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Sunday, November 1, 2020

the value of Insurance ~ what is Sum Insured / IEV / IDV in Motor Insurance Policy


Elementary for Insurance ~ Life,  Motor, Property, Marine policies have the Sum Insured ie., the value of the Policy – defining the outgo as also the amount on which the consideration (premium) is calculated and charged. In Liability policies and in some others – this could be ‘limit of indemnity / liability’. In general, this is the value that would be the binder or the ‘maximum’ payment by the Insurer.  For those insuring their vehicles for decades would have heard various terms like – Policy value, Indemnity limit, Sum Insured, Insured’s Estimated value (IEV); Insured’s Declared Value [IDV] [not applicable in Motor Third Party / Act policies]

In the new All India Motor Tariff since 2002, the sum insured is known as IDV – Insured’s Declared value, technically the value fixed by the proposer though the Insurers do have band limits for such value.  Though it might sound new to some, the All India Motor Tariff (AIMT) allows Agreed Value Policies for automobiles too – valued policies where the specified sum insured is paid as compensation in case of TL/ CTL (but this is allowed only for Vintage cars) [Any car manufactured prior to 31-12-1940 and duly certified by the Vintage and Classic Car Club of India]

For all Automobile insured under various sections (Private car / Two wheelers / Commercial vehicles) it is IDV deemed tobe the Sum Insured, fixed at the commencement of each policy period for each vehicle.   The IDV of the vehicle is to be fixed on the basis of manufacturer‟s listed selling price of the brand and model as the vehicle proposed for insurance at the commencement of insurance /renewal and adjusted for depreciation (as provided in the Tariff and noted in the Policies). The IDV  so arrived at can be further adjusted by addition of accessories and the like. 

With this background, here is an interesting case which brings out the significance of the sum insured and the methodology adopted in arriving at the policy sum insured – as decreed by Calcutta High Court way back in 22nd Apr 1966 in a case between  Major B.A.S. Chopra vs The New Zealand Insurance Co. Ltd.  

It was a plaint preferred by the vehicle owner / insured against his Insurers for   recovery of Rs.9000/- with interest thereon, on a motor car insurance policy covering  Lanchester Saloon Car, claimed to be by theft.  The Policy had been taken  for a sum insured  of Rs.10,000 and agreed that if the car was lost, inter alia, by theft, at any time during March 18, 1961 and Dec 28, 1961, the defendant company would pay to the plaintiff the value of the said car at the time of such theft, provided that the liability of the defendant company would not exceed on the whole the said sum of Rupees 10,000. After the expiry of the first period of insurance, the policy was renewed for a period of one year from December 29, 1961 to December 28, 1962, for the reduced sum of Rupees 9,000. This reduction was made, it is said, at the suggestion of the defendant company on account of the depreciation of the estimated value of the car. During the continuance of the period of this insurance, on December 31, 1961, the plaintiff went to attend a function at the Ordnance Club and parked the car on Clyde Row. When he came out of the Club at about 02.30 hours, on January 1, 1962 he discovered that the car was lost by theft. The plaintiff informed the Officer-in-charge, Hastings Police Station, and also gave notice to the defendant company about the theft. Thereafter, on January 10, 1962, the plaintiff submitted a written claim, with necessary particulars, claiming Rs. 9000 as the estimated amount of the loss.

The  Insurers  however, repudiated its liability under the policy, on the ground that the plaintiff had made material misrepresentation about the purchase value of the car in the proposal form.  

Before the Court, Insurers  filed a written statement denying liability for the claim. The defendant company admitted receipt of a notice concerning the theft of the car but did not admit that the car was lost by theft. Without prejudice to the above contention, the defendant pleaded that on March 18, 1961, the plaintiff made several statements and declarations in a proposal form and his statements and declarations were made the basis of the policy, which expressly provided that the truth of the statements in the said proposal would be condition precedent to the liability of the defendant company to pay under the policy.  It was stated that the plaintiff made a written declaration in the proposal form that he had purchased the car for Rupees 10,000 and that the estimated value of the car was also Rs. 10,000.   However, it was discovered   that the declararation was false or fraudulent and that the plaintiff had purchased the car only for Rs.6000. The defendant, it was pleaded, was therefore entitled to repudiate the liability under the policy and did so.

