I. C. SHARMA versus THE ORIENTAL INSURANCE CO. LTD.
[2018] 1 S.C.R. 571, Supreme Court of India, 2018
Outcome: Disposed off
Segment: Ratio
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I. C. SHARMA
v.
THE ORIENTAL INSURANCE CO. LTD.
(Civil Appeal No. 3167 of 2017)
JANUARY 10, 2018
[MADAN B. LOKUR AND DEEPAK GUPTA, JJ.]
Insurance – Householder Insurance – Appellant purchased
a householder insurance policy from the respondent-Insurance
Company, wherein coverage of articles/items in the house of the
appellant was “as per list” – However, “as per list” policies were
discontinued by the respondent and fresh policies were issued for
consolidated amounts, which were also taken by appellant– After
an incident of burglary in appellant’s house, he claimed householder
insurance – Plea of Insurance Company that a large number of
items claimed to be stolen were not insured and there was a lot of
under-insurance – Held: Under-insurance means that the insured
has taken an insurance policy in which he has valued the insured
items for a sum less than the actual value of the insured item – This
is done to pay a lesser premium – However, it is harmful to the
policy holder because even if the entire insured property is lost, the
policy holder, at the maximum can only get the sum for which the
property was insured – But, when all the goods are not destroyed,
the Insurance Company can apply the principle of averaging out
i.e. the insured is paid an amount proportionate to the extent of
insurance as compared to the actual value of the goods insured –
Therefore, when a group of items is insured under one heading and
only some of the
items and not all items are lost/stolen then the
principle of under-insurance will apply – However, if all or most of
the items of value covered under the policy are stolen, then the
insurance company is bound to pay the value of the goods insured
– Applying this principle, appellant directed to be paid accordingly
– In addition, claimant awarded Rs.25,000/- as compensation and
litigation expenses with interest @12% p.a. w.e.f. 01.01.2009 till
payment – Insurance Company shall be entitled to adjust/deduct
the amounts already paid/deposited by it – Consumer Protection
Act, 1986.
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Insurance – Insurance Companies – Plea taken by the
Insurance Company that the appellant-claimant did not produce
invoices for the items claimed to be stolen – Held: On facts, the
claim should not have been rejected only on the ground that invoices
were not produced – Once the insurance company itself changed
its policy from ‘as per list policies’ to ‘policies for consolidated
amounts’, then an insured is not expected to give the item-wise details
along with the valuation – Consumer Protection Act, 1986.
Insurance – Insurance Companies – Duty of – Held: Insurance
company must at the time of accepting the premium advise the policy
holder properly – It cannot accept the premium without asking for
any details and later deny its liability on the ground that such details
were not given – Consumer Protection Act, 1986.
Doctrines/Principles – Principle of ‘under-insurance’ –
Explained.
Disposing of the appeal, the Court
HELD: 1.1 Under-insurance basically means that the
insured has taken out an insurance policy in which he has valued
the insured items for a sum which is less than the actual value of
the insured item.  In a country like India this is normally done to
pay a lesser premium. This is, in fact, harmful to the policy holder
and not to the Insurance Company because even if the entire
insured property is lost, the policy holder will only get the
maximum sum for which the property has been insured and not a
paisa more
than the sum insured.  For example, in case a person
takes out the householder policy covering fire insurance and gives
the value of the structure of his house and goods stored therein
at Rs.50,00,000/- even though the value of the same is
Rs.1,00,00,000/- then even if the entire house and goods are
completely lost in a fire, he cannot get an amount above
Rs.50,00,000/- even though the value may be more. [Para 8] [577-
F-H; 578-A-B]
1.2 If all the insured goods are lost then there is no problem
as then the insurance company is bound to pay the value of the
goods insured. The insured is entitled to the amount for which
the goods were insured even if that be less than the actual value
of the goods. In case a person gets a painting insured for
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Rs.1,00,000/- though the value of the same is Rs.10,00,000/-, if
the painting is lost the insured is entitled to Rs.1,00,000/- only.
