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Wednesday, September 1, 2021

Marine Cargo Insurance - litigation on refund in a Policy

Contracts are Agreements – even when they are finely drafted, they could be open for interpretations and these could lead to arguments / disagreements sometimes landing in litigation in Forums and Court of Law.

Marine Cargo Insurance is insurance of goods in transit from one place to another …. International trade is exposed to financial losses due to different set of risks – physical loss or damage to cargo caused by various perils (some insurable and some not) and non-payment of goods. After all a transaction is made for commercial purpose of making money and when not paid for, it is of no use.  Goods can be bought and sold with payment of price in various forms – cash(currency); credit; cash against documents (negotiation through a bank); telegraphic transfer; barter and more.  There will be no conclusion to a commercial transaction : if the Seller insists that he will send goods only when he receives payment in advance and buyer insists that they will pay only when the goods are delivered at their doorstep.

Marine Insurance is very well codified and there is enactment – Marine Insurance Act 1963 in India (almost in tune with Marine Insurance Act 1906 of UK)

Section 27 of MI Act 1963 defines : ‘ Voyage and time policies ’: -

(1) Where the contract is to insure the subject-matter at and from, or from one place to another or others, the policy is called a "voyage policy", and, where the contract is to insure the subject-matter for a definite period of time, the policy is called a "time policy". A contract for both voyage and time may be included in the same policy.

(2) A time policy which is made for any time exceeding twelve months is invalid.

Lot has changed the way, Marine Insurance is underwritten  !  .. .. Marine Insurance was de-tariffed in 1994 and the rates constantly hit newer low.  Lot of definitions have gone for sixers ! – there was this regular query on ‘difference between Open Policy and Open Cover’.  Practically, Open Cover was an agreement, while Open Policy was a Stamped document.  Though the signatory – the Insurer would honour, only Open Policy could be filed in a Court of law as documentary proof.   Open Policies were issued covering inland transits; for import and export shipments, Open Cover was issued – individual Certificate(s) for each and every transit falling under the arrangement were issued and these were stamped documents.  In Marine insurance, the stamp duty is recoverable from the policy holder. Now-a-days, most Insurers issue a single Marine Policy covering goods ‘from anywhere in the World to anywhere in the World’ – thereby including inland, import, export, and more and all modes of transportation. 

Primarily, these are longer period agreements.  It is not possible for a trader or a manufacturer to get insurance for each transit on individual basis, and this benefits Insurers too.  Open Policies provides  automatic and continuous insurance cover, subject of course to premium being paid in advance.  The policy holder is to declare : each and every shipment / or monthly totals or at times the total turn over, depending on the arrangement. Premium adjustment is done after the expiry of policy.

Sec 31 of MI Act 1963 mentions : Floating policy by ship or ships

(1) A floating policy is a policy which describes the insurance in general terms, and leaves the name or names of the ship or ships and other particulars to be defined by subsequent declaration.

(2) The subsequent declaration or declarations may be made by endorsement on the policy, or in other customary manner.

(3) Unless the policy otherwise provides, the declarations must be made in the order of dispatch or shipment. They must, in the case of goods, comprise all consignments within the terms of the policy and the value of the goods or other property must be honestly stated, but an omission or erroneous declaration may be rectified even after loss or arrival, provided the omission or declaration was made in good faith.

(4) Unless the policy otherwise provides, where a declaration of value is not made until after notice of loss or arrival, the policy must be treated as an unvalued policy as regards the subject-matter of that declaration.

To put it simply, a manufacturer could take a policy for say 80 Crores.  First month declaration is 10 (balance 70 Cr available); second 20 (50 cr available) – after 4 declarations, if the total of transit value is 75 crores, then only 5 crore would be available to the policy holder’s credit, which may not be sufficient to cover the month’s transaction.  At this time, the policy holder takes enhancement by paying additional premium.  When the total declared value is less than the value for which premium was paid – insured becomes entitled for refund of premium on prorated basis.  However, there could be conditions in Policy stating that refund shall not exceed % specified at the time of taking policy.

Here is an interesting case on Marine Policy refund decided by Kerala High Court on 26th April 2021 involving an Oil Industry and a PsU Insurer.

The petition was filed by an aggrieved policy holder after Insurance Ombudsman denied full refund of unutilized part of insurance premium and interest on the award amount.  The petitioner claimed himself to the  Proprietor of an Oil Industry  and had availed Marine Insurance coverage from the Insurer; paid premium in advance and sent declarations when consignments arrived.  At the end of the year, the total availed insurance amount  was to be calculated on the basis of consignments arrived. Balance insurance premium amount was adjusted towards future insurance policy, treating the premium account as a running account.

In the year 2005, the petitioner found that huge amount was lying with the insurer as unutilised premium balance. The petitioner therefore sought  refund of Rs.48,884/-, which was the undrawn balance amount.  When reminded, the Insurer responded stating that no premium was pending for refund under the policy. The petitioner felt that reply had been provided without proper verification of records. According to the petitioner, actual amount due to the petitioner was Rs.50,170/-. The petitioner therefore again sent  letter along with the statement of policy balance and balance statement.  As there was no response, the petitioner filed complaint before the Chief Regional Manager, Grievance Cell of the Insurer, which again stated that no amount was found due towards unutilized premium,

The policy holder filed complaint before Insurance Ombudsman in Sept 2006.   Before the Insurance Ombudsman, the petitioner submitted a statement of accounts substantiating his claim for refund of `50,170/-. The  Insurer  respondent did not submit any calculation statement and instead made an oral submission that they have adjusted the balance amount due for every year towards future policy and that the undeclared amount refundable to the complainant in the year 2004-'05 on the expiry of the policy, was issued in favour of _______ Mills which is a sister concern. The Insurer then submitted that Rs.9471/- was the amount paid to the said sister concern.

The Insurance Ombudsman found that the sum of Rs.9,471/-  had not been aid and directed the Insurer to pay Rs.9,471/- to the petitioner. The petitioner thereupon approached this Court which  directed the Insurance Ombudsman to consider the issue afresh. The Ombudsman again heard the petitioner and respondents. The Ombudsman held that amount of Rs.50,170/- is liable to be refunded to the petitioner. As regards payment of interest, the Ombudsman found fault with the petitioner for the reason that it is only on 12.07.2005 after one year from the expiry of the policy term, that the petitioner approached the insurer for refund. On that ground, the Ombudsman held that both the insurer and insured are equally responsible for the protraction of litigation. The Ombudsman held that there is no reason to order any interest. However, an amount of `5,000/- was allowed towards cost.

The Hon’ble High Court held that in the claim made by the petitioner  before the Grievance Cell, the petitioner had not claimed interest. A perusal of judgment of the Court directing the Ombudsman showed that the petitioner did not make any claim for interest, when he approached the Court. The learned Ombudsman allowed the entire claim of the petitioner and also awarded `5,000/- towards cost. The Ombudsman found that there is delay on the part of the petitioner in making the claim before the insurer. In such circumstances, this Court finds no reason to interfere with the Award of the learned Insurance Ombudsman and dismissed the petition.

Without getting into other merits of the case, an apparently simple calculation of difference between insured value and declared value and a refund of Rs.50,170/- had taken more than 15 years ! 

With regards – S. Sampathkumar
11th Aug 2021. 

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