The issues framed by the Court were :

1. Did the plaintiff make a false or fraudulent declaration in the Proposal Form to the effect that he had purchased the insured car for Rs. 10,000?

2. Was the defendant entitled to repudiate its liability under the Insurance Policy on the ground that the plaintiff had made a false or fraudulent declaration?

3. Was the car insured with the defendant lost by theft,

4. What was the value of the said car at the time of its alleged theft?

5. Was the plaintiff entitled to claim interest at the rate of 6 per cent or any interest at all

6. Has this Court jurisdiction to try this suit?

7. To what relief, if any, is the plaintiff entitled? 

The insurance car was however admitted; the  suit related to the construction of a mercantile document (namely, a policy of insurance) and the claim exceeds Rs. 5000 in value and this issue too was  answered in the affirmative.

Issues 1 and 2. The ordinary law relating to the formation of contracts is that each party is under a duty not to make any misrepresentation concerning the subject-matter of the contract to the other. If consent to an agreement is caused by misrepresentation, the agreement becomes voidable, under Section 19 of the Contract Act, at the option of the party whose consent was so caused. Under the ordinary law, there is no positive duly to tell the whole truth in relation to the subject matter of a contract. There is only the negative obligation to tell nothing but the truth. In a contract of insurance, however, there is an implied condition that each party must disclose every material fact known to him. This type of contract is called contract uberrimae fides, that is to say, contracts in which the utmost good faith is required.   The proposal form, in the instant case also contains similar warranties as appears from the declaration subscribed by the plaintiff on the declaration form. Now, if representations made by the assured, in the proposal form, are incorporated as "basic terms" into the contract of insurance, the question of materiality becomes irrelevant. The parties agree that the representations thus embodied shall form part of their contract, and for their breach, however immaterial, however innocent, the insurer will be entitled to avoid the policy.  

The plaintiff purchased the motor car, the subject matter of the suit, for Rupee 6000 was not disputed as plaintiff himself admitted as also was there,   defendant's witness.  Nevertheless, in the proposal form, under the heading "Particulars of automobiles to be insured", sub-heading "cash purchase price of automobile", (i) "when new" and (ii) when bought by the proponent" the plaintiff respectively wrote the figures Rs. 38,000 and Rs. 10,000. The plaintiff sought to explain this stating that he had one    Morris Minor Car insured with the defendant company, which was sold in February 1961, before he purchased the Lanchester car, which is the subject matter of the suit, and became entitled to the balance of the premium for the unexpired period of insurance of the Morris Minor Car.   He stated that  immediately after the purchase of the Lanchester car, he rang up the Insurer and wanted to insure the newly bought car, on the same day, for the price paid for the car, namely Rs. 6000.   A representative prepared premium calculation, saw the cash receipt and also asked establishment of ownership of the car besides inspecting the vehicle, and allegedly suggested that this being an imported vehicle should be insured for Rs.10000/-     The premium payable on Rs. 10,000, namely, Rs. 183.04 was noted on the white piece of paper. Deducting Rs. 139.32, being the balance due out of the premium paid for insurance of Morris Minor Car, the representative asked the vehicle owner to pay Rs. 43.72 p. only.

The defendant company examined as a witness the person also. Having considered the evidence of the plaintiff and the defendant's witness the Court was  inclined to believe in the version of the plaintiff, and held  that the plaintiff was advised or induced by representative of the Insurer  to exaggerate the purchase price and to overvalue the estimated value.

