Sadharan Bima Corporation (Appellant)
Sanjib Kumar Das & another (Respondent)
MH Rahman CJ
ATM Afzal J
Mustafa Kamal J
Latifur Rahman J
February 23rd, 1995
Cases Referred to-
Roul Colinvaux in The Law of Insurance, 3rd Edition, 1970 at page 25; Black’s Law Dictionary, 4th Edition, page 49; Halsbury’s Laws of England, 3rd Edition, Vol. 1, at page 2; AN Ghose vs. Reliance Insurance Company, AIR 1934 (Rangoon) 15; Baroda Spinning and Weaving Co. Ltd. vs. Satynarayan Marine and Fire Insurance Co. Ltd, AIR 1914 (Bom) 225; Sree Hari Sankar Nandi Majumdar vs. Sree Promode Chandra Roy Choudhury, 4 PLR (Dacca) 595; Honuman Box vs. Eagle Star and British Dominions Insurance Company Ltd, AIR 1924 (Cal) 186; G, Rainey vs. Burma Fire and Marine Insurance Co. Ltd, AIR 1926 (Rangoon) 3; Rubi General Insurance Company vs. Bharat Bank, AIR 1950 (EP) 352; Pearl Insurance Company vs. Atma Ram, AIR 1960 (Punjab) 236; Vulcan Insurance Co. Ltd. vs. Maharaj Singh, AIR 1976 (SC) 287; Sargodha Central Co?operative Bank Ltd. vs. New Hampshire Insurance Co, PLD 1982 (Karachi) 627; Ali Pipe Industries vs. The Universal Insurance Co, Ltd, PLD 1989 (Lah) 390; Pir Bakhsh vs. Chairman, Allotment Committee PLD 1987 (SC) 145.
AR Yusuf, Senior Advocate, Manzur?ur?Rahim, Advocate with him instructed by Sharifuddin Chaklader, Advocate?on?Record ? For the Appellant.
M Nurullah, Senior Advocate instructed by Shamsul Haque Siddique, Advocate – on – Record-For the Respondent No. 1.
Md. Nawab Ali, Advocate?on?Record ?For the Respondent No. 2.
Civil Appeal No.4 of 1994
(From the Judgment and Order dated 24.8.93 passed by the High Court Division in Appeal from Original Decree No.267 of 1992).
Mustafa Kamal J: This appeal by defendant No.1 Sadharan Bima Corporation by leave is from the judgment and order dated 24.8.93 of the High Court Division passed in Appeal from Original Decree No. 267 of 1992, affirming the judgment and decree dated 3.11.92 passed by the learned Subordinate Judge, Chittagong in Money Suit No. 2 of 1992, decreeing the suit.
2. Plaintiff?respondent No.1 Sanjib Kumar Das is a manufacturer and seller of homeopathic medicines under the name and style of SB Memco Laboratory at his village Kulkurmal, Police Station Rangunia, District Chittagong. He obtained a loan from pro?forma defendant No. 2 Janata Bank, Laldighi East, Chittagong on an equitable mortgage of the land and building on which the laboratory is situated. Upon the joint proposal of the plaintiff and the said bank the appellant issued a fire insurance policy dated 5.5.90 insuring the plaintiffs laboratory building, machineries, furniture’s and stocks?in?trade for Taka 31,00,000.00 in the plaintiffs said trade name. The policy was to expire on 3.5.91. The Janata Bank upon inspection of the plaintiff’s laboratory advised the plaintiff to enhance the insured amount and accordingly upon the plaintiffs request dated 17.7.90 the insured amount was enhanced to Taka 41, 00,000.00. The plaintiff paid the requisite premium while obtaining the insurance policy dated 5.5.90 and after payment of additional premium the insured amount was enhanced to Taka 41, 00,000.00 by an endorsement dated 25.7.90. In the night following 11.10.90 at about 2?00 AM a fire took place in the plaintiff’s laboratory resulting in complete damage to the laboratory, furniture, medicines and machineries. The neighbouring people tried to extinguish the fire without success and tried to inform the Fire Brigade of Karnaphuli Paper Mills through Rangunia Police Station. On 12.10.90 a GD entry was lodged at Rangunia Police Station. An Officer of Karnaphuli Fire Brigade, a Narcotic Inspector and the Police visited the place of occurrence on 14.10.90 being a Friday, the plaintiff informed of the occurrence to the appellant by a letter dated 13.10.90 and requested the appellant to survey the damages and pay the compensation. On 14.10.90 the appellant sent some claim forms which the plaintiff duly filled in and deposited to the appellant on 25.10.90. Officers of the appellant held spot enquiry and took photographs, video tape and other alamats from the place of occurrence. Upon the direction of the