SHREE AMBICA MEDICAL STORES & ORS. versus THE SURAT PEOPLE’S CO-OPERATIVE BANK LIMITED & ORS. on 28 January 2020

[2020] 3 S.C.R. 359

SHREE AMBICA MEDICAL STORES & ORS.

v.

THE SURAT PEOPLE’S CO-OPERATIVE BANK LIMITED &ORS.

(Civil Appeal No. 562 of 2020)

JANUARY 28, 2020

[DR. DHANANJAYAY Y CHANDRACHUD ANDAJAY RASTOGI, JJ.]

Insurance Act, 1938 – s.64(VB) – Appellants hypothecatedgoods with first respondent-bank under an agreement for cash creditfacility – Appellants were obligated to insure the goods hypothecatedto the Bank – Bank, as a routine practice, obtained policies for allits borrowers and upon receipt of intimation, would remit the premiumpayable on behalf of the borrowers – Bank obtained first insurancepolicy for 1998-99 in sum of Rs.60 lakhs, from insurer-thirdrespondent, which covered specific location (“12/1123-1124,Basement, Meghdoot Apartment, Surat”) of the borrower wheregoods were stored – From 2001, the insurance policy was renamedas ‘Standard Fire and Special Perils Policy’ – Perils insured includedthose by storm, tornado, flood & inundation, together referred as‘STFI Perils’ – Value of insurance was also enhanced by Rs.25 lakhs– For 2002-03, the insurer issued policy in sum insured of Rs.25lakhs in terms of the aforesaid location however, separate insurancecover of Rs.60 lakhs was issued in respect of goods stored at anotherlocation – Similar was the case for 2003-04, 2004-05 – However,for 2005-06, location in the insurance cover of Rs.60 lakhs waschanged back to the premises at Meghdoot Apartment, Surat – Sameposition continued for 2006-07 – In Aug.2005, the bank while fillingup proposal form handed a cheque to the insurer for a cover alsoextending to STFI perils – Premium of Rs.992 covering STFI perilswas refunded by insurer to the bank – In 2006, appellants claimedloss of Rs.78,66,857/- due to floods – Insurer paid claim of Rs.23lakhs under the policy cover of Rs.25 lakhs but repudiated entireclaim under the policy cover of Rs.60 lakhs – State Commissionallowed the complaint only against the bank and its manager –Reversed by National Commission – Held: Address mentioned in thepolicy for 2004-05 differs from that of 2005-06 – Insurer proceeded

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Aon the basis that this was a ‘fresh contract of insurance’– Proposaldoes not conclude the contract – Terms of the policy will govern thecontract between parties – Insurance policy for 01.08.05 to 31.07.06was issued with exclusion of STFI perils– Sub-sec.(3) of s.64(VB)provides for refund of premium amount to the insured in case ofcancellation or alteration of the terms & conditions of the policy –BInsurer while issuing the new policy specifically excluded STFI perilsand refunded the premium of Rs.992 to the bank which deposited itin appellants’ account – Insured at the time when the loss occurredwas covered by a policy that excluded STFI perils – Thus, insurercannot be held liable – Appellants had knowledge of this exclusionCas they were provided a copy of the policy and received refund ofthe premium– No merit in appeal.Insurance – Contract of Insurance – Interpretation of – Held:Court while interpreting the contract of insurance must interpretthe words of the contract by giving effect to the meaning and intentDwhich emerges from the terms of the agreement – Court through itsinterpretative process cannot rewrite or create a new contractbetween the parties – Court has to simply apply the terms andconditions of the agreement as agreed between the parties.

