Case: Metal Powder Company Ltd Vs. Oriental Insurance Co. Ltd

The plaintiff is a company engaged in the manufacture and sale of metal powders and red phosphorous having its manufacturing unit and administrative office at Maravankulam, Thirumangalam, Madurai District. The plaintiff had purchased 15.06 metric tonnes of yellow phosphorous from M/s. Metallgeseliachaft AG, Frankfurt, West Germany under Invoice No. 410 64821 dated 06.06.1983 for a value of US$ 23,946 C&F. The said commodity was booked through M.V.to be delivered at Bombay Port and from the Bombay Port to thefactory at Maravankulam. The goods were insured for a sum of Rs. 2,65,000/under Insurance Policy dated 24.06.1983 with the Divisional Office of thecompany at Madurai. The policy specifically included and covered amongst other risksWhile in transit the ship caught fire on 18.10.1983. The first intimation of the mishap was communicated to the plaintiff on 05.01.1984 by Richard Hoggs International Limited, Greece who appear to be the agents of the owners of the vessel. By the aforesaid intimation, the plaintiff was informed that the estimate of the cost of repairs to the ship are much higher than theinsured value and, therefore, the ship owners consider the vessel as a total loss and had given notice of abandonment of the ship to the underwriters. The aforesaid facts were very promptly communicated to the defendant insurance company by the plaintiff on 06.01.1984 which was followed by a claim to indemnify the plaintiff for the value of the goods insured i.e. Rs.Thereafter, it appears that the defendant repudiated its liability on 15.07.1985 on the ground that the ship was abandoned by its owners due to bankruptcy and, therefore, the claim made by the plaintiff was covered by an exclusion clause i.e. Clause 4.6 of the Institute Cargo Clauses which formed a part of the terms and conditions of the Insurance Policy. Clause 4.6 is to the followingLoss damage or expense arising from insolvency or financial default of the owners managers charterers or operators of the vessel.Following the repudiation of its claim legal notice was issued on behalf of the plaintiff and as the same was not responded to the suit in question was filed claiming the value of the goods insured i.e. Rs. 2,65,000/The claim made by the plaintiff was resisted by the defendant Insurer by relying on the exclusion clause, noticed above. According to the defendant the ship was abandoned by its owners on account of financial difficulties in meeting the cost of repairs. The claim was also resisted by the defendant on the ground that there was no damage to the cargo in transit and in fact the defendant had arranged with a third party for transporting the cargo to its destination at an additional cost of US$ 900 to be paid by the plaintiff which offer was, however, rejected by the plaintiff.6. The learned Trial Court decreed thesuit for an amount of Rs. 3,38,053/inclusive of interest at 18% per annum upto 30.09.1985. Aggrieved, the Insurance Company filed a regular first appeal before the Madras High Court which was allowed by the impugned judgment and order dated 28.04.2006 on the ground that as per the terms and conditions of the policy, the plaintiff was not entitled to its claim asliability of the Insurance Company is excluded when the ship owners are declared asAggrieved, the present appeal has been filed by the plaintiff.

Court's reasoning:
ng a specific risk covered by the Insurance Policy, the failure to deliver the cargo, as agreed, would clearly amount to loss of the subject matter insured. The situations in which the insurer could avoid its liability are contemplated by the exclusion clauses. Clause 4.6 which was sought to be invoked by the defendant insurer excludes the liability of the insurer for loss or damage arising from the insolvency or financial default of the owners etc. Insolvency or bankruptcy would always be a matter of authoritative determination under the relevant municipal laws of a country and certainly not a matter of individual perceptions and opinions. No material to establish the insolvency or bankruptcy of the owners is available on record. In fact, in the earliest communication i.e. dated 05.01.1984, the plaintiff was informed that the repair cost of the vessel having exceeded the insured value, the owners had decided to abandon the ship. The said act on the part of owners cannot have the effect of their being adjudged as insolvents, which Clause 4.6 contemplates. The subsequent communication of the insurer dated 14.10.1985 (Exbt.relied upon by the defendant, is a mere assertion made by it that the owners have become bankrupt. The same is neither conclusive nor determinative of the question and appears to have been made by the insurer only to attract Clause 4.6. In the absence of any material whatsoever to show that Clause 4.6 can be attracted to the present case, the finding to the said effect, recorded by the High Court, cannot be sustained.12. Insofar as Clause 5.1 is concerned the same ex facie is not attracted inasmuch as no question of unseaworthiness of the vessel, much less, prior knowledge of the plaintiff of such unseaworthiness can and does not arise in the present case so as to exclude the loss and damage suffered by the plaintiff from the purview of the Insurance Cover as contemplated by Clause 5.1.