Read Time: 13 minutes

The Supreme Court on Monday held that in the case of specific risks, such as those arising from loss due to fire, etc., the insured cannot profit and take advantage by double insurance.

“Double Insurance”, is a scenario where an entity seeks to cover risks for the same or similar incidents through two different overlapping policies.

The Top Court made this observation while dealing with an appeal questioning an order of the National Consumer Disputes Redressal Commission, (NCDRC) which allowed the insurance claim of Levi Strauss (India) Pvt. Ltd. ("Levi"). Prior to this order, United India Insurance Co. Ltd. (appellant) had repudiated the policy issued to Levi.

Facts:

United India issued Levi a Standard Fire & Special Perils Policy ("SFSP Policy"), for January 1, 2007 to December 31, 2007. This policy covered Levi’s stocks while in storage for the sum of ₹ 30 crores. Levi obtained another SFSP Policy for the period of January 1, 2008 to December 31, 2008 on similar terms.

Levi's parent company i.e., Levi Strauss & Co. obtained a global policy from Allianz Global Corporate & Specialty (“Allianz”) for the period of May 1, 2008 to April 30, 2009, covering stocks of all its subsidiaries, including Levi. The coverage through this stock throughout policy (“STP Policy”) was for $10 million in any one vessel or conveyance and $50 million in any one location.

The parent company also got another “all risks” policy (“AR Policy”) issued by Allianz for the same period covering the stocks of its subsidiaries throughout the world being commercial lines policy. The limit of liability of the AR Policy was up to $ 100 million.

During subsistence of all these policies, a fire broke out in one of the warehouses containing Levi’s stocks. Levi claimed ₹12.20 crores from United India.

Allianz appointed a Surveyor & Loss Assessor, Mr. K.P. Sen who submitted a status report provisionally assessing the loss at a higher figure of ₹14.30 crores. United India appointed its professional surveyor, Professional Surveyors and Loss Adjusters Pvt. Ltd., who submitted the final Survey Report assessing the net loss at ₹11.34 crores.

United India's report recommended that it was not liable for the claim in view of Condition No. 4 in the SFSP Policy owing to the policies issued by Allianz and it repudiated Levi's claim.

Arguments before NCDRC:

United India submitted that the SFSP Policy did not cover any loss or damage to the property which at the time of the happening of such loss or damage was insured, and which, but for the existence of the SFSP Policy, was insured by any marine policy or policies except in respect of any excess beyond the amount which would have been payable under such marine policy.

United India added that the fire policy issued by it, therefore, excluded liability in respect of property covered by the marine policy.

It was submitted that Levi could (and did) recover loss from the STP Policy and as per Clause 47 of the STP Policy it would continue to cover the insured if the local laws or other conditions obligated the insured (i.e., Levi) to arrange insurance locally. In the present case, it was submitted that Levi was not obliged to secure a domestic policy.

NCDRC's decision:

The NCDRC did not finally decide whether the STP Policy was a marine policy.

It held, on a consideration of Clause 47 of the STP Policy, that to the extent of the insured risk being covered by the domestic policy, coverage by the STP Policy stood excluded. It reasoned that there was a difference in the perils insured and the conditions and limits of liability under the domestic policy and the STP Policy.

Therefore, NCDRC held that the loss of profit that Levi would have earned on the sale of the damaged/destroyed cost was payable to it by Allianz, whereas the loss suffered by Levi to the extent of the cost of those goods would be reimbursable under the domestic policy issued by United India. Noting that Levi had received $4.54 million or about ₹ 19.52 crores, the claim was allowed to the extent of ₹ 1.78 crores.

Top Court's analysis:

Examining the provisions of the Marine Insurance Act, 1963, a bench of Justices UU Lalit, S Ravindra Bhat and PS Narasimha noted that warehouse risks, combined with voyage and other marine risks, are considered as part of marine insurance policies in India.

It was found that the first two recitals of the STP Policy, as well as the warehouse-to-warehouse transit and other stipulations clearly stated that the policy covers both marine and other risks. 

Moreover, the STP describes itself as an “Open Marine Insurance Contract”. Thus, it was clear that the STP Policy was a marine policy that comprehensively covered voyage, transit, transportation, and warehouse perils.

Also, as per the Condition No. 4 of the SFSP Policy, which constituted a contract between United India and Levi, precisely contemplated a situation whereby in the event of occurrence of an insurance risk, if Levi was entitled to claim under a marine policy, the insurer was not to be held liable, noted the Supreme Court.

As per Clause 6 of the STP Policy, the Top Court further found that a comprehensive overall coverage was envisioned by Levi’s parent company. Accordingly, the three-judge bench held that issue in the present case could be characterized as “double insurance”.

"Such double insurance is per se not frowned upon in law. The courts however, adopt a careful approach in considering policies which seeks to exclude liability on the part of the insurer....", the bench opined.

Relying on the facts, the Top Court noted that the only claim preferred by Levi with United India was for ₹ 12.2 crores and there was no material on record to show that during the subsistence of the policy issued by the parent insurer, it was ever notified by Levi about the existence of the policy issued by Allianz.

"Levi could not have claimed more than what it did, and not in any case, more than what it received from Allianz. Its endeavour 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, is not borne out on an interpretation of the terms of the two policies. Even the facts here clearly show that Levi received substantial amounts towards the sale price of its damaged goods, over and above the manufacturing costs", held the bench while allowing the appeal and setting aside NCDRC's order.

Case Title: United India Insurance Co. Ltd. Vs. Levis Strauss (India) Pvt. Ltd.