Case: General Assurance Society Ltd Vs. Chandumull Jain And Anr

The appellant is a general insurance company. On June 2, 1950 the respondents submitted proposals to the Company with a view to insuring certain houses in Dhulian bearing Holding Nos. 274, 274/A-B-C and D and 273, 273/A-B-C and D, for Rs. 51,000 and Rs. 65,000 respectively against fire and including loss or, damage by cyclone, flood and/or change of course of river or erosion of river, land-slides and subsidence. The town of Dhulian is situated on the banks of the Ganges and for several years the river had been changing its course and in 1949 a part of the town was washed away. The insurance was obviously effected with this risk in sight. The period of insurance was to be from June 3, 1950 to June 2, 1951. The Company accepted the proposals by two letters (Ex. D) on June 3, 1950 and the letters stated that in accordance with the proposals the assured was held covered under cover notes enclosed with the letters. At the back of these letters of acceptance, there was description of the houses and an endorsement which read :"Including Cyclone, Flood and/or loss by change of course of river, diluvium and/or Erosion of River, Landslide and/or subsidence. It is further noted that there is a thatched building of residence within 50 ft. of the above premises."Two interim protection cover notes Nos. 18848 and 18850 in respect of the two proposals were filed by the Insurance Company along with the written statement and they were said to be copies of cover notes sent with the letters of acceptance, but they bore the date June 5, 1950. There is some dispute as to whether they were at all enclosed with the reply showing acceptance of the proposals. Of the two convernotes, which are identical except for details we may read one only :"Messrs. Chandmull Lal Chand, P. O. Dhulian Murshidabad being desirous to effect an Insurance from loss by Fire, for Rs. 51,000 on the following property viz. -One Pucca built and roofed building (C. J. Vizandah) holding Nos. 274, 274-A, 274-B and 274-C occpd. as residence and/or shop for the storage of hydrogenated G. nut oil (vanaspati) and safety matches also situated at Dhulian Ward No. IV, District MurshidabadIncl. Loss or damage by cyclone, flood and/or change of course of river and/or Erosion of river, landslides and/or subsidenceIt is further noted that there is a thatched building of residence within 50 ft. of the above premisesfor one year from 3rd June, 1950 to 3rd June, 1951The said property is hereby held insured against damage by Fire, subject to the terms of the Applicants proposal and the usual Condition of the Societys policies. It is, however, expressly stipulated that this protection Note cannot, under any circumstances be applicable for a longer period than Thirty Days, and that it is also immediately terminated before that date by delivery of the policy, or if the Risk be declined by the notification of such declinaturePrem : Rs. 892-8-0 Fire at the rate of 28 as per centPrem : Rs. 382-8-0 flood and other risks at the rate of12 as per centPremium : Rs. 1275-0-0."On June 7, the assured sent the premia by cheque. As no policy was received by them, the assured wrote a letter on July 1 (Ex. A/g) asking for the policy or for extension of the cover notes. This was not doneOn July 6, 1950 the Company wrote to the assured two identically worded letters (except for changes in amounts and numbers of the policies) which read :Calcutta 6th July, 1950M/s. Chandmull Lal Chand,In accordance with the inspection report lodged with this Co. we cancel the risk from 6th July, 1950 as noted belowThe relative Endorsement is under preparation and will be forwarded to you in due courseAg. Manager and Underwriter,Nature of Alteration :The above covernote is cancelled by the General Assurance Society Ltd. as from 6th July, 1950."On July 15, 1950 the assured wrote to say that they held the Company bound because although there was no erosion by the river when the proposals were submitted and accepted, the Company was trying to get out of the contract when the river was eroding the banks. They ended this letter by saying :"Now when the erosion and/or change of course of river and/or subsidence have commenced, it is quite impossible to take any precautionary measure or to reinsure the same with any other office of Insurance at this stage."On July 17, 1950 the Company prepared an endorsement for the policies cancelling the risk and sent the endorsements to the assured. The endorsement read :In the name of : - Messrs. Chandmull Lalchand, P. O. Dhulian, MurshidabadIt is hereby declared and agreed that as from 6th July 1950 the insurance by this policy is cancelled by. The General Assurance Society Ltd. Calcutta, and a refund premium of Rs. .............. is hereby allowed to the assured on a pro rata basisIn reply the latter said that as the risk had already "commenced" and "taken place" there could be no cancellation as there was no time left for the assured to take precautionary measures by reinsuring. In reply the Company referred to condition 10 of the Fire Policy under which the Company claimed to cancel the policy at any time. Condition 10 of the Fire policy read:"10. This insurance may be terminated at any time at the request of the Insured, in which case the Society will retain the customary short period rate for the time the policy has been in force. This insurance may also at any time be terminated at the option of the Society, on notice to that effect being given to the Insured, in which case the Society shall be liable to repay on demand a ratable proportion of the premium for the unexpired terms from the date of the cancelment.In reply the assured wrote on August 2 that the condition did not apply to any risk except that of fire and could not, in any event, protect the company after risk had commenced. On 13th and 15th August the houses were washed away. After unsuccessfully demanding payment under the policies, the assured filed the present suit on the Original Side of the Calcutta High Court. It was dismissed with costs by G. K. Mitter, J., but on appeal the claim was decree to the extent of Rs. 1,10,000 with costs, the decretal amount to carry interest at 3 per cent per annum. The High Court certified the case as fit for appeal and the present appeal has been filed by the company.