The assured was described in the proposal form as a fisherman. which was his ordinary occupation. The fact that he was also a member of the Royal Naval Reserve, and was therefore exposed to additional risks, was not stated in the proposal fprm, but was communicated verbally to the District Manager of the Insurance Company and the premiums under the policy were subsequently paid and accepted by the District Manager. In holding that the District Manager's knowledge of the true facts was the knowledge of the company, Lawrence J. observed : "It is true that the proposal form contained a declaration that if any information which ought to be disclosed to the company with reference to the proposed insurance had been withheld the policy would be absolutely void, and if the fact of the assured being a member of the Royal Naval Reserve had been concealed it would have invalidated the policy.   It was not necessary in my opinion, that the communication should have been made direct to the head office or to the company's general manager. It is clear that the plaintiff believed that the communication to the district manager would be passed on by him to the head office,  

Mr. Majumder learned Advocate for defendant company, invited Court’s attention to  Anderson v. Fitzgerald, (1853) 4 HLC 484 in which it was held that where representation was part of the contract, its truth, not its materiality was in question, (ii) Thomson v. Weems, (1884) 9 AC 671 in which Lord Blackburn observed as follows: "It is competent to the contracting parties, if both agree to it and sufficiently express their intention so to agree, to make the actual existence of anything a condition precedent to the inception of any contract, and if they do so the non-existence of that thing is a good defence. And it is not of any importance whether the existence of that thing was or was not material; the parties would not have made it a part of the contract if they had not thought it material, and they have a right to determine for themselves what they shall deem material"

"The more serious proposition arose on the construction of the question and answer. In a contract of insurance it is a weighty fact that the questions are framed by the insurer, and that if an answer is obtained to such a question which is upon a fair construction a true answer, it is not open to the insuring company to maintain that the question was put in a sense different from or more comprehensive than the proponent's answer covered. Where an ambiguity exists, the contract must stand if an answer has been made to the question on a fair and reasonable construction of that question. Otherwise the ambiguity would be a trap against which the insured would be protected by Courts of law."

Hearing both the parties, the Court held  that the plaintiff had misrepresented the purchase price of the car, in the proposal, but that was done under circumstances in which Insurer’s employee  had a part, as already discussed. Thus, the defendant company is not entitled to repudiate liability, for reasons stated.

Issue 4. Although the plaintiff estimated the value of the car at the reduced figure of Rs. 9000. under the renewed policy on account of wear and tear, during the period of use of the insured car by himself, he is entitled to recover only the market value of the car on the date of the theft and not the price paid for the car nor the estimated value. (On consideration of evidence his Lordship came to the conclusion that Rs. 5000 was the reasonable value of the car at the material time.)

Issue 5. Notice under the Interest Act 1839 was given by the plaintiff's solicitor to the defendant company on July 5, 1962. In the circumstances of the instant case, it was thought fit not  to decree any interest in favour of the plaintiff.  In the end, the plaint was decreed in part for Rs.5,000/- only  with post decreed interest thereon at 6 per cent per annum. Both the parties were instructed to bear their own costs.

Appears to be a very fair judgment looking into all angles and not penalizing any of the parties. Interesting and significant decision considering the fact still some disputes go to Forums and Courts on the issue of limit of indemnity to be paid under a Motor Insurance policy.  There are learning for all concerned and connected with the automobile industry and insurance.


With regards – S. Sampathkumar




  1. Sir. It is interesting to read the observation of the court in Anderson v. Fitzgerald, (1853) 4 HLC 484 holding that where representation was part of the contract, its truth, not its materiality was in question, (ii) Thomson v. Weems, (1884) 9 AC 671 in which Lord Blackburn observed as follows: "It is competent to the contracting parties, if both agree to it and sufficiently express their intention so to agree, to make the actual existence of anything a condition precedent to the inception of any contract, and if they do so the non-existence of that thing is a good defence. And it is not of any importance whether the existence of that thing was or was not material; the parties would not have made it a part of the contract if they had not thought it material, and they have a right to determine for themselves what they shall deem material".
    Sampath sir. Proposal as specified bt IRDA are not filled up in many companies. Each office of same company design their one-page proposal form and fill it up. Regards, G.Ganesan, Dy.Mgr,OIC (retd)/Advocate/ Madurai

    1. Dear Ganesan Sir, thanks for that descriptive feedback. As you have rightly pointed out, the importance of proposal has been long lost - earlier people were too slack now they rely in voice recordings !!

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