SC: Insurer & Insured bound by “sum insured” if agreement’s sanctity intact

Today, i.e. on 30thJanuary 2019, in the matter of Sumit Kumar Saha v. Reliance General Insurance Co. Ltd., the Hon’ble Supreme Court pronounced that the parties to an insurance contract are bound by stipulation of a particular figure as “sum insured” unless the agreement on part of the Insurance Company is brought about by fraud, coercion or misrepresentation or cases where principle of uberrima fides is attracted. However further depreciation, if any, can always be computed keeping the figure of “sum insured” in mind.

The Hon’ble Supreme Court observed that:

In cases of “under insurance”, the Insurance Company stands denied of appropriate premium. If the sum insured is, in any way, lesser than the real value of the subject matter of insurance, and if there be cases of partial replacement or partial loss, it is well accepted that the Insurance Company is entitled to proportionate deduction representing the proportion of undervaluation. (Para 13)

If both the sides, with their eyes open, had arrived at a particular figure to be the real value of the subject matter of insurance, is it open to any party to dispute said sum and contend that the real value was something different from what was declared by the parties to be the sum insured ? One may understand cases where there is non-disclosure of material facts which may go to the root of the matter and as such the sanctity of the agreement itself may get affected. But if both the parties had agreed and arrived at an understanding, which understanding was otherwise not vitiated by any misrepresentation, fraud or coercion, the parties must be held bound by stipulation of such figure. (Para 15)

Except in cases where the agreement on part of the Insurance Company is brought about by fraud, coercion or misrepresentation or cases where principle of uberrima fides is attracted, the parties are bound by stipulation of a particular figure as sum insured. Further depreciation, if any, can always be computed keeping the figure of “sum insured” in mind. (Para 17)

Copy of judgement: Judgement_30-Jan-2019

-Tushar Kaushik

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