Sandhya Lal W/o Ajith v. Kotak Mahindra General Insurance Company Limited and Insurance Ombudsman

## **“CR”** ## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR. JUSTICE T.R.RAVI** **FRIDAY, THE 3[RD] DAY OF SEPTEMBER 2021 / 12TH BHADRA, 1943** ## **WP(C) NO. 27258 OF 2020** ## **PETITIONER:** SANDHYA LAL W/O. AJITH, 10/655(9/242) DOOSAMPARAMP, CHANDIROOR, AROOR, CHERTHALA, ALAPPUZHA-688 547 BY ADV ANJALI MENON ## **RESPONDENTS:** 1 KOTAK MAHINDRA GENERAL INSURANCE COMPANY LIMITED REPRESENTED BY ITS CEO AND MD, 8TH FLOOR, ZONE -IV, KOTAK INFINITI BUILDING NO. 21, INFINITY PARK, GEN. A.K. VAIDYA MARG, DINDOSHI, MALAD EAST, MUMBAI-400 097 2 INSURANCE OMBUDSMAN, OFFICE OF THE INSURANCE OMBUDSMAN, 2ND FLOOR, PULINAT BUILDING, OPP. COCHIN SHIPYARD, M.G. ROAD, ERNAKULAM, KOCHI-682 015 BY ADVS. SRI.GEORGE CHERIAN (SR.) SMT.K.S.SANTHI SRI.ALEXY AUGUSTINE SMT.LATHA SUSAN CHERIAN SRI.GEORGE A.CHERIAN THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 26.08.2021, THE COURT ON 03.09.2021 DELIVERED THE FOLLOWING: W.P.(C)No.27258 of 2020 :-2-: **“CR”** ## **T.R.RAVI, J.** **-------------------------------------W.P.(C)No.27258 of 2020** **------------------------------------------Dated this the 3[rd] day of September, 2021** ## **J U D G M E N T** The petitioner purchased a Hyundai Creta Car in September, 2015. The vehicle met with an accident on 29.12.2018. The car along with the passengers fell into a lake. The passengers escaped but the vehicle was considerably damaged. The vehicle was lifted and towed to the nearest service centre and an insurance claim was also laid with the 1[st] respondent insurer. The vehicle was covered by Exhibit P2 Policy Certificate. Since the cost of repair was assessed to be more than 75% of the Insured's Declared Value ('IDV', for short) of the vehicle, going by the terms of the policy, it was to be deemed to be constructive total loss. The sum assured in such cases is the value shown as IDV. W.P.(C)No.27258 of 2020 :-3-: According to the petitioner, she and her family had developed an emotional attachment to the vehicle and had hence requested the 1[st] respondent to return the vehicle to her after deducting the salvage value. The 1[st] respondent informed the petitioner that the value assessed by the approved surveyor is Rs.2 lakhs without Registration Certificate ('RC', for short) and Rs.5.5 lakhs with the RC. Since the petitioner did not give a positive response, the 1[st] respondent closed the claim on 15.5.2019. The petitioner had on 7.11.2019 requested to reopen the claim, which was refused by the 1[st] respondent. The vehicle was kept in the open yard of the service centre, causing further damage and depreciation in the value. On 3.2.2020, the petitioner filed a complaint before the 2[nd] respondent. The 2[nd] respondent passed Ext.P4 award on 28.10.2020, directing the insurer to settle the claim on "as is where is" condition taking the salvage value as Rs.3.75 lakhs with RC and Rs.80,000/without RC. Aggrieved by Exhibit P4, the petitioner has filed W.P.(C)No.27258 of 2020 :-4-: this writ petition. 2. A counter affidavit has been filed on behalf of the respondents. It is stated that the accident which occurred on 29.12.2018 was reported to the respondent on 8.1.2019. The Surveyors appointed assessed the loss as Rs.6,61,067/-. On 2.2.2019, the respondent informed the petitioner that since the repair liability has been found to exceed 75% of the IDV of the vehicle, the settlement of claim is suggested on constructive total loss basis. It was stated in the letter that the available salvage quotes currently are Rs.5.5 lakhs with RC and Rs.2 lakhs without RC. The copy of the letter is produced as Exhibit R1(a). It is stated that the petitioner did not send any reply to Exhibit R1(a) and therefore, Ext.R1(b) reminder was sent on 19.3.2019, requesting the petitioner to forward the required documents along with a no objection Certificate from the bank and also to decide on the offer of settlement. Since the said letter was also not replied, by Ext.R1(c) letter dated 15.5.2019, the respondent informed ## W.P.(C)No.27258 of 2020 :-5-: the petitioner that they are closing the claim. About 7 months later, the petitioner approached the 2[nd] respondent. On the basis of the pleadings of the parties, the 2[nd] respondent directed a second survey to be conducted. Exhibit R1(d) is the survey report, wherein the net loss was assessed at Rs.9,76,017/-. The surveyor opined that the vehicle in "as is where is condition" will fetch Rs.3.75 lakhs with the RC and Rs.80,000/- without RC. The 2[nd] respondent accepted the Suveryor's report and issued Exhibit P4 directions. According to the insurer, the offer of settlement was the usual manner in which a case of constructive total loss is settled. 3. Heard Ms.Anjali Menon, Counsel for the petitioner and Sri.George Cherian, Senior Advocate, instructed by Ms.K.S.Santhi on behalf of the respondents. 4. The counsel for the petitioner contended that the valuation of the salvage is not proper. According to her, there cannot be a differential valuation depending on whether the RC is retained or cancelled. It is contended that the vehicle is W.P.