appellant a joint survey was hold for ascertaining the cause of fire and the quantum of damage. The surveyors submitted a report on 10.12.90 stating that the fire took place owing to short circuit of electricity and that the damage was to the tune of Taka 37, 23,320.91 and recommended for payment of compensation to the plaintiff. Fire caused by electric short circuit was covered by the policy of insurance. The plaintiff requested the appellant to pay the aforesaid amount of compensation by a letter dated 28.3.91 and appellant too by a letter informed the plaintiff that his claim was under active consideration of the authority. The appellant remained silent for a long time which prompted the plaintiff to issue a lawyer’s notice on 10. 11.91, but the appellant without replying to the same directly repudiated the claim of the plaintiff by a letter dated 16.11.91 Ext, 11. It was stated therein that Janata Bank without having any insurable inoperable interest in the insured properties became a signatory to the insurance proposal and the plaintiff secured the insurance policy by resorting to falsehood. Another insurance policy of a lesser amount for the same insured properties was taken out by the plaintiff from Green Delta Insurance Company Ltd, but the plaintiff did not disclose this fact to the appellant and therefore, there was a fraudulent suppression of material facts causing serious breach of utmost good faith. It is evident from the survey report, it was alleged, that the cause of fire was other than an accidental fire, Besides, for commission of several other acts of breach of terms, conditions and warranties of the policy the plaintiff disentitled himself to any claim whatsoever. The plaintiff stated in the plaint that the fire policy with Green Delta Insurance Company was in respect of the plaintiff’s factory situated at Super Market, Chittagong and the said fire policy expired long ago on 30.5.90. The plaintiff did not suppress any facts and the appellant was bound under the policy to pay compensation to the plaintiff for the aforesaid amount. Hence the suit for a decree for Taka 37,23,320.91, with interest and compensation, filed on 2.1.92.
3. Pro?forma defendant No. 2, Janata Bank, by filing a written statement supported the case of the plaintiff, but the appellant, defendant No.1 denied all the averments of the plaintiff in its written statement and apart from reiterating the grounds on which the claim was repudiated by the letter dated 16.11.91 Ext. 11 took the following ground in paragraph 8 of the written statement:
“That as the suit was not filed within the time as required under the policy it is liable to be dismissed.”
4. The plaintiff examined witnesses including himself and the appellant also examined 4 witnesses. Both sides brought on record many documents which were marked as exhibits,5. The trial Court found that the fact of taking out of the fire policy and the fact of fire and resulting loss to the plaintiff are not disputed matters. The survey report was not challenged by the appellant. Consequently the trial Court held that the plaintiff sustained a damage of Taka 37, 23,320.91.
6. At the trial the argument was in fact centered round condition No 19 of the Policy which reads as follows:
“19. In no case whatever shall the Corporation be liable for any loss or damage after the expiration of twelve months from the happening of the loss or damage unless the claim is the subject of pending action or arbitration.”
7. The appellant contended that the loss took place on 12.10.90 and the suit was filed on 2.1.92. Therefore, the appellant was not liable for any loss or damage after the expiry of 12 months from 12.10.90. The trial Court held that as the appellant did not give any decision on the claim of the plaintiff before 16.11.91 (Ext. 11), the claim was the subject of pending action before the insurer and therefore condition No. 19 is not attracted. The trial Court negatived all other defences of the appellant and decreed the suit for Taka. 37,23,320.91 with interest at the rate of 18% and compensation at the rate of 5% from 11.3.91 as also the costs of the suit.
