese were insured under the head of ‘kitchenware/crockery/cutlery’ items. According to him, the value of these sets isRs.31,000/-. Obviously kitchenware/crockery/cutlery will includemany other items lying in the kitchen and in the dining room.Silver cutlery sets would normally fall under the head ‘jewelleryand valuables’ and since the claimant has been awarded themaximum amount payable under that head, now he cannot divertthe claim for silver cutlery to the head ‘kitchenware/crockery/

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Acutlery’. This Court can take judicial notice of the fact that in anymiddle class household kitchenware/crockery/cutlery would valuemore than Rs.18,000/-. It is obvious that silver cutlery valuingRs.31,000/- could not be insured under the head kitchenware/crockery/cutlery’ which was valued only for Rs.18,000/-.Therefore, the National Commission was right in holding thatBthere was no coverage for this item.

iii) Clothing - The appellant claimed that he had suffered aloss of Rs.87,000/-, as against the coverage of Rs.55,000/-.However, on perusing the statement of the appellant himself it isfound that he had shown Rs.87,000/- to be the value of only sixCitems of clothing. There must have been many other items ofclothing in the house and when all the clothing was insured underone heading, it would include clothing items of all types, bothexpensive and in-expensive. Admittedly, all items of clothing werenot stolen and, therefore, in this case the principle of under-Dinsurance will have to apply and the National Commission wasright in directing that the payment be made after applying principleof under-insurance.

iv) Electrical/Mechanical appliances- The coverage underthis head was Rs.1,82,500/- and the claimant claimed onlyERs.66,000/- and he gave the details of the items. This claim wasrejected only on the ground that he had not produced invoices ofthe same. The case of the appellant was that those items weregifted by his son. The claim should not have been rejected onlyon the ground that invoices were not produced. Once theinsurance company itself changed its policy from ‘as per listFpolicies’ to ‘policies for consolidated amounts’, then an insuredis not expected to give the item-wise details along with thevaluation. If the insurance company desires that item-wisevaluation should be given for items over and above a certain valuethen it is the duty of the insurance company to advise the insuredGat the time of issuing the first policy of insurance and at the timeof each renewal. The insurance company must at the time ofaccepting the premium advise the policy holder properly. Theinsurance company cannot accept the premium without askingfor any details and later deny its liability on the ground that suchdetails were not given. Therefore, the claim of the claimant isHaccepted and he is entitled to Rs.66,000/- under this head.

v) Miscellaneous items - The appellant claimed Rs.28,000/-for loss of miscellaneous item including watches valuing Rs.20,000/- as against the coverage of Rs.41,000/-. On the samereasoning as given for electrical/mechanical appliances, the claimof the appellant of Rs.20,000/- for loss of four watches is acceptedand, therefore, he is entitled to Rs.28,000/- under this head.

vi) Repair of locks, doors, latches, safe etc.- The claimantis already awarded Rs.7,000/-under this head. [Para 12] [579-A-H; 580-A-F]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3167of 2017.

From the Judgment and Order dated 22.02.2016 of the NationalConsumer Disputes Redressal Commission, New Delhi in RA/311/2015in Revision Petition No. 2361 of 2014.

I. C. Sharma (Appellant-in-person).

Rajesh Kumar Gupta, Adv. for the Respondent.

The Judgment of the Court was delivered by DEEPAK GUPTA, J. 1. This appeal filed by the complainant/consumer is directed against the order dated 29.09.2014 passed by theNational Consumer Disputes Redressal Commission (for short ‘theNational Commission’), New Delhi, disposing of the revision petitionfiled by the parties and also against the order dated 22.02.2016 disposingof the review petition filed by the appellant.

2. Briefly stated the facts of the case are that the appellant hadfirst purchased a householder insurance policy from the OrientalInsurance Company (‘the Insurance Company’ for short) on 23.12.2000.This policy was renewed till 22.12.2005. As per this policy the coverageof articles/items in the house of the appellant was “as per list”. It is notdisputed that thereafter the Insurance Company discontinued “as perlist” policies and instead started issuing policies for consolidated amounts.The original policy had expired on 22.12.2005 and fresh policy as pernew scheme was taken out on 19.01.2006 and this was renewed fromtime to time. The last renewal was from 19.01.2007 to 18.01.2008.

3. The appellant had gone to the United Kingdom. Some time,between 27.01.2008 to 30.01.2008, a burglary took place inside thepremises of the appellant, and he was informed about the same by aneighbor on 31.01.2008. The appellant requested his nephew to inform A

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Athe Insurance Company and an FIR was also registered with the MehrauliPolice Station in South Delhi. The Insurance Company was also informedabout the burglary on 31.01.2008 or on the next day. The police couldnot trace out the crime.

