On May 2, 2022, a full bench of the Supreme Court of India (“SC”) allowed an appeal filed by United India Insurance Co. Ltd. (“UIIC”) against the order of the National Consumer Disputes Redressal Commission (“NCDRC”), directing payment of INR 7.48 crores against the insured's fire insurance claim of INR 12.2 crores. The Court set aside the NCDRC's decision on the basis that the same loss had been insured and paid out by a foreign insurer - under a policy obtained by the insured's parent company. After due consideration of the facts, the Court determined that this was a case of ‘double insurance'.
In India, Section 34 of the Marine Insurance Act, 1963 (“MIA”) describes ‘double insurance' as a scenario where two or more insurance policies are effected by or on behalf of the insured on the same interest (or a part of such interest). In these cases, the insured may claim payment from insurers in the order it deems fit, unless provided otherwise in the policy - such as through ‘other insurance clauses' which limit/exclude coverage or provide coverage only in excess, in case the same risk is covered by another policy.
In other common law jurisdictions, including the UK2 and Canada3, the established practice is that if two insurance policies (which would otherwise cover the loss) contain a clause which excludes the cover in presence of another policy, the two exclusion clauses in the respective policies will cancel each other out, since the unreasonable alternative would be that neither policy would respond in the event of a claim. Therefore, the insured can claim the entire loss under either policy but in view of the double insurance, the liability is ultimately shared rateably between the insurers.
In this article, we briefly discuss the SC's judgment, which sheds light on the concept of double insurance in India.
Levi Strauss (India) Pvt Ltd (“Insured”) procured a Standard Fire and Special Perils (“SFSP”) Policy from UIIC to cover stock in storage, while the Insured's foreign parent company obtained a Stock Throughput Policy (“STP”) from Allianz Global Corporate & Speciality SE (“Allianz”) to cover stocks of all its subsidiaries (including the Insured) for a sum insured of USD 10 million in case of any one vessel or conveyance, and USD 50 million in any one location. During subsistence of both policies, fire broke out in the Insured's warehouse causing damage to its stocks. UIIC repudiated the Insured's claim stating that Condition 4 of the SFSP policy excluded liability for “any loss or damage to property which, at the time of the happening of such loss or damage is insured by or would, but for the existence of this policy, be insured by any marine policy…”.
Under the STP policy (obtained by the Insured's parent company in the US), Clause 47 provided that where the insured entities are obligated by legislation or otherwise to arrange insurance locally, they will continue to have the full benefit of these insurances in respect to difference in perils insured, definitions, conditions and/or limits of liability. Clause 41 of the STP policy, inter alia, stated that in case the interest insured is covered by other insurance, the loss should be collected from the several policies in the order of the date of their attachment.
The Insured challenged UIIC's repudiation of the claim before the NCDRC, alleging that (a) it was obligated, under the erstwhile Section 25 of the General Insurance Business (Nationalization) Act, 1972 (“GIBNA”), to obtain a policy issued by a domestic insurer, and that as a consequence, the condition in Clause 47 of the STP policy was met; and (b) repudiation on the ground that the risk was covered by the global insurance policy was contrary to Clause 41 (on 'other insurance clauses') of the STP policy.
On a consideration of Clause 47, the NCDRC held that to the extent that the insured risk was covered by the domestic policy, coverage by the STP policy stood excluded. There was difference in the perils insured, the conditions and/or limits of liability under the domestic policy and the STP policy. Therefore, the loss of profit which the Insured would have earned upon sale of the destroyed goods was payable by Allianz, whereas loss corresponding to the cost of those goods were to be reimbursed under the domestic policy by UIIC.
UIIC appealed to the Supreme Court of India, inter alia, claiming that: (a) the STP policy covered the fire risk in question as it was applicable to goods whilst in transit and/or in store or elsewhere, including whilst at retail locations; (b) the NCDRC's order erroneously interpreted terms of the SFSP policy and the STP policy to hold that loss caused to goods was covered by the SFSP policy, and loss of earnings was covered by the STP policy.
Decision and reasoning of the Supreme Court
The SC set aside the NCDRC's order and dismissed the Insured's complaint, citing the following key grounds:
- Condition 4 of the SFSP policy clearly excluded property covered under a ‘marine policy' and thus, it was examined whether the STP policy was a ‘marine policy'. While relying on previous decisions4, the SC observed that warehouse risks, combined with voyage and other marine risks, are considered as part of marine insurance policies in India. The Court also placed reliance on the definitions of “marine adventure”, “maritime peril” and Section 4 of the MIA.5 Considering the above and that the STP policy described itself as an open marine insurance contract, it was held to be a marine insurance cover.
- On a plain and reasonable construction of Condition 4 of the SFSP policy, once it is established that the Insured (or on its behalf, in this case, its parent company) is covered for the risk under a marine policy (i.e. the STP policy) and is entitled to claim under it, UIIC's liability is excluded.
