Supreme Court clarifies the scope of marine insurance policies in fire loss claims: United India Insurance Co. Ltd. vs. Levi Strauss (India) Pvt. Ltd. (2 May 2022)

LEGAL ISSUE: Interpretation of “marine policy” and its interplay with standard fire and special perils policies. CASE TYPE: Insurance Law. Case Name: United India Insurance Co. Ltd. vs. Levi Strauss (India) Pvt. Ltd. Judgment Date: 2 May 2022

Date of the Judgment: 2 May 2022
Citation: Civil Appeal No. 2955 of 2022
Judges: Uday Umesh Lalit, S. Ravindra Bhat, Pamidighantam Sri Narasimha. The judgment was authored by Justice S. Ravindra Bhat.

Can an insurance company deny a claim under a fire policy if the insured is also covered by a marine policy? The Supreme Court of India recently addressed this complex question in a dispute between United India Insurance Co. Ltd. and Levi Strauss (India) Pvt. Ltd. The core issue revolved around whether a global stock throughout policy (STP) held by Levi’s parent company qualified as a “marine policy,” thereby excluding coverage under a standard fire and special perils (SFSP) policy issued by the domestic insurer. This case clarifies the interplay between different types of insurance policies and the obligations of insurers.

Case Background

Levi Strauss (India) Pvt. Ltd. (“Levi”) had a Standard Fire & Special Perils Policy (SFSP) with United India Insurance Co. Ltd. (“insurer”) covering its stocks for ₹30 crores from 01.01.2007 to 31.12.2007, and another similar policy for the period 01.01.2008 to 31.12.2008. Simultaneously, Levi’s parent company had a global policy with Allianz Global Corporate & Specialty (“Allianz”) for the period 01.05.2008 to 30.04.2009, covering stocks of all its subsidiaries, including Levi, with a limit of $50 million per location. The parent company also had an “all risks” policy with Allianz for the same period with a limit of $100 million. On 13.07.2008, a fire broke out in one of Levi’s warehouses. Levi claimed ₹12.20 crores from the insurer on 18.07.2008. The insurer appointed a surveyor, who assessed the net loss at ₹11.34 crores, but recommended that the insurer was not liable due to a clause in the SFSP policy that excluded coverage if the loss was covered by a marine policy. The insurer repudiated the claim on 11.09.2009, citing Condition No. 4 of the SFSP Policy, stating that the loss should be recovered from the marine policy.

Timeline:

Course of Proceedings

Levi filed a complaint with the National Consumer Disputes Redressal Commission (NCDRC) under Sections 21 and 22 of the Consumer Protection Act, 1986. Levi argued that Section 25 of the General Insurance Business (Nationalization) Act, 1972, obligated it to obtain a domestic insurance policy, and the global policy should not negate its claim. The NCDRC allowed Levi’s complaint, holding that the domestic policy should cover the cost of the goods, while the global policy should cover the loss of profit. The NCDRC awarded ₹1.78 crores to Levi, after noting that Levi had received $4.54 million (₹19.52 crores) from Allianz.

Legal Framework

The court examined the following legal provisions:

• Section 2(d) of the Marine Insurance Act, 1963: Defines “marine adventure” to include any adventure where insurable property is exposed to maritime perils.
  
  “Section 2…. (d) “marine adventure” includes any adventure where – (i) any insurable property is exposed to maritime perils; (ii) the earnings or acquisition of any freight, passage money, commission, profit or other pecuniary benefit, or the security for any advances, loans, or disbursements is endangered by the exposure or insurable property to maritime perils; (iii) any liability to a third party may be incurred by the owner of, or other persons interested in or responsible for, insurable property by reason of maritime perils;”
• Section 2(e) of the Marine Insurance Act, 1963: Defines “maritime perils” as perils incidental to navigation of the sea, including fire.
  
  “(e) “maritime perils” means the perils consequent on, or incidental to, the navigation of the sea, that is to say, perils of the seas, fire, war perils, pirates, rovers, thieves, captures, seizures, restraints and detainments of princes and people, jettisons, barratry and any other perils which are either of the like kind or may be designated by the policy.”
• Section 3 of the Marine Insurance Act, 1963: Defines marine insurance as a contract to indemnify against marine losses.
  
  “3. Marine insurance defined.—A contract of marine insurance is an agreement whereby the insurer undertakes to indemnify the assured, in the manner and to the extent thereby agreed, against marine losses, that is to say, the losses incidental to marine adventure.”
• Section 4 of the Marine Insurance Act, 1963: Allows marine insurance to cover inland and land risks incidental to a sea voyage.
  
  “4. Mixed sea and land risks. — (1) A contract of marine insurance may, by its express terms, or by usage of trade, be extended so as to protect the assured against losses on inland waters or on any land risk which may be incidental to any sea voyage. (2) Where a ship in course of building or the launch of a ship, or any adventure analogous to a marine adventure, is covered by a policy in the form of a marine policy, the provisions of this Act, in so far as applicable, shall apply thereto, but except as by this section provided, nothing in this Act shall affect any rule of law applicable to any contract of insurance other than a contract of marine insurance as by this Act defined. Explanation. —“An adventure analogous to a marine adventure” includes an adventure where any ship, goods or other movables are exposed to perils incidental to local or inland transit.”
• Section 2(13A) of the Insurance Act, 1938: Defines “marine insurance business” broadly to include insurance on vessels, cargoes, and goods in transit, including warehouse risks.
  
