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HIGH COURT OF DELHI
NEW INDIA ASSURANCE CO. LTD. ..... Petitioner
Through: Mr. Abhishek Gola, Adv.
Through: Mr. Yogendra Aldak, Ms. Bhavya Shukla, Mr. Pranav Mundra, Ms. Rashi Srivastava and Mr. Agrim Arora, Advs.
JUDGMENT
1. The present petition has been filed under Section 34 of the Arbitration and Conciliation Act, 1996, assailing an arbitral award dated 26.04.2022, in respect of disputes arising out of Erection of All Risk/Storage Cum Erection Policy bearing no.31120044150400000001, issued in favour of the respondent by the petitioner for the period 10.08.2015 to 30.04.2016, extended from time to time vide various endorsements.
JUDGMENT
2. The project insured by the respondent is a hydro power plant, located at Madhopur Beas Link Canal of UBDC system in Pathankot area of Gurdaspur District of Punjab.
3. The respondent’s plant is based on a pit type turbine system which means that the generator, gear box and shaft are below water level.
4. Vide the impugned award, the following claims have been awarded
5. It can be seen that after ascertaining the entitlement of the respondent/claimant to the tune of Rs. 2,61,52,951/-, the operative portion of the impugned award after interpreting the applicable “excess” clause, held as under: “As per the terms of the insurance policy dated 19.08.2015 which was effective from 10.08.2015, there is an excess clause for Acts of God Claims (as per Memo 6) to the extent of 10% of the claim amount subject to a maximum of INR 5,00,00,000/-. In the instant case, I have found the Claimant's entitlement to be INR 2,61,52,951/-; thus, 10% of the awarded claim amount i.e., INR 26,15,295/- is liable to be deducted towards Act of God (EEL) clause as clearly stated on page 3 of the policy. Thus, after deduction of this amount the Claimant is entitled to recover and awarded a sum of INR 2,35,37,655/- (Two Crores Thirty Five Lacs Thirty Seven Thousand Six Hundred Fifty Five Only).”
6. The relevant portions of the impugned award where the issue of applicable “excess” has been discussed are reproduced hereunder: “1.19. Turning back to the question as to what was the minimum excess clause, the Respondent's reliance on the Held Cover Letter dated 10.08.2015 showing the deductibles of 5% of the claim amount subject to the minimum of INR 75,00,000/- is misplaced. In view of the report in Chandumull Jain (supra) it is well settled that the cover note operates only during the time the policy of the insurance is issued. The Hon'ble Supreme Court explained that the purpose of issuing cover note is only to provide a temporary cover during the time the insurer makes its enquiries and either agrees to accept the risk or declines to agree for the insurance. The terms and conditions of the contract between the insured and the insurer would be governed by the policy of the insurance. The relevant paras of the report of the Hon’ble Supreme Court are extracted hereunder:- “11............... 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 the 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 '' xxx xxx xxx
This view was reiterated by the Hon'ble Supreme Court in Pushpalaya Printers (supra) and by the Hon'ble Bombay High Court in Central Bank of India (supra). In view of the foregoing discussion there is no manner of doubt that the policy of insurance having been issued much earlier to the loss suffered by the Claimant, the Respondent is not entitled to rely on the Held Cover Letter. Similarly, the Respondent making the deductibles applicable under the policy as 5% of the claim amount subject to minimum of INR 75,00,000 /EEL for AOG retrospectively since the inception of the policy on 16.08.2016 is completely illegal. It goes without saying that the Respondent is bound by the original terms of the policy which laid down the deduction of 10% subject to a maximum of INR
5 Crores for AOG since the inception of the policy w.e.f. 10.08.2015 which terms and conditions were extended by the first and second endorsement upto 30.07.2016 plus six months maintenance period i.e., until 30.01.2017.”
7. In the above background, the petitioner has challenged the impugned award primarily assailing the findings of the learned arbitrator regarding the deductibles which would be applicable under the subject Insurance Policy. While the petitioner has urged some other grounds in the petition, the petitioner has restricted the challenge to the above aspect in its oral arguments as well as in its written submissions.
8. It is contended by learned counsel for the petitioner that prior to the issuance of the insurance policy, the under-writing office of the petitioner sent an EAR Calculation vide an e-mail dated 31.07.2015, and subsequently issued a “Risk Held Cover Letter” dated 10.08.2015, wherein the mandatory deductible pertaining to excess was stated to be 5% of the claim amount for “Act of God” (EOG) Perils subject to a minimum of Rs.75,00,000/-. It has been further contended that this deductible is based on and arising out of the Memo 8 and Serial No.11 of the rate schedule of the “All India Tariff on Contractors All Risk Insurance” which covers AOG Perils and prescribed the minimum deductible to be Rs.5,00,000/-. It is submitted that vide circular dated 14.03.2011, issued by the Head Office, Mumbai of the petitioner, the deductible amount mentioned in the tariff was increased to 15 times of the minimum amount i.e. Rs.75,00,000/-.
9. Accordingly, the broker of the respondent is stated to have been duly intimated before issuance of the policy vide e-mail dated 31.07.2015 about the excess amount applicable to the policy in question i.e. 5% of the claim amount subject to a minimum of Rs.75,00,000/- for AOG/ Major Peril/collapse/testing period, with a sub-note that: “Our approval is subject to adherence of all the terms, conditions and endorsement applicable under EAR Policy’ ‘our approval No. is HO/ENGG/2015/14311.”
