Holding

The insurer is liable to pay the claim amount and interest because the exclusionary clause was not part of the policy and the loss due to strike is covered under the RSD clause.

Summary

The United India Insurance Company appealed against an order of the National Consumer Disputes Redressal Commission directing it to pay Rs.5,04,453.23 to M.K.J. Corporation for leather spoiled during an employees' strike, together with interest. The insurer contended that a clause (b) of Section 2 of the Fire Policy C, recommended by the Tariff Advisory Committee under Section 64(U) of the Insurance Act, excluded loss caused by a strike and that it was therefore not liable. The Court held that the exclusionary clause was never incorporated into the policy and therefore could not be invoked to deny coverage. Consequently, the loss fell within the Riot, Strike and Malicious Damage (RSD) clause and the insurer was ordered to pay the claim amount. The Court also affirmed that, under the principle of utmost good faith, the insurer must pay interest at 12% per annum from 1 January 1991, and dismissed the appeals without costs.

Issues considered

Whether the exclusion clause recommended by the Tariff Advisory Committee forms part of the insurance contract when not expressly incorporated.
Whether loss caused by a strike is covered under the policy's Riot, Strike and Malicious Damage clause.
Whether the insurer is liable to pay interest on the claim and at what rate.
Application of the principle of utmost good faith to the insurer in this context.

Legislation cited

Insurance Act, 1958s. 64(U)

Subjects

insurancestrikeexclusion clausegood faithinterestconsumer disputepolicyTariff Advisory Committeeriotmalicious damage

Judgment

A THE UNITED INDIA INSURANCE CO. LTD.
v.
MIS M.K.J. CORPORATION

AUGUST 21, 1996

B [K. RAMASWAMY AND G.B. PATTANAIK, JJ.]

Insurance Act, 1958: Section 64(U).

Tariff Advis01y Committee Reconunendation-Clause (b) of Section
2-Fire Policy 'C' of Pmt-Il-Fire policies, Endorsements, Clauses and War-
c ranties-~ature and binding effect of recommendation.

Insurance Po/icy-Strike organised by workmen of the insured--
Damage to leather in process due to spoilage-Claim for damages-Ex-
clusion my clause not included in fllsurance Policy at the time of ente1ing into
D contract-Held the appel/ant-/11sure1; admittedly had w1de1taken liability for
the 1iot or sflike, damage due to 1iot or st1ike-As the appellant-Insurer had
not inco1porated the exclusionmy clause as pa1t of the policy unde1take11 with
'-
the insured is not bound by the exclusionary clause-The appellant-insurer is
liable to pay the insured amount for the ~poi/age of the leather caused due to
strike organised by the workmen.
E
Insurance-Claim for damages-I111erest--Claim made by in-
sured--Submission of rep01t by Swveyo1~17iereafter insurer should be al-
lowed two momhs time to take a decision whether claim requires to be settled
or rejected--Insurer liable lO pay interest after expiry of two months-In-
F surance Company held liable to pay illlerest @ 12%.

Insurance law-P1inciple of good faith-Held applicable to insured and
insurer equally-Duty of good faith is of a continuing nature-After comple-
tion of contract no mate1ial alteration can be made in its te11ns except by
mutual consent.
G
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 6075-76
of 1995 Etc.

From the Judgment and Order <lated 12.1.95 of the National Con-
sumer Disputes Redressal Commission, New Delhi in O.P. Nos. 62 & 102
H of 1993_
20
UNITEDINDIAINSURANCECO.LTD. v. M.KJ.CORPN. 21

S.M. Suri, Sanjay Chhabra and Pramod Dayal for the Appellant. A
S. Raghavan, k.B.S. Rajan and Smt. Pushpa Rajan for the Respon-
dent.

The following Order of the Court was delivered :
B
We have heard learned counsel on both sides.

Both the appeals are heard and disposed of together since claims
arising out of them arise out of the same cause of action.

These appeals arise from the orders dated January 12, 1995 of the C
National Consumer Redressal Commission (the "Commission", for short)
made in Original Petition No. ~2 and 102 of 1993. Admittedly, the respon-
dent was holding two policies. First policy covered the period from March
31, 1986 to March 31, 1987 and the second policy covered the period from
April 1, 1987 to March 31, 1988. During the said period, admittedly, due D
to the employees' strike the leather in process was damaged due to the
spoilage. The respondent laid claims for damages caused during the first
period for a sum of Rs. 4,99, 453.23 and for the second period for Rs. 5,000
amount to the total of Rs. 5,04,453.23 with interest from the date of the
claim. The Tribunal accepted the claim and directed payment of the said
amount with interest at 18% from one month after the date of the claim. E
The respondent's appeal Nos. 11443-44/95, though arise from the im-
pugned order, is for the claim of consequential loss in the sum of Rs.
14,00,000.

Shri Suri., the learned counsel for the appellant-Company contended
that insurance coverage is only for riots and strikes and malicious damages F
and spoilage "under spoilage item 8" clearly enumerates as under :

"Stocks or leather of all kinds in process during' soaking, liming,
fleshing tamning, wet blue, sammying, splitting, shaving, dye liquer-
ing setting, vacumming drying." G

The learned counsel relying upon these clauses, seeks to read clause
(b) of "Section 2 - Fire Policy 'C' of Part II - Fire Policies. Endorsements.
Clauses and Warranties" as recommended by Tariff Advisory Committee
constituted under Section 64(U) of the Insurance Act, 1958. Since these
recommendations are made by the Advisory Committee which is a H
22 SUPREME COURT REPORTS [1996) SUPP. 5 S.C.R.

A statutory authority binds the appellant-insurer they are integral part of the
policies referred to hereinbefore. Resultantly, by operation of Clause (b),
the insurance does not cover if loss or da~age results from total or partial
cessation of work or the retarding or interruption or cessation of any
process of operation or omissions of any kind. According to the learned
counsel, since the damages was caused due to the strike organised by the
B workmen of the insured, by operation of clause (b), the appellant-insurer
is not liable for the loss to the goods while the leather remains unattended
in its process during the period of strike. We are unable to agree with the
learned counsel. It is true that the Advisory Committee is a statutory body
which has gone in and recommended the policies for riot, strike and
c malicious damages. The clause would exclude the insurance company from
the coverage, if the loss or damage resulted from total or partial cessation
of work or the retarding or interruption or cessation of any process of
operation or omissions of any kind which would include strike by its
workers. This may be due to either the operational inconvenience due to
D non-supply of the electricity or strike by the employees or any cause but
the insured must be put on notice of this clause.

It is a fundamental principle of Insurance Law that utmost good faith
must be observed by the contracting parties. Good faith forbids either party
from concealing (non-disclosure) what he privately knows, to draw the
E other into a bargain, from his ignorance of that fact and his believing the
contrary. Just as the insured has a duty to disclose, "similarly, it is the duty
of the insurers and their agents to disclose all material facts within their
Knowledge, since obligation of good faith applies to them equally with the
assured.
F
The duty of good faith is of a continuing nature. After the completion
of the contract, no material alteration can be made in its terms except by
mutual consent. The materiality of a fact is judge by the circumstances
existing al the time when the contract is concluded. In the present case,
the introduction of the Tariff Advisory Committee document materially
G affects the terms of the policy, resulting in the denial of the very indemnity
of claim. And this was what the appellant sought to do, at the stage of
clearing of the complaint. The Commission rightly rejected the appellant's
plea. Notwithstanding this, on behalf of the appellant, it was insisted that
the instructions of the Tariff Advisory Committee form part of the contract.
H Admittedly, the appellant-Insurer had not incorporated the above quoted
UNITED INDIA INSURANCE CO. LTD. v. M.IU. CORPN. 23

' clause as part of the policy undertaken with the insured. Consequently, the A
insured is not bound by this exclusionary clause of liability since the
appellant-insurer, admittedly, had undertaken liability for the riot or strike,
-~
damage due to riot or strike.
:.
Since the surveyor had submitted a report after due verification that
the damages to the leather was ca used due to the strike organised by the
B
workmen, in our considered view, the in~uance is overed by the RSD and
MD clause. Accordingly, the appellant-insurer is liable to pay the insured
amount for spoilage of the leather caused due to strike organised by the
workmen.
c
It is then contended that the appellant is not liable to pay interest
from the time of the loss which occurred only from the date of the claim
rejected by the appellant-lnsurer. It is difficult to accept the contention in
toto. It is exiomatic that the insured requires to lay specific claim for
damages giving .details of the damages caused lo the leather due to the D
) strike organised by the workmen. On prefering claim thereof, admittedly,
the surveyor, which is an independent agency, should inspect the factory
and submit a report. From the record, it would be clear that the claim was
made for the first time on November 13, 1989. Thereafter, all the par-
ticulars were furnished by the insured-respondent in August 1990. Thereon,
the surveyor inspected and submitted his report on October 30, 1990. E
Thereafter, the Insurance company is required to take a decision. Admit-
tedly, 5 months have elapsed for taking decision to reject the claims. We
~
think that a reasonable time of two months would be justified for them to
take decision whether claim requires to be settled or rejected in accord-
ance with the policy. Therefore, two months would be computed from F
October 30, 1990. Accordingly, we give the benefit of the time taken to
decide the claim upto December 31, 199.0. The appellant-Insurer is liable
to pay interest from January 1, 1991 till date of payment.
.
~

4
... The next question is : what rate of interest the insured- respondent
"'"' is entitled to get? In common parlance, when the insured-respondent is G
deprived of right\ to enjoy his money or invest the money in business,
necessarily·the loss has to be compensated by way of payment of interest
by the insurance company. We are informed that as per the directions of
the Government of India the appellant-insurance company has no option
but to invest the money in the securities specified by the Government of H
24 SUPREME COURT REPORTS (1996) SUPP. 5 S.C.R.

A India under which the insurance company is securing interest on invest-
ment at the rate of 11.3% per annum. Under these circumstances, the '
appellant-insurance company is liable to pay interest at 12% per annum
from January 1, 1991 till date of payment. It is then contended that as per
the policy, the respondent is entitled to consequential loss as per the
independent policy. The Commission no doubt did not give any inde-
B pendent reason for the same but all the claims were heard and disposed
of together. Under these circumstances, we are of the view that the claims
must be deemed to have been rejected.

The appeals are accordingly disposed of but, in the circumstances,
C without costs.
T.N.A. Appeal disposed of.

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