If all the insured goods falling under one head are stolen or lost
then the insurance company cannot apply the principle of averaging
out because, though the loss may be Rs.10,00,000/-, the claimant
will get only one Rs.1,00,000/-as per the value assessed and the
insurance premium paid by him.  [Para 9] [578-B-D]
1.3  The Insurance Company can however apply the principle
of averaging out when all the goods are not destroyed.  Supposing
the entire house was insured for Rs.50,00,000/-, but on valuation
it is found that the value of the structure and the goods was
Rs.1,00,00,000/- and if the policy holder claims that he has suffered
loss of Rs.40,00,000/- then he will be entitled to only
Rs.20,00,000/-, by applying the principle of averaging out.  What
this means is that if the value of the goods is more than the sum
for which they are insured then it is presumed that the policy
holder has not taken out insurance policy for the un-insured value
of the goods.  The claim is allowed by applying the principle of
averaging out, i.e. the insured is paid an amount proportionate to
the extent of insurance as compared to the actual value of the
goods insured. [Para10] [578-D-F]
1.4  Applying the aforesaid principle to the present case, it
is now dealt as under-
i) Jewellery and valuables - The entire jewellery and
valuables were insured
for Rs.1,00,500/- but the claimant claimed
that the value of jewellery stolen was Rs.1,84,150/-. In this case
the entire jewellery was stolen. Therefore, the averaging out
clause will not apply and the claimant is entitled to a sum of
Rs.1,00,500/- under this head.
ii) Silver cutlery sets - The case of the claimant was that
these were insured under the head of ‘kitchenware/crockery/
cutlery’ items. According to him, the value of these sets is
Rs.31,000/-. Obviously kitchenware/crockery/cutlery will include
many other items lying in the kitchen and in the dining room.
Silver cutlery sets would normally fall under the head ‘jewellery
and valuables’ and since the claimant has been awarded the
maximum amount payable under that head, now he cannot divert
the claim for silver cutlery to the head ‘kitchenware/crockery/
I. C. SHARMA v. THE ORIENTAL INSURANCE CO. LTD.
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cutlery’. This Court can take judicial notice of the fact that in any
middle class household kitchenware/crockery/cutlery would value
more than Rs.18,000/-. It is obvious that silver cutlery valuing
Rs.31,000/- could not be insured under the head kitchenware/
crockery/cutlery’ which was valued only for Rs.18,000/-.
Therefore, the National Commission was right in holding that
there was no coverage for this item.
iii) Clothing - The appellant claimed that he had suffered a
loss of Rs.87,000/-, as against the coverage of Rs.55,000/-.
However, on perusing the statement of the appellant himself it is
found that he had shown Rs.87,000/- to be the value of only six
items of clothing. There must have been many other items of
clothing in the house and when all the clothing was insured under
one heading, it would include clothing items of all types, both
expensive and in-expensive. Admittedly, all items of clothing were
not stolen and, therefore, in this case the principle of under-
insurance will have to apply and the National Commission was
right in directing that the payment be made after applying principle
of under-insurance.
iv) Electrical/Mechanical appliances- The coverage under
this head was Rs.1,82,500/- and the claimant claimed only
Rs.66,000/- and he gave the details of the items.  This claim was
rejected only on the ground that he had not produced invoices of
the same.  The case of the appellant was that those items
were
gifted by his son.  The claim should not have been rejected only
on the ground that invoices were not produced.  Once the
insurance company itself changed its policy from ‘as per list
policies’ to ‘policies for consolidated amounts’, then an insured
is not expected to give the item-wise details along with the
valuation. If the insurance company desires that item-wise
valuation should be given for items over and above a certain value
then it is the duty of the insurance company to advise the insured
at the time of issuing the first policy of insurance and at the time
of each renewal. The insurance company must at the time of
accepting the premium advise the policy holder properly.  The
insurance company cannot accept the premium without asking
for any details and later deny its liability on the ground that such
details were not given.  Therefore, the claim of the claimant is
accepted and he is entitled to Rs.66,000/- under this head.
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v) Miscellaneous items -  The appellant claimed Rs.28,000/-
for loss of miscellaneous item including watches valuing Rs.
20,000/- as against the coverage of Rs.41,000/-. On the same
reasoning as given for electrical/mechanical appliances, the claim
of the appellant of Rs.20,000/- for loss of four watches is accepted
and, therefore, he is entitled to Rs.28,000/- under this head.
vi) Repair of locks, doors, latches, safe etc.-  The claimant
is already awarded Rs.7,000/-under this head. [Para 12] [579-A-
H; 580-A-F]
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3167
of 2017.