8. In the First Appeal before the High Court Division the other defences of the appellant were similarly negatived and the submission of the appellant was mainly concentrated on condition No. 19 of the Fire Policy. The High Court Division held that the meaning of the word ‘action’ is not confined to a suit or other civil proceeding in Court for recovery of damage, because the word ‘action has been used in several other conditions of the Policy disjunctively from the word ‘suit’. It further held that the insurance law is a beneficial legislation and the word ‘action’ will also mean and include any action to be taken by the insurer after the claim is lodged by the insured. The claim was repudiated by the appellant after the expiration of twelve months from the date of loss on 16.11.91 on some grounds other than that stipulated in condition No.19 of the Policy. As such under condition No. 13 of the Policy the plaintiff had the right to institute the suit within 3 months of the repudiation of the policy which he did. The claim is not time?barred in any manner, it held. The trial Court’s decree was upheld.
9. The relevant provision of condition No 13 of the fire Policy is as follows:
“3. If the claim be made and rejected and action or suit be not commenced within three months after such rejection …………….all benefits under this policy shall be forfeited.”
10. Leave was granted to consider the appellant’s submission that the Courts below misinterpreted and misapplied condition No. 19 of the Fire Insurance Policy by giving a dictionary meaning to the words ‘pending action’ contained in the said clause, contrary to the legal precedents and insurance practice followed in this subcontinent.
11. Mr. AR Yusuf, learned Counsel for the appellant, submits that the words ‘pending action’ occurring in condition No. 19 of the policy have received authoritative interpretation from various High Courts of this sub?continent since the last 80 years, These words have been given a technical meaning althrough out, meaning to say, a suit to be filed in a Court of Law, and the entire insurance community is following this interpretation since the last 80 years. The High Court Division, he submits, by making a radical departure from the accepted interpretation of these words has upset the law of insurance on untenable grounds.
12. Mr. M Nurullah, learned Advocate for the insured?respondent No, l. on the other hand, has defended the judgment of the High Court Division by quoting profusely from MacGillivray on Insurance Law, 4th Edition, Insurance Law by BN Singh, 3rd Edition, 1993 and the law relating to Fire Insurance by Welford and Otter Barry, 4th Edition, 1948 and has submitted, correctly we think, that policies of insurance are to be construed like other written instruments and that there are no peculiar rules of construction applicable to the clauses and conditions in. a policy which are not equally applicable to the terms of other contracts. The conditions are to be construed fairly between the parties and the Court will endeavour to ascertain their meaning by adopting the ordinary rules of construction taking recourse to the ordinary rules of grammar.
13. In section 713 of MacGillipray on Insurance Law, however, the learned author says as follows:
“713. Technical meaning, words must sometimes be construed otherwise than in their popular sense.? (1) if the context compels a different construction, or (2) if they are words of common form which from long usage and frequent decisions of the Court have received a fixed and more or less conventional meaning, or (3) if by the universal custom of some trade or business an artificial meaning peculiar to that trade or business has been attached to the words in question.”
14. The same is the view taken by Rout Colinvaux in the Law of Insurance, 3rd Edition, 1970 at page 25 where it is stated:
“Once a phrase has been given a definite meaning by the Courts for a 4ong period, not even a court of higher jurisdiction will overrule earlier decisions on the matter”.
15. The question, therefore, is, have the words “pending action” in condition No. 19 of the Fire Policy acquired a technical meaning from long usage and frequent decisions of the Court and, if so, is the High Court Division well?grounded in law in overruling them?
16. It is impracticable to draft individual policies for each separate insurance and it is therefore necessary to use policy forms more or less standard in character and to adopt them to the requirements of particular insurance by the attachment of clauses most of which are also standardised. In fire insurance, for example, the form that has been used by the appellant (Ext.3) has been in use for well over a century. Its clauses and conditions are internationally in use and its imports and implications are well known throughout the insurance world.
17. In five conditions of the Standard Fire Policy the word ‘action’ is used. Condition No. 4 reads, “in any action, suit or other proceedings, the burden of proving.” In condition No. 6 again, the words used are: “in any action, suit or other proceedings.” In condition No 13 the words are: “If the claim be made and rejected and an action or suit be not commenced.” In condition No. 18 the words are: “right of action or suit.” In condition No. 19 the words are: “subject to pending action or arbitration.”
18. It is obvious that in four of the five conditions the words ‘action’ and ‘suit’ have been used disjunctively, but the learned Judges of the High Court Division have failed to appreciate why these words were used separately. As we said before, the conditions of standard fire policy were drafted a century ago by British draftsmen and, in those days, there was distinction between an ‘action at law’ and a ‘suit in equity’ in English law. Any question arising out of a policy of fire insurance in connection with the claim of the insured was in those days to be determined by the Court in an ‘action’ brought upon the policy at the suit of the insured. The action is brought in the Queen’s Bench Division of the High Court of Justice, or in the Country Court, according to the amount of the insured’s claim.