Dismissing the appeal, the CourtE

Conclusion

Dismissing the appeal, the CourtE

HELD: 1.1 This Court, while interpreting the contract ofinsurance must interpret the words of the contract by giving effectto the meaning and intent which emerges from the terms of theagreement. The court through its interpretative process cannotrewrite or create a new contract between the parties. The courtFhas to simply apply the terms and conditions of the agreement asagreed between the parties. In the present case, the policy ofinsurance with a cover of Rs 60 lakhs for the period 2004-05 wasissued for the location at B 205, Plot No 17-B, Village Karnaj.The insurance policy for 2005-06 was sought for differentpremises situated at 12/1123-1124, Basement, MeghdootGApartment, Surat. The address mentioned in the policy for 2004-05 differs from that of 2005-06. The insurer proceeded on thebasis that this was a ‘fresh contract of insurance’. The insurancepolicy for 1 August 2005 to 31 July 2006 was issued with theexclusion of STFI perils. This is clear from the use of words“Warranted that STFI risk is excluded from the risk” in the aboveH

insurance policy. The terms of the policy will govern the contractbetween the parties. The STFI risks were specifically excludedfrom the coverage of the policy. The extra premium of Rs 992was refunded by the insurer to bank and the bank deposited theamount in the appellants’ account. [Paras 20, 21][369-D, F-H;370-A-B]

1.2. Section 64(VB), Insurance Act, 1938 states that norisk can be assumed by the insurer unless the premium payableis received in advance. Sub-Section (3) of Section 64 (VB) providesfor refund of the premium amount to the insured in case ofcancellation or alteration of the terms and conditions of the policy.In the present case, the premium of Rs 992 to cover STFI perilswas refunded by the insurer to the bank and the amount wasdeposited in the insured’s account. The proposal does notconclude the contract. A contract postulates an agreementbetween the parties. In the present case, the insurer while issuingthe new policy at a fresh location specifically excluded STFI perilsand refunded the premium. The insured at the time when theloss occurred was covered by a policy that excluded STFI perils.Therefore, the insurer cannot be held to be liable. To hold to thecontrary would be rewriting the agreement between the partiesand creating a fresh contract to which the parties had not agreed.The appellants in their rejoinder did not specifically deny theaverment that they were furnished with a copy of the policy. Theappellants have also not denied the fact that the premium onaccount of STFI perils which was refunded by the insurer wascredited to their account. This being the position, it is not opento the appellants to disavow knowledge of the exclusion of theSTFI perils in the insurance cover of Rs 60 lakhs which was issuedfor 2005-06 and renewed for 2006-07. [Paras 23, 24][371-B-D,G-H]

1.3. The terms and conditions of the new policy specificallyexcluded STFI perils and evidently there was a change in theobligations of the insurer. There was no renewal but the issuanceof a new policy. The change in the location of the premises in thepresent case led to the issuance of a new policy. It was open tothe insurer to specifically exclude STFI perils as a commercialdecision. The appellants had knowledge of the exclusion of the A

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ASTFI perils as they were provided with a copy of the policy andalso received the refund of the premium. Having lodged noprotest with the insurer during 2005-06 or in the renewed termof 2006-07, the insured cannot lay a claim that they had noknowledge that the STFI cover was excluded from the insurancecover. Nothing prevented the appellants from either approachingBthe insurer or any other insurance company for obtaining a policythat covered STFI perils. [Para 26][373-B-D]

Biman Krishna Bose v. United India Insurance Co Ltd.(2001) 6 SCC 477 : [2001] 1 Suppl. SCR 255 –distinguished.C

General Assurance Society Ltd. v. Chandumull Jain,AIR 1966 SC 1644 : [1966] SCR 500 – followed.

Case Law Reference

From the Judgment and Order dated 31.07.2015 of the NationalEConsumer Disputes Redressal Commission, New Delhi in First AppealNo. 364 of 2014.Mehul Sharad Shah, Aniruddha P. Mayee, A. Rajarajan, Advs.for the Appellants.

Sukumar Pattjoshi, Sr. Adv., Sandeep Mahapatra, AbhishekFPraharay, J.K. Bodha, Ms. Mrinmayee Sahu, K.K. Bhat, Ranjan KumarPandey, Advs. for the Respondents.

The Judgment of the Court was delivered by DR. DHANANJAYA Y CHANDRACHUD, J.

