Marine Insurance Claim Dispute: Supreme Court Upholds Insurer’s Right to Repudiate Policy

The Supreme Court of India, in its judgment dated 07 February 2020, addressed a crucial legal dispute involving marine insurance, specifically concerning a breach of warranty in a cargo insurance policy. The case revolved around a claim made by M/s Rajankumar and Brothers (Impex), a partnership firm engaged in import-export, against Oriental Insurance Company Ltd. The dispute arose when the insurer repudiated the claim, citing non-compliance with the Institute Classification Clause (ICC) in the Marine Insurance Policy.

Background of the Case

The appellant, M/s Rajankumar and Brothers (Impex), was involved in the import of steel coils. The respondent, Oriental Insurance Company Ltd., had issued a Marine Cargo Cover Note on 14 May 2010 for USD 12,63,712.50, covering the voyage from China to Mumbai. The policy document was to be issued upon submission of vessel particulars.

The appellant later informed the insurer that the shipment was carried by the vessel ‘Khalijia-III’, which was allegedly classed as ‘I.R.S.’ The vessel carried cargo for multiple importers. On 02 July 2010, the respondent issued a Marine Insurance Policy, covering all risks under the Institute Cargo Clauses (A), Institute War Clause, and Institute Strike Clause.

Incident Leading to the Insurance Claim

The vessel reached Mumbai Port on 06 July 2010, but due to a failure in the ship’s crane, the discharge was delayed. On 18 July 2010, the vessel ran aground near Mumbai. Consequently, the appellant informed the insurer about a potential claim under the Marine Insurance Policy.

The shipowner engaged salvors, and a General Average Adjuster (GAA) declared a ‘General Average’ situation, wherein all cargo owners were required to contribute to loss mitigation. The appellant sought a General Average Guarantee from the insurer, which was issued on 03 August 2010.

However, the insurer later withdrew the guarantee, citing non-compliance with the Institute Classification Clause (ICC), which required the vessel to be classed with a recognized classification society.

Legal Dispute and Arguments

Following the insurer’s repudiation of the claim, the appellant filed a consumer complaint before the National Consumer Disputes Redressal Commission (NCDRC), seeking compensation. The NCDRC dismissed the complaint, holding that the vessel did not comply with the ICC, and the appellant had failed to establish compliance.

Petitioner’s Arguments

The appellant argued before the Supreme Court that:

The vessel was classed with the ‘International Register of Shipping’ (INTLREG), which should be considered an acceptable classification society.
The insurer had been provided with all vessel particulars before issuing the Marine Insurance Policy, implying their acceptance.
Clause 6 of the Cover Note allowed for additional premium payment in case of non-compliance, which the appellant could have paid if informed.
The insurer had initially issued a General Average Guarantee, indicating acceptance of the vessel’s classification.
Waiver of implied warranties in the Institute Cargo Clause should apply, as the appellant was not privy to any alleged unseaworthiness of the vessel.

Respondent’s Counterarguments

The insurer countered that:

The vessel did not comply with the ICC as its classification with Lloyd’s Register had been withdrawn in 2007.
The term ‘I.R.S.’ referred to the Indian Register of Shipping, whereas the appellant claimed it referred to the International Register of Shipping, which is not an IACS member.
The insurer had issued the policy in good faith but later discovered non-compliance with the ICC.
The issuance of the General Average Guarantee was an interim measure to mitigate losses and did not amount to waiver of policy terms.

Supreme Court’s Analysis and Judgment

The Supreme Court addressed two main issues:

Whether the appellant breached the warranty concerning ICC compliance.
Whether the insurer waived the breach of warranty.

The Court noted that the ICC required vessels to be classed with a member of the International Association of Classification Societies (IACS) or a National Flag Society. The vessel ‘Khalijia-III’ was not classed with an IACS member, and the appellant failed to notify the insurer of this fact.

Referring to previous legal precedents, the Court held that:

Underwriters rely on ICC compliance to assess risks.
The insured must promptly inform the insurer if the vessel does not comply.
Failure to meet classification requirements results in automatic exclusion from insurance cover.
The insurer’s withdrawal of the General Average Guarantee was justified upon discovering the breach.

Conclusion and Final Ruling

The Supreme Court upheld the NCDRC’s decision, dismissing the appeal. The Court ruled that the insurer was entitled to repudiate the claim as the appellant had breached the classification warranty. The issuance of the General Average Guarantee did not constitute a waiver of policy conditions.

This judgment reinforces the principle that compliance with classification clauses is essential in marine insurance. Cargo owners must ensure that the vessels they use meet the specified classification standards to avoid claim rejection.

Petitioner Name: M/s Rajankumar and Brothers (Impex).
Respondent Name: Oriental Insurance Company Ltd..
Judgment By: Justice Mohan M. Shantanagoudar, Justice K.M. Joseph.
Place Of Incident: Mumbai Port, India.
Judgment Date: 07-02-2020.

Don’t miss out on the full details! Download the complete judgment in PDF format below and gain valuable insights instantly!

Download Judgment: Ms Rajankumar and B vs Oriental Insurance C Supreme Court of India Judgment Dated 07-02-2020.pdf

Direct Downlaod Judgment: Direct downlaod this Judgment

See all petitions in Marine and Cargo Insurance Disputes
See all petitions in Insurance Settlements
See all petitions in Judgment by Mohan M. Shantanagoudar
See all petitions in Judgment by K.M. Joseph
See all petitions in dismissed
See all petitions in supreme court of India judgments February 2020
See all petitions in 2020 judgments

See all posts in Insurance Cases Category
See all allowed petitions in Insurance Cases Category
See all Dismissed petitions in Insurance Cases Category
See all partially allowed petitions in Insurance Cases Category