LI Network
Published on: November 29, 2023 at 13:54 IST
The Supreme Court emphasized a crucial principle in fire insurance claims, stating that the exact cause of the fire is immaterial as long as the insured is not found responsible for initiating it.
The court, referring to the Canara Bank v. United India Insurance Company (2020) case, highlighted the insurer’s obligation to adhere to the terms of the insurance policy and fulfill commitments to the insured.
The court explicitly declared that the precise cause of a fire, whether due to a short circuit or any other factor, is irrelevant, provided the insured is not the instigator of the fire. This principle underscores the insurer’s fiduciary duty, especially when the insured is not found negligent.
The judgment underscored the importance of good faith and trust in insurance contracts, emphasizing the insurer’s duty to act in good faith and honor commitments, particularly when the insured is not negligent. The court stressed the fundamental role of trust in the insurer-insured relationship, governed by the doctrine of uberrima fides.
The case involved a fire insurance claim arising from a warehouse fire. The insured had paid for coverage against fire and protection for custom bonded goods. Despite various investigations suggesting different causes for the fire, including short-circuiting and sparks from rooftop welding work, the insurer rejected the claim, citing alleged negligence during roof construction.
The Supreme Court, hearing an appeal against the National Consumer Disputes Redressal Commission (NCDRC) decision, affirmed the insurer’s duty to provide a speaking order and valid reasons when deciding the quantum of interim compensation under the Negotiable Instruments Act.
The court emphasized that the discretion granted to the magistrate should be judiciously exercised, especially when ordering the maximum limit of 20% under Section 143A(2) of the Act.
The case involved a petitioner accused of dishonoring cheques related to a property transaction. The magistrate had directed the petitioner to pay 20% interim compensation without providing reasons. The Supreme Court agreed with the petitioner, setting aside the order and instructing the magistrate to reconsider the matter with proper reasons.
The Kerala High Court, in another significant ruling, reiterated the necessity for a speaking order when fixing the quantum of interim compensation under the Negotiable Instruments Act.
Justice P.V. Kunhikrishnan highlighted that the court must state reasons while determining the amount of interim compensation, as per Section 143A(2) of the Act.
The court emphasized that a speaking order is crucial, especially when ordering the maximum 20% interim compensation.
Case Title: New India Assurance Co Ltd v. M/S Mudit Roadways