MIS. MODERN INSULATORS LTD.

THE ORIENTAL JNSURA~CE CO. LTD.

FEBRUARY 22,2000

[S. SAGHIR AHMAD A..l\ffi S.N. PHCKAN, JJ.j

Consumers Protection Act, 1986-Section 2( l)(g)-lnsurance- Deficiency in-Terms and conditions of the policy not forwarded to the inured-Held, the said tennJ' and conditions ure not binding.

Consumers Protection Act, 198&-Section 19-Appeafs-Scope of-Held, no new facts can be urged.

The appellant manufactured high tension insulators for transmission lines. The appellant had taken out an "AU Ris l~ Insurance Policy" from D the respondent for Rs. 50 lakhs for the installation of 25 M3 Iillo with

furniture. The policy covered risks against loss during storage-cum-erection including triaJ and testing of the insulators.

The appellant erected the kiln and loaded it with insulators for trial and testing. In the process of trial, the complete kiln furniture with insulators collapsed on the kiln car and the furniture uot damaged. The appellant lodged a claim with the respondent and the surveyors assessed

the damage of the appellant at Rs. 4,66,873.

When the respondent failed to settle the claim of the appellant, the appellant filed a complaint before the State Consumer Disputes Redressal Commission. In its reply to the complaint, the respondent claimed that the damaged property was not covered by insur.mce policy. The State Commission allowed the complaint of the appellant.

G Against the order of the State Commission, the respondent filed an appeal before the National Consumer Disputes Redressal Commission taking a plea that the policy of insurance contained an exclusion clause that in the case of second hand/used property, the insurance shall cease immediately on the commencement of the test and that the appellant had violated the terms and conditions of the policy by using kiln furniture. The H appellant denied this and contended that he was supplied only with the

MODERN INSUlATORS LTD. v. ORIENTALINSt.:RANCECO. 1077

cover note and the schedule of insurance policy and the other terms and A conditions including the above mentioned exclusion clause were never supplied to him. A Jetter \\Titten by the Branch Manager of the respondent, confirmed the claim of the appellant.

The Nation11l Commission allowed the appeal on the ground that it was the equal responsibility of the respondent to call for the terms and B conditions of the policy to understund the extent of the risk covered under

the policy.

Allowing the appeal, this Court

HELD : 1.1. The finding of the National Commission is untenable in law. A!i the terms and conditions of the standard poJicy wherein the exclusion clause was included, were neither a part of the contract of insurance nor disclosed to the appellant, the respondent cannot claim the benefit of the said exclusion clause. (1079-G]

1.2. It is the fundamental principle of insurance law that utmost good faith must be observed by the contracting parties and good faith forbids either party from non-disclosure of the facts which the parties know. The insured has a duty to disclose and similarly it is the duty of the insurance company and its agent to disclose aU material facts In their knowledge since E the obligation of good faith applies to both equally. (1079F]

2. It is a settled position of law that in an appeal the parties cannot urge new facts. From the pleadings of the respondent before the State Commissioa it is found that the respondent pleaded that the property damaged was not covered under the Insurance policy. This plea was given F a go-by before the National Commission and a new plea was talten up in the grounds of appeal that the terms and conditions of the insurance policy were violated by the appellant by using used kiln furniture. Allowing the appeal on the basis of this new ground is not sustainable in Jaw. [I080A-HJ

CIVIL APPELLATE JURISDICflON : Civil Appeal No. 6895 of G 1997.

From the Judgment and Order dated 8.1.97 of the National Consumers Disputes Redressal Commi!>l>ion, New Delhi in F.A. No. 595 of m1 H

SUPREME COURT REPORTS

(2000]1 S.C.R.

A Arun Jaitley, M.L. Verma, Rajeev Sharma, Ms. Urmil Narang and O.K. Sinha for the Appellant.

A.K. Raina, G.G. Upadhyay, R.D. Upadhyay and Kr. A.M. Singh for the Respondent.

B The Judgment of the Court was delivered by

PHUKAN, J, This appeal is directed against the order dated 08.01.97 passed by the National Consumer Disputes Redressal Commission whereby the Commission set aside the order passed by the State Commission of Rajasthan in the appeal fded by the respondent.