4. The Insurance Company first offered a sum of Rs. 3,500/- toBthe appellant sometime in November, 2008 which he refused to accept.He, thereafter, met certain higher officials of the Insurance Companyand an amount of Rs.29,920/- was offered to him. Being dissatisfied,the appellant filed a claim before the District Consumer DisputesRedressal Forum (for short ‘the District Forum’), which was disposedof by the District Forum on the ground that the articles mentioned thereinCwere not mentioned in the list. Thereafter, the appellant filed an appealbefore the State Consumer Disputes Redressal Commission (for short‘the State Commission’) which was allowed on 15.01.2014 and he wasawarded a sum of Rs.4,03,150/-.

5. Revision petitions were filed both by the appellant claimingDinterest and compensation and by the Insurance Company against theorder of the State Commission. The main ground in the petition filed bythe Insurance Company was that a large number of items which hadbeen claimed to be stolen were not insured and there was a lot of under-insurance. The National Commission held that once the appellant hadEsupplied a list of articles for the first policy, if there was any change heshould have filed a fresh list and since a large number of articles werenot mentioned in the list the claimant was only entitled to an amount ofRs.21,000/- towards the value of stolen gold articles; Rs.5,929/- towardsthe depreciated value of Citizen watch; Rs.7,000/- for repair of doorlatches etc.; and Rs.16,000/- towards the value of stolen clothes afterFmaking appropriate deduction for under-insurance of clothing. Thecomplainant was also awarded compensation of Rs.5,000/- towards thecost of litigation etc. The appellant filed an SLP before this Court andhe was granted liberty to file a review petition before the NationalCommission mainly on the ground that the policy of 2008-2009 was notGconsidered by the National Commission.

6. The National Commission in the review petition took intoconsideration the fact that the new insurance policy did not require a listof items to be given. It, thereafter, awarded amounts under variousheads as follows:- H

i) Jewellery and valuables - Claimant claimed that the jewellerylost was worth Rs.1,84,150/- but the insurance package was only forRs.1,00,500/-. The National Commission ordered the Insurance Companyto pay the amount after making adjustment for under-insurance; ii) Two cutlery sets in silver valuing Rs.31,000/- - The NationalCommission held that these items were not insured and did not fall underthe heading of ‘kitchenware/crockery/cutlery sets’.

iii) Clothing - The insured value of clothing was Rs.55,000/- andthe claimant claimed Rs.87,000/-. The National Commission directedpayment of this amount after making adjustment for under-insurance.

iv) Electrical/Mechanical appliances - The appellant claimed asum of Rs.66,000/- for loss of electrical and mechanical appliances, asagainst the coverage of Rs.1,82,500/-. This claim was rejected on theground that the claimant failed to produce bills of invoices towards thisamount.

v) Miscellaneous items - The appellant claimed Rs.28,000/- forloss of miscellaneous items including watches valuing Rs.20,000/- asagainst the coverage of Rs.41,000/-. He has been awarded only Rs.8,000/- and the claim for watches of Rs.20,000/- has been rejected on theground that he failed to produce purchase invoices.

vi) Repair of locks, doors, latches, safe etc. - The appellant wasawarded Rs.7,000/- for repair of locks, doors, latches, safe etc., asclaimed by him.

vii) The claimant was also awarded compensation of Rs.10,000/-and interest @ 9% per annum.

7. Aggrieved, the appellant is before this Court.

8. The only legal issue which arises for consideration is “what isunder-insurance – and the effect thereof?”. Under-insurance basicallymeans that the insured has taken out an insurance policy in which he hasvalued the insured items for a sum which is less than the actual value ofthe insured item. In a country like India this is normally done to pay alesser premium. This is, in fact, harmful to the policy holder and not tothe Insurance Company because even if the entire insured property islost, the policy holder will only get the maximum sum for which theproperty has been insured and not a paisa more than the sum insured.To give an example, in case a person takes out the householder policy A

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Acovering fire insurance and gives the value of the structure of his houseand goods stored therein at Rs.50,00,000/- even though the value of thesame is Rs.1,00,00,000/- then even if the entire house and goods arecompletely lost in a fire, he cannot get an amount above Rs.50,00,000/-even though the value may be more.

B9. If all the insured goods are lost then there is no problem. Theinsured is entitled to the amount for which the goods were insured evenif that be less than the actual value of the goods. In case a person gets apainting insured for Rs.1,00,000/- though the value of the same isRs.10,00,000/-, if the painting is lost the insured is entitled to Rs.1,00,000/-only. If all the insured goods falling under one head are stolen or lostCthen the insurance company cannot apply the principle of averaging outbecause, though the loss may be Rs.10,00,000/-, the claimant will getonly one Rs.1,00,000/-as per the value assessed and the insurancepremium paid by him.