19. In Black’s Law Dictionary, 4th Edition, page 49 the distinction between ‘action’ and ‘suit is stated as hereunder:
“Strictly applied, action does not usually refer to chancery practice …………….But terms “action” and “suit” are now nearly, if not entirely, synonymous ……………..or, if there be a distinction, it is that the terms “action” is generally confined to proceedings in a court of law, while “suit” is equally applied to prosecutions at law or in equity ……………….
Formerly, however, an action was considered as terminating with the giving of judgment, the execution forming no part of it. A suit included the execution ……..So, an action is termed by Lord Coke, “the right of a suit”.
20. So in England, both ‘action’ and ‘suit’ were legal proceedings in a court of law culminating in a judgment, but whereas ‘action’ did not include execution proceedings, ‘suit’ included execution proceedings, Also, ‘action’ could only be instituted in a court of law and not in a court of equity, but ‘suit’ could be instituted both in a court of law and in a court of equity. Nowadays the distinction is blurred and in Halsbury’s Laws of England, 3rd Edition, Vol. 1, at page 2, ‘action’ is defined thus:
“Action’, according to the legal meaning of the terms, is a proceeding by which one party seeks in a Court of Justice to enforce some right against, or to restrain the commission of some wrong by, another party. More concisely it may be said to be ‘the legal demand of a right’ or ‘the mode of pursuing a right of judgment’.” “In its wider meaning the term includes both civil and criminal proceedings………..It is however generally used in more restricted or popular sense as denoting a civil action commenced by writ or plaint.”
21. No case from the English jurisdiction could be cited by either side to show that the word ‘action’ includes any ministerial or official action to be taken by the insurer after the claim is lodged by the insured. Presumably no such case can be cited, as the distinction between an ‘action’ and a ‘suit was well known to the English litigants and no effort was therefore made to give the word ‘action’ a dictionary meaning. Both the words meant legal proceedings, difference being only in form and execution.
22. The word ‘action’ is unknown in the sub?continental jurisprudence. It is not defined in our Code of Civil or Criminal Procedure. We hear of ‘departmental action’, ‘police action’, ‘prompt action’ and the like and we do not use this word in connection with legal proceedings. It is because of this lack of association of the word ‘action’ with legal proceedings that attempts were made to extricate those words from the purview of legal proceedings in a court of law and to consign the words to the arena of exchange of correspondence between the insurer and the insured.
23. The matter was squarely decided in the case of A N Ghose vs. Reliance Insurance Company, AIR 1934 (Rangoon) 15. The fire took place on the 5th March, 1931 and the plaintiff filed the suit on the 8th November, 1932. Condition No. 19 was invoked by the insurer?defendant and the plaintiffs Advocate argued that the words ‘pending action’ do not refer to a suit but to any steps which the company might take in the investigation of the claim. Leach, J, rejected the contention thus:
“In my opinion the words ‘pending action’ do contemplate a pending suit……..It seems to me that the word ‘action’ must refer to legal proceedings. Mr, Bannerji argues that it embraces the steps taken by the defendant companies assessor. I cannot accept this as being correct ………….”
Thus in Aiyer’s Law Terms and Phrases, 7th Edition, the word ‘action’ is defined as hereunder:
“Action is a generic term and means a litigation in a civil Court for the recovery of individual right as the redress of individual wrong inclusive, in its proper legal sense, of suits by the Crown” 8 AC 353 (P27). Further, the author says,
“The word “action” was not a word which was used in Indian law and therefore that word must be given the meaning which it had in English law………(Bharat Bank Lid, vs. Ruby General Insurance Co. Lid, AIR 1951 (Punjab) (97).
