Marine Insurance: In A Situation Where Defects Were Not Intimidated & Warranty Class Not Complied, Classification Certificate Becomes Invalid- SC

The Supreme Court in an appeal filed against the order of NCDRC (National Consumer Disputes Redressal Commission) has held that in a situation when it is subsequently noticed that the defects were not intimated and the warranty class had not been complied, the Classification Certificate automatically becomes invalid.

The Court held this in a case relating to the marine insurance whereby the consumer complaint of the appellant was dismissed by NCDRC.

The two-Judge Bench of Justice A.S. Bopanna and Justice M.M. Sundresh said, “In that circumstance, when the respondent insurance company relied upon the Class Certification to issue the policy there was no express or implied waiver. The appellant has not established that the defects were brought to the notice of the Classification Society and thereafter the certificate had been obtained. In such a situation when it is subsequently noticed that these defects were not intimated and the warranty class had not been complied, the Classification Certificate would automatically become invalid.”

The Bench noted that when the issue of policy is based on trust, the natural conduct of the appellant ought to have been to come clean on this aspect before the issuance of subsequent policy by informing the respondent of non-utilisation of the advance receipt, offer to return the sum or with consent retain it to be utilised when the engine crank shaft was available.

Senior Advocate Neeraj Kishan appeared for the appellant/complainant while Senior Advocate Devdatt Kamath appeared for the respondent/insurance company.

Facts of the Case -

The appellant had entered into Bareboat Charter Party Agreement for a sea vessel and had obtained ‘Marine Hull Insurance Policy’ from the respondent (IFFCO-Tokio General Insurance Co. Ltd.) covering the said vessel for various risks including the ‘perils of the seas’ for an insured sum of Rs. 8,26,92,000/-. The Marine Hull Insurance Policy was subject to the vessel possessing a Class Warranty. Thereafter, the vessel on a voyage from Singapore to Mumbai suffered major damage to its port main engine and since the wait time for the replacement of the engine crank shaft was six months, considering the urgent commercial commitments, the main port engine was temporarily repaired.

The appellant had presented an invoice of Rs.1,32,66,803/- towards the cost to be incurred. The respondent on a recommendation issued a cheque for Rs. 1,00,00,000/- as an advance payment for replacing the engine crank shaft and other components. A new policy was then entered into by the appellant and again the vessel was struck by a Tug Boat as a result of which it sank with all cargo on board. A loss of Rs. 8,26,92,000/- was claimed by the appellant but the final report concluded that a sum of Rs. 1 crore was payable. Since the claim was not settled by the respondent, the appellant approached the NCDRC.

The Supreme Court in view of the facts and circumstances of the case observed, “… it is clear that the mere knowledge on the part of the insurer that there was a breach of warranty would not amount to a waiver in the absence of an express representation to that effect. … Except for the knowledge of the insurer that in view of the waiting period prescribed by the manufacturers for supply of the engine crank shaft for replacement, repairs were carried out and a voyage would be undertaken for urgent delivery of the cargo during the subsistence of the earlier policy period, there is nothing on record to indicate that prior to the issue of the instant insurance policy for the period 09.11.2006 to 08.11.2007 or during subsistence the replacement of the engine had been waived.”

The Court said the replacement of the engine crank shaft had not been made had come to the knowledge of the insurer only when the final surveyor report was submitted after the policy had already been issued and the accident had occurred.

“As such there is no waiver on the part of the respondent insurer in this case. … The learned senior counsel for the appellant, during the course of his argument has repeatedly contended that at best the sum of Rs.1,00,000/- advanced towards replacement of the engine crank shaft can be recovered and not deny the claim when the policy was in force. In our view, such contention is not acceptable at a point after the accident”, further observed the Court.

The Court concluded that the appellant failed to establish that the warranty class had not been breached by them and in that context the seaworthiness or otherwise at the point of accident is not of relevance.

Accordingly, the Apex Court dismissed the appeal and refused to interfere with the order of NCDRC.

Cause Title- Hind Offshore Pvt. Ltd. v. IFFCO – Tokio General Insurance Co. Ltd. (Neutral Citation: 2023 INSC 697)

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