When Insurer Issues A Policy Covering Risk Of Flood, That Pre-Supposes The Fact That There’s Likelihood Of Affection Of Flood In An Area: Kerala HC

The Kerala High Court observed that when an insurer/insurance company issues a policy that covers the risk of flood, then the same pre-supposes the fact that there is a likelihood of affection of flood in the area and that might be the reason for the insured to opt for such a policy.

The Court held thus in a regular second appeal filed by a person (insured) under Section 100 read with Order XLII of the Civil Procedure Code (CPC) against the judgment and decree of the Additional District Court and Sub Court.

A Single Bench of Justice A. Badharudeen observed, “When the insurer issues a policy covering the risk of flood, that pre-supposes the fact that there is a likelihood of affection of flood in the said area and that might be the reason for the insured to opt for such a policy. Floods can collapse even strong structures. If so, it could not be held that the plaintiff entered into a contract of insurance with the defendants without utmost good faith, though the retaining wall collapsed due to flood, for which the insurer is liable to pay damages.”

The Bench said that the view taken by the trial court as well as the appellate court in the case, where the plaintiff insured his residential building, compound wall and household items with the defendants from 1992 and continued periodical renewal thereafter till the date of the mishap acted without any good faith, could not be justified.

Senior Advocate R. Lakshmi Narayan represented the appellant while Standing Counsel Rajan P. Kaliyath represented the respondents.

Factual Background -

The appellant (insured) was the plaintiff in the suit and the respondents (National Insurance Company Ltd. and Branch Manager) were the defendants in the suit. In August 2023, the High Court had admitted the appeal on the substantial questions of law framed in the memorandum of second appeal and since, it is mandatory for the court to formulate substantial questions of law, the following substantial questions of law were formulated in the appeal: “(1) Whether the trial court and the first appellate court failed to apply the maxim UBERRIMA FIDES in this case properly?; and (2) What is the legal effect of an amendment brought into the pleadings during the pendency of the suit?” The plaintiff who insured his residential building, compound wall, and household items with the defendants with effect from 1992 and continued periodical renewal thereafter till 1997, had approached the defendants/insurance company when a portion of the compound wall so insured was collapsed on in 1997.

Though a surveyor was appointed to assess the damages and he had assessed some amount, the claim of the insured was repudiated. Accordingly, the insured claimed compensation to the tune of Rs. 1,17,382.85/- from the insurer towards damages in terms of the contract of insurance. The insurer filed a written statement and refuted the contention of the insured, mainly on the ground that he was guilty for non-disclosure of material facts, misdescription, and fraud. According to the insurer, the loss and damages were caused due to the fault existing at the time of commencement of the contract of insurance, for which the company did not have liability and the policy as void. In an earlier round of litigation, the trial court tried the suit and dismissed the same. Thereafter, the Additional District Judge set aside the verdict of the trial court and remanded the matter for fresh consideration and finally, the suit was dismissed. In appeal, the appellate court also concurred the finding of the trial court and hence, the matter was before the High Court.

The High Court in view of the above facts held, “In answer to the question as to what is the legal effect of an amendment brought into the pleadings during the pendency of the suit and the application of the doctrine of relation back, it is held that, generally, when amendments sought for in the pleadings, not on the basis of a subsequent cause of action, and the courts allow the same without specifying the date of its operation (whether the amendment operates from the date of the suit or from the date of the amendment), the doctrine of relate back theory would apply and the said amendments would relate back to the date of the suit. But the position is not always static.”

The Court said that the amendment incorporated by adding ‘flood’ as the reason for collapse of the compound wall is to be read as one relate back to the filing of the suit.

“… when insurance company, acting on an offer made by the insured with utmost good faith on accepting the same, issues an insurance policy covering the residential building, compound wall and household items together, it cannot be held that such offer and acceptance are without utmost good faith”, it added.

The Court observed that the entire amount assessed by the surveyor, i.e., Rs. 12,038.40 (Rs.9628.40 + Rs.2410.00) with interest at the rate of 12% per annum, without any depreciation, can be granted in the case, not as a precedent, as reasonable damages and for the said purpose, verdicts under challenge would require interference.

Accordingly, the High Court allowed the regular second appeal, set aside the verdicts under challenge, and granted Rs. 12,038,40/- as damages with 12% interest.

Cause Title- E.D. Rajan v. The National Insurance Company Ltd. & Anr. (Neutral Citation: 2024:KER:22336)

Appearance:

Appellant: Senior Advocate R. Lakshmi Narayan, Advocates M. Ashok Kini, and R. Ranjanie.

Respondents: SC Rajan P. Kaliyath

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