Case: M/S. Hanil Era Textiles Ltd Vs. Oriental Insurance Co. Ltd.

of the respondent Insurance Company to show that the appellant had not taken effective steps to segregate the Blow-room cannot succeed.12. The respondent Insurance Company claimed the additional premium of Rs. 1,13,13,344/- on the basis of the recommendations of the Tariff Advisory Committee, and it seems that the Comptroller and Auditor General had also recommended that this additional premium should be paid by the appellant. According to the opinion of the Tariff Advisory Committee, the Blow-room was not segregated and the entire main factory, including the building and the Blow-room, was a single communicating structure and, therefore, premium at the higher rate of Rs. 11.73 per thousand should have been charged for the entire area and this higher rate of Rs. 11.73 was reduced to Rs. 8.9 per thousand by the Tariff Advisory Committee with effect from 1.4.1994. It was made clear that the revised lower rate of Rs. 8.9 per thousand would apply to the new business or renewals falling due on or after 1.4.1994. It is also the case of the respondent Insurance Company that the TAC-approved type Automatic Diversion System or Co-2 Flooding System in the Chute Feeding arrangement between the Blow-room and the Carding Section was not installed. It is pertinent to note that the appellant was never informed that these arrangements have to be made. The respondent Insurance Company has also not produced any correspondence to show that when the insurance policies in question were issued, the appellant was informed about these matters or th at the appellant refused to comply with these requirements. 13. Learned Author E.R. Hardy Evamy, in his book relating to Fire and Motor Insurance, 2nd Edition, on page 7, has observed : "The contract of fire insurance, like other contracts of insurance, differs from any ordinary contract in that it requires, throughout its existence, the utmost good faith (uberrima fides) to be observed on the part of both the insured and the insurers.In addition to the ordinary obligation, which exists in every contract that all representations made by the parties during the negotiations leading up to the contract shall be honestly made, it is an implied term of the contract of fire insurance that the person seeking the insurance shall communicate to the insurers all matters within his knowledge which are in fact material to the question of the insurance, and not merely all those which he believes to be material." 14. There is no case that the insured had suppressed any material, whereas the respondent Insurance company had not apprised the insured about the Automatic Diversion System or the Co-2 Flooding System in the Chute Feeding Arrangement. The special precautions to be made on the basis of the report of the TAC are generally matters within the knowledge of the insurers and the contract of insurance being a contract of utmost good faith, ordinarily, these matters should have been brought to the notice of the insured before the policy was issued in his favour. It is also important to note that the respondent Insurance Company did charge a higher rate of premium for the "Blow-room". There is nothing to indicate that it was done on a provisional basis or that the insured suppressed any material facts. In fact, the engineers of the respondent Insurance Company visited the appellants factory prior to the issuance of the policies and charged a higher rate of premium for the Blow-room. When premium is thus demanded and collected at a higher rate, it is an indication regarding the nature of the contract that subsists between the parties, namely, that the insurer was aware of the higher risks involved. In Halsburys Laws of England, Vol. 25, at para 458, the following observations are made : "The rate of premium in fact charged may give rise to important inferences. The materiality of a representation, which has been made, may be inferred from a reduced rate of premium being charged. Similarly, ignorance on the part of the insurers of some matter supposed to be well known may be inferred if they charge no more than the ordinary rate of premium, while an exceptionally high rate of premium may be indicative of their acceptance of the risk as hazardous without requiring disclosure of the precise facts making it so." 15. It is clear that the respondent Insurance Company recovered the premium at a higher rate for the Blow-room and this can only be on the basis of the acceptance of the fact that the Blow-room was a separate unit. Therefore, the contention of the respondent that the Blow-room and the rest of the area was a single communicating structure cannot be accepted.16. On reappraisal of the evidence, including various correspondences between the insured and the insurer, it is clear that the appellant had segregated the Blow-room from the rest of the area even prior to the occurrence of fire. The fact that the respondent charged a higher rate of premium after having inspected the premises, and the report of the Loss Prevention Association of India Ltd. that the Blow-room was segregated by means of double fire-proof doors and the fire had not spread to this area, strengthen the plea of the appellant as regards the Blow-room. It is also to be noted that the respondent Insurance Company received the separate values of bifurcation as early as on 14.11.1994 without any demur and went ahead with the issuance of policy charging premium at a higher rate for the Blow-room. The belated steps taken by the respondent to charge premium at still higher rate for the entire area was not justified under law. It may be noted that out of Rs. 1,13,13,344/-, an amount of Rs. 43,99,003/- was sought to be levied as premium due for the period 1993-94. This amount was sought to be recovered from the appellant apparently much after the lapse of the validity period of those policies. Therefore, we hold that a sum of Rs. 1,20,77,614/- due to the appellant was illegally withheld by the respondent.