From the Judgment and Order dated 22.02.2016 of the National
Consumer Disputes Redressal Commission, New Delhi in RA/311/2015
in Revision Petition No. 2361 of 2014.
I. C. Sharma (Appellant-in-person).
Rajesh Kumar Gupta, Adv. for the Respondent.
The Judgment of the Court was delivered by
DEEPAK GUPTA, J.  1. This appeal filed by the complainant/
consumer is directed against the order dated 29.09.2014 passed by the
National Consumer Disputes Redressal Commission (for short ‘the
National Commission’), New Delhi, disposing of the revision petition
filed by the parties and also against the order dated 22.02.2016 disposing
of the review petition filed by the appellant.
2. Briefly stated the facts of the case are that the appellant had
first purchased a householder insurance policy from the Oriental
Insurance Company (‘the Insurance Company’ for short) on 23.12.2000.
This policy was renewed
till 22.12.2005.  As per this policy the coverage
of articles/items in the house of the appellant was “as per list”.  It is not
disputed that thereafter the Insurance Company discontinued “as per
list” policies and instead started issuing policies for consolidated amounts.
The original policy had expired on 22.12.2005 and fresh policy as per
new scheme was taken out on 19.01.2006 and this was renewed from
time to time. The last renewal was from 19.01.2007 to 18.01.2008.
3. The appellant had gone to the United Kingdom. Some time,
between 27.01.2008 to 30.01.2008, a burglary took place inside the
premises of the appellant, and he was informed about the same by a
neighbor on 31.01.2008.  The appellant requested his nephew to inform
I. C. SHARMA v. THE ORIENTAL INSURANCE CO. LTD.
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the Insurance Company and an FIR was also registered with the Mehrauli
Police Station in South Delhi.  The Insurance Company was also informed
about the burglary on 31.01.2008 or on the next day.  The police could
not trace out the crime.
4. The Insurance Company first offered a sum of Rs. 3,500/- to
the appellant sometime in November, 2008 which he refused to accept.
He, thereafter, met certain higher officials of the Insurance Company
and an amount of Rs.29,920/- was offered to him.  Being dissatisfied,
the appellant filed a claim before the District Consumer Disputes
Redressal Forum (for short ‘the District Forum’), which was disposed
of by the District Forum on the ground that the articles mentioned therein
were not mentioned in the list.  Thereafter, the appellant filed an appeal
before the State Consumer Disputes Redressal Commission (for short
‘the State Commission’) which was allowed on 15.01.2014 and he was
awarded a sum of Rs.4,03,150/-.
5. Revision petitions were filed both by the appellant claiming
interest and compensation and by the Insurance Company against the
order of the State Commission.  The main ground in the petition filed by
the Insurance Company was that a large number of items which had
been claimed to be stolen were not insured and there was a lot of under-
insurance.  The National Commission held that once the appellant had
supplied a list of articles for the first policy, if there was any
change he
should have filed a fresh list and since a large number of articles were
not mentioned in the list the claimant was only entitled to an amount of
Rs.21,000/- towards the value of stolen gold articles; Rs.5,929/- towards
the depreciated value of Citizen watch; Rs.7,000/- for repair of door
latches etc.; and Rs.16,000/- towards the value of stolen clothes after
making appropriate deduction for under-insurance  of clothing.  The
complainant was also awarded compensation of Rs.5,000/- towards the
cost of litigation etc.  The appellant filed an SLP before this Court and
he was granted liberty to file a review petition before the National
Commission mainly on the ground that the policy of 2008-2009 was not
considered by the National Commission.
