Statutory Requirement and Its Implication on Insurance Claim

Understanding Reinsurance: Finite Reinsurance (Finite Re)
Understanding Reinsurance: Finite Reinsurance (Finite Re)
May 21, 2019
Marine Insurance cover note of the Titanic Drafted 100yrs ago before it set sail from Southampton 2 Newyork
Marine Insurance cover note of the Titanic Drafted 100yrs ago before it set sail from Southampton 2 Newyork
August 17, 2019
Statutory Requirement and Its Implication on Insurance Claim

Sometimes, while dealing with insurance claims, Insurance companies and their deputed surveyors ask the Insured to confirm compliance of certain statutory requirements pertaining to the insurance risks and non-compliance of such statutory requirement is viewed seriously denying liability for insurance claims by the insurers.

One of such cases, we have come across, of late, is stated hereunder with a request to kindly examine and ensure compliance of Statutory Requirements wherever required to avoid any complication, rather, denial of insurance claim under your policies.

Section 12 and 13 of the West Bengal Fire Services Act, 1950 state as under:

  • Section 12 – Bars (prohibits) to use of premises for storing or processing hazardous substances without license – No premises in any area where this Act is in force shall be used for the purpose of storing or processing at any material point of time hazardous substances beyond such quantity as may be prescribed unless the owner or occupier thereof shall have previously been granted a license by the Collector.
  • Section 13 – Premises to conform to prescribed conditions – No license to use any premises for the purpose referred to in section 12 shall be granted unless such premises conform to such conditions as may be prescribed.

Further, Schedule – I of the West Bengal Fire Services (Fire License) Rules, 2004 framed in exercise of the powers conferred by section 10(2), section 12, section 13, section 14(2), section 15(2), 18, 19, and 38 of the West Bengal Fire Services Act, 1950 clearly shows that Jute is a hazardous substance and only 1870 kg of the aforesaid product was exempt from fire license. Any quantity above 1870 kg could be stored only on obtaining the requisite license in terms of section 12 of the West Bengal Fire Service Act, 1950, from the concerned Collector.  

In an insurance claim case, it was found that the prescribed license had not been obtained and the quantity of jute product stored in the warehouse was much more than the exempted, being as much as 5000 MT whereas the exempted quantity was only 1870 kg which comes to 1.876 MT. It is contended by the learned counsel for the complainant that this was not the term of the insurance policy that the insured would obtain a fire license in terms of West Bengal Fire Services Act, 1950 in respect of the insured goods and therefore storing the said products without requisite license does not constitute a breach of any terms of the insurance. The contention is that unless there is a breach of the term and condition of the insurance policy, the insurer cannot repudiate the claim.

The learned counsel for the insurer on the other hand relied upon the decision of the Hon’ble Supreme Court in Narinder Singh Vs. New India Assurance Company, IV (2018) CPJ II (SC) and hold that though the claim otherwise stands proved to the extent recommended by the surveyor, the same cannot be allowed as the complainant had not obtained the requisite license in terms of section 12 of the West Bengal Fire Services Act, 1950 for storing Jute products which are hazardous goods in the godown where the fire damaged/destroyed those goods. It would be pertinent to state here that requirement of obtaining a license for storing hazardous goods in a warehouse cannot be said to be only a technical requirement since such license can be issued only after ensuring that all necessary firefighting measures have been provided in the warehouse. Had the complainant obtained the requisite fire license, it could have been inferred that it had provided the requisite fire safety measures in the warehouse where the hazardous n goods were stored by it.  

Though the insurer did not ask the insured to produce the said licence before issuing the insurance policy or at the time thereafter, the same would be of no consequence since a contract of insurance is based upon UTMOST GOOD FAITH and therefore, the insurer would have no reason to even suspect that the insured would not comply with the stator requirement of obtaining a fire license for storage of the hazardous goods in a warehouse.

The decision of the Commission which the Hon’ble Supreme Court upheld in Narinder Singh (supra) was based upon an earlier decision of this Commission in Kaushalendra Kumar Mishra vs. Oriental Insurance Co. Ltd., (2012) 2 CPJ 189 (NC). In Kaushalendra Kumar Mishra the insurance claim in respect of motorcycle snatched from its driver was rejected on the ground that the vehicle was not registered and the said non-registration violated section 39 of the Motor Vehicle Act. The District Forum rejected the above contentions of the OP/Insurance Company and held that the use of the vehicle without registration was a matter to be dealt under the Motor Vehicles Act, but the insurer and the insured are bound by the terms of the contract between them. In the absence of a specific condition in the policy that if the owner does not get the vehicle registered within a period of seven days of its purchase, the Insurance Company will not be liable to pay for the loss of the vehicle, it was not proper to repudiate the claim on this ground.

The order passed by the District Forum allowing the complaint having set aside by the State Commission, the complainant approached this Commission by way of a revision petition.  Allowing the revision petition and dismissing the complaint, this Commission had held that the use of the vehicle in violation of the law itself will take it beyond the protection of the policy and therefore, the Insurance Company was justified in repudiating the claim.

For the reasons stated hereinabove, I hold that the complainant committed breach of an inherent fundamental terms of the insurance policy, by storing hazardous goods without obtaining the license required under section 12 of West Bengal Fire Services Act, 1950. The complaints are therefore dismissed, with no order as to cost.

KEEPING IN VIEW OF THE SAID LEGAL DECISIONS, WE WOULD ADVISE ALL OUR CLIENTS TO KINDLY CHECK THE RESPECTIVE ACT PROVISOS AS APPLICABLE TO EACH OF THEIR FACTORIES/MANUFACTURING UNITS, AND ENSURE COMPLIANCE OF THE ACT PROVISOS, EVEN IF INSURANCE POLICY DOES NOT CONTAIN ANY SUCH CONDITIONS/WARRANTIES PERTAINING TO ACT PROVISOS, IN ORDER TO AVOID ANY COMPLICATION IN THE EVENT OF ANY CLAIM.

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