M/S. Isnar Aqua Farms vs. United India Insurance Co. Ltd.
Background
In 1994, the appellant, a prawn-farming partnership in Andhra Pradesh, took out a "Brackish Water Prawn Insurance Policy" from the respondent insurer covering its stock of prawns. A major outbreak of "White Spot Disease" caused mass mortality of the prawns, and the appellant made an insurance claim, which the insurer repudiated entirely, alleging that proper farm records had not been maintained. After years of litigation before the National Consumer Disputes Redressal Commission (NCDRC), including an earlier remand by the Supreme Court itself to fix a flawed compensation calculation, the NCDRC awarded the appellant only about Rs. 30.69 lakh, prompting this second appeal to the Supreme Court over the quantum.
Decision Breakdown
The Court held that the insurance policy itself prescribed three methods for computing loss (Input Cost, Unit Cost, and Fortnightly Valuation), with the claimant entitled to the lowest of the three figures. It found that the NCDRC had wrongly relied on a surveyor's report it had otherwise discredited as speculative, while ignoring an official Death Certificate from the State Directorate of Fisheries: a document the insurer's own policy required and had itself invoked, only to dismiss it later because its contents were unfavorable. Applying the principle of "utmost good faith" (uberrima fides), which binds both insurer and insured, the Court held the insurer could not selectively disown a certificate from an independent government authority merely because it did not like the outcome. Based on the Death Certificate's figures, the correct payable loss under the Unit Cost Method was Rs. 75,87,750/-, and since Rs. 30,69,486.80 had already been paid, the insurer was ordered to pay the balance of Rs. 45,18,263.20 with 10% simple interest from the date of the complaint.
Lesson Learnt
An insurance company cannot pick and choose which of its own required documents to honor. If a policy mandates certification from an independent authority (like a government fisheries department), the insurer must accept that certificate's findings even if unfavorable to it, since the duty of good faith in insurance contracts binds both sides equally.