G1. The National Consumer Disputes Redressal Commission[1]allowed an appeal instituted by the first respondent and set aside thedecision of the State Consumer Disputes Redressal Commission ofGujarat[2]. The State Commission found substance in the consumer 1 “National Commission”H2 “State Commission”

complaint of the appellants and decreed their claim for compensation inthe amount of Rs 53,66,877 with interest at 9 percent per annum. Inaddition, the State Commission awarded Rs 25,000 towards mental agonyand Rs 5,000 towards litigation costs. The claim of the appellants aroseunder an insurance cover pertaining to goods hypothecated by theappellants with the first respondent under a cash credit facility. Theinsurer, New India Assurance Company Limited, repudiated the claimof the appellants. As a consequence of the order of the NationalCommission which is challenged in the present appeal, the claim of theappellants stands rejected.

2. On 31 May 1998, the appellants and the first respondent enteredinto an agreement for a cash credit facility. In terms of clause 15 of theagreement, the appellants were under an obligation to insure the goodswhich were hypothecated to the bank. Clause 15 also contained astipulation that in the event that the appellants failed to insure the goods,it was open to the bank to secure a cover of insurance for the goods andto recover the expenses incurred along with the premium from theappellants. The clause is extracted below:

“(15) We have to insure the goods given in hypothecation to theBank against fire etc. at our own costs in favour of the Bank andif we fail to take insurance then the Bank can take the insuranceand can recover all the expenses incurred and also the premiumamount borne by them from us as the Bank has Right as per thisDocument.”

3. The first respondent bank has stated that it was acting as acorporate agent of the insurer and, as a matter of routine practice, obtainedpolicies for all its borrowers. As a practice, the first respondent uponreceipt of an intimation, would remit the premium payable on behalf ofthe borrowers. The same course of action was followed by the firstrespondent under the lending facility granted to the appellants. The firstrespondent obtained the first insurance policy for the period 1998-99 inthe sum of Rs 60 lakhs from the insurer, who is the third respondent tothe appeal. The insurance policy covered a specific location of theborrower where the goods were stored, namely:

“12/1123-1124, Basement, Meghdoot Apartment, Surat”

4. The policies of insurance for the succeeding years 1999-2000,2000-2001 and 2001-02 covered the goods of the borrower stored at the AB

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Aabove premises. From 2001, the insurance policy was renamed as a‘Standard Fire and Special Perils Policy’. The perils insured includedthose occasioned by storm, tornado, flood and inundation. These togetherare referred to as “STFI Perils”. In 2001-02 the value of the insurancecover was enhanced by an amount of Rs 25 lakhs so as to increase thetotal sum insured to Rs 85 lakhs. For 2002-03, the insurer issued a policyBcovering a sum insured of Rs 25 lakhs in terms of the same location atMeghdoot Apartment, Surat noted above. However, a separate insurancecover in the amount of Rs 60 lakhs was issued in respect of the goodsstored at following location:

“B-205, Plot No 17-B, Village Karnaj”C

5. Similarly, for 2003-04 and 2004-05 there were two insurancecovers; one in the amount of Rs 25 lakhs in respect of the location atMeghdoot Apartment, Surat and the second in the amount of Rs 60lakhs covering the location at B-205, Plot 17-B, Village Karnaj. For 2005-06 and 2006-07, the position of the insurance cover is reflected in anDextract from a tabulated chart filed by the insurer:

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6. For 2005-06, the location contained in the policy with a suminsured of Rs 60 lakhs was changed from B-295, Plot 17-B, VillageKarnaj to 12/1123-1124, Basement, Meghdoot Apartment, Surat. Thus,both the policies for 2005-06 covered the same location. For 2006-07,the same position continued for both the insurance covers.G

7. On 3 August 2005, the first respondent while filling up theproposal form handed over a cheque of Rs 29,038 to the insurer for acover which would also extend to STFI perils. On 26 September 2005,the premium of Rs 992 covering STFI perils was refunded by the insurerto the bank by a cheque which was deposited by the bank in the appellants’

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account. Hence for 2005-06, the policy cover of Rs 60 lakhs extendedto fire and allied perils but specifically excluded STFI perils.