Court's reasoning:
The attempt of the assured in this case, therefore, has been to establish that the cover notes having expired, did not bind the parties and the reference to the policy being in the cover notes and not in the letters of acceptance, the terms and conditions of the policy were not attracted. We are satisfied that this is not the true position. The letters of acceptance expressly mentioned the cover notes and the cover notes expressly mentioned the policy. Therefore both during the period of 30 days when the cover notes operated and also thereafter, the terms and conditions of the policy governed the relationship between the parties. We have already held that as there was only one standard fire-policy, the use of the plural word policies made no difference and the delay in sending the cover notes, if any, was also immaterial. The terms and conditions of the usual policy accordingly governed the relations of the parties, and made condition 10 applicableThis argument is scarcely open, because, the assured is obviously basing his suit on the policy. In his plaint he invoked the policy. The assured cannot sustain the suit except by basing it upon the policy, because unless one reads the policy and the terms on which it was effective, mere reading of the proposal and the letters of acceptance would not give any terms. Further when a contract of insuring property is complete, it is immaterial whether the policy is delivered or not for the rights of the parties are regulated by the policy which ought to be delivered. In this way also the terms and conditions of the standard fire-policy would apply even though the policy was not issuedAs a general proposition, this is perfectly right. Condition 10 is intended to cancel the risk but not to avoid liability for loss which has taken place or to avoid risk which is already turning into loss. It is obvious that a fire policy cannot be cancelled after the houses has caught fire. But it is equally clear that unless the risk has already commenced or has become so imminent that it must inevitably take place, such a clause can be invoked. If property is insured against flood, it is not open to the insurance company to send couriers on motor cycles ahead of the floods to cancel the policy. But if it is thought that a particular dam was not quite safe, the insurance company will be entitled to cancel the policy against flood before the dam has actually started to crumble or has crumbled. Cancellation is reasonably possible before the liability under the policy has commenced or has become inevitable and it is a question of fact in each case whether the cancellation is legitimate or illegitimateIn the preset case, it was always clear that the Ganges would get into the floods in the rainy season, but if it was not clear that it would begin to erode the bank in such a way that these houses, which were at a distance of 400/500 feet from the bank would inevitably be washed away. The question thus is whether the cancellation was done after liability of the assurer under the policy had commenced or the loss had become inevitable. Here we must look at the evidence which was summarized earlierWe are concerned with two dates in particular and they are June 18, 1950 when Ghose visited Dhulian and July 6 when the policy was cancelled. The houses according to Lalchand Jain (P. W. 1) were 400/500 feet away when the proposal was made. The river remained calm till the second week of June. It only began to rise in the third week of June. Thus on June 18, when Ghose visited the place, there was no flood and no erosion. Ghoses report has not been produced but he could have only estimated the possibility of loss and no more. Even in the third week of June there was no erosion and it began by the end of June. Even on July 15 the distance between the river and the houses was 250 feet (see Q. 179). As the rate of erosion was about 20/25 feet per day (vide Bijoy Kumar P. W. 4) the houses were 400/500 feet away even on July 6. In these circumstances, it cannot be said that the loss had commenced or that it had become so certain as to be inevitable or that the cancellation was done in anticipation and with knowledge of inevitable loss. The cancellation was done at time when no one could say with any degree of certainty that the houses were in such danger that the loss had commenced or became inevitable. There is no evidence to establish this.This case, therefore, falls within the rule of the Sun Fire Office and the Hartford Fire Insurance Co. cases, (1889) 14 AC 98   and AIR 1965 SC 1288  , respectively. The assurers were, therefore, within their rights under condition 10 of the policy to cancel it. As the policy was not ready they were justified in executing it and cancelling it. The right of the plaintiff to the policy and to enforce it was lost by the legal action of cancellation.