Summary
For total loss of an insured excavator, the agreed sum insured was the starting value for indemnity, absent circumstances vitiating that agreement. The insurer could allow proper depreciation for use after the policy began, but could not reassess depreciation for the pre-policy period and disregard the agreed value. A 10% deduction for eleven months’ use supported restoration of the State Commission’s award.
Issues
- Whether an insurer could disregard the agreed sum insured by recalculating depreciation from purchase instead of the policy date.
Provisions considered
- Provision 2(b), Basis of Indemnity, Contractor, Plants & Machinery Insurance PolicyProper depreciation was to be applied to the agreed sum insured for the period after policy inception, not by reopening the value agreed at inception. (¶¶ 3, 15–17)
Held
- The parties knew the excavator’s age and purchase price when agreeing the insured value. Absent fraud, coercion, misrepresentation or circumstances attracting the duty of utmost good faith, they were bound by that stipulated value. (¶¶ 11, 15–17)
- The insurer’s surveyor improperly started from a new excavator’s cost and applied depreciation including the period before the policy. That period had already been reflected in the parties’ valuation. Further depreciation could be computed only using the agreed ₹46,56,600 as the starting point. (¶ 16–17)
- Sikka Papers concerned underinsurance and partial repair or replacement, where proportionate reduction could reflect inadequate premium. That principle did not justify replacing the agreed value on these total-loss facts. (¶ 12–15)
- Deduction of 10% for eleven months’ post-policy use correctly produced ₹41,90,940. Salvage already realised by the insurer was not to be deducted again. The State Commission’s assessment was correct. (¶¶ 7–8, 17–18)
Result
Appeal allowed; National Commission decision set aside and State Commission order restored: ₹41,90,940 with 8% annual interest from filing of the claim, ₹1 lakh compensation and ₹5,000 costs, with the State Commission’s 45-day compliance and 9% default-interest direction. No costs in the Supreme Court.