(C)No.27258 of 2020 :-6-: a tangible goods and the RC is not a tangible goods, and there cannot be a valuation of an intangible component. It is contended that one cannot anticipate what will be the price that will be received in future after the vehicle is repaired. It is further contended that the loss of a RC does not in any manner affect the value of the motor vehicle and that RC cannot be treated as part of the salvage for the purpose of valuation of salvage. Referring to the Cambridge Dictionary, it is contended that the word 'salvage' in accounting terms, means the value of an asset at the end of its life and in insurance terms means 'the value of goods saved from damage or destruction'. Reference is made to Section 60 of the Marine Insurance Act which says that where there is a constructive total loss, the assured may either treat the loss as a partial loss, or abandon the subject-matter insured to the insurer and treat the loss as if it were an actual total loss, to contend that the choice is available to the insured to treat the loss as partial loss or as an actual total loss. The W.P.(C)No.27258 of 2020 :-7-: Counsel relied on the Queen's Bench decision in **Castellain v. Preston** reported in **LR XI Q.B.D 380** and the decision of the House of Lords in **Simpson v. Thomson** reported in **(1877) III AC 279(H.L)** to contend that the insurer owes a duty to indemnify the insured and the only available right to the insurer is the right of subrogation, which arises only later in point of time and that the right of the underwriters to succeed to all the ways and means by which the indemnified might have protected himself against or reimbursed himself for the loss will arise on his making good the indemnity. The contention is that indemnification means providing either the cost of the repair or the cost of replacement. It is the contention of the Counsel that the action of the insurer in refusing the payment of the cost of repair on the basis of a fiction of "constructive total loss" is denying the right of the insured to use their property. Another contention of the counsel is that the valuation is totally irrational. It is stated that the vehicle was purchased in 2015 and the loss was W.P.(C)No.27258 of 2020 :-8-: assessed in 2019 after 4 years. Providing for 40% depreciation, the depreciated value of the vehicle will only be Rs.4,91,400/- while the valuation shown was Rs.5,50,000/with RC. To buttress the argument that title of the salvage does not pass on to the insurer in the case of a total loss, reliance is placed on the decision of the Hon'ble Supreme Court in **Vania Silk Mills (P) Ltd. v. CIT, (1991) 4 SCC 22.** In paragraph 8 and 9 of the judgment, the Hon'ble Supreme Court held that when an asset is destroyed there is no question of transferring it to others. It was held that a transfer presumes both the existence of the asset and of the transferee to whom it is transferred and in the case of the damage, partial or complete, or destruction or loss of the property, there is no transfer of it in favour of a third party. The Hon'ble Supreme Court was considering the issue with reference to the applicability of Capital Gains under the Income Tax Act on the money received under the insurance policy. The Court held that the money is received by way of W.P.(C)No.27258 of 2020 :-9-: indemnity or compensation for the damage, loss or destruction of the property and not in consideration of the transfer of the property or the transfer of any right in it in favour of the insurance company. The learned Counsel for the petitioner further contended that the concept of total loss under the Motor Vehicles Act, 1988 is not the same as the one contained in Ext.P3 policy. The Motor Vehicles Act requires that the owner should report the fact that the vehicle has been rendered incapable of use. In the case on hand, the contention is that the vehicle is capable of use with extensive repair. Relying on Condition 3 of Ext.P3 policy it is contended that as per the policy, the salvage belongs to the owner. In short, the contention of the petitioner is that the value of the wreck should be taken as Rs.80,000/- and the Insurer should be directed to pay the IDV after deducting Rs.80,000/- and that the Insurer should also return the valid RC as well as the salvage, thus enabling the petitioner to get it repaired. W.P.(C)No.27258 of 2020 :-10-: 5. Sri George Cherian, Senior Advocate, appearing on behalf of the insurer contended that in the case of total loss, the insured has to abandon the entire insured subject. Referring to Exhibit P2, he pointed out that the IDV of the vehicle was Rs.8,19,000/-, for which, the premium was paid and was not the written down value after deducting the depreciation as argued by the counsel for the petitioner. He submitted that going by condition No. 3 in Exhibit P3 policy, the insurer may, at its own option repair, reinstate or replace the vehicle or part thereof and/or its accessories or may pay in cash the amount of the loss or damage and the liability of the company shall not exceed, (a) for total loss/constructive total loss of the vehicle – the insured's declared value(IDV) of the vehicle, including accessories thereon as specified in the schedule less the value of the wreck, (b) for partial losses that is losses other than total loss/constructive total loss of the vehicle – actual and reasonable cost of repair and or replacement of parts lost/damaged subject to depreciation as ## W.P.