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Isnar Aqua Farms Vs. United India Insurance Co. Ltd. - (Supreme Court) (08 Aug 2023)

Insurance company is expected to act on its promise in a fair manner and not just care for its own profits



The issues that arise for consideration in present appeal is with regard to claim of compensation. During the year 1994, the Appellant, a registered partnership firm, undertook prawn cultivation. It obtained insurance coverage from the Respondent Insurance Company for a period of five months in relation to all the 37 ponds in its operation, covering 22,67,000 prawns, for a maximum insured value of Rs. 1,20,00,000.

In General Assurance Society Limited v. Chandumull Jain and Anr., a Constitution Bench had observed, in the context of the insured, that uberrima fides, i.e., good faith, is the requirement in a contract of insurance. More recently, in Jacob Punnen and Anr. v. United India Insurance Co. Limited, this Court affirmed and reiterated the edict laid down earlier in Modern Insulators Limited v. Oriental Insurance Co. Limited, that it is the fundamental principle of insurance law that utmost good faith must be observed by the contracting parties; that good faith forbids either party from non-disclosure of the facts which the party knows; and that the insured has a duty to disclose and similarly it is the duty of the insurance company to disclose all material facts within their knowledge since the obligation of good faith applies to both equally. This obligation and duty would rest on both parties not only at the inception of the contract of insurance but throughout its existence and even thereafter.

Despite the second surveyors report dated 22.09.1995 quantifying the Appellant's loss at Rs. 17,64,097, the Respondent insurance company chose to repudiate the Appellant's claim in its entirety, basing on the wholly unfounded assertion that the Appellant had failed to maintain and provide proper records. This was also despite the clear finding of its earlier surveyors, Frank and Fair Investigators, that total loss was suffered by the Appellant.

Merely because the contents thereof were not to its liking, the insurance company could not have ignored the same and swept it under the carpet. Certification was being made by impartial and independent bodies of significant stature and that, perhaps, was precisely the reason why the insurance company had attached such importance to it in its norms.

It is not open to an insurance company to ignore or fail to act upon a certificate or document that it had itself called for from independent and impartial authorities, subject to just exceptions, merely because it is averse to it or to its detriment. Having undertaken to indemnify an insured against possible loss in specified situations, an insurance company is expected to make good on its promise in a bonafide and fair manner and not just care for and cater to its own profits. In effect, the action of the insurance company in refusing to act upon the Death Certificate dated 01.05.1995 issued by the Directorate of Fisheries, Visakhapatnam, cannot be countenanced.

The interest rate fixed by the NCDRC, viz, 10% is held to be just and equitable. The sum of Rs. 45,18,263.20 shall be remitted by the Respondent insurance company to the Appellant, with simple interest thereon @ 10% from the date of the complaint till the date of realization, within six weeks. Appeal is disposed of accordingly.


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