- Clause 47 of the STP policy did not apply in the present case since the Insured's position was not that there exists legislation which compelled it to obtain insurance to cover risks, which it sought to get covered by the SFSP policy. A mere prohibition under Section 25 of the GIBNA did not apply to the Insured's parent company which conducted business overseas (and not only in India) and obtained a marine cover to cover all risks, including marine risks as well as risks to the goods in transit and when they were warehoused. There was also no specific provision or legislation compelling the Insured to mandatorily obtain a domestic policy, as in other cases such as motor insurance (under the Motor Vehicle Act).
- Since INR 19 crore was ultimately received by the Insured as ‘admitted liability' by Allianz against its claim of INR 12.2 crores, Condition 4 of the SFSP policy excluded UIIC's liability. The Court reiterated that: (a) the Insured could not receive more indemnity than it claimed and in no way more than what it received from Allianz; and (b) endeavours to distinguish between the STP policy and the SFSP policy, i.e., that the former covered loss of profits, and the latter, the value of manufactured goods, was not borne out of an interpretation of the terms of the two policies. Even the facts clearly showed that the Insured received substantial amounts towards the sale price of its damaged goods, over and above the manufacturing costs.
- Clause 47 of the STP policy was titled ‘Admitted Insurance - Difference in Conditions Clause' and appears to have catered to situations where local law required property to be insured domestically by local insurers. However, considering the words used under the policy, the Court concluded that the condition only applied if the applicable local law required the insured to cover a risk under insurance (and not where it was optional for the insured to purchase such insurance). Thus, global insurers intending to exclude coverage for property in India may re-examine their existing policy forms/consider suitable endorsements, in view of the SC's findings.
- Indian courts will ordinarily apply plain and reasonable construction of exclusion clauses of policy wordings. The marine policy exclusion is part of the standard form of all SFSP policies, which means that such policies will not respond to the loss, if the property is in any way covered under marine insurance (whether issued in or outside India).
- Interestingly, the SC observed that the STP policy did not ‘per se' violate Section 25 of the GIBNA. A similar provision is now present under Section 2CB of the Insurance Act, 1938 (“Insurance Act”), which requires that prior permission of the Insurance Regulatory and Development Authority of India is obtained before a property in India is insured by a foreign insurer. As such, the judgment should not be interpreted as diluting India's position as an admitted jurisdiction. Notably, the case, at hand, did not require the SC to evaluate whether any foreign insurer carried on business in India, in violation of the Insurance Act, or whether prior permission of the Central Government was obtained or required before the STP policy was issued, or a claim thereunder was paid out to the parent company. The SC also did not examine whether the issuance of the STP policy to cover local risks was in violation of GIBNA or the Insurance Act.
- The SC upheld the principle that where each of two insurers agrees to an indemnity payable under one policy, the sharing of liability among them only applies if an indemnity is payable under both policies. Where indemnity is excluded completely (such as the case of SFSP policy) there will be no sharing of liability by the insurers (in the manner envisaged under the MIA or jurisprudence surrounding other insurance clauses).
- The SC's findings are specific to facts of the parties and as such, do not lay down elaborate principles governing operation of ‘other insurance clauses' in two or more policies when such policies seek to exclude coverage claiming that the other policy should cover the loss. On future such issues, it can be expected that the courts' decisions will be largely driven on facts, with continuing reliance on common law judicial precedents and renowned commentaries on the subject.
The judgment highlights the need for insurance carriers and the insured, alike, to review global insurance programs with the intent of achieving clarity on interworking of various insurance policies, for avoiding overlap of insurance coverage, or ambiguities at the time of claims. A key consideration is whether any governmental or regulatory approval requirement is triggered, if risks arising in or connected with India are to be covered under a global policy issued by a foreign insurer to the parent of an Indian entity outside India. The bigger issue is that this judgment appears to have raised some doubts over the clear and unequivocal position that India is an admitted jurisdiction, and all Indian risks must be insured with registered insurers in India. Perhaps, the Indian insurance regulator may consider this is as a suitable subject for offering guidance to insureds and the wider insurance sector.
1 United India Insurance Co Ltd v Levi Strauss (India) Pvt Ltd 2022 SCC OnLine SC 537
2 Ref: Weddell v Road Transport & General  2 K.B. 563; and National Employers Mutual General Insurance Association Ltd. v Hayden  2 Lloyd's Rep. 235
3 Ref: TD General Insurance Company v Intact Insurance Company 2019 ONCA 5; and Family Insurance Corp. v. Lombard Canada Ltd.  2 S.C.R.
4 Peacock Plywood Pvt Ltd v The Oriental Insurance Co Ltd 2006 Supp (10) SCR 140; United India Insurance Co Ltd v Great Eastern Shipping Co Ltd 2007 (9) SCR 350; and New India Assurance Co Ltd v Hira Lal Ramesh Chand and Ors 2008 (10) SCC 626
5 Section 4 of the Marine Insurance Act, 1963 states: “4. Mixed sea and land risks.—(1) A contract of marine insurance may, by its express terms, or by usage of trade, be extended so as to protect the assured against losses on inland waters or on any land risk which may be incidental to any sea voyage…”
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