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]7. It was urged by the respondents counsel that based on the recommendations of the Tariff Advisory Committee, the appellant was asked to pay the additional premium of Rs. 1,13,13,344/- as according to the respondent Insurance Company, the appellant should have observed the TAC approved type of Automatic Diversion System or Co-2 Flooding system in the chute Feeding arrangement between the Blow-room and the Carding Section, but this was not done by the appellant prior to the occurrence of the fire and the Blow-room was not segregated from the rest of the area. Therefore, the additional premium of Rs. 1,13,13,344/- was liable to be paid by theclaim was based on the basis that the appellant had not segregated the Blow-room from the rest of the area and therefore, the entire area attracted premium at the rate of Rs. 11.73 per thousand. It may be noted that initially the entire area was insured @ Rs. 2.5 per thousand, and subsequently the officers and engineers of the respondent Insurance Company visited the premises of the appellant factory and vide communication dated 22.11.1994, the Blow-room was separately insured at the higher rate of Rs. 8.9 per thousand. In the letter dated 22.11.1994 addressed to the appellant, it was stated that : "We are in receipt of your letter dated 14th November, 1994 furnishing separate values in respect of the properties situated in the Blow-room area of your factory referred to herein above. The additional premium in respect of the said property, comes to Rs. 93,316/- as per the premium computation shown hereunder." Therefore, it is clear that the Blow-room was taken as a separate portion segregated from the rest of the factory premises.It is of primary importance to note that the fire had not spread to the Blow-room area. That raises a strong presumption that the Blow-room was segregated even before the accident. The appellant had also produced documents to show that they had installed the fireproof doors to protect the Blow-room. The next important fact was that the respondent demanded a higher rate of premium for the Blow-room in November 1994 and this is prima facie indicative of the fact that the Blow-room was separated from the rest of area. The observations of the representatives of the Loss Prevention Association of India Ltd., who visited the factory on 6.1.1995, cannot be lightly disregarded. Therefore, it is clear that the attempts of the respondent Insurance Company to show that the appellant had not taken effective steps to segregate the Blow-room cannot succeed.12. The respondent Insurance Company claimed the additional premium of Rs. 1,13,13,344/- on the basis of the recommendations of the Tariff Advisory Committee, and it seems that the Comptroller and Auditor General had also recommended that this additional premium should be paid by the appellant. According to the opinion of the Tariff Advisory Committee, the Blow-room was not segregated and the entire main factory, including the building and the Blow-room, was a single communicating structure and, therefore, premium at the higher rate of Rs. 11.73 per thousand should have been charged for the entire area and this higher rate of Rs. 11.73 was reduced to Rs. 8.9 per thousand by the Tariff Advisory Committee with effect from 1.4.1994. It was made clear that the revised lower rate of Rs. 8.9 per thousand would apply to the new business or renewals falling due on or after 1.4.1994. It is also the case of the respondent Insurance Company that the TAC-approved type Automatic Diversion System or Co-2 Flooding System in the Chute Feeding arrangement between the Blow-room and the Carding Section was not installed. It is pertinent to note that the appellant was never informed that these arrangements have to be made. The respondent Insurance Company has also not produced any correspondence to show that when the insurance policies in question were issued, the appellant was informed about these matters or th at the appellant refused to comply with these requirements.It is clear that the respondent Insurance Company recovered the premium at a higher rate for the Blow-room and this can only be on the basis of the acceptance of the fact that the Blow-room was a separate unit. Therefore, the contention of the respondent that the Blow-room and the rest of the area was a single communicating structure cannot be accepted.16. On reappraisal of the evidence, including various correspondences between the insured and the insurer, it is clear that the appellant had segregated the Blow-room from the rest of the area even prior to the occurrence of fire. The fact that the respondent charged a higher rate of premium after having inspected the premises, and the report of the Loss Prevention Association of India Ltd. that the Blow-room was segregated by means of double fire-proof doors and the fire had not spread to this area, strengthen the plea of the appellant as regards the Blow-room. It is also to be noted that the respondent Insurance Company received the separate values of bifurcation as early as on 14.11.1994 without any demur and went ahead with the issuance of policy charging premium at a higher rate for the Blow-room. The belated steps taken by the respondent to charge premium at still higher rate for the entire area was not justified under law. It may be noted that out of Rs. 1,13,13,344/-, an amount of Rs. 43,99,003/- was sought to be levied as premium due for the period 1993-94. This amount was sought to be recovered from the appellant apparently much after the lapse of the validity period of those policies. Therefore, we hold that a sum of Rs. 1,20,77,614/- due to the appellant was illegally withheld by the respondent.