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TMI Blog2020 (1) TMI 1683X X X X Extracts X X X X X X X X Extracts X X X X ..... lity. The insurer, New India Assurance Company Limited, repudiated the claim of the appellants. As a 1 "National Commission" 2 "State Commission" consequence of the order of the National Commission which is challenged in the present appeal, the claim of the appellants stands rejected. 2 On 31 May 1998, the appellants and the first respondent entered into an agreement for a cash credit facility. In terms of clause 15 of the agreement, the appellants were under an obligation to insure the goods which were hypothecated to the bank. Clause 15 also contained a stipulation that in the event that the appellants failed to insure the goods, it was open to the bank to secure a cover of insurance for the goods and to recover the expenses incurred along with the premium from the appellants. The clause is extracted below: "(15) We have to insure the goods given in hypothecation to the Bank against fire etc. at our own costs in favour of the Bank and if we fail to take insurance then the Bank can take the insurance and can recover all the expenses incurred and also the premium amount borne by them from us as the Bank has Right as per this Document." 3 The first respondent bank has stated tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich would also extend to STFI perils. On 26 September 2005, the premium of Rs 992 covering STFI perils was refunded by the insurer to the bank by a cheque which was deposited by the bank in the appellants' account. Hence for 2005-06, the policy cover of Rs 60 lakhs extended to fire and allied perils but specifically excluded STFI perils. 8 On 7 August 2006, the city of Surat was hit by floods. The appellants claim that as a result of the floods the goods which were stored in their premises were destroyed. The appellants made a claim to the insurer for an alleged loss of Rs 78,66,857. A surveyor was appointed by the insurer to inspect the extent of damage. The insurer accepted and paid the claim of Rs 23 lakhs under the policy cover of Rs 25 lakhs but repudiated the entire claim under the policy cover of Rs 60 lakhs. There was an exchange of correspondence between the bank and the insurer. The bank, by its letter dated 11 November 2006, submitted that it was surprised as to how the policy cover of Rs 60 lakhs had contained an exclusion of STFI perils despite the fact that both the policies had been renewed under a common proposal form and through a single cheque. An affidavit date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... STFI perils. 12 The State Commission, by its order dated 14 February 2019, allowed the complaint only against the bank and its manager, who were directed to pay an amount of Rs 55,66,877 together with interest of 9 percent per annum and damages on account of mental agony of Rs 25,000. The State Commission held that the insurer could not be held liable since STFI perils had been excluded from the policy cover of Rs 60 lakhs and the excess premium of Rs 992 had been refunded to the bank on 26 September 2005. The bank was however, held liable on the ground that it had deposited the cheque of Rs 992 for return of the premium amount without making enquiries from the insurer. The State Commission further held that the bank had made an error in filling up the proposal form sent to the insurer and as a consequence the bank was liable to compensate the appellant. 13 The National Commission reversed the judgment of the State Commission. It observed that the bank had sought an insurance cover to the extent of Rs 85 lakhs which covered STFI perils and had also deposited a cheque of Rs 29,038 towards the premium of the policy. The National Commission observed that though it had been argued b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t seek any explanation in regard to the refund of the premium. In this view of the matter, the National Commission allowed the appeal filed by the bank and set aside the State Commission's order. 15 Mr Mehul Shah, learned counsel appearing on behalf of the appellants submitted that clauses 3(2) and 4(1) of the notification issued by the Insurance Regulatory and Development Authority on 16 October 2002 provides as follows: "3(2) An insurer or its agents or other intermediatory shall provide all material information in respect of a proposed cover to the prospect to enable the prospect to decide on the best cover that would be in his or her interest." "4(1) Except in cases of a marine Insurance cover, where current market practices do not insist on a written proposal form in all cases, a proposal for grant of a cover, either for life business or for general business, must be evident by a written document. It is the duty of an insure to furnish to the insured free of charge, within 30 days of the acceptance of a proposal, a copy of the proposal form." 16 Learned counsel submitted that the insurer did not intimate the exclusion of STFI perils at the time of the renewal of the poli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that it was a commercial decision of the insurer to exclude STFI perils 3 (2001) 6 SCC 477 from the insurance cover of Rs 60 lakhs and therefore, the insurer could not be made liable. It was urged that since the appellants received the policy from the bank, it was not open to them to disclaim knowledge of the exclusion or of the deposit of the premium into their account. 19 The rival submissions fall for consideration. 20 This Court, while interpreting the contract of insurance must interpret the words of the contract by giving effect to the meaning and intent which emerges from the terms of the agreement. In a Constitution Bench decision of this Court in General Assurance Society Ltd v Chandumull Jain AIR 1966 SC 1644, it was observed thus: "11. ...In interpreting documents relating to a contract of insurance, the duty of the court is to interpret the words in which the contract is expressed by the parties, because it is not for the court to make a new contract, however reasonable, if the parties have not made it themselves..." The court through its interpretative process cannot rewrite or create a new contract between the parties. The court has to simply apply the terms an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the account of the agent. (4) Where an insurance agent collects a premium on a policy of insurance on behalf of an insurer, he shall deposit with, or dispatch by post to, the insurer, the premium so collected in full without deduction of his commission within twenty-four hours of the collection excluding bank and postal holidays. (5) The Central Government may, by rules, relax the requirements of sub-section (1) in respect of particular categories in insurance policies. (6) The Authority may, from time to time, specify, by the regulations made by it, the manner of receipt of premium by the insurer." 23 The above provision states that no risk can be assumed by the insurer unless the premium payable is received in advance. Sub-Section (3) of Section 64 (VB) provides for refund of the premium amount to the insured in case of cancellation or alteration of the terms and conditions of the policy. In the present case, the premium of Rs 992 to cover STFI perils was refunded by the insurer to the bank and the amount was deposited in the insured's account. The proposal does not conclude the contract. A contract postulates an agreement between the parties. In the present case, the insu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h decease cannot be covered under a fresh insurance policy in view of the exclusion clause. The exclusion clause provides that the pre-existing diseases would not be covered under the fresh insurance policy. If we take the view that the mediclaim policy cannot be renewed with retrospective effect, it would give handle to the insurance company to refuse the renewal of the 5 (2001) 6 SCC 477 policy on extraneous consideration thereby deprive the claim of insured for treatment of diseases which have appeared during the relevant time and further deprive the insured for all time to come to cover those diseases under an insurance policy by virtue of the exclusion clause. This being the disastrous effect of wrongful refusal of renewal of the insurance policy, the mischief and harm done to the insured must be remedied. We are, therefore, of the view that once it is found that the act of an insurance company was arbitrary in refusing to renew the policy, the policy is required to be renewed with effect from the date when it fell due for its renewal." (Emphasis supplied) 26 The above case, as the extract indicates, dealt with a situation where the act of the insurer in refusing to renew t ..... 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