8. On 7 August 2006, the city of Surat was hit by floods. Theappellants claim that as a result of the floods the goods which werestored in their premises were destroyed. The appellants made a claim tothe insurer for an alleged loss of Rs 78,66,857. A surveyor was appointedby the insurer to inspect the extent of damage. The insurer acceptedand paid the claim of Rs 23 lakhs under the policy cover of Rs 25 lakhsbut repudiated the entire claim under the policy cover of Rs 60 lakhs.There was an exchange of correspondence between the bank and theinsurer. The bank, by its letter dated 11 November 2006, submitted thatit was surprised as to how the policy cover of Rs 60 lakhs had containedan exclusion of STFI perils despite the fact that both the policies hadbeen renewed under a common proposal form and through a singlecheque. An affidavit dated 6 September 2007 of the Manager of thebank was filed stating that the bank was a corporate agent and wasworking on behalf of the insurer. The insurer repudiated the claim of theappellants on 24 June 2008.

9. A consumer complaint was instituted by the appellants on 26July 2008 before the State Commission, Gujarat alleging that the insurerhad committed an unfair trade practice by repudiating the claim underthe insurance cover of Rs 60 lakhs.

10. In its written statement before the State Commission, the bankstated that according to the terms of the agreement governing the grantof credit facilities, the primary duty of obtaining a cover of insurance forthe hypothecated goods was that of the appellants as borrowers. For2005-06, the bank had renewed the policies of Rs 60 lakhs and Rs 25lakhs. However, the insurer had excluded STFI perils while issuing apolicy cover of Rs 60 lakhs. According to the bank, a copy of the policywas given to the appellants from which the exclusion of STFI perilswould have been evident. Moreover, a part of the premium which wasreturned by the insurer was deposited by the bank in appellant’s account,which should have been in the knowledge of the appellants. The banktherefore denied that it was guilty of any deficiency of service. Thebank, however, stated that it had not been served with any notice by theinsurer explaining why the STFI perils were excluded from the policy ofRs 60 lakhs. The bank denied that its officers or staff had mistakenly AB

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Aindicated the location of the place of business in the proposal formassociated with the policy cover where STFI perils had been excluded.

11. The defence of the insurer was that for the period between 1August 2005 and 31 July 2006 the policy cover of Rs 60 lakhs specificallyexcluded STFI perils from the coverage. The insurer stated that uponBreceiving the claim, it had appointed a surveyor and the claim on accountof damage due to flooding had been accepted in respect of the policycover of Rs 25 lakhs. However, the policy cover of Rs 60 lakhs specificallyexcluded the STFI perils and the insurer had refunded the premium ofRs 992 paid for an STFI cover by a cheque dated 26 September 2005which had been accepted and deposited by the bank in the appellant’sCaccount without any protest. The insurer denied its liability on the groundthat the policy cover of Rs 60 lakhs excluded STFI perils.

12. The State Commission, by its order dated 14 February 2019,allowed the complaint only against the bank and its manager, who weredirected to pay an amount of Rs 55,66,877 together with interest of 9Dpercent per annum and damages on account of mental agony of Rs25,000. The State Commission held that the insurer could not be heldliable since STFI perils had been excluded from the policy cover ofRs 60 lakhs and the excess premium of Rs 992 had been refunded to thebank on 26 September 2005. The bank was however, held liable on theEground that it had deposited the cheque of Rs 992 for return of thepremium amount without making enquiries from the insurer. The StateCommission further held that the bank had made an error in filling up theproposal form sent to the insurer and as a consequence the bank wasliable to compensate the appellant.

F13. The National Commission reversed the judgment of the StateCommission. It observed that the bank had sought an insurance cover tothe extent of Rs 85 lakhs which covered STFI perils and had also depositeda cheque of Rs 29,038 towards the premium of the policy. The NationalCommission observed that though it had been argued by the bank aswell as the complainant that the insurer could not have excluded theGSTFI cover while renewing the policy, no rule or regulation mandatingthe insurer to accept the entire proposal had been brought to its notice.Before the National Commission, reliance was sought to be placed onthe general rules and regulations framed by the Tariff Advisory Committeewhich came into force on 31 March 2001. The regulations, in so far as isHmaterial, provided that it is permissible to exclude STFI perils at the inception of the policy. The National Commission noted that evenaccording to these regulations, deletion of STFI perils from a policy waspermissible when a new policy was issued. The National Commissionheld that since a new address of the location was contained in the proposalform submitted for 2004-05, a fresh policy was issued, and the insurancecompany was entitled to exclude the STFI cover. The NationalCommission also noted that the policy of Rs 25 lakhs which at the timeof renewal contained the same location, the STFI perils had specificallynot been excluded.