6. The National Commission in the review petition took into
consideration the fact that the new insurance policy did not require a list
of items to be given.  It, thereafter, awarded amounts under various
heads as follows:-
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i) Jewellery and valuables - Claimant claimed that the jewellery
lost was worth Rs.1,84,150/- but the insurance package was only for
Rs.1,00,500/-.  The National Commission ordered the Insurance Company
to pay the amount after making adjustment for under-insurance;
ii) Two cutlery sets in silver valuing Rs.31,000/- - The National
Commission held that these items were not insured and did not fall under
the heading of ‘kitchenware/crockery/cutlery sets’.
iii) Clothing - The insured value of clothing was Rs.55,000/- and
the claimant claimed Rs.87,000/-. The National Commission directed
payment of this amount after making adjustment for under-insurance.
iv) Electrical/Mechanical appliances - The appellant claimed a
sum of Rs.66,000/- for  loss of electrical and mechanical appliances, as
against the coverage of Rs.1,82,500/-. This claim was rejected on the
ground that the claimant failed to produce bills of invoices towards this
amount.
v) Miscellaneous items - The appellant claimed Rs.28,000/- for
loss of miscellaneous items including watches valuing Rs.20,000/- as
against the coverage of Rs.41,000/-. He has been awarded only Rs.8,000/
- and the claim for watches of Rs.20,000/- has been rejected on the
ground that he failed to produce purchase invoices.
vi) Repair of locks, doors, latches, safe etc. - The appellant was
awarded Rs.7,000/- for repair of locks, doors, latches, safe etc., as
claimed by him.
vii) The claimant was also awarded compensation of
Rs.10,000/-
and interest @ 9% per annum.
7. Aggrieved, the appellant is before this Court.
8. The only legal issue which arises for consideration is “what is
under-insurance – and the effect thereof?”. Under-insurance basically
means that the insured has taken out an insurance policy in which he has
valued the insured items for a sum which is less than the actual value of
the insured item. In a country like India this is normally done to pay a
lesser premium. This is, in fact, harmful to the policy holder and not to
the Insurance Company because even if the entire insured property is
lost, the policy holder will only get the maximum sum for which the
property has been insured and not a paisa more than the sum insured.
To give an example, in case a person takes out the householder policy
I. C. SHARMA v. THE ORIENTAL INSURANCE CO. LTD.
[DEEPAK GUPTA, J.]
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covering fire insurance and gives the value of the structure of his house
and goods stored therein at Rs.50,00,000/- even though the value of the
same is Rs.1,00,00,000/- then even if the entire house and goods are
completely lost in a fire, he cannot get an amount above Rs.50,00,000/-
even though the value may be more.
9. If all the insured goods are lost then there is no problem.  The
insured is entitled to the amount for which the goods were insured even
if that be less than the actual value of the goods. In case a person gets a
painting insured for Rs.1,00,000/- though the value of the same is
Rs.10,00,000/-, if the painting is lost the insured is entitled to Rs.1,00,000/-
only.  If all the insured goods falling under one head are stolen or lost
then the insurance company cannot apply the principle of averaging out
because, though the loss may be Rs.10,00,000/-, the claimant will get
only one Rs.1,00,000/-as per the value assessed and the insurance
premium paid by him.
10. The Insurance Company can however apply the principle of
averaging out when all the goods are not destroyed.  Supposing the
entire house was insured for Rs.50,00,000/-, but on valuation it is found
that the value of the structure and the goods was Rs.1,00,00,000/- and if
the policy holder claims that he has suffered loss of Rs.40,00,000/- then
he will be entitled to only Rs.20,00,000/-, by applying the principle of
averaging out.  What this
means is that if the value of the goods is more
than the sum for which they are insured then it is presumed that the
policy holder has not taken out insurance policy for the un-insured value
of the goods.  The claim is allowed by applying the principle of averaging
out, i.e. the insured is paid an amount proportionate to the extent of
insurance as compared to the actual value of the goods insured.
11. To clarify the matter further, we may give another example.
Supposing, the insurer owns two paintings of Rs.5,00,000/- each but
pays premium for insurance cover of Rs.1,00,000/- for both the paintings.
If one painting is lost, even though the value of the painting may
Rs.5,00,000/- he will not get Rs.1,00,000/- but will get only Rs.50,000/-,
as proportionate amount.  Therefore, when a group of items is insured
under one heading and only some of the items and not all items are lost/
stolen then the principle of under-insurance will apply.  However, if all or
most of the items of value covered under the policy are stolen, then the
insurance company is bound to pay the value of the goods insured.
