1997 (3) TMI 568 - SC - Indian Laws

Insurance claim dismissed due to policy time limit, no violation of Contract Act, claim not covered by policy exclusions.

The Supreme Court upheld the insurance company's contention that Condition No. 19 of the insurance policy extinguished the right to claim if not acted ... Whether in view of the repudiation of the liability under clause 13, a dispute was raised which could be referred to arbitration? Whether the proceedings were barred by clause 19 of the policy? Held that:- Appeal allowed. The forfeiture clause 12 also provides that if the claim is made but rejected, an action or suit must be commenced within three months after such rejection; failing which all benefits under the policy would stand forfeited. So, looked at from any point of view, the suit appears to be filed after the right stood extinguished. Issues Involved:1. Applicability of Condition No. 19 of the Insurance Policy.2. Interpretation of Section 28 of the Contract Act.3. Coverage under the Riot and Strike Endorsement.4. Limitation period for filing the suit.Issue-wise Detailed Analysis:1. Applicability of Condition No. 19 of the Insurance Policy:The appellant Insurance Company contested the claim based on Condition No. 19, which stated, 'In no case whatever shall the company be liable for any loss or damage after the expiration of 12 months from the happening of loss or the damage unless the claim is the subject of pending action or arbitration.' The Trial Court upheld this condition, ruling that the suit was barred by limitation as it was filed more than three years after the repudiation of the claim. The High Court, however, held that Condition No. 19 could not limit the period during which the suit was to be filed and that it merely required the respondent to make its claim known within 12 months from the happening of the loss or damage. The Supreme Court, in the present appeal, agreed with the Trial Court, stating that Condition No. 19 effectively extinguished the right to claim if not acted upon within the stipulated period, thereby not violating Section 28 of the Contract Act.2. Interpretation of Section 28 of the Contract Act:Section 28 of the Contract Act states, 'Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void to that extent.' The Supreme Court clarified that agreements which curtail the period of limitation prescribed by law are void. However, agreements that provide for the forfeiture or waiver of the right itself if no action is commenced within the stipulated period do not fall within the mischief of Section 28. The Court cited previous cases, including Food Corporation of India v. New India Assurance Co., to support this interpretation, concluding that Condition No. 19 did not merely restrict the period of limitation but extinguished the right itself if not acted upon within 12 months.3. Coverage under the Riot and Strike Endorsement:The respondent's claim was based on two fire policies with Riot and Strike Endorsements, which covered damages caused by riots and strikes. The Trial Court found that the damage was not covered by the Insurance Policy due to Special Condition 5(i)(b) of the Riot and Strike Endorsement, which excluded 'Loss or damage resulting from total or partial cessation of work or the retarding or interruption or cessation of any process or operation.' The High Court reversed this finding, but the Supreme Court upheld the Trial Court's interpretation, stating that the damage resulting from the strike did not fall within the coverage of the policies due to the specific exclusion in Special Condition 5(i)(b).4. Limitation Period for Filing the Suit:The High Court observed that the letter dated 10.5.1977 could not be read as a letter of repudiation of the claim as no claim had been preferred by the respondent by then. It also noted that the suit filed on 2.6.1980 was within the limitation period as the last date fell within the summer vacation. The Supreme Court, however, emphasized that the suit was filed after the right had been extinguished due to the failure to act within the 12-month period stipulated by Condition No. 19. The Court reiterated that such clauses are common in insurance contracts to avoid undue delays and potential false claims, and thus, the suit was barred by the terms of the policy.Conclusion:The Supreme Court allowed the appeal, set aside the judgments of the lower courts, and dismissed the suit. The Court held that Condition No. 19 of the insurance policy effectively extinguished the right to claim if not acted upon within 12 months, and such a clause did not violate Section 28 of the Contract Act. The damage claimed was also not covered under the policies due to Special Condition 5(i)(b) of the Riot and Strike Endorsement. The suit was therefore barred by the terms of the policy and was filed after the right had been extinguished.