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Sunday, November 17, 2019

Valet Parking ~ bailment ? - liability of Hotel ? - Insurer's right as Subrogee ??

For sure this has happened to you before .. .. …  you would never expect to land in a lengthy litigation as the one recently decreed by Apex Court in Taj Mahal Hotel Vs United India Insurance Co Ltd.

Do you Own a car ~ attend functions, go to Hotel .. ..  don’t you feel happy when instead of searching for a (generally non-existent parking place) – you have an uniformed attendant who takes the keys from you, gives you a slip ! and takes away the car for parking.  You feel greatly convenienced.  No longer you are searching for a space, and .. .. you and other attendants will not have to walk from a distant parking spot carrying some loads !  Happy ~ pleasant situation to be in ? – all yes, unless you are oblivious to some uncomfortable Qs !!  .. and by the time, you end up reading the post, you may start doubting and ask yourself couple of Qs before you hand over your keys to the valet !

Valet (pronounced Valei) : noun : dictionary meaning :  a man's personal male attendant, who is responsible for his clothes and appearance.  However, the commercial reference now is ‘parking valet’ – an employee of a thirdparty valet service, that for a fee or otherwise assists in handling vehicles at a place or at a function.   .. .. ..  have you ever dared to ask :
·         Whether these Valets are qualified i.e., hold a valid licence’
·         Would they park in a covered or permitted place
·         What would happen if they were to cause an accident
·         And .. .. what happens if a TP were to be injured in that unfortunate accident

In one instance, a gentleman went to a hotel, stylishly handed over the keys in exchange for a card !  – some one took charge and .. .. and vanished with the car. The hotel management said they were not aware of the person and the Insurance Company refused to admit the claim as ‘vehicle stolen’ stating that it was entrusted to someone, not wrongfully taken away, and hence more of a breach of trust than a theft as such !

The subject matter here has different set of circumstances.  On the night of 01.08.1998, at around 11 p.m.,   Maruti Zen owner visited a famous hotel.  He handed over his car and its keys to the hotel valet for parking, and then went inside the hotel. The parking tag handed over to him read inter alia: (most unlikely that anyone really reads them all)

“IMPORTANT CONDITION: This vehicle is being parked at the request of the guest at his own risk and responsibility in or outside the Hotel premises. In the event of any loss, theft or damage, the management shall not be held responsible for the same and the guest shall have no claim whatsoever against the management.”

When the Owner came out of the hotel at about 1 a.m., he was informed that his vehicle had been driven away by another person. Upon enquiry with the security officer, he found that three young boys had come to the hotel in their separate car, parked it, and gone inside the hotel. After some time, they came out and asked the valet to bring their car to the porch. During this process, one of the boys, picked up the keys of the car from the desk, went to the car parking, and simply drove away the Zen car.     Though the security guard tried to stop him, he sped away. A complaint was lodged with the police, but the car remained untraced.

United India Insurance did not raise any objections, treated this as a ‘theft’ – a peril falling within the purview fo the Policy, effected settlement for 2.80 lakhs, obtained  a Power of Attorney (‘POA’) and a letter of subrogation in favour of the Insurer.  Together they approached the State Commission by filing a complaint against the Hotel seeking payment of the value of the car and compensation for deficiency in service.

Life is not simple ~ there are twists and turns.  .. ..  Relying upon this Court’s decision in Oberoi Forwarding Agency v. New India Assurance Company Limited, the State Commission dismissed the complaint on the ground that an Insurance company acting as a subrogee cannot qualify as a ‘consumer’.  Insurer, undeterred,  filed an appeal before the National Commission.  Notably, Oberoi was partly overruled by a subsequent decision of a Constitution Bench of Apex Court in Economic Transport Organisation v. Charan Spinning Mills (Pvt.) Ltd.   In light of this change in law,   the National Commission in appeal remanded the complaint back to the State Commission, observing that the Insurer  had locus standi to file the complaint.

Deciding on merits, the State Commission relied on the decisions of the National Commission in Bombay Brazzerie v. Mulchand Agarwal3 and B. Dutta, Senior Advocate v. Management of State to hold that laws of bailment apply when a customer pays to park his car in a parking lot and it is then stolen or damaged. It was noted that the price paid for food consumed in the hotel would include consideration for a contract of bailment from the consumer (bailor) to the hotel (bailee). Applying this to the facts of this case, the State Commission observed that though the Appellant-hotel had averred that the owner of the car had not had dinner at the hotel that night, it was improbable for him to have stayed inside the hotel from 11 p.m. to 1 a.m. without consuming any food or snacks or paying a bill !  Hence, the State Commission proceeded on the assumption that the owner (policy holder too)  had paid consideration for the contract.

In light of this, the State Commission allowed the complaint and directed the Appellant-hotel to pay a sum of Rs. 2,80,000 (the value of the car) with interest at 12% per annum and Rs. 50,000 as litigation costs. In addition to this, it directed payment of Rs. 1,00,000  also  for inconvenience and harassment faced by him. The State Commission also held that Respondent No. 3 (insurer of the hotel) would not be liable to indemnify the loss caused to the Appellant-hotel, as the theft of the car had not been notified to it within due time.