24. Ever since the decision was given in AN Ghose’s case, AIR 1934 (Rangoon) 15, no one seems to have challenged that interpretation of the words ‘pending action’ and the only controversy which persistently clogged the higher Courts of this sub?continent was as to whether condition No. 19 or for that matter condition No. 13 of the Fire Policy prescribed a shorter period of limitation than the one provided under Article 86 of the First Schedule to the Limitation Act and was therefore void under section 23 or 28 or both of the Contract Act or not. A series of decisions laid down the principle, starting from the case of Baroda Spinning and Weaving Co. Lid. Vs. Satynarayan Marine and Fire Insurance Co. Ltd, AIR 1914 (Bom) 225, that condition No 13 or 19 or similar such condition does not prevent the insured from suing within the period of limitation prescribed in Article 86. What condition No .13 or 19 states is that if no suit is brought within three months of repudiation of the claim or within twelve months of the happening of the loss, the insured will lose or forfeit the claim and no suit therefore will be maintainable, As Ibrahim J, succinctly put it in Sree Hari Sankar Nandi Majumdar vs. Sree Promode Chandra Roy Choudhury, 4 PLR (Dacca) 595, “The dominating idea in this agreement is not that the remedy will be barred but that the right itself will be forfeited”. This principle has been followed in Girdharilal Honuman Box vs. Eagle Star and British Dominions Insurance Company Lid, AIR 1924 (Cal) 186; G, Rainey vs. Burma Fire and Marine Insurance Co. Lid, AIR 1926 (Rangoon) 3; AN Ghose vs. Reliance Insurance Company, AIR 1934 (Rangoon) 15; Rubi General Insurance Company vs. Bharat Bank, AIR 1950 (EP) 352; Pearl Insurance Company vs. Atma Rain, AIR 1960 (Punjab) 236; Vulcan Insurance Co. Lid. vs. Maharaj.Singh, AIR 1976 (SC) 287; Sargodha Central Co?operative Bank Lid. vs. New Hampshire Insurance Co. PLD 1982(Karachi) 627 and Ali Pipe Industries vs. The Universal Insurance Co. Lid, PLD 1989 (Lah) 390. The underlying assumption in all these cases is that ‘pending action’ refers to a suit and not to a consideration of the claim by the insurer. This assumption remains undisturbed for well over 30 years.
25. It is too late in the day therefore to attempt to make a radical departure from the established technical meaning of the words ‘pending action’ which are stare decisis. As the meaning of the words ‘pending action’ is well established by legal precedents we would like to reproduce the observations of Muhammad Haleem CJ of Pakistan in the case of Pir Bakhsh vs. Chairman, Allotment Committee PLD 1987 (SC) 145 as under:
“A solemn decision upon a point of law arising in any given case becomes an authority in a like case, because it is the highest evidence which we can have of the law applicable to the subject, and the Judges are bound to follow that decision so long as it stands unreversed, unless it can be shown that the law was misunderstood or misapplied in that particular case. If a decision has been made upon solemn argument and mature deliberation, the presumption is in favour of its correctness, and the community have a right to regard it as a just declaration or exposition of the law, and to regulate their actions and contracts by it. It would, therefore, be extremely inconvenient to the public if precedents were not duly regarded, and implicitly followed.”
26. The same view has been expressed in the case of Ali Pipe Industries vs. Universal Insurance Co, Lid, PLD 1989 (Lah) 390 by Abaid Ullah Khan J-
“whether the interpretation of the law declaring the legality of the conditions of contract of insurance under review, which criginating from this decision AIR 1914 (Bom) 2251 has held the field for almost three quarters of a century, should be disturbed, Successive affirmations by judicial pronouncements have made it assimilate in the mainstream of the law of insurance and have reinforced the business community’s belief in its correctness. The people involved in the fire and lighting insurance business, insurers as well as insured, are acceptably of above average means, knowledge and intelligence and generally have ready access to legal advice. They can very well be presumed to be aware of the implications and effects of various clauses of insurance contract laying restrictive time limits for making claims and initiating actions. They have been entering into contracts, settlements and fiscal arrangements on the basis of the law propounded by the Courts. No serious inconvenience or injustice would flow from allowing the law to stand rather its overruling would be productive of inconvenience. In order to ensure certainty and consistency in the law and to preserve the sanctity of precedent as a good source of law it would be eminently just and proper to follow the principle of stare decisis………….I would be reluctant to cause the least disturbance to the prevailing state of law.”