10. This excess clause is stated to have again mentioned in the Held Cover Letter dated 10.08.2015.
11. Accordingly, the surveyor in the addendum survey report dated 15.06.2018 applied the applicable excess to the tune of Rs. 75,00,000/- on the gross loss assessed i.e. Rs.71,59,840/- and accordingly processed the claim of the respondent as “No Claim” on which basis, the petitioner repudiated the claim vide letter dated 30.06.2018.
12. The aforesaid submissions have been controverted by the learned counsel for the respondent who submits that there is no infirmity in the award and that the policy schedule issued by the Petitioner on 19.08.2015 itself clearly states that for AOG perils, the applicable excess would be 10% of the claim amount subject to a minimum of testing period excess and a maximum of Rs. 5 crores. It is further submitted that the policy schedule is the central contract between the insurance company and insured which encapsulates the entire understanding and terms of insurance as concluded between the parties, therefore, the deductible as mentioned in the insurance policy schedule should be considered as agreed, accepted and binding on the parties. Learned counsel for the respondent has also contended that the award passed by the learned arbitrator deals with this issue extensively and has tendered cogent findings in support thereof, which cannot be interfered with in a Section 34 petition. In this regard, reliance has been placed upon the judgments in the case of Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd[1], Parse Kente Collieries Limited v. Rajasthan Rajya Vidyut Utpadan Nigam Limited[2] and Delhi Airport Metro Express Private Limited v. Delhi Metro Rail Corporation Limited[3].
13. Having perused the record and having considered the submissions of respective counsel for the parties, I find no merit in the contentions raised on behalf of the petitioner. Analysis and Conclusion
14. Admittedly, the petitioner had issued an insurance policy in favour of the respondent for the period 10.08.2015 till 30.04.2016, wherein the deductible for AOG perils was prescribed to be 10% of the claim subject to a minimum of testing period excess and a maximum of Rs.[5] Crores. The policy period was further extended vide endorsements dated 03.05.2016 and 08.07.2016. The endorsements specifically mention that “all other terms and conditions remain unaltered”.
15. Subsequently, on 12.07.2016, there was heavy rainfall at the project site due to which there was a sudden excessive increase in water levels, causing damage to the respondent’s equipments. It is against this loss that the claim was preferred by the respondent. Post the occurrence of loss, the insurance policy was extended vide an endorsement dated 16.08.2016 wherein it was sought to be provided that the applicable excess would be 5% of the claim amount subject to a minimum of Rs.75,00,000/- for AOG Perils.
16. The very fact that it was only in the endorsement in the policy issued post the occurrence of loss, that the petitioner included an additional clause with respect to deductibles being subject to a minimum of Rs.75,00,000/- for AOG Perils, gives credence to the contention that for the period prior thereto, this stipulation cannot be read into the policy in question.
17. The impugned award also rightly holds that the attempt to retrospectively insert this stipulation in the policy is completely illegal. It was completely impermissible for the petitioner, after the occurrence of loss, to introduce new terms and conditions. The claim under the policy for the period in question would necessarily have to be governed by the extant policy terms and conditions, as on the date of loss.
18. It has also been rightly noted in the impugned award that the terms of the risk held cover letter, which stipulate excess to be 5% of the claim amount subject to a minimum of Rs.75,00,000/-, could not be construed as overriding or superseding the conditions of the policy itself. Reliance has rightly been placed on General Assurance Society Ltd. vs. Chandumull Jain (1966) 3 SCR 500 as also in United India Insurance Company Ltd. vs. Pushpalaya Printers (2004) 3 SCC 694, which clearly holds that the purpose of the cover note is only to provide a temporary cover during the time the insurer makes its enquiry and either agrees or declines to accept the risk, until the insurance policy is issued.
19. The insurance policy itself, and the terms and conditions expressly referred to in the said policy constitutes the concluded contract between the parties.
20. No fault whatsoever can be found in the reliance placed by the impugned award on Chandumull Jain (supra) and Pushpalaya Printers (supra) in the facts and circumstances of the present case.
21. The reliance sought to be placed by the petitioner on the rate schedule incorporated in the “All India Tariff on Contractor’s All Risks Insurance” and circular dated 14.03.2011 also cannot be countenanced.
22. It is not permissible for the insurance company to introduce alien terms and conditions by seeking to place reliance on administrative circulars/instructions which do not find mention in the policy and with regard to which the insured had not been put to notice.
23. In the circumstances, the conclusions arrived at in the impugned award is unexceptionable.
24. There is also merit in the contentions raised by learned counsel for the respondent to the effect that the plea regarding applicability of the rate schedule, forming part of the “All India Tariff on Contractor’s All Risks Insurance”, having not been raised in the arbitration proceedings, the petitioner is, therefore, precluded from raising the said plea/s for the first time in these proceedings. In this regard, reliance has been rightly placed on the judgment of the Supreme Court in the case of Hyder Consulting (UK) Ltd. v. Governor, State of Orissa, (2015) 2 SCC 189.
25. The limited scope of interference under Section 34, has been reiterated in a catena of judgments, including in the recent case of Hindustan Construction Co. Ltd. v. National Highways Authority of India[4]
28. This enunciation has been endorsed in several cases (Ref McDermott International Inc. v. Burn Standard Co. Ltd). In MSK Projects (I) (JV) Ltd v. State of Rajasthan it was held that an error in interpretation of a contract by an arbitrator is “an error within his jurisdiction”. The position was spelt out even more clearly in Associate Builders (supra), where the court said that: “[..] if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground. Construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair minded or reasonable person could do.””
26. In Konkan Railway Corpn. Ltd. v. Chenab Bridge Project[5]