Double Insurance - where an entity seeks to cover risks for the same or similar incidents through two different - overlapping policies

The Supreme Court, recently, held that in cases of overlapping insurance policies, when the defined loss of the insured is fully indemnified by one insurer, the second insurer is not liable for the claim towards the same incident.

"A contract of insurance is and always continues to be one for indemnity of the defined loss, no more no less. In the case of specific risks, such as those arising from loss due to fire, etc., the insured cannot profit and take advantage by double insurance."

A Bench comprising Justices UU Lalit, S. Ravindra Bhat and P.S. Narasimha allowed appeal assailing the order of the National Consumer Disputes Redressal Commission (NCDRC), which directed the insurance company to pay Rs. 1.78 crores towards the claim raised by the insured. While opining that the insurance company was not liable to pay, the Apex Court noted that in the present case the issue was that of 'double insurance'/'overlapping policy', wherein the entity seeks coverage of risks of the same or similar incidents from two insurance policies.

Factual Background

United India Insurance Co. Ltd. (insurer) issued a Standard Fire and Special Perils Policy (SFSP Policy) to Levis Strauss (India) Pvt. Ltd. (insured) covering its stock in storage, first for a period of 01.01.2007 to 31.12.2007 and then 01.01.2008 to 31.12.2008. Levis Strauss & Co., the parent company of the insurer obtained a global policy

 (STP Policy) from Allianz Global Corporate & Speciality (Allianz) for the period of 01.05.2008 to 30.04.2009. It covered stocks of all its subsidiaries, including the insurer. Another 'all risks' policy (AR Policy) was issued by Allianz for the period of 01.05.2008 to 01.05.2009 covering stocks of its subsidiaries across the globe. 

On 13.07.2008, fire broke out in one of the warehouses containing the stocks of the insured. On 18.07.2008, the insured claimed Rs. 12.20 crores from the insurer. Subsequently, on 11.09.2009, the insurer repudiated the claim stating that Condition No. 4 of the SFSP Policy, excludes liability for loss payable under marine policy i.e. STP Policy. The insured approached the NCDRC, which allowed its complaint, without deciding whether the STP policy was a marine policy. On perusal of Clause 47 of the STP Policy, it noted that the said policy excludes the extent covered by the domestic policy. It held that though the loss of profit which the insured would have earned on the sale of the damaged stock was payable by Allianz, the loss suffered to the extent of cost of the goods would be payable by the insurer. It allowed the claim to the extent of Rs. 1.78 crores as the insured had received 19.52 crores from Allianz.

STP Policy is a marine policy

Section 4 of the Marine Insurance Act, 1963 postulates that a contract of marine insurance may, by its express terms, or by usage of trade, be extended so as to protect the assured against losses on inland waters or on any land risk which may be incidental to any sea voyage.Referring to a catena of judgments, the Court noted that marine insurance policies in India include warehouse risks, combined with voyage and other marine risks. The STP policy also stipulates that it covers both marine and other risks. Moreover, the Policy describes itself as, 'Open Marine Insurance Contract'. It observed that the policy includes marine perils and is therefore a marine cover. 

As per Condition No. 4 of the SFSP Policy, the insurer was not liable to pay

The Court noted that Condition No. 4 of the SFSP Policy stated that in the event of occurrence of an insurance risk, if the insured was entitled to claim under a marine policy, the insurer cannot be held liable. Relying on Export Credit Guarantee Corporation of India Ltd. v. Garg Sons International (2014) 1 SCC 686; Vikram Greentech India Ltd v New India Assurance Co. (2009) 5 SCC 599; Sikka Papers Ltd v. National Insurance Co (2009) 7 SCC 777; Impact Funding Solutions Ltd. v. Barrington Support Services Ltd. (2016) UKKSC 57, the Court was of the view that the party who wishes to limit its liability must do so in clear words and that the insured cannot claim more than what is covered by the insurance policy. On a strict interpretation of Condition No. 4, the Court held that the insurer had excluded its liability from the risk covered under a marine policy, which in this case was the STP Policy. The Court also noted that there was no statutory or contractual obligation on the insurer to obtain a domestic policy in the conduct of its business and therefore, NCDRC had erroneously applied Clause 47.

Double Insurance

The insured had raised a claim of Rs. 12.2 crores with the insurer. Against the claim of Rs. 12.2 crores, it had already received about Rs. 19 crores from Allianz. Considering the same, the Court observed that a contract of insurance is one for indemnity of defined loss. In case of specific risks the insured cannot profit by double insurance. In this regard Castettion v. Prestton (1833) 11 QBD 380 was referred to, which had held that in case of a loss, the insured would be fully indemnified, but shall never be more than fully indemnified. The Court opined -

"Levi could not have claimed more than what it did, and not in any case, more than what it received from Allianz. Its endeavour to distinguish between the STP Policy and the SFSP Policy, i.e., that the former covered loss of profits, and the latter, the value of manufactured goods, is not borne out on an interpretation of the terms of the two policies. Even the facts here clearly show that Levi received substantial amounts towards the sale price of its damaged goods, over and above the manufacturing costs."

Marine Policy - Section 4 of the Marine Insurance Act, 1963 - A contract of marine insurance may, by its express terms, or by usage of trade, be extended so as to protect the assured against losses on inland waters or on any land risk which may be incidental to any sea voyage - warehouse risks, combined with voyage and other marine risks, are considered as part of marine insurance policies in India(Paragraph 19).

Insurance Law - Exclusion of liability in insurance policies - as a matter of general principle, it is well established that if one party, otherwise liable, wishes to exclude or limit his liability to the other party, he must do so in clear words; and that the contract should be given the meaning it would convey to a reasonable person having all the background knowledge which is reasonably available to the person or class of persons to whom the document is addressed (Paragraph 19).

Insurance Law - Double Insurance - where an entity seeks to cover risks for the same or similar incidents through two different - overlapping policies - two or more insurers must have insured the same assured in respect of the same risk on the same interest in the same subject-matter - once the first insurer has paid a complete indemnity to the assured, the second insurer would be entitled to decline liability - in the case of specific risks, such as those arising from loss due to fire, etc., the insured cannot profit and take advantage by double insurance(Para 46 and 47).