The matter did not end here – an appeal was filed.    On the question of locus standi of Respondent No. 1 (subrogee) to file the complaint, the National Commission observed that its earlier order dated 20.09.2010 (supra) had not been challenged, and had consequently attained finality. Hence, it was held that the Appellant could not argue that Respondent No. 1 (car insurer) did not have locus standi. The National Commission further applied the principle of infra hospitium (Latin for ‘within the hotel’) and observed that common law has historically imposed strict liability on a hotel for the loss of a guest’s property if the guest and the property were within the hotel premises. It was noted that once the guest presents the car keys to the valet and possession of the car is transferred from the guest to the hotel, a relationship of bailment is established.

The National Commission on appeal by Hotels,  held that the liability of a hotel cannot be precluded by a printed notice on the parking tag disclaiming liability. Consequently, the appeal against the order of the State Commission was dismissed, although the interest awarded was modified from 12% per annum to 9% per annum. Hence, the present appeal.

            At this juncture, it is pertinent to note that the compensation awarded by the State Commission (including interest) has already been paid by the Appellant to Respondent Nos. 1 and 2. Thus, the Court was only  concerned with the questions of law involved in the matter.  The issues framed were “

1.    Whether the insurer had locus standi to file the complaint as a subrogee?;
2.    Whether   the Appellant-hotel can be held liable for the theft of a car taken for valet parking, under the laws of bailment or otherwise?;
3.    If 2nd @ is  answered in the affirmative, what is the degree of care required to be taken by the Appellant-Hotel?; and
4.    Whether the Appellant-hotel can be absolved of liability by virtue of a contract?

The impugned judgement is really interesting one – dealing with so many aspects of significant relevance to Insurers and on the issue of bailment. 

The existence of a contract of bailment often turns on the degree of control exercised by the prospective bailee over the property or good in question. In other words, the crucial point to be considered is whether the custody or possession of the vehicle is purposefully handed over to the hotel (as is the case with valet parking) or whether the complainant is merely allowed to park his car in a parking space or facility. While the laws of bailment apply in the former case, the latter is only a licensor-licensee relationship where laws of bailment or the prima facie liability rule cannot be applied.  In a  situation where the hotel actively undertakes to park the vehicle for the owner, keep it in safe custody and return it upon presentation of a parking slip in a manner such that the parking of the vehicle is beyond the control of the owner, a contract of bailment exists. Thus, the hotel would be liable as a bailee for returning the vehicle in the condition in which it was delivered.

            Given the existence of a bailment relationship, the failure of the Appellant to deliver the car to Respondent No. 2 (car-owner), raises a prima facie case of negligence against it. Thus, the burden of proof is on the hotel (bailee) to show that efforts were undertaken by it to take reasonable care of the vehicle bailed, and that the theft did not occur due to its neglect or misconduct.

The issue of Hotel printing certain conditions (as Important Notice) exculpating their liability was discussed at length and the Court held that hotels are at liberty to print clear contractual disclaimers notifying their guests that their liability is excluded for loss or damage to vehicles taken for valet parking which are occasioned by acts of a third party, contributory negligence or by force majeure events. However, as mentioned supra, this would always be subject to the hotel discharging its initial burden of proving that it fulfilled the standard of care imposed under Section 151 of the Contract Act.

The Court further observed that while a case of a robbery by force is visibly beyond a bailee’s control, in cases of private stealth, or simple theft where no force or violence is involved, the bailee still has the prima facie burden of explaining that the loss or disappearance of the goods in his custody is not attributable to his neglect or want of care. This is because no one apart from the bailee is in a position to explain the fate of the goods.  In the instant case, given our finding that the theft of the car of Respondent No. 2 was a result of the negligence of the Appellant-hotel, the exemption clause on the parking tag will not exclude the Appellant’s liability. Hence, the argument of the Appellant-hotel on this count fails.

Apex Court concluded that :

(i)         the hotel-owner cannot contract out of liability for its negligence or that of its servants in respect of a vehicle of its guest in any circumstance. Once possession of the vehicle is handed to the hotel staff or valet, there is an implied contractual obligation to return the vehicle in a safe condition upon the direction of the owner.

(ii)        Even where there is a general or specific exemption clause, there remains a prima facie burden of proof on the hotel to explain that any loss or damage caused to the vehicles parked was not on account of its negligence or want of care per Sections 151 and 152 of the Contract Act. It is only after this burden of proof is discharged that the exemption clause can come into force. The burden of proving that such loss or damage was covered by the exemption clause will also be on the hotel.

            In view of the foregoing discussion,  Supreme Court held that the consumer complaint in consideration is maintainable as it was filed by the insurer as a subrogee, along with the original owner as a co-complainant. Further, Court opined  that strict liability cannot be imposed on hotel owners in respect of loss of or damage to vehicles of their guests. Instead, the rule of prima facie negligence should be adopted. Applying this rule to the present case, it is clear that the Appellant has not explained why its failure to return the vehicle to Respondent No. 2 was not on account of fault or negligence on its part. Thus, liability should be affixed on the Appellant-hotel due to want of the requisite care towards the car bailed to it.

The appeal by the Hotel was dismissed accordingly.  It is worth reading the caselaws discussed in this judgment – probably I will post the finer details in another post as a sequel to this.  There are learning .. and this judgements offers so much for the Insurers.

With regards – S. Sampathkumar
17th Nov. 2019

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