14. The National Commission noted that there was no protesteither from the bank or the borrower to the exclusion of STFI perils bythe insurer. It noted that no loss was sustained in the first year of theexclusion of STFI perils and it was only in the subsequent year that theloss was sustained. Consequently, the National Commission held thathaving accepted the policy without the STFI cover, both the bank andthe borrower were estopped from questioning the terms of the policy.The National Commission held that the bank had specifically stated in itsreply before the State Commission that a copy of the insurance policywas given to the borrowers and that the premium amount which wasreturned back by the insurance company had been credited to theiraccount. It noted that the receipt of the insurance policy had not beenspecifically denied in the rejoinder filed by the complainants before theState Commission though there was a vague denial of the averments inthe corresponding paragraph of the reply. In this background, the NationalCommission observed that the appellants did not take up the issue of theexclusion of the STFI perils with the insurer nor did they call upon thebank to do so. It was noted that though the appellants received thepremium amount in their account, they did not seek any explanation inregard to the refund of the premium. In this view of the matter, theNational Commission allowed the appeal filed by the bank and set asidethe State Commission’s order.

15. Mr Mehul Shah, learned counsel appearing on behalf of theappellants submitted that clauses 3(2) and 4(1) of the notification issuedby the Insurance Regulatory and Development Authority on 16 October2002 provides as follows:

“3(2) An insurer or its agents or other intermediatory shall provideall material information in respect of a proposed cover to the AB

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[2020] 3 S.C.R.

Aprospect to enable the prospect to decide on the best cover thatwould be in his or her interest.”

“4(1) Except in cases of a marine Insurance cover, where currentmarket practices do not insist on a written proposal form in allcases, a proposal for grant of a cover, either for life business orBfor general business, must be evident by a written document. It isthe duty of an insure to furnish to the insured free of charge,within 30 days of the acceptance of a proposal, a copy of theproposal form.”

16. Learned counsel submitted that the insurer did not intimateCthe exclusion of STFI perils at the time of the renewal of the policyeither in 2005-06 or 2006-07. Moreover, the proposal form was notremitted either to the bank or to the appellants within a period of 30days, or at any time. It was urged on behalf of the appellants that thepolicy issued in 2005-06 was in the nature of a renewal and though theproposal form indicated that the risk would commence on 3 August 2005Dand not on 2 August 2006, the policy of Rs 60 lakhs was issued on 1August 2005. The grievance of the appellants is that the proposal formfor 2005-06 had been signed by the Manager of the bank and theappellants were not aware of the proposal by the bank which was actingas the corporate agent of the insurer. It was urged that the cheque of RsE29,038 dated 1 August 2005 was duly encashed by the insurer and it wasonly on 26 September 2005 that an amount of Rs 992 was returned tothe bank without a written intimation about the exclusion of STFI perilsby the insurer. Learned counsel submitted that the policies for 2005-06and 2006-07 were not new policies but renewals and hence the insurercould not have excluded the STFI perils. In this context, reliance wasFplaced on the judgment of this Court in Biman Krishna Bose v UnitedIndia Insurance Co Ltd[3].

17. On the other hand, Mr Sukumar Pattjoshi, learned SeniorCounsel appearing on behalf of the first respondent bank submitted thatthere was no deficiency of service on the part of the bank. It was arguedGthat under the terms of the hypothecation agreement, the duty of obtainingan insurance cover was primarily that of the appellants as borrowers.Supporting the findings of the National Commission, it was urged thatthe bank had specifically denied having entered an incorrect address or H3 (2001) 6 SCC 477

a different address in the proposal form. Mr Pattjoshi urged that thebank had specifically stated that a copy of the policy had been furnishedto the insured. The appellants could not, hence, disavow knowledge ofthe fact that STFI perils stood excluded from the insurance cover.