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12. Applying this principle we may now deal with this case.
i) Jewellery and valuables - The entire jewellery and valuables
were insured for Rs.1,00,500/- but the claimant claimed that the value of
jewellery stolen was Rs.1,84,150/-.  In this case the entire jewellery was
stolen.  Therefore, the averaging out clause will not apply and the claimant
is entitled to a sum of Rs.1,00,500/- under this head.
ii) Silver cutlery sets - The case of the claimant is that these were
insured under the head of ‘kitchenware/crockery/ cutlery’ items.
According to him, the value of these sets is Rs.31,000/-. Obviously
kitchenware/crockery/cutlery will include many other items lying in the
kitchen and in the dining room.  Silver cutlery sets would normally fall
under the head ‘jewellery and valuables’ and since the claimant has
been awarded the maximum amount payable under that head, now he
cannot divert the claim for silver cutlery to the head ‘kitchenware/
crockery/cutlery’. This Court can take judicial notice of the fact that in
any middle class household kitchenware/crockery/cutlery would value
more than Rs.18,000/-.  It is obvious that silver cutlery valuing Rs.31,000/-
could not be insured under the head kitchenware/crockery/cutlery’ which
was valued only for Rs.18,000/-. Therefore, the National Commission
was right in holding that there was no coverage for this item.
iii) Clothing - The appellant claims that he has suffered a loss of
Rs.87,000/- , as against the
coverage of Rs.55,000/-.  However, on
perusing the statement of the appellant himself we find that he has shown
Rs.87,000/- to be the value of only six items of clothing.  There must
have been many other items of clothing in the house and when all the
clothing has been insured under one heading, it will include clothing items
of all types, both expensive and in-expensive.  Admittedly, all items of
clothing were not stolen and, therefore, in this case the principle of under-
insurance will have to apply and the National Commission was right in
directing that the payment be made after applying principle of under-
insurance.
iv) Electrical/Mechanical appliances - The coverage under this
head was Rs.1,82,500/- and the claimant claimed only Rs.66,000/- and
he gave the details of the items.  This claim has been rejected only on
the ground that he had not produced invoices of the same. The case of
the appellant was that those items were gifted by his son. The items
such as CD changer, video camera, DVD player, Camera etc. could be
found in any middle class household.  It is not the case of the Insurance
I. C. SHARMA v. THE ORIENTAL INSURANCE CO. LTD.
[DEEPAK GUPTA, J.]
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Company that these items were not stolen.  The claim should not have
been rejected only on the ground that invoices were not produced.  The
affidavit of the appellant clearly indicates both the nature of the items
lost and the value thereof.  This is supported by corroborative evidence
of the list of items given to the police.  Once the insurance company
itself changed its policy from ‘as per list policies’ to ‘policies for
consolidated amounts’, then an insured is not expected to give the item-
wise details along with the valuation.  We may also add that if the
insurance company desires that item-wise valuation should be given for
items over and above a certain value then it is the duty of the insurance
company to advise the insured at the time of issuing the first policy of
insurance and at the time of each renewal.  The insurance company
must at the time of accepting the premium advise the policy holder
properly.  The insurance company cannot accept the premium without
asking for any details and later deny its liability on the ground that such
details were not given.  Therefore, we accept the claim of the claimant
and he is entitled to Rs.66,000/- under this head.
v) Miscellaneous items - On the same reasoning as given for
electrical/mechanical appliances  we accept the claim of the appellant
of Rs.20,000/- for loss of four watches and, therefore, he is entitled to
Rs.28,000/- under this head.
vi) Repair of locks,
doors, latches, safe etc. - The claimant has
already been awarded Rs.7,000/- under this head.
13. In addition thereto, we are of the view that the claimant should
be awarded Rs.25,000/- towards compensation and litigations expenses
etc.  On the aforesaid amounts the appellant shall be entitled to an interest
@12% per annum w.e.f. 01.01.2009 till payment. The Insurance
Company shall be entitled to adjust/deduct the amounts already paid/
deposited by it.
14. The appeal is disposed of in the above terms. Pending
applications, if any, shall also stand disposed of.
15. The Registry is directed to send a certified copy of this judgment
to the appellant, who appeared in person.
Divya Pandey
            Appeal disposed of.