(C)No.27258 of 2020 :-11-: per the limits specified. It is contended that the option is that of the insurer to repair, reinstate or replace the vehicle or part thereof. The Senior Counsel further pointed out that as per the terms of the policy, since the cost of repair in the case on hand exceeded 75% of the IDV of the vehicle, it is to be treated as a case of constructive total loss. The Senior Counsel referred to the decision of the Hon'ble Supreme Court in **United India Insurance Co. Ltd., and others v. Roshan Lal Oil Mills Ltd., and others** reported in **(2000) 10 SCC 19** to contend that the Surveyor's report is a very important document which has to be taken into account while assessing the compensation and the judgment in **Civil Appeal No. 1561 of 2004** , wherein the Hon'ble Supreme Court after referring to **Roshan lal (supra)** held that the Surveyor's report under Section 64-UM(2) of the Insurance Act, 1938, is a statutory report and has to be given due weight. Reference is also made to the decision in **Sikka Papers Limited v. National Insurance Company Limited** W.P.(C)No.27258 of 2020 :-12-: **and others** reported in **(2009) 7 SCC 777** , wherein a similar view was taken. 6. I have considered the arguments advanced by either side _in extenso_ . The arguments of the Counsel for the petitioner are very attractive at the first blush, but on consideration of the fundamental principles governing the issue, I am not inclined to accept the arguments for the following reasons. 7. The concept of constructive total loss has been imported from the law relating to marine and fire insurance. Under the Marine Insurance Act, 1963, Section 56 provides that any loss other than a total loss is a partial loss and that a total loss can either be actual total loss or a constructive total loss. Section 57 says that where the subject-matter insured is destroyed, or so damaged as to cease to be a thing of the kind insured, or where the assured is irretrievably deprived thereof, there is an actual total loss and that no notice of abandonment need be given. Section W.P.(C)No.27258 of 2020 :-13-: 60 dealing with Constructive total loss says that subject to any express provision in the policy, there is a constructive total loss where the subject-matter insured is reasonably abandoned on account of its actual total loss appearing to be unavoidable, or because it could not be preserved from actual total loss without an expenditure which would exceed its value when the expenditure had been incurred. Section 61 says that where there is a constructive total loss, the assured may either treat the loss as a partial loss, or abandon the subject-matter insured to the insurer and treat the loss as if it were an actual total loss. It can thus be seen that the insured can choose to treat the loss as constructive total loss by abandonment of the subject-matter insured or as partial loss if he does not want to abandon the subject-matter. Section 62 of the Act says that an insured who elects to abandon the subject matter, has to give notice of abandonment and on failure to do so, the loss will be treated only as a partial loss. W.P.(C)No.27258 of 2020 :-14-: 8. A Division Bench of the Travancore-Cochin High Court has in the decision in **Hajee Habeeb Hajee Peermahomed v. Commercial Union Assurance Co. Ltd., 1949 SCC OnLine Ker 35** stated the principle succinctly as follows: "3. …. …. ... The question as to what would constitute a total loss has to be examined in the light of the fundamental principles governing that subject under the Marine Insurance Law. A discussion of these principles is contained in Chap. VI of Arnold on the Law of Marine Insurance (Vol. II, 11th Edition). A loss in respect of insured goods may be either total or partial. Any loss other than a total loss is a partial loss. A total loss may be either an actual total loss or a constructive total loss. In the case of an actual total loss which is also known as absolute total loss, the assured is entitled to recover from the underwriter the whole amount covered by the policy without giving any notice of abandonment. But in the case of a constructive total loss, the assured has the option to elect to treat the loss as a total loss or partial loss and hence he cannot recover for a total loss unless he has given due notice of abandonment. Where by reason of the perils insured against the assured is permanently and irretrievably deprived not only of all present possession and control over the thing W.P.