18. Mr K K Bhat, learned counsel appearing on behalf of thethird respondent urged that the insurance cover of Rs 60 lakhs did notcover STFI perils. Though the bank had remitted the entire premium,the insurer had returned a part of the premium covering STFI perils.The cheque returning the premium amount of Rs 992 was deposited bythe bank in the account of the appellants. Mr Bhat submitted that it wasa commercial decision of the insurer to exclude STFI perils from theinsurance cover of Rs 60 lakhs and therefore, the insurer could not bemade liable. It was urged that since the appellants received the policyfrom the bank, it was not open to them to disclaim knowledge of theexclusion or of the deposit of the premium into their account.

19. The rival submissions fall for consideration.

20. This Court, while interpreting the contract of insurance mustinterpret the words of the contract by giving effect to the meaning andintent which emerges from the terms of the agreement. In a ConstitutionBench decision of this Court in General Assurance SocietyLtd v Chandumull Jain[4], it was observed thus:

“11. ...In interpreting documents relating to a contract of insurance,the duty of the court is to interpret the words in which the contractis expressed by the parties, because it is not for the court to makea new contract, however reasonable, if the parties have not madeit themselves...”

The court through its interpretative process cannot rewrite orcreate a new contract between the parties. The court has to simplyapply the terms and conditions of the agreement as agreed between theparties.

21. In the present case, the policy of insurance with a cover of Rs60 lakhs for the period 2004-05 was issued for the location at B 205, PlotNo 17-B, Village Karnaj. The insurance policy for 2005-06 was soughtfor different premises situated at 12/1123-1124, Basement, MeghdootApartment, Surat. The address mentioned in the policy for 2004-05 differs A

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Afrom that of 2005-06. The insurer proceeded on the basis that this was a‘fresh contract of insurance’. The insurance policy for 1 August 2005 to31 July 2006 was issued with the exclusion of STFI perils. This is clearfrom the use of words “Warranted that STFI risk is excluded from therisk” in the above insurance policy. The terms of the policy will governthe contract between the parties. The STFI risks were specificallyBexcluded from the coverage of the policy. The extra premium of Rs 992was refunded by the insurer to bank and the bank deposited the amountin the appellants’ account.

22. Section 64(VB) of the Insurance Act 1938 provides as follows:

C“64VB. No risk to be assumed unless premium is received inadvance.—(1) No insurer shall assume any risk in India in respectof any insurance business on which premium is not ordinarilypayable outside India unless and until the premium payable isreceived by him or is guaranteed to be paid by such person insuch manner and within such time as may be prescribed or unlessDand until deposit of such amount as may be prescribed, is made inadvance in the prescribed manner.

(2) For the purposes of this section, in the case of risks for whichpremium can be ascertained in advance, the risk may be assumednot earlier than the date on which the premium has been paid inEcash or by cheque to the insurer.

—Explanation. Where the premium is tendered by postal moneyorder or cheque sent by post, the risk may be assumed on thedate on which the money order is booked or the cheque is posted,as the case may be.

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(3) Any refund of premium which may become due to an insuredon account of the cancellation of a policy or alteration in its termsand conditions or otherwise shall be paid by the insurer directly tothe insured by a crossed or order cheque or by postal moneyorder and a proper receipt shall be obtained by the insurer fromGthe insured, and such refund shall in no case be credited to theaccount of the agent.

(4) Where an insurance agent collects a premium on a policy ofinsurance on behalf of an insurer, he shall deposit with, or dispatchby post to, the insurer, the premium so collected in full without H

deduction of his commission within twenty-four hours of thecollection excluding bank and postal holidays.

(5) The Central Government may, by rules, relax the requirementsof sub-section (1) in respect of particular categories in insurancepolicies.

(6) The Authority may, from time to time, specify, by the regulationsmade by it, the manner of receipt of premium by the insurer.”