  “(13A) “marine insurance business” means the business of effecting contracts of insurance upon vessels of any description, including cargoes, freights and other interests which may be legally insured, in or in relation to such vessels, cargoes and freights, goods, wares, merchandise and property of whatever description insured for any transit, by land or water, or both, and whether or not including warehouse risks or similar risks in addition or as incidental to such transit, and includes any other risks customarily included among the risks insured against in marine insurance policies”
• Section 25 of the General Insurance Business (Nationalization) Act, 1972: Prohibits insuring Indian property with foreign insurers without Central Government permission.
  
  “25. Properties in India not to be insured with foreign insurers except with permission of Central Government. — (1) No person shall take out or renew any policy of insurance in respect of any property in India or any ship or other vessel or aircraft registered in India with an insurer whose principal place of business is outside India save with the prior permission of the Central Government. (2) If any person contravenes any provision of sub -section (1), he shall be punishable with imprisonment for a term which may extend to one year, or with fine which may extend to one thousand rupees, or with both.”

Arguments

Insurer’s Arguments:

• The STP Policy issued by Allianz was a marine policy, covering fire risks during transit and storage, including at retail locations.
• Condition No. 4 of the SFSP Policy excluded liability as the loss was covered by the marine policy.
• The NCDRC erred in distinguishing between loss of goods and loss of profit, as Levi had already received more than the actual loss from Allianz.
• The loss was a composite one and could not be bifurcated as the NCDRC did.

Insured’s Arguments:

• Section 25 of the General Insurance Business (Nationalization) Act, 1972, obligated Levi to obtain a domestic policy, thus triggering Clause 47 of the STP Policy, which guaranteed coverage by the foreign policy to the extent the local policy was applicable.
• The SFSP policy was to cover loss exclusive of $50 million inventory, which was the limit indicated in the STP Policy.
• Clause 41 of the STP Policy stated that if a fire insurance policy was available, the STP Policy would be void to the extent of such availability.
• The SFSP Policy covered the cost of goods destroyed, while the STP Policy covered loss of profits, thus there was no overlap.
• The insurer’s repudiation letter had taken a specific position on liability, and the insurer could not travel beyond the grounds of repudiation.

Issues Framed by the Supreme Court

1. Whether the STP Policy issued by Allianz was a marine policy?
2. Whether Levi was obligated by Indian law to cover its risks through a domestic policy?
3. How to interpret Clause 6 and 41 of the STP Policy and Condition No. 4 of the SFSP Policy?

Treatment of the Issue by the Court

Authorities

The Court considered the following authorities:

The Court also considered the following legal provisions:

Judgment

How each authority was viewed by the Court?

• New India Assurance Co. Ltd. vs. Hira Lal Ramesh Chand & Ors [2008 (10) SCC 626]:* The Court used this case to define marine insurance and its scope, emphasizing that it can extend to land risks incidental to sea voyages, which helped in determining the nature of the STP Policy.
• Peacock Plywood Pvt. Ltd. v. The Oriental Insurance Co. Ltd [2006 Supp (10) SCR 140]:* The Court relied on this to affirm that warehouse risks are part of marine insurance policies in India, which was crucial in categorizing the STP Policy.
• United India Insurance Co. Ltd. v Great Eastern Shipping Co. Ltd [2007 (9) SCR 350]:* This case was cited to further support the inclusion of warehouse risks in marine insurance, strengthening the Court’s view on the STP Policy.
• Export Credit Guarantee Corporation of India Ltd. v. Garg Sons International [2014 (1) SCC 686]:* The Court used this case to emphasize that insurance policy terms must be strictly construed, which was essential to interpreting Condition No. 4 of the SFSP Policy.
• Vikram Greentech India Ltd v New India Assurance Co [2009 (5) SCC 599]:* This case was cited to reinforce the principle of strict interpretation of insurance contracts, which was applied to both the SFSP and STP policies.
• Sikka Papers Ltd v National Insurance Co [(2009) 7 SCC 777]:* This case was cited to reinforce the principle of strict interpretation of insurance contracts, which was applied to both the SFSP and STP policies.
• Impact Funding Solutions Ltd. v. Barrington Support Services Ltd [2016] UKSC 57]:* The Court referred to this case to discuss the interpretation of exclusion clauses in contracts, which was relevant to understanding Condition No. 4 of the SFSP Policy.
• New India Assurance Company Limited and Ors. vs. Rajeshwar Sharma & Ors [ (2019) 2 SCC 671]:* The Court followed the principles of interpretation of exclusion clauses as laid down in Impact Funding Solutions Ltd. v. Barrington Support Services Ltd.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the clear and unambiguous language of the insurance policies and the relevant legal provisions. The Court emphasized the following points:

• Nature of the STP Policy: The Court was convinced that the STP Policy was a marine policy, given its comprehensive coverage of voyage, transit, and warehouse risks.
• Strict Interpretation of Contracts: The Court adhered to the principle of strict interpretation of insurance contracts, focusing on the literal meaning of the terms and conditions.
• Condition No. 4 of the SFSP Policy: The Court found that this condition clearly excluded the insurer’s liability if the loss was covered by a marine policy.
• Lack of Legal Obligation: The Court determined that Levi was not legally obligated to obtain a domestic policy, thus negating the applicability of Clause 47 of the STP Policy.
• No Double Benefit: The Court emphasized that insurance is for indemnity, not for profit, and Levi could not claim more than its actual loss, which it had already received from Allianz.

Logical Reasoning:

The court rejected Levi’s argument that the SFSP policy covered the cost of goods while the STP policy covered loss of profits. The court found that Levi had received substantial amounts towards the sale price of its damaged goods, over and above the manufacturing costs.

The court’s decision was unanimous, with all three judges concurring.

The court quoted the following from the judgment:

• “Condition No. 4 of the SFSP Policy, which constituted a contract between the parties, precisely contemplated a situation whereby in the event of occurrence of an insurance risk, if Levi (or someone on its behalf, like in the present case the parent company) was entitled to claim under a marine policy, the insurer was not to be held liable.”
• “A contract of insurance is and always continues to be one for indemnity of the defined loss, no more no less. In the case of specific risks, such as those arising from loss due to fire, etc., the insured cannot profit and take advantage by double insurance.”
• “Levi could not have claimed more than what it did, and not in any case, more than what it received from Allianz. Its endeavour to distinguish between the STP Policy and the SFSP Policy, i.e., that the former covered loss of profits, and the latter, the value of manufactured goods, is not borne out on an interpretation of the terms of the two policies.”

Key Takeaways

• Insurance policies must be interpreted strictly, based on their explicit terms.
• A “marine policy” can include coverage for land risks incidental to sea voyages, such as warehouse storage.
• If a loss is covered by a marine policy, a separate fire policy may exclude liability, depending on the specific terms of the policies.
• Insurance contracts are meant for indemnity and not for profit.

Directions

No specific directions were given by the Supreme Court in this case.

Development of Law

The Supreme Court clarified the scope of marine insurance policies, emphasizing that they can include coverage for land risks incidental to sea voyages. The court also reinforced the principle of strict interpretation of insurance contracts and the concept of indemnity, ensuring that insured parties do not profit from insurance claims.

Ratio Decidendi: The ratio decidendi of this case is that if an insurance policy clearly excludes liability in the event of a loss being covered by another marine policy, then the insurer is not liable to pay the claim. The court held that the STP policy was a marine policy and that Condition No. 4 of the SFSP policy excluded liability. This case re-emphasizes the principle of strict interpretation of insurance contracts.

Conclusion

The Supreme Court ruled in favor of United India Insurance Co. Ltd., setting aside the NCDRC’s order. The Court held that the STP Policy was a marine policy, and Condition No. 4 of the SFSP Policy excluded the insurer’s liability as Levi was covered by the marine policy. This judgment clarifies the interplay between different types of insurance policies and reinforces the principle of strict interpretation of insurance contracts.

Category

Parent Category: Insurance Law
Child Categories: Marine Insurance, Fire Insurance, Contract Interpretation, Section 2(d), Marine Insurance Act, 1963, Section 2(e), Marine Insurance Act, 1963, Section 3, Marine Insurance Act, 1963, Section 4, Marine Insurance Act, 1963, Section 2(13A), Insurance Act, 1938, Section 25, General Insurance Business (Nationalization) Act, 1972

FAQ

Q: What is a marine insurance policy?
A: A marine insurance policy is a contract that covers losses related to marine adventures, including risks during sea voyages and related land risks like storage. It can cover goods, cargo, and vessels.

Q: What is a Standard Fire and Special Perils (SFSP) policy?
A: An SFSP policy covers losses or damages caused by fire and other specified perils, typically for properties and goods stored on land.

Q: Can an insurance company deny a claim if the insured has multiple policies?
A: Yes, if the policies have clauses that exclude liability in case of double insurance or if the loss is covered by another specific type of policy (like a marine policy), the insurer can deny the claim.

Q: What does “strict interpretation of insurance contracts” mean?
A: It means that the terms and conditions of an insurance policy are interpreted literally, based on their explicit language, without adding or assuming anything that is not clearly stated.

Q: What is the significance of Condition No. 4 in the SFSP Policy?
A: Condition No. 4 excluded the insurer’s liability if the loss was covered by a marine policy. This clause was crucial in the Supreme Court’s decision.

Q: What is the meaning of “obligated by legislation” in the context of insurance policies?
A: It refers to a mandatory requirement by law that compels an insured to obtain a specific type of insurance policy.

Q: What is the principle of indemnity in insurance?
A: The principle of indemnity ensures that the insured is compensated for the actual loss suffered, but not more than that. It prevents the insured from profiting from an insurance claim.