Golden Rules for interpretation of Insurance contract
it is necessary to take note of the law laid down on the
subject by the Constitution Bench of this Court in
General Assurance Society Ltd. vs. Chandumull
Jain & Anr., AIR 1966 SC 1644.
31) The Constitution Bench in this case has explained
the true nature of contract relating to Insurance and
laid down the relevant factors which the courts should
keep in mind while interpreting the contract of
insurance.
32) Justice Hidayatullah, J. (as His Lordship then
was) speaking for the Bench in his distinctive style of
writing held in Para 11 as under:
“11. A contract of insurance is a species of
commercial transactions and there is a well
established commercial practice to send
cover notes even prior to the completion of a
proper proposal or while the proposal is being
considered or a policy is in preparation for
delivery. A cover note is a temporary and
limited agreement. It may be self contained
or it may incorporate by reference the terms
and conditions of the future policy. When the
cover note incorporates the policy in this
manner, it does not have to recite the term
and conditions, but merely to refer to a
particular standard policy. If the proposal is
for a standard policy and the cover note
refers to it, the assured is taken to have
accepted the terms of that policy. The
reference to the policy and its terms and
conditions may be expressed in the proposal
or the cover note or even in the letter of
acceptance including the cover note. The
incorporation of the terms and conditions of
the policy may also arise from a combination
of references in two or more documents
passing between the parties. Documents like
the proposal, cover note and the policy are
commercial documents and to interpret them
commercial habits and practice cannot
altogether be ignored. During the time the
cover note operates, the relations of the
parties are governed by its terms and
conditions, if any, but more usually by the
terms and conditions of the policy bargained
for and to be issued. When this happens the
terms of the policy are incipient but after the
period of temporary cover, the relations are
governed only by the terms and conditions of
the policy unless insurance is declined in the
meantime. Delay in issuing the policy makes
no difference. The relations even then are
governed by the future policy if the cover
notes give sufficient indication that it would
be so. In other respects there is no difference
between a contract of insurance and any
other contract except that in a contract of
insurance there is a requirement of uberrima
fides i.e. good faith on the part of the
assured and the contract is likely to be
construed contra proferentem that is against
the company in case of ambiguity or doubt. A
contract is formed when there is an
unqualified acceptance of the proposal.
Acceptance may be expressed in writing or it
may even be implied if the insurer accepts
the premium and retains it. In the case of the
assured, a positive act on his part by which
he recognises or seeks to enforce the policy
amounts to an affirmation of it. This position
was clearly recognised by the assured
himself, because he wrote, close upon the
expiry of the time of the cover notes, that
either a policy should be issued to him before
that period had expired or the cover note
extended in time. In interpreting documents
relating to a contract of insurance, the duty
of the court is to interpret the words in
which the contract is expressed by the
parties, because it is not for the court to
make a new contract, however reasonable, if
the parties have not made it themselves.
Looking at the proposal, the letter of
acceptance and the cover notes, it is clear
that a contract of insurance under the
standard policy for fire and extended to cover
flood, cyclone etc. had come into being.”
Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL No.2140 OF 2007
United India Insurance Co. Ltd. ……Appellant(s)
VERSUS
M/s Orient Treasures Pvt. Ltd. ……Respondent(s)
Abhay Manohar Sapre, J.
Dated;January 13, 2016.
Citation:(2016)3 ALLMR441 SC
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