The appdlant has a factory wherein it manufactures high tension insulators for transmission lins. The appellant had taken out an insurance policy known as 'All Risk Insurance Policy' for Rs. 50 lakhs for installation of 25 M3 kiln with furniture. The policy covered risks against loss during D storage-cum-erection including trial and testing. After completion of the erection of 25 M3 kiln, the same was loaded with insulators on 12.7.88 for trial and testing and when it was opened on 16.7.88 it was found that complete structure of kiln furniture with insulators had cpllapsed on kiln car and various items of kiln furniture were damaged. A claim of Rs. 5,73,397.43 was lodged with the respondent and the surveyors assessed the E damage at Rs. 4,66,873. As the claim was not settled a complaint was filed before the State Commission alleging negligence on the part of the respondent and claiming the amount assessed by the surveyor with interest.

The respondent - Insurance Company in the reply to th~ complaint flled before the Stat~; Commission pleaded that damaged property was not covered by the insurance policy. The State Commission after considering the materials on record r<.:jected the plea of the respondent and directed the respondent to indemnify the loss by making payment of Rs. 4,66,873 with interest @. 18% per dllllutn.

G An appeal was filed before the National Consumer Disputes Redressal Commission and in the grounds of appeal it was stated that the appellant violated the terms and conditions of the policy by using used kiln furniture. This was denied by the appellant.

The appellant also urged before the National Commission that only H the cover note and the schedule of insurance policy were supplied and

MODERN rNst.'lATORS LTD. "· ORIEI'ITAL INSURANCECO. fPHUKAN, J.J 1079

other terms and conditions including the exclusion clause were not com- A municated. According to the. appellant the above document supplied did not contain the exclusion clause. The said exclusion clause runs as follows:

''In the case of second h<tnd/used property the insurance hereunder shall, however, cease immediately on the commencement of the

~ B

The National Commission asked the parties to file affidavits to prove that the exclusion clause was duly communicated to the appellant. Wt:. have been taken through the affidavits filed and we find in the affidavit of the appellant the letter received by the appellant from the Branch Manager of C the respondent was referred to wherein it was confirmed that appellant was supplied only with a cover note and the schedule of the policy. So the other terms and conditions contruning the above exclusion clause were not communicated. In the reply affidavit flled by the respondent it was not specifically mentioned that the exclusion clause was also communicated to the appellant.

The National Commission was of the view that "it is equally responsibility of the respondent to caLl for these terms and conditions even if they were not sent by the appellant as alleged, to understand the extent of risks covered under the policy and the associated aspects."

lt is the fundamental principle of insurance law that utmost good faith must be observed by the contracting parties and good faith forbids either party from non-disclosure of the facts which the parties know. The insured has a duty to disclose and similarly it is the duty of the insurance company and its agents to disclose all material facts in their knowledge since obligation of good faith applie!i to both equally.

In view of the above settled position of law, we are of the opinion

that the view expressed by the National Commission is not correct. As the above terms and conditions of the standard policy wherein the exclusion clause was included, were neither a part of the contract of insurance nor G disclosed to the appellant, respondent cannot claim the benefit of the said exclusion clause. Therefore, the finding of the National Commission is

untenable in law.

We may refer to the next ground on which appeal has to be allowed. H


(2000) 1 S.C.R.

A It is settled position of law that in an appeal the parties cannot urge new facts. From the pleadings of the n; spondent before the State Commission, it is found that respondent pleaded that the property damaged was not covered under the insurance policy. This plea was given a go by before the National Commission and a new plea was taken up in the grounds of appeal

B that the terms and conditions of the insurance policy were violated by the appellant by using used kiln furniture'. The National Commission accepted this new ground and allowed the appeal, which in our opinion is not sustainable in law.

For the reasons sta:ed above, we hotd that the present appeal has C merits.

In the result, appeal is aUowed. The judgment of the National Commission is set aside and the judgment of the State Commission is restored.

Considering the facts and circumstances of the case, we direct the D parties to bear their own cost.

B.K.M.

Appeal aUowed.

"0.