27. We would like to say in the same vein that the words ‘pending action’ have been understood in this sub?continent for well over 80 years as pending suit and we find no jurisprudential backing, no unfurling of a novel proposition of law and no impelling consideration of justice and fair play in the judgment of the High Court Division to disturb that understanding. The High Court Division clearly misinterpreted and misunderstood the words ‘pending’ action and we have no hesitation in disapproving of the same.
28. Condition No. 19 in the Fire Policy is a condition relating to limitation of action and Macgillivray in his Insurance Law, 4th Edition, says at section 1794:
“Conditions relating to limitation of action………If the insurer causes delay in the settlement of the loss, or induces the insured to refrain from commencing proceedings by promise of payment, by definite hope of settlement, the condition may be held to be waived, or the period may be held to have been enlarged by suspension of the condition during the negotiations for settlement.”
29. That a condition in a policy may be waived by the insurer is also acknowledged by Brij Nandan Singh in his book “Insurance Law” at P 257:
“The effect of the breach of condition is to make the contract of insurance voidable at the option of the insurers, and, therefore, they may elect to waive the breach, or by their conduct after notice of the breach estop themselves from setting it up. The word generally used in the policies is ‘void’ but the mere use of such word very rarely excludes the possibility of confirmation. Further, a condition is inserted in the policy by the insurers themselves for their own protection, it is open to them to waive the strict performance of the condition.
It is not necessary that the waiver should be express. The insurers may by their own conduct lead the insurer into belief that the breach is condoned and may estop themselves from relying upon the breach.”
30. The same view is expressed by Welford and Otter Barry in The Law Relating to Fire Insurance, 4th Edition, at page 124:
“It is not necessary that a waiver of a breach of condition should be in writing, unless there is an express condition to that effect. A parol waiver by the insurers, or by their agents, acting within the scope of his authority, is sufficient. There may also be a waiver by conduct: if the insurers do an act which can be justified only upon the footing that the policy is in force, they are precluded from contending that the policy is avoided by the breach of condition. They are equally precluded from relying upon the breach where their conduct misleads the assured and induces him to alter his position in the belief that the policy is valid. A failure on the part of the insurers to take objection which does not mislead him is not sufficient, since an intention to waive cannot be inferred from mere silence, or even from equivocal acts on the part of the insurers which are unknown to the assured. If, however, objection is taken to the assured’s claim on other grounds there may be a waiver as to the ground of objection which is not taken.”
31. The same view is expressed by ER Hardy Ivamy in his book “General Principles of Insurance Law,” 2nd Edition at page 253:
“Similarly, the failure to raise a particular ground of objection is not in itself a waiver, though the taking of objection on other grounds may be a waiver on the ground of objection which is not specifically raised.”
Condition No. 19 of the Policy is therefore not a self?operative condition. To avoid its liability the insurer has to invoke it. The fire in this case took place on 12.10.90. More than twelve months after the happening of the loss the appellant repudiated the claim of the plaintiff by a letter dated 16.11.91 alleging breach of a number of conditions in the policy, without invoking condition No.19. A simple letter stating that “as twelve months have expired from the happening of the alleged fire loss damage and as the claim is not the? subject of pending action or arbitration within this period of twelve months, the corporation is not liable for any loss or damage under the policy, in accordance with the stipulations contained in condition No.19 of the Policy” would have served as a rude awakening to the plaintiff, giving him a notice once and for all that although his remedy is open, his right has been extinguished. He was led to the belief that his policy was valid until 15.11.91 and that his claim has been repudiated on 16.11.91 on some other grounds which he can successfully challenged in a court of law. He rightly relied upon condition No. 13 of the policy and filed the suit within three months of repudiation of the claim on 2.1.92, without any averment on any waiver of condition No.19, because that condition, being an inviolable condition, was not invoked at all by the appellant in its letter of repudiation dated 16.11.91. The plaintiff framed his suit challenging the grounds on which the repudiation was based. By its own conduct the appellant led the plaintiff into belief that condition No. 19 was waived. The plaintiff went through the expenses and vagaries of litigation, thereby substantially altering his position since the receipt of Ext.11. The appellant will now be estopped from taking refuge in condition No. 19.
Hence although we are upholding the contention of the appellant with regard to the meaning of the words “pending action”, disapproving of the interpretation given by the High Court Division, we dismiss the appeal for the reasons above without any order as to costs.
Source: 47 DLR (AD) (1995) 97