SC: Leaving column blank in proposal form is not misdeclaration of facts

The Hon’ble Supreme Court, on 6th February 2020, in the matter of Canara Bank v. M/s United India Insurance Co. Ltd. & Ors. observed that if the insurance company while accepting the proposal form does not ask the insured to clarify any ambiguities then the insurance company after accepting the premium cannot urge that there was a wrong declaration made by the insured. Leaving out the column blank does not mean that there was some misdeclaration of facts.

The Hon’ble Supreme Court observed that:

There can be no proper investigation of a fire if the investigating agency does not even try to find out what is the nature of construction of the building which has been destroyed in the fire. (Para 14)

Thermocol is basically a rigid plastic foam material which is derived from petroleum and natural gas by­products. Bitumen is a semi­solid hydrocarbon product produced from crude oil. Both thermocol and bitumen are derivatives of petroleum products and hence are hydrocarbons by their very nature. . (Para 14)

Whether the fire took place by a short circuit or any other reason, as long as insured is not the person who caused the fire, the insurance company cannot escape its liability in terms of the insurance policy. (Para 16)

The provisions of insurance policy must be read and interpreted in such a manner so as to give effect to the reasonable expectations of all the parties including the insured and the beneficiaries. (Para 21)

Coverage provisions should be interpreted broadly and if there is any ambiguity, the same should be resolved in favour of the insured. On the other hand, the exclusion clauses must be read narrowly. The policy and its components must be read as a whole and given a meaning which furthers the expectations of the parties and also the business realities. (Para 21)

The definition of consumer under the Act is very wide and it not only includes the person who hires or avails of the services for consideration but also includes the beneficiary of such services who may be a person other than the person who hires or avails of services. (Para 25)

As far as the Consumer Protection Act, 1986 is concerned, it is not necessary that there should be privity of contract between the insurance company and the claimants. (Para 26)

The definition of consumer under Section 2(d) of Consumer Protection Act, 1986, is in 2 parts. Sub­clause (i) of Section 2(1)(d) deals with a person who buys any goods and includes any user of such goods other than the person who buys such goods as long as the use is made with the approval of such person. Therefore, the definition of consumer even in the 1st part not only includes the person who has purchased but includes any user of the goods so long as such user is made with the approval of the person who has purchased the goods. As far as the definition of the consumer in relation to hiring or availing of services is concerned, the definition, deals with a person who buys any goods and includes any user of such goods other than the person who buys such goods as long as the use is made with the approval of such person. Therefore, the definition of consumer even in the 1st part not only includes the person who has purchased but includes any user of the goods so long as such user is made with the approval of the person who has purchased the goods. As far as the definition of the consumer in relation to hiring or availing of services is concerned, the definition, in our view, is much wider. In this part of the section, consumer includes not only the person who has hired or availed of the services but also includes any beneficiary of such services. (Para 26)

An insured could be a person who hires or avails of the services of the insurance company but there could be many other persons who could be the beneficiaries of the services. It is not necessary that those beneficiaries should be parties to the contract of insurance. They are the consumers not because they are parties to the contract of insurance but because they are the beneficiaries of the policy taken out by the insured. (Para 26)

The definition of consumer under the Act is very wide and it includes beneficiaries who can take benefit of the insurance availed by the insured. (Para 27)

The Consumer Protection Act clearly provides that a beneficiary of the services, other than the insured is a consumer under the Act. (Para 30)

A prudent insurance company before issuing a policy of such a heavy amount, must or at least should have ascertained the value and the nature of the goods. (Para 37)

Where the insurance company is one of the largest nationalised insurance companies, a presumption has to be drawn that it must have verified the details before insurance policy was issued. In case, the insurance company has chosen not to verify the stock it cannot take advantage of its own negligence. If the insurance company chooses not to even write a letter to the insured or take any steps to verify the value of the goods and ownership of the goods, it cannot turn around and urge that it was not aware about the nature or ownership of the goods. (This inference has been drawn on the basis of Para 37)

Byadgi Chilli is the major component of the goods that were stored in the cold store. It is a very famous variety of chilli and is produced in two types – dabbi and kaddi. One of the main uses of this chilli is not only as an item of food but as an item to extract red colour pigment which is used in the manufacture of lipsticks, nail polishes, and other cosmetics etc. The material extracted is called oleoresin, which is a red oil extracted from the pods. Many cold stores have been constructed in the area where this chilli is grown because if these chillies are stored at a low temperature of 4 to 6 degree Celsius, the colour and purity is maintained and it also increases the amount of oleoresin which can be extracted from chilli by about 30% to 40%.  (Para 39)

If the insurance company while accepting the proposal form does not ask the insured to clarify any ambiguities then the insurance company after accepting the premium cannot urge that there was a wrong declaration made by the insured. Leaving out the column blank does not mean that there was some misdeclaration of facts.  (Para 42)

When the Bank issues loans against the hypothecation of goods, and insists that the goods should be insured to safeguard its outstandings then a duty lies upon the Bank to inform the insurance company of the policy. (Para 48)

Copy of judgement: Judgement_06-Feb-2020

-Adv. Tushar Kaushik

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