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The Vanguard Investments Ltd., Madras Vs. the Indian Mutual General Insurance Society Ltd., Madras - Court Judgment

LegalCrystal Citation
SubjectInsurance
CourtChennai High Court
Decided On
Case NumberOriginal Side Appeal No. 14 of 1965
Judge
Reported inAIR1973Mad147
AppellantThe Vanguard Investments Ltd., Madras
RespondentThe Indian Mutual General Insurance Society Ltd., Madras
Cases ReferredFund Life Assurance Society Ltd. v. National Mutual Life Association of Australasia Ltd.
Excerpt:
- - we find that the terms of the reinsurance policy made the liability thereunder clearly subject to all the terms, conditions and warranties contained in the original policy of the insured......of rs. 1,00,000/-, for the period from 27-2-1951 to 26-2-1952. in its turn the appellant took a reinsurance policy with the respondent for the corresponding period, but the appellant covered only 30 per cent of the original risk. on 26-12-1951, the premises of liyanage were gutted by fire, with the result a claim was preferred for the full amount under the policy of insurance. the colombo courts eventually held that the appellant was liable. the appellant paid a sum of rs. 77,231.98 to liyanage and bore its own costs.2. the suit is resisted by the appellant, (sic) (respondent?) and, by an additional written statement allowed to be filed on april 10, 1964, it raised the question of non-disclosure by the original assured of material particulars on two matters, with reference to which it.....
Judgment:

Veeraswami, C.J.

1. This is plaintiff's appeal from the judgment of Venkataraman, J., dismissing a suit for recovery of a certain amount under a policy of re-insurance issued by the respondent. The appellant a fire insurer and a limited company, had a branch in Colombo. A merchant in Colombo by name Liyanage insured with the appellant his electrical and motor goods against fire for a sum of Rs. 1,00,000/-, for the period from 27-2-1951 to 26-2-1952. In its turn the appellant took a reinsurance policy with the respondent for the corresponding period, but the appellant covered only 30 per cent of the original risk. On 26-12-1951, the premises of Liyanage were gutted by fire, with the result a claim was preferred for the full amount under the policy of insurance. The Colombo courts eventually held that the appellant was liable. The appellant paid a sum of Rs. 77,231.98 to Liyanage and bore its own costs.

2. The suit is resisted by the appellant, (sic) (Respondent?) and, by an additional written statement allowed to be filed on April 10, 1964, it raised the question of non-disclosure by the original assured of material particulars on two matters, with reference to which it said that the policy of insurance issued by the appellant was void. On that pleading, additional issue 4 was framed as to whether the original policy of insurance between Liyanage and the appellant was vitiated by non-disclosure of material facts and consequently whether the respondent was entitled to avoid the claim. Venkataraman, J., on the basis of the evidence before him, found that there was non-disclosure of two materials facts-(1) that the construction on the western side of the insured premises was only a wooden partition and wire mesh and (2) that the adjacent premises were a cafeteria with kitchen and fire place. The learned Judge found that the non-disclosure of these material facts rendered the policy void at the instance of the appellant. In coming to that conclusion, much law was discussed in the judgment.

3. It seems to us, that, in view of what we are presently to say, the learned Judge came to the correct conclusion. We find that the terms of the reinsurance policy made the liability thereunder clearly subject to all the terms, conditions and warranties contained in the original policy of the insured. In other words, those terms of the reinsurance policy entitled the respondent, when the risk, arose to put forward all defenses against such had been open to the appellant itself. As mentioned by Macgillivary on Fire Insurance Law, in cases of reinsurance, representation made by the assured for the original insurance, and forming the basis of the original policy, may in turn be made the basis of the reinsurance policy, so as to entitle the reinsurance to repudiate liability in the event of any statement made by the assured turning out to have been untrue at the date of the issue of the original policy. In our opinion, therefore, the non-disclosure of material facts having been rightly found in respect of the original policy, that automatically rendered the reinsurance policy also void.

4. Mr. Venkatarama Iyer for the appellant, however, argues that, since the payment by the appellant was not ex gratia or on a compromise or on an admission of its liability but it had to pay the amount because there is a decree against it by a competent court, the respondent would be liable to reimburse the appellant. That would be so, if the terms of indemnity and reinsurance warrant it. The reinsurance policy, however, did not cover any such liability. On the other hand, as we have already indicated, the reinsurance policy made the liability to indemnity thereunder to depend on the terms, conditions and warranties in the original policy issued by the appellant. The learned Counsel for the appellant drew our attention to Australian Widows' Fund Life Assurance Society Ltd. v. National Mutual Life Association of Australasia Ltd., 1914 AC 634 AIR 1914 PC 220. But we derive little assistance from it. That was a case where the reinsurance liability was avoided on the ground of material mis-statement by the original proposer. Also in that case, the assured had settled the liability with the assurer on a compromise.

5. In Welford and Otter Barry's Fire Insurance, there is a passage to which Mr. Venkatarama Iyer drew our attention--

'In order to render the reinsurance liable under a facultative reinsurance the liability of the reassured under the original policy must be a legal one, unless the reinsurance policy otherwise provides. The assumption of a voluntary liability is not sufficient. If, therefore, they make a payment to their assured which they are not legally justified in making, such as, for instance, an ex gratia payment, or if they admit liability where they have an available defense upon their policy, the reinsurance has no application. The reinsurers in such a case are not only entitled to avail themselves of any defense which may exist in connection with their own contract; but may, in addition, make use of any defense which the reassured might have used against the original assured.'

This passage, far from supporting the appellant, is against him. All that it says is that the liability of the reassured with reference to the original policy must be a legal one which is explained that, if for any reason the policy could be avoided, it could be taken advantage of by the reassured. It is also clear from the passage that, if there is no legal liability under the original policy, the reinsurer will not be liable merely because the insurer has made an ex gratia payment or admitted liability, even though it had a valid defense available. As mentioned by us, the terms of indemnity undertaken by the reinsurance policy subject to the terms, conditions and warranties thereof. There being found non-disclosure of material facts which avoided the original policy, that automatically avoided the risk under the reinsurance policy also.

6. The appeal is dismissed with costs.

7. Appeal dismissed.


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