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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3167 OF 2017

I.C. Sharma                      …. Appellant(s)

Versus

The Oriental Insurance Co. Ltd.       … Respondent(s)

J U D G M E N T

Deepak Gupta J.

1. This  appeal  filed  by  the  complainant/consumer  is  directed

against  the  order  dated  29.09.2014  passed  by  the  National

Consumer Disputes Redressal Commission (for short ‘the National

Commission’), New Delhi, disposing of the revision petition filed by

the parties and also against the order dated 22.02.2016 disposing

of the review petition filed by the appellant.

2. Briefly stated the facts of the case are that the appellant had

first purchased a householder insurance policy from the Oriental

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Insurance  Company  (‘the  Insurance  Company’  for  short)  on

23.12.2000.  This policy was renewed till 22.12.2005.  As per this

policy the coverage of articles/items in the house of the appellant

was “as per list”.  It is not disputed that thereafter the Insurance

Company  discontinued  “as  per  list”  policies  and  instead  started

issuing policies for consolidated amounts.  The original policy had

expired on 22.12.2005 and fresh policy  as per new scheme was

taken out on 19.01.2006 and this was renewed from time to time.

The last renewal was from 19.01.2007 to 18.01.2008.   

3. The appellant had gone to the United Kingdom. Some time,

between 27.01.2008 to 30.01.2008, a burglary took place inside the

premises of the appellant, and he was informed about the same by

a neighbor on 31.01.2008.  The appellant requested his nephew to

inform the Insurance Company and an FIR was also registered with

the  Mehrauli  Police  Station  in  South  Delhi.   The  Insurance

Company was also informed about the burglary on 31.01.2008 or

on the next day.  The police could not trace out the crime.

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4. The Insurance Company first offered a sum of Rs. 3,500/- to

the  appellant  sometime in  November,  2008 which  he  refused to

accept.  He, thereafter, met certain higher officials of the Insurance

Company and an amount of Rs.29,920/- was offered to him.  Being

dissatisfied, the appellant filed a claim before the District Consumer

Disputes Redressal  Forum (for  short  ‘the District  Forum’),  which

was  disposed  of  by  the  District  Forum  on  the  ground  that  the

articles  mentioned  therein  were  not  mentioned  in  the  list.

Thereafter, the appellant filed an appeal before the State Consumer

Disputes Redressal Commission (for short ‘the State Commission’)

which was allowed on 15.01.2014 and he was awarded a sum of

Rs.4,03,150/-.   

5. Revision petitions  were filed  both by the  appellant  claiming

interest and compensation and by the Insurance Company against

the order of the State Commission.  The main ground in the petition

filed by the Insurance Company was that a large number of items

which had been claimed to be stolen were not insured and there

was a lot of under-insurance.  The National Commission held that

once the appellant had supplied a list of articles for the first policy,

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if there was any change he should have filed a fresh list and since a

large number of articles were not mentioned in the list the claimant

was only entitled to an amount of Rs.21,000/- towards the value of

stolen  gold  articles;  Rs.5,929/-  towards  the  depreciated

value of Citizen watch; Rs.7,000/- for repair of door latches etc.;

and Rs.16,000/- towards the value of stolen clothes after making

appropriate  deduction  for  under-insurance   of  clothing.   The

complainant was also awarded compensation of Rs.5,000/- towards

the cost  of  litigation etc.   The appellant filed an SLP before this

Court and he was granted liberty to file a review petition before the

National  Commission  mainly  on  the  ground  that  the  policy  of

2008-2009 was not considered by the National Commission.

6. The  National  Commission  in  the  review  petition  took  into

consideration the fact that the new insurance policy did not require

a list of items to be given.  It, thereafter, awarded amounts under

various heads as follows:-

i) Jewellery and valuables - Claimant claimed that the

jewellery lost was worth Rs.1,84,150/- but the insurance package

was only for Rs.1,00,500/-.  The National Commission ordered the

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Insurance Company to pay the amount after making adjustment for

under-insurance;

ii) Two cutlery sets in silver valuing Rs.31,000/- - The

National Commission held that these items were not insured and

did  not  fall  under  the  heading  of  ‘kitchenware/crockery/cutlery

sets’.

iii) Clothing - The  insured  value  of  clothing  was

Rs.55,000/- and the claimant claimed Rs.87,000/-.  The National

Commission  directed  payment  of  this  amount  after  making

adjustment for under-insurance.   

iv) Electrical/Mechanical appliances - The  appellant

claimed a sum of Rs.66,000/- for  loss of electrical and mechanical

appliances, as against the coverage of Rs.1,82,500/-.  This claim

was rejected on the ground that the claimant failed to produce bills

of invoices towards this amount.

v) Miscellaneous items - The  appellant  claimed

Rs.28,000/-  for  loss  of  miscellaneous  items  including  watches

valuing Rs.20,000/- as against  the coverage of  Rs.41,000/-.  He

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has been awarded only  Rs.8,000/- and the claim for  watches of

Rs.20,000/-  has  been  rejected  on  the  ground  that  he  failed  to

produce purchase invoices.

vi) Repair of locks, doors, latches, safe etc. - The appellant

was awarded Rs.7,000/- for repair of locks, doors, latches, safe etc.,

as claimed by him.   

vii) The  claimant  was  also  awarded  compensation  of

Rs.10,000/- and interest @ 9% per annum.

7. Aggrieved, the appellant is before this Court.

8. The only legal issue which arises for consideration is “what is

under-insurance  –  and  the  effect  thereof?”.   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

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insured and not a paisa more than the sum insured.  To give an

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.   

