THE AMRAVATI DISTRICT CENTRAL CO-OPERATIVE BANK LTD. versus UNITED INDIA FIRE AND GENERAL INSURANCE CO. LTD.

Citation: [2010] 4 S.C.R. 661 · Decided: 15-04-2010 · Supreme Court of India · Bench: R.V. RAVEENDRAN · Disposal: Dismissed

Judgment (excerpt)

(2010] 4 S.C.R. 661 
THE AMRAVATI DISTRICT CENTRAL CO-OPERATIVE 
A 
BANK LTD. 
v. 
UNITED INDIA FIRE AND GENERAL INSURANCE CO. 
LTD. 
(Civil Appeal No. 3307 of 2010) 
B 
APRIL 15, 2010 
[R.V. RAVEENDRAN AND K.S. RADHAKRISHNAN, JJ
1
.] 
Contract of Insurance: Insurance policy - Interpretation C 
of - Excess clause of the policy stipulated that for each and 
every Joss under contingency 1, 2 and 3, insurer would bear 
Rs. 11500 for each Joss but under contingency 4, insurer 
would bear 25% of the Joss or Rs. 115001- whichever was 
higher -
Employee of insured committed series of D 
embezzlements which were covered by contingency 4 -
Arbitrator held that the amount embezzled had to be 
aggregated and insurer could not apply excess clause to each 
and every Joss separately - Held: Arbitrator interpreted the 
excess clause wrongly - Insured has to bear 25% of the 
E 
amount embezzled (or 115001- whichever is higher) in regard 
to each and every embezzlement, and not by aggregation of 
the embezzlements - Deeds and documents. 
W9rds and phrases: Term "Excess" in the Excess 
clause of the insurance policy - Meaning of 
F 
The respondent-insurer issued an insurance policy 
insuring the appellant-Bank against losses caused by 
acts or omission of Bank's employees. In terms of the 
"Excess clause" of the policy, the insured was to bear the G 
amount of excess stipulated in the Schedule in respect 
of each and every loss if the loss was under 
contingencies 1, 2 or 3 of the Insurance Policy. In respect 
of losses under contingencies 4 or 5, the insured was to 
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SUPREME COURT REPORTS 
[2010) 4 S.C.R. 
A 
bear 25% of the amount of the loss or the amount of 
excess stipulated in the Schedule whichever was higher. 
Contingency 4 covered loss of money or securities by 
reason of dishonest or criminal act of any employee of 
the insured wherever committed and whether committed 
B directly or in connivance with others. 
An employee of the Bank committed series of 
l 
embezzlements. The Bank claimed indemnity from the 
insured in terms of the policy for a sum of Rs.3.58 lacs 
embezzled by the said employee. Insurer assessed the 
C reimbursable loss was Rs.29000. Bank did not agree to 
the assessed amount and referred the matter to 
arbitration. Insurer did not participate in the arbitration 
proceedings. The arbitrator proceeded ex-parte and 
made an award. The arbitrator found that there were 
D series of embezzlements by the employee, which were 
connected together by a common modus operandi. The 
arbitrator held that in all Rs.3.44 lacs was embezzled by 
various accounts of Bank's constituents with the Bank. 
The arbitrator held that these losses were covered under 
E contingency (4) of the policy. He noted that proviso (1) 
of the policy referring to Excess Clause used the words 
"each and every loss" when referring to losses under 
contingencies 1, 2 or 3 but did not use the said words 
when referring to losses under contingency (4). 
F 
Therefore, the Arbitrator held that the insurer could not 
apply the Excess clause to each and every loss 
separately; that having regard to the terms of the policy, 
the amounts embezzled had to be aggregated; and that 
out of the total loss, the Bank had to bear 25% and the 
G insurer was liable to pay the balance. The Arbitrator thus 
deducted 25% from Rs.3.44 lacs and made an award 
directing the insurer to pay Rs.2.58 lacs to the Bank. 
Civil Court upheld the award and dismissed the 
petition under Section 30 of the Act for setting aside the 
H 
AMRAVATI DISTI. CENTRAL CO-OP. BANK LTD. v. UNITED INDIA 663 
FIRE & GENL. INSURANCE CO. LTD. 
award and directed that the award be made a rule of the A 
court. On appeal, High Court remitted the matter to 
arbitrator for deciding claim afresh holding that the 
arbitrator ought to have considered each item of 
embezzlement separately and could not aggregate the 
embezzled amounts for arriving at the claim. Hence the 
B 
appeal. 
Dismissing the appeal, the Court 
HELD: 1.1. "Excess" clauses are commonly used in 
Insurance contracts. In insurance parlance, the term C 
"Excess" in the Excess clause in the policy refers to "that 
part of the amount of loss, under each claim, which is not 
covered by the policy" or the "amount that the policy 
holder has, by agreement, to bear or contribute to each 
insurance claim". [Para 10) [673-D) 
D 
General Assurance Society Ltd. v. Chandumull Jain AIR 
1966 SC 1644; Oriental Insurance Co. Ltd v. Sony Che

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