Sumit Kumar Saha v. Reliance General Insurance Company Limited
Background
The appellant had insured his hydraulic excavator, with the policy fixing a specific "sum insured" figure after accounting for depreciation. The excavator was completely destroyed in a fire a few years later. The insurer's surveyor recalculated the value from scratch using a fresh depreciation formula and assessed a much lower payout than the agreed sum insured, while the appellant's own surveyor assessed the loss closer to the originally agreed figure. The State Consumer Commission ruled in the appellant's favour, but the National Consumer Disputes Redressal Commission reduced the award using the insurer's lower valuation method, prompting this appeal.
Decision Breakdown
The Supreme Court held that once both parties had agreed upon a specific "sum insured" figure at the time the policy was issued - without any fraud, coercion or misrepresentation - the insurer cannot later disown that figure and recalculate the value from an earlier starting point. Depreciation could only be computed forward from the date of the policy to the date of loss, not by redoing the valuation from the asset's original purchase price. The Court distinguished a precedent relied on by the insurer, noting that case involved genuine "under insurance," which was not the situation here. It therefore held that the State Commission's assessment (based on the agreed sum insured less reasonable depreciation for the period of coverage) was correct, allowed the appeal, set aside the National Commission's order, and restored the State Commission's award.
Lesson Learnt
When an insurer and policyholder agree on a specific insured value at the time of purchase, the insurer is normally bound by that figure and cannot later recalculate a lower payout using a different valuation method, except in genuine cases of fraud or under-insurance.