Insurance contract – good faith equally applies to both parties

Judgment dated 8.8.2023 of the Supreme Court of India

In 1994, insurance cover for 37 ponds of prawn cultivation in 100 acres of land and 68 acres of water-spread area was taken by the appellant for 22,67,000 prawns and value of Rs.1,20,00,000/- for the Brackish Water Prawn Insurance policy.  The policy provides for three methods for computation of loss.

There was mass mortality of prawns in the east coast of Andhra Pradesh due to outbreak of backterial disease “White Spot” leading to invocation of policy by the appellant.

The respondent- insurance company, however, repudiated the entire claim, after two separate surveyors, vide letter dated 15.7.1997, on the ground that the records were not accurately maintained, records were not produced at the time of survey and the records produced were un-substantiated.

The appellant filed consumer case in 1996 in the National Commission for loss of Rs.75,98,362/- with other reliefs.  

In the second round of litigation, the National Commission re-assessed the compensation at Rs.30,69,486.80 ps based on average loss but rejected the deductions proposed by the surveyor and awarded simple interest at 10% per annum.

Aggrieved by the said order, the appellant filed the Civil Appeal.

HELD that the issue primarily is in respect of quantifying the insurance amount payable to the appellant, the insurer to disclose all material facts with their knowledge since obligation of good faith applies to both equally not only at the inception of insurance contract, its existence and even thereafter.  The insurer chose to repudiate the claim entirely based on wholly unfounded assertion that the appellant had failed to maintain and provide proper records.   Merely because the contents of certificate in respect of death of prawns, the insurance could not have ignored the same and swept it under the carpet.  Moreover, it is not open to an insurance company to ignore or fail to act upon a certificate or document that it had itself called from independent and impartial authorities merely because it is averse to it or to its detriment.    It was held that the appellant is entitled to receive balance amount of Rs.45,18,263.20 and also interest for the delay.

M/s. Isnar Aqua Farms Vs. United India Insurance Co. Ltd (Civil Appeal No.1077 of 2013)