9. If all the insured goods are lost then there is no problem.  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 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 insured goods falling under

one head are stolen or  lost  then the  insurance company cannot

apply the principle of averaging out because, though the loss may

be Rs.10,00,000/-, the claimant will get only one Rs.1,00,000/-as

per the value assessed and the insurance premium paid by him.   

10. The Insurance Company can however apply the principle of

averaging out when all the goods are not destroyed.  Supposing the

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entire house was insured for Rs.50,00,000/-, but on valuation it is

found  that  the  value  of  the  structure  and  the  goods  was

Rs.1,00,00,000/-  and  if  the  policy  holder  claims  that  he  has

suffered loss of  Rs.40,00,000/-  then he  will  be  entitled  to  only   

Rs.20,00,000/-, by applying the principle of averaging out.  What

this means is that if the value of the goods is more than the sum for

which they are insured then it is presumed that the policy holder

has not taken out insurance policy for the un-insured value of the

goods.  The claim is allowed by applying 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.

11. To clarify the matter further, we may give another example.

Supposing, the insurer owns two paintings of Rs.5,00,000/- each

but pays premium for insurance cover of Rs.1,00,000/- for both the

paintings.   If  one  painting  is  lost,  even though the  value  of  the

painting may Rs.5,00,000/- he will not get Rs.1,00,000/- but will

get only Rs.50,000/-, as proportionate amount.  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

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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.   

12. Applying this principle we may now deal with this case.

i) Jewellery and valuables - The  entire  jewellery  and

valuables were insured for Rs.1,00,500/- but the claimant claimed

that the value of jewellery stolen was Rs.1,84,150/-.  In this case

the entire jewellery was stolen.  Therefore, the averaging out clause

will not apply and the claimant is entitled to a sum of Rs.1,00,500/-

under this head.

ii) Silver cutlery sets -  The  case  of  the  claimant  is  that

these  were  insured  under  the  head  of  ‘kitchenware/crockery/

cutlery’  items.   According  to  him,  the  value  of  these  sets  is

Rs.31,000/-.  Obviously  kitchenware/crockery/cutlery  will  include

many  other  items lying  in  the  kitchen  and  in  the  dining  room.

Silver cutlery sets would normally fall under the head ‘jewellery and

valuables’ and since the claimant has been awarded the maximum

amount payable under that head, now he cannot divert the claim

for silver cutlery to the head ‘kitchenware/crockery/cutlery’.  This

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Court can take judicial notice of the fact that in any middle class

household kitchenware/crockery/cutlery would value  more than

Rs.18,000/-.  It is obvious that silver cutlery valuing Rs.31,000/-

could not be insured under the head kitchenware/crockery/cutlery’

which was valued only  for  Rs.18,000/-.   Therefore,  the  National

Commission was right in holding that there was no coverage for this

item.

iii) Clothing - The appellant claims that he has suffered a

loss  of  Rs.87,000/-  ,  as  against  the  coverage  of  Rs.55,000/-.

However, on perusing the statement of the appellant himself we find

that he has shown Rs.87,000/- to be the value of only six items of

clothing.  There must have been many other items of clothing in the

house  and  when  all  the  clothing  has  been  insured  under  one

heading, it will include clothing items of all types, both expensive

and in-expensive.  Admittedly, all items of clothing were not stolen

and,  therefore,  in this  case the principle  of  under-insurance will

have to apply and the National Commission was right in directing

that  the  payment  be  made  after  applying  principle  of

under-insurance.

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iv) Electrical/Mechanical appliances - The  coverage

under this head was Rs.1,82,500/- and the claimant claimed only

Rs.66,000/- and he gave the details of the items.  This claim has

been rejected only on the ground that he had not produced invoices

of the same.  The case of the appellant was that those items were

gifted by his son.  The items such as CD changer, video camera,

DVD  player,  Camera  etc.  could  be  found  in  any  middle  class

household.  It is not the case of the Insurance Company that these

items were not stolen.  The claim should not have been rejected

only on the ground that invoices were not produced.  The affidavit

of the appellant clearly indicates both the nature of the items lost

and the value thereof.  This is supported by corroborative evidence

of the list of items given to the police.  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.  We may also add that if

the insurance company desires that item-wise valuation should be

given for items over and above a certain value then it is the duty of

the insurance company to advise the insured at the time of issuing

the first policy of insurance and at the time of each renewal.  The

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insurance  company  must  at  the  time  of  accepting  the  premium

advise the policy holder properly.  The insurance company cannot

accept the premium without asking for any details and later deny

its  liability  on  the  ground  that  such  details  were  not  given.

Therefore, we accept the claim of the claimant and he is entitled to

Rs.66,000/- under this head.

v) Miscellaneous items - On the same reasoning as

given for electrical/mechanical appliances  we accept the claim of

the appellant of Rs.20,000/- for loss of four watches and, therefore,

he is entitled to Rs.28,000/- under this head.

vi) Repair of locks, doors, latches, safe etc.   -  The claimant  

has already been awarded Rs.7,000/-under this head.

13. In  addition  thereto,  we  are  of  the  view  that  the  claimant

should  be  awarded  Rs.25,000/-towards  compensation  and

litigations expenses etc.  On the aforesaid amounts the appellant

shall be entitled to an interest @12% per annum w.e.f. 01.01.2009

till  payment.   The  Insurance  Company  shall  be  entitled  to

adjust/deduct the amounts already paid/deposited by it.

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14. The  appeal  is  disposed  of  in  the  above  terms.   Pending

applications, if any, shall also stand disposed of.

15. The  Registry  is  directed  to  send  a  certified  copy  of  this

judgment to the appellant, who appeared in person.

………………………..J. (Madan B. Lokur)

…………………………J. (Deepak Gupta)

New Delhi January 10, 2018