(C)No.27258 of 2020 :-15-: insured, but of all reasonable hope or possibility of ever ultimately recovering possession of it, it will be a case of absolute total loss. In such cases the question of notice of abandonment cannot arise because nothing remains to be abandoned. If there is anything to abandon, abandonment must take place and in such cases the loss will be a constructive total loss. Such a loss generally takes place when the subject is not wholly destroyed but its destruction is rendered highly probable, or where its recovery though not utterly hopeless is exceedingly doubtful. Where the assured is deprived of the possession of his goods by a peril insured against and it is unlikely that he can recover the same or that the cost of recovering the goods or repairing the damage to the same would exceed the value of the goods themselves, then also it may be said that there is a constructive total loss. In all such cases of constructive total loss, the thing assured or at least a part of it, is supposed to exist in specie and there is a possibility however remote of its value being in some way affected by the measures that may be adopted for the recovery or preservation of it." 9. In **Peacock Plywood (P) Ltd. v. Oriental Insurance Co. Ltd., (2006) 12 SCC 673,** the Hon'ble Supreme Court held that the interpretation of “constructive loss” contained in Section 60 of the Marine Insurance Act is W.P.(C)No.27258 of 2020 :-16-: subject to any express provision in the policy and if the policy contained a clause which was not in accordance with Section 60, the terms of the insurance policy will have be given effect to. The definition contained in Section is 60 is similarly worded as the definition contained in Halsbury's Laws of England, Vol. 25, 4[th] Edn., Paragraph 292 at page 175 of 1999 Reprint. 10. Section 39 of the Motor Vehicles Act 1988, requires that a motor vehicle should be registered in accordance with Chapter IV of the Act, for the purpose of either driving it, or for permitting it to be driven in a public place or in any other place. Under Section 53, the registering authority has power to suspend the Certificate of registration. If the registered vehicle is in such a condition that its use in a public place, would cause a danger to the public, under Section 54, the registering authority may cancel the registration, in a case where the suspension of registration of the vehicle under Section 53 has continued without interruption for a period of ## W.P.(C)No.27258 of 2020 :-17-: not less than 6 months. Section 55 provides for cancellation of registration of a motor vehicle which has been destroyed or has been rendered permanently incapable of use. In such cases, the owner has a duty to report such fact to the registering authority. The Section authorises the registering authority to examine the motor vehicle prior to cancellation of the registration. Section 146 of the Act provides that no person shall use, except as a passenger, or cause or allow any other person to use, a motor vehicle in a public place, unless there is in force, in relation to the use of the vehicle by that person or that other person, as the case may be, a policy of insurance complying with the requirements of Chapter XI of the Act. The requirement of the policies and the limits of liability have been specified in Section 147 of the Act. It can thus be seen that without registration Certificate and an insurance cover, a motor vehicle is merely a chattel, incapable of being put to the use for which it is meant. W.P.(C)No.27258 of 2020 :-18-: 11. I shall now consider the contentions raised by the petitioner. The contention that the valuation of the Salvage is not proper is based on a wrong premise that the surveyor has given two different values for the same loss sustained. The agreement between the parties provides that in case of the repair cost exceeding 75% of the IDV, it is to be treated as a constructive total loss. A constructive total loss, going by the principles stated above, requires abandonment of the subject insured. Abandonment of the subject insured necessarily calls for cancellation of the RC. So, the evaluation shown as without RC, is in respect of a constructive total loss. At the same time, when the RC is retained, the option is left to the insured to use the vehicle after repair. Therefore, there is no total loss involved. The option to retain the RC is nothing but an option against abandonment which is a requisite for treating the loss as a constructive total loss, going by the fundamental principles of insurance as laid down in **Hajee Habeeb(supra)** with which I am in complete W.P.(C)No.27258 of 2020 :-19-: agreement, and, as contained in Sections 60 to 62 of the Marine Insurance Act. Therefore, the moment the petitioner chooses to retain the RC and the Salvage, he cannot lay a claim for compensation under constructive total loss. The only option available will be a claim under partial loss. The value of Salvage shown by the surveyor as with RC is the valuation done for the purpose of partial loss. It can thus be seen that the two values given are not for the same loss, but for a constructive total loss and a partial loss. The contention that there can be no differential valuation is hence without any substance. The contention that the RC does not in any way affect the value of the motor