10. The Insurance Company can however apply the principle ofDaveraging out when all the goods are not destroyed. Supposing theentire house was insured for Rs.50,00,000/-, but on valuation it is foundthat the value of the structure and the goods was Rs.1,00,00,000/- and ifthe policy holder claims that he has suffered loss of Rs.40,00,000/- thenhe will be entitled to only Rs.20,00,000/-, by applying the principle ofEaveraging out. What this means is that if the value of the goods is morethan the sum for which they are insured then it is presumed that thepolicy holder has not taken out insurance policy for the un-insured valueof the goods. The claim is allowed by applying the principle of averagingout, i.e. the insured is paid an amount proportionate to the extent ofinsurance as compared to the actual value of the goods insured.F

11. To clarify the matter further, we may give another example.Supposing, the insurer owns two paintings of Rs.5,00,000/- each butpays premium for insurance cover of Rs.1,00,000/- for both the paintings.If one painting is lost, even though the value of the painting mayRs.5,00,000/- he will not get Rs.1,00,000/- but will get only Rs.50,000/-,Gas proportionate amount. Therefore, when a group of items is insuredunder one heading and only some of the items and not all items are lost/stolen then the principle of under-insurance will apply. However, if all ormost of the items of value covered under the policy are stolen, then theinsurance company is bound to pay the value of the goods insured.

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12. Applying this principle we may now deal with this case.

i) Jewellery and valuables - The entire jewellery and valuableswere insured for Rs.1,00,500/- but the claimant claimed that the value ofjewellery stolen was Rs.1,84,150/-. In this case the entire jewellery wasstolen. Therefore, the averaging out clause will not apply and the claimantis entitled to a sum of Rs.1,00,500/- under this head.

ii) Silver cutlery sets - The case of the claimant is that these wereinsured under the head of ‘kitchenware/crockery/ cutlery’ items.According to him, the value of these sets is Rs.31,000/-. Obviouslykitchenware/crockery/cutlery will include many other items lying in thekitchen and in the dining room. Silver cutlery sets would normally fallunder the head ‘jewellery and valuables’ and since the claimant hasbeen awarded the maximum amount payable under that head, now hecannot divert the claim for silver cutlery to the head ‘kitchenware/crockery/cutlery’. This Court can take judicial notice of the fact that inany middle class household kitchenware/crockery/cutlery would valuemore than Rs.18,000/-. It is obvious that silver cutlery valuing Rs.31,000/-could not be insured under the head kitchenware/crockery/cutlery’ whichwas valued only for Rs.18,000/-. Therefore, the National Commissionwas right in holding that there was no coverage for this item.

iii) Clothing - The appellant claims that he has suffered a loss ofRs.87,000/- , as against the coverage of Rs.55,000/-. However, onperusing the statement of the appellant himself we find that he has shownRs.87,000/- to be the value of only six items of clothing. There musthave been many other items of clothing in the house and when all theclothing has been insured under one heading, it will include clothing itemsof all types, both expensive and in-expensive. Admittedly, all items ofclothing were not stolen and, therefore, in this case the principle of under-insurance will have to apply and the National Commission was right indirecting that the payment be made after applying principle of under-insurance.

iv) Electrical/Mechanical appliances - The coverage under thishead was Rs.1,82,500/- and the claimant claimed only Rs.66,000/- andhe gave the details of the items. This claim has been rejected only onthe ground that he had not produced invoices of the same. The case ofthe appellant was that those items were gifted by his son. The itemssuch as CD changer, video camera, DVD player, Camera etc. could befound in any middle class household. It is not the case of the Insurance A

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ACompany that these items were not stolen. The claim should not havebeen rejected only on the ground that invoices were not produced. Theaffidavit of the appellant clearly indicates both the nature of the itemslost and the value thereof. This is supported by corroborative evidenceof the list of items given to the police. Once the insurance companyitself changed its policy from ‘as per list policies’ to ‘policies forBconsolidated amounts’, then an insured is not expected to give the item-wise details along with the valuation. We may also add that if theinsurance company desires that item-wise valuation should be given foritems over and above a certain value then it is the duty of the insurancecompany to advise the insured at the time of issuing the first policy ofCinsurance and at the time of each renewal. The insurance companymust at the time of accepting the premium advise the policy holderproperly. The insurance company cannot accept the premium withoutasking for any details and later deny its liability on the ground that suchdetails were not given. Therefore, we accept the claim of the claimantand he is entitled to Rs.66,000/- under this head.D

v) Miscellaneous items - On the same reasoning as given forelectrical/mechanical appliances we accept the claim of the appellantof Rs.20,000/- for loss of four watches and, therefore, he is entitled toRs.28,000/- under this head.

Evi) Repair of locks, doors, latches, safe etc. - The claimant hasalready been awarded Rs.7,000/- under this head.

13. In addition thereto, we are of the view that the claimant shouldbe awarded Rs.25,000/- towards compensation and litigations expensesetc. On the aforesaid amounts the appellant shall be entitled to an interestF@12% per annum w.e.f. 01.01.2009 till payment. The InsuranceCompany shall be entitled to adjust/deduct the amounts already paid/deposited by it.

14. The appeal is disposed of in the above terms. Pendingapplications, if any, shall also stand disposed of.

G15. The Registry is directed to send a certified copy of this judgmentto the appellant, who appeared in person.

Divya Pandey

Appeal disposed of.

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