Source: Supreme Court

Why in News?

A Supreme Court bench comprising Justice Hrishikesh Roy and Justice Sanjay Karol, in the case of New India Assurance Co Ltd v. M/S Mudit Roadways, observed that an insurance company’s obligation to the insured is of much greater importance.

What is the Background of New India Assurance Co Ltd v. M/S Mudit Roadways?

• A fire broke out on 14^th March 2018, at a warehouse covered by an insurance policy with the claimant having paid Rs. 44,02,562/- for coverage against fire and safeguarding custom bonded goods.
  • The forensic investigation report determined that a short-circuit was not the cause; rather, sparks from rooftop welding work may have triggered the fire.
• On 03^rd October 2018, the insured raised a claim for a sum of Rs. 6,57,55,155/. The Insurance Company rejected the claim on 15^th July 2019, citing reasons such as the insured premises were not affected by the fire and the alleged negligence in roof construction, which increased the risk and voided the insurance coverage.
• The respondent filed a consumer complaint. The National Consumer Disputes Redressal Commission (NCDRC) ruled in favor of the claimant and held that the insurance policy covered the complainant's warehouse and that the roofing work did not significantly increase the risk.

What was the Court’s Observation?

• The precise cause of a fire, whether attributed to a short circuit or any alternative factor, remains immaterial, provided the claimant is not the instigator of the fire.

What is Fire Insurance?

• Fire insurance is a type of property insurance that covers losses caused by an accidental fire.
  • Though most policies include some fire protection, business owners may want to purchase additional coverage to protect them from possible events where they may lose their property to a fire.
• The cost of replacing, repairing, or reconstructing property above the property insurance policy limit can be covered by an additional fire insurance policy.
  • However, most fire insurance policies include general exclusions, such as war and war-like situations, pollution or contamination, willful or intentional damage, and so on.
• Under Section 2(6A) Insurance Act, 1938, the fire insurance business is defined as “Fire insurance business means the business of effecting, otherwise than independently to some other class of business, contracts of insurance against loss by or incidental to fire or other occurrence customarily included among the risks insured against in fire insurance policies”

What is the Landmark Judgment Cited in the Case?

• Canara Bank v. United India Insurance Company (2020):
  • The insurance company cannot escape its liability if there is nothing to prove that the fire was caused by the insured itself, irrespective of what the cause of fire was.