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Saturday, May 1, 2010

Bankers Blanket Insurance - Diferent judgements in different countries - what is common ?

Banks transact in money, negotiable documents and at places valuable gold and jewellery are deposited, pledged for loan and so on. It is a potential high value accumulation place. It is susceptible to crime risks such as burglaries, armed robberies and thefts (by employees or other parties). There are policies covering Fire, Burglary and other allied risks. Banker’s Blanket Policy is a composite policy which provides a comprehensive coverage to the bankers.

Recently I had circulated an interesting judgment of Indian Supreme Court – in a BB Policy pertaining to period 1976 – 77 issued by United India Fire & General Insurance Co Ltd (the name of United India in those days) to Amravati Dist. Central Coop Bank Ltd. The claim arose out of dishonest acts of an employee who committed a series of embezzlements. The amount claimed was Rs.344450/- and the Insurers after applying policy excess had offered settlement of Rs.29000/-

That led to a chain of litigation – Arbitration, Civil Court, remission back to Arbitrator, High Court and eventually dismissed at Apex Court. The main bone of contention of Excess which was held by the Supreme Court that each embezzlement was to be treated as a separate act by itself and the series of events could not be put forth together as a single claim. The Court relied upon a earlier judgement of Single Judge of Bombay High Court (Central Bank of India Ltd. v. New India Assurance Co.Ltd. (AIR 1981 Bombay 397)) who held that the word Excess meant that the Bank is to be considered as co-insurer to the extent of 25% subject to minimum excess stipulated. Here also, it was interpreted that the word is of common occurrence in the field of insurance and may mean either the right to make a claim or an assertion of a right. The plain object of the clause, as stated earlier, is to exempt the insurance company from the liability to pay small claims which the Bank has to bear itself. The word, "claim" in this clause means the occurrence of a state of facts which justifies a claim on insurer and does not mean the assertion of a claim on company. In other words, by the judgment, the operation of the Excess Clause is determined by the facts which give rise to the claim and not by the form in which the claim is asserted.

Irrespective of the facts of the case, I felt that the quantum and merits of the case certainly did not deserve spending 34 years in litigation in various Courts.

A friend of mine sent details of a similar case with different judgment. Perhaps the judgments are brought about more by the arguments and averments made before the Hon’ble Court.

It was also a case of embezzlement but the battleground being Telaviv, Israel. It is stated that Israeli courts rarely deal with criminal insurance policies in general, and with bankers' blanket bond policies in particular, resulting in few court judgments considering such policies. This is a judgement pronounced on May 31 2007 by the Tel Aviv District Court in The Official Receiver Acting as the Liquidator for the Bank of North America v Assurance General de France (CF 1516/89).

Some facts of the case : The Bank of North America was an Israeli bank established in 1978. On August 14 1985 the Central Bank of Israel took over the bank's management due to suspicions of irregularities, embezzlement and forgeries committed by the bank's directors. Shortly afterwards, the bank entered into liquidation proceedings.

Between August 8 1984 and August 7 1985 the bank was covered under a bankers' policy issued by Assurance General de France, which provided cover for, among other things, infidelity of bank employees. The policy was written on a discovery basis - that is, it provided cover for losses discovered by the insured during the policy period.

On August 16 1985, a few days after the central bank took over management of the bank, it sent a notification to the insurer concerning "irregularities which indicate the possibility of embezzlement of a large sum perpetrated in the bank's Jerusalem branch". It later transpired that the bank's management and directors were involved in various cases of embezzlement.

The insurer declined the bank's request for coverage and the bank's liquidator filed a claim with the Tel Aviv District Court.

The Insurer refused citing breach of disclosure duties, discovery after expiration of policy and the applicability of the Act of director exclusion.

After lengthy legal proceedings, the district court handed down its judgment, in which it rejected the bank liquidator's claim due to the fact that the loss was discovered after the termination of the policy period. It also analyzed the parties' contentions on Imputation of knowledge, Discovery of loss, Director’s act exclusion and limit of liability.

Without dwelling at length on these, the observation of limit of liability was ruled by the Court that “every loss or series of losses arising from events that were interconnected by a causal connection should be considered as a single loss”.

The Court rejected the liquidator’s claim and ruled in favour of the Insurer as the loss was not discovered during the policy period, going by the conditions of the Policy. Perhaps this would again be challenged in the Appellate Court.

The moral of these is that various Courts tend to interpret the same issue in different ways, based on the other facts and on the arguments advanced.

The other analogy is that this claim also occurred in 1985 and was decided at a District Court in 2007 (after 22 long years) and if the parties had appealed, perhaps would extend for some years. Recall that the case decided in Apr 2010 by Apex Court of India is of 1977-78.

Strange are the ways of people, who chose to litigate.

Regards – S Sampathkumar.

Inputs on Tel Aviv decision courtesy : & Israli law firm

1 comment:

  1. I went through the judgement passed by the honourable justice Raveendran and Radhakrishnan in the amaravati case. They are respected judges and have handled some complicated cases. I mean no disrespect.

    However, in this judgement a few things strike me as strange.
    1. Their interpretaion of coverage: an employee dishonest act cover is provided for loss occuring out of an employee dishonest act. Here, if a loss is sustained by the insured by an act of employee then that is to be considered as a single event. The act of embezzlements may have taken during various periods in time but the aggregate of all such loss will fall within one act.

    2. The argument of concluding that the HC decision was right. Globally, we know if the courts had adoped the same interpretation to the asbestos claims, a lot of insurance companies would have survived.........

    As mentioned earlier I mean no disrespect to the Judges but in my opinion they have wrongly understood the intent of the cover.