23. The above provision states that no risk can be assumed by theinsurer unless the premium payable is received in advance. Sub-Section(3) of Section 64 (VB) provides for refund of the premium amount tothe insured in case of cancellation or alteration of the terms and conditionsof the policy. In the present case, the premium of Rs 992 to cover STFIperils was refunded by the insurer to the bank and the amount wasdeposited in the insured’s account. The proposal does not conclude thecontract. A contract postulates an agreement between the parties. Inthe present case, the insurer while issuing the new policy at a freshlocation specifically excluded STFI perils and refunded the premium.The insured at the time when the loss occurred was covered by a policythat excluded STFI perils. Therefore, the insurer cannot be held to beliable. To hold to the contrary would be rewriting the agreement betweenthe parties and creating a fresh contract to which the parties had notagreed.

24. The bank in its written statement filed before the StateCommission, specifically averred in paragraph 2 that:

“..The real fact is that one copy of the Policy is given to theComplainant and from this the Complainant can know the fact.One copy of the said Policy was given to them. Moreover, thePremium Amount which was returned back was debited in theirAccount. They could have inquired from this that what this PremiumAmount was returned by the Insurance Company.”

The appellants in their rejoinder did not specifically deny theaverment that they were furnished with a copy of the policy. The appellantshave also not denied the fact that the premium on account of STFI perilswhich was refunded by the insurer was credited to their account. Thisbeing the position, it is not open to the appellants to disavow knowledgeof the exclusion of the STFI perils in the insurance cover of Rs 60 lakhswhich was issued for 2005-06 and renewed for 2006-07.

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A25. The appellants have placed reliance on the decision of thisCourt in Biman Krishna Bose v United India Insurance Co Ltd[5],where this court while dealing with a mediclaim policy, observed:

“5. A renewal of an insurance policy means repetition of theoriginal policy. When renewed, the policy is extended andBthe renewed policy in the identical terms from a differentdate of its expiration comes into force. In common parlance,by renewal, the old policy is revived and it is sort of asubstitution of obligations under the old policy unless suchpolicy provides otherwise. It may be that on renewal, a newcontract comes into being, but the said contract is on theCsame terms and conditions as that of the original policy.Where an insurance company which has exclusive privilege tocarry on insurance business has refused to renew the mediclaimpolicy of an insured on extraneous and irrelevant consideration,any disease which an insured had contacted during the periodDwhen the policy was not renewed, such decease cannot be coveredunder a fresh insurance policy in view of the exclusion clause.The exclusion clause provides that the pre-existing diseases wouldnot be covered under the fresh insurance policy. If we take theview that the mediclaim policy cannot be renewed withretrospective effect, it would give handle to the insurance company E

to refuse the renewal of the policy on extraneous considerationthereby deprive the claim of insured for treatment of diseaseswhich have appeared during the relevant time and further deprivethe insured for all time to come to cover those diseases under aninsurance policy by virtue of the exclusion clause. This being theFdisastrous effect of wrongful refusal of renewal of the insurancepolicy, the mischief and harm done to the insured must beremedied. We are, therefore, of the view that once it is found thatthe act of an insurance company was arbitrary in refusing to renewthe policy, the policy is required to be renewed with effect fromthe date when it fell due for its renewal.”

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26. The above case, as the extract indicates, dealt with a situationwhere the act of the insurer in refusing to renew the mediclaim policy was held to be arbitrary. This Court noted the serious consequence flowingout of the arbitrary refusal to renew the contract since it would result inthe exclusion of the cover and the rejection of the claim in respect of adisease which the insured had contracted during the period when thepolicy was not renewed. The situation in the present case is clearlydistinguishable. The terms and conditions of the new policy specificallyexcluded STFI perils and evidently there was a change in the obligationsof 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 theissuance of a new policy. It was open to the insurer to specifically excludeSTFI perils as a commercial decision. The appellants had knowledge ofthe exclusion of the STFI perils as they were provided with a copy ofthe policy and also received the refund of the premium. Having lodgedno protest with the insurer during 2005-06 or in the renewed term of2006-07, the insured cannot lay a claim that they had no knowledge thatthe STFI cover was excluded from the insurance cover. Nothingprevented the appellants from either approaching the insurer or any otherinsurance company for obtaining a policy that covered STFI perils.

27. For the above reasons, we are of the view that there is nomerit in the present appeal. The appeal shall, accordingly, stand dismissedbut with no order as to costs.

Divya Pandey

Appeal dismissed.

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