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 provided opined the Supreme Court in I.C. Sharma vs The Oriental Insurance Co. Ltd (SC Civil Appeal No. 3167 Of 2017).
The appellant had first purchased a householder insurance policy from the Oriental 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. After a burglary in the house, he was offered little money by the Insurance Co., being dissatisfied he approached the CDRF.
Meaning of Under-Insurance
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.
Principle of Averaging Out
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.
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.
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 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.