1966 (2) TMI 76 - SC - Indian Laws

Validity of Policy Cancellation Before Risk Commencement: Supreme Court Decision

The Supreme Court held that the terms of the standard fire policy, including Condition 10, applied in the case. The cancellation of the policy was deemed ... Whether the cancellation was done after liability of the assurer under the policy had commenced or the loss had become inevitable? Held that:- As concerned with two dates in particular and they are June 18, 1950 when Ghose visited Dhulian and July 6 when the policy was cancelled. The houses according to Lalchand Jain (P.W. 1) were 400/500 feet away when the proposal was made. The river remained calm till the second week of June. It only began to rise in the third week of June. Thus on June 18, when Ghose visited the place, there was no flood and no erosion. Ghose's report has not been produced but he could have only estimated the possibility of loss and no more. Even in the third week of June there was no erosion and it began by the end of June. Even on July 15 the distance between the river and the houses was 250 feet (see Q. 179). As the rate of erosion was about 20/25 feet per day (vide Bijoy Kumar P.W. 4) the houses were 400/500 feet away even on July 6. In these circumstances, it cannot be said that the loss had commenced or that it had become so certain as to be inevitable or that the cancellation was done in anticipation and with knowledge of inevitable loss. The cancellation was done at a time when no one could say with any degree of certainty that the houses were in such danger that the loss had commenced or became inevitable. There is no evidence to establish this. The assurers were, therefore, within their rights under condition 10 of the policy to cancel it. As the policy was not ready they were justified in executing it and cancelling it. The right of the plaintiff to the policy and to enforce it was lost by the legal action of cancellations. Appeal allowed. Issues Involved:1. Applicability of Condition 10 of the Fire Policy.2. Construction and interpretation of Condition 10.3. Validity of the policy cancellation.Detailed Analysis:1. Applicability of Condition 10 of the Fire Policy:The core issue was whether Condition 10 of the Fire Policy, which allows termination of the policy at will, applied to the facts of this case. The facts relating to the formation of the contract were clear except for the point relating to the cover notes. The Divisional Bench held that the cover notes did not accompany the letters of acceptance, thus leading to a divergence of opinion on whether Condition 10 operated. The letters of acceptance stated that 'relative covers' were enclosed, but the cover notes bore a later date, indicating they were sent separately. The learned single Judge held that the terms and conditions of the cover notes and the policy were incorporated by reference in the letters of acceptance, thus making Condition 10 applicable. However, the Divisional Bench disagreed, stating that the letters of acceptance undertook the risk for a whole year, and the cover notes did not form part of the contract.2. Construction and Interpretation of Condition 10:The Divisional Bench provided eight reasons why Condition 10 did not apply, concluding that the policy had not come into existence and did not govern this contract of insurance. They argued that the cover notes were only for a month and had ceased to be operative. The learned single Judge, however, held that the policy was bound to issue and the extent of the protection would be according to the company's usual terms and subject to the conditions in the policy. The Divisional Bench also found the expression 'usual conditions of the Society's policies' insufficient to cover other risks like flood and cyclone, arguing that Condition 10 was not a usual condition in English policies. They further held that the cancellation was unreasonable and could not be invoked once the risk had commenced or became imminent.3. Validity of the Policy Cancellation:The cancellation of the policy was another critical issue. The Divisional Bench held that the cancellation was ineffective because the risk had already commenced, making it impossible for the company to cancel the policy. They argued that the policy could not be cancelled after the liability of the company began. The learned single Judge, however, pointed out that Condition 10 allowed the company to cancel the policy at any time and that the reasons for cancellation were immaterial. The Supreme Court held that the cancellation was done at a time when the loss had not commenced or become inevitable. The evidence showed that the houses were still 400/500 feet away from the river on July 6, 1950, and the erosion had not reached a point where the loss was certain. Therefore, the company was within its rights to cancel the policy under Condition 10.Conclusion:The Supreme Court concluded that the terms and conditions of the standard fire-policy, including Condition 10, governed the relationship between the parties. The cancellation of the policy was valid as it was done before the risk had commenced or became inevitable. The appeal was allowed, setting aside the decree passed by the Divisional Bench and restoring the judgment of the learned single Judge, dismissing the suit. No order was made regarding costs.