I. C. SHARMA versus THE ORIENTAL INSURANCE CO. LTD.

Citation: [2018] 1 S.C.R. 571 · Decided: 10-01-2018 · Supreme Court of India · Bench: MADAN B. LOKUR · Disposal: Disposed off

Judgment (excerpt)

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[2018] 1 S.C.R. 571
I. C. SHARMA
v.
THE ORIENTAL INSURANCE CO. LTD.
(Civil Appeal No. 3167 of 2017)
JANUARY 10, 2018
[MADAN B. LOKUR AND DEEPAK GUPTA, JJ.]
Insurance – Householder Insurance – Appellant purchased
a householder insurance policy from the respondent-Insurance
Company, wherein coverage of articles/items in the house of the
appellant was “as per list” – However, “as per list” policies were
discontinued by the respondent and fresh policies were issued for
consolidated amounts, which were also taken by appellant– After
an incident of burglary in appellant’s house, he claimed householder
insurance – Plea of Insurance Company that a large number of
items claimed to be stolen were not insured and there was a lot of
under-insurance – Held: Under-insurance means that the insured
has taken an insurance policy in which he has valued the insured
items for a sum less than the actual value of the insured item – This
is done to pay a lesser premium – However, it is harmful to the
policy holder because even if the entire insured property is lost, the
policy holder, at the maximum can only get the sum for which the
property was insured – But, when all the goods are not destroyed,
the Insurance Company can apply the principle of averaging out
i.e. the insured is paid an amount proportionate to the extent of
insurance as compared to the actual value of the goods insured –
Therefore, when a group of items is insured under one heading and
only some of the items and not all items are lost/stolen then the
principle of under-insurance will apply – However, if all or most of
the items of value covered under the policy are stolen, then the
insurance company is bound to pay the value of the goods insured
– Applying this principle, appellant directed to be paid accordingly
– In addition, claimant awarded Rs.25,000/- as compensation and
litigation expenses with interest @12% p.a. w.e.f. 01.01.2009 till
payment – Insurance Company shall be entitled to adjust/deduct
the amounts already paid/deposited by it – Consumer Protection
Act, 1986.
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SUPREME COURT REPORTS
[2018] 1 S.C.R.
Insurance – Insurance Companies – Plea taken by the
Insurance Company that the appellant-claimant did not produce
invoices for the items claimed to be stolen – Held: On facts, the
claim should not have been rejected only on the ground that invoices
were not produced – Once the insurance company itself changed
its policy from ‘as per list policies’ to ‘policies for consolidated
amounts’, then an insured is not expected to give the item-wise details
along with the valuation – Consumer Protection Act, 1986.
Insurance – Insurance Companies – Duty of – Held: Insurance
company must at the time of accepting the premium advise the policy
holder properly – It cannot accept the premium without asking for
any details and later deny its liability on the ground that such details
were not given – Consumer Protection Act, 1986.
Doctrines/Principles – Principle of ‘under-insurance’ –
Explained.
Disposing of the appeal, the Court
HELD: 1.1 Under-insurance basically means that the
insured has taken out an insurance policy in which he has valued
the insured items for a sum which is less than the actual value of
the insured item.  In a country like India this is normally done to
pay a lesser premium. This is, in fact, harmful to the policy holder
and not to the Insurance Company because even if the entire
insured property is lost, the policy holder will only get the
maximum sum for which the property has been insured and not a
paisa more than the sum insured.  For example, in case a person
takes out the householder policy covering fire insurance and gives
the value of the structure of his house and goods stored therein
at Rs.50,00,000/- even though the value of the same is
Rs.1,00,00,000/- then even if the entire house and goods are
completely lost in a fire, he cannot get an amount above
Rs.50,00,000/- even though the value may be more. [Para 8] [577-
F-H; 578-A-B]
1.2 If all the insured goods are lost then there is no problem
as then the insurance company is bound to pay the value of the
goods insured. The insured is entitled to the amount for which
the goods were insured even if that be less than the actual value
of the goods. In case a person gets a painting insured for
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Rs.1,00,000/- though the value of the same is Rs.10,00,000/-, if
the painting is lost the insured is entitled to Rs.1,00,000/- only.
If all the insu

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