Page 54 - Insurance Times December 2023

Insurance Caselaws

New India Assurance Co Ltd v. the sanctity of trust within its clauses. Effectively, the insurer
M/S Mudit Roadways assumes a fiduciary duty to act in good faith and honor their
commitment. This responsibility becomes particularly
In a fire insurance claim, the Supreme Court recently held pronounced when the insured, in their actions, have not
that the exact cause of the fire is immaterial if the insured been negligent. In light of the vital role that trust plays in
is not implicated as the one responsible for initiating the fire. insurance contracts, it is important to ensure that the
This principle, grounded in the Canara Bank v. United India insurer adequately fulfills the duty that has been cast on it,
Insurance Company (2020) 3 SCC 455 case reinforces the by virtue of such a covenant."
insurer's duty to honor the terms of the insurance policy and The Supreme Court bench comprising Justices Hrishikesh Roy
fulfill its obligations to the insured. and Justice Sanjay Karol was hearing an appeal against
The Court observed "Therefore, it was unequivocally NCDRC directing the Insurance Company to pay more than
declared that the precise cause of a fire, whether attributed 6 crores for a fire insurance claim with 9% interest from the
to a short circuit or any alternative factor, remains claim denial date within 8 weeks, or face 12% interest
immaterial, provided the claimant is not the instigator of beyond the stipulated 8 weeks.
the fire. This case underscored the fundamental principle The case revolved around a fire that broke out on
that an insurance company's obligation to the insured is of 14.03.2018, at a warehouse covered by an insurance policy
much greater import .Moreover, the fire is found to have with the claimant having paid Rs. 44,02,562/- for coverage
occurred within the insured warehouse and the appellant's against fire and safeguarding custom bonded goods. Various
plea to the contrary is not believable. Therefore, it is a case
investigations were conducted, and 7 of the reports suggest
of wrongful repudiation by the appellants."
short-circuiting as the cause of the fire. However, the
The judgment, steeped in the principles of good faith and forensic investigation report determined that a short-circuit
trust inherent in insurance contracts, underscored the was not the cause; rather, sparks from rooftop welding work
insurer's fiduciary duty, particularly when the insured is not may have triggered the fire. The surveyor's report from M/
found negligent. s. Bhansali & Co. also aligned with such a conclusion.
It stated very eloquently "In the realm of risk and On 03.10.2018, the insured raised a claim for a sum of Rs.
uncertainty, individuals and organizations seek solace in the 6,57,55,155/. But, the Insurance Company rejected the
bastion of insurance - a covenant forged on the bedrock of claim on 15.07.2019, citing reasons such as the insured
trust. The trust serves as the cornerstone, forming the premises at Survey No. 9/3 were not affected by the fire and
essence of the insurer-insured relationship. The fundamental the alleged negligence during roof construction, which
principle is that insurance is governed by the doctrine of increased the risk and voided the insurance coverage under
uberrima fides - there must be complete good faith on the Clause 3 of the policy's terms and conditions.
part of the insured. Unsatisfied with the repudiation of the claim, the
The heart & soul of an insurance contract lies in the respondent filed a consumer complaint. The NCDRC ruled
protection it accords to those who wish to be insured by it. in favor of the claimant and held that the insurance policy
This understanding encapsulates the foundational belief that covered the complainant's warehouse and that the roofing
insurance accords protection & indemnification, preserving work did not significantly increase the risk, making Clause

The Insurance Times December 2023 49