Shree Ambica Medical Stores & Ors. v. The Surat People's Co-operative Bank Limited & Ors.
Background
The appellants had hypothecated goods with a bank under a cash-credit facility, which required them to keep the goods insured; the bank, acting as the insurer's corporate agent, routinely arranged this insurance on their behalf. When floods hit Surat in August 2006 and damaged the appellants' stored goods, their insurance claim on one of two overlapping policies (covering Rs. 60 lakhs) was rejected because that particular policy had, unknown to the appellants, been renewed with flood ("STFI") perils specifically excluded, while a smaller Rs. 25 lakh policy covering the same risk was honoured. The State Consumer Commission had held the bank liable for the shortfall, but the National Consumer Disputes Redressal Commission reversed this, finding neither the bank nor the insurer at fault.
Decision Breakdown
The Supreme Court dismissed the appeal and upheld the National Commission's view that neither the bank nor the insurer was liable. It held that when the policy was renewed for a different, newly added location in 2005-06, the insurer was entitled to treat it as a fresh contract and could validly exclude flood perils as a commercial decision; this exclusion was clearly recorded in the policy document given to the appellants, and the excess premium refunded for the excluded risk was deposited in the appellants' own account without any objection raised by them at the time. Since the appellants had a copy of the policy and the benefit of the refunded premium, and had never protested the exclusion, the Court held they could not later disclaim knowledge of it; courts interpret insurance contracts as written and do not rewrite their terms to favour a claimant after a loss has occurred.
Lesson Learnt
Always read your insurance policy documents carefully when they are renewed, especially if any part of the premium is refunded to you: a refund can be a sign that a specific risk (like flood cover) has been quietly excluded, and raising no objection at the time can later be treated by a court as your having accepted that exclusion.