Insurer Bound By 'Sum Insured'; Depreciation To Be Applied Only For Post Policy Period

In Sumit Kumar Saha vs Reliance General Insurance Co Ltd, an appeal challenging the order of National Consumer Redressal Commission was filed before the Supreme Court.

The subject of the dispute was appellant's Volvo Hydraulic Extractor, purchased in 2007 for a total purchase value of Rs.51,74,000, which was insured with the respondent. The policy was renewed for the year 2009-10 with the 'sum insured' of Rs.46,56,000/-.

In 2010, the excavator got damaged in fire. The insurance surveyor estimated loss on 'constructive total loss basis'. The surveyor applied depreciation at 32.5% for the period of three years and three months from the date of purchase of the excavator.

The appellant claimed that it was entitled to the sum insured of the excavator, being a case of total loss and approached the State Consumer Commission, against the settlement offered by insurer based on surveyor's estimate. The State Commission found that the insurer erred in applying depreciation of 32.5% on the original purchase value, instead of the sum insured for the policy term. The commission also held that the insurance surveyor's finding on under-insurance was not based on sum insured but on the depreciated value of original purchase cost. Therefore, the State Commission ordered the grant of Rs.41,90,940, which is the depreciated value of sum insured for the year 2009-10. Compensation of Rs.1 lakh was also awarded.

The National Commission however partly reversed the State Commission's order, and directed that appellant was entitled to Rs. 34,42,500, which was the depreciated value arrived at by the surveyor on the basis of original purchase value.

The Supreme Court held that it was not open for the parties of the contract to dispute that the value of the subject matter was different from the value declared and accepted by them at the time of entering into contract. The Court also noted that this was not a case where insurer alleges any fraud, misrepresentation or  non-disclosure of material fact by the insured. Following the SC decision in Dharmendra Goel vs Oriental Insurance Co Ltd., the bench held that if both the parties had agreed and arrived at an understanding, which understanding was otherwise not vitiated by any misrepresentation, fraud or coercion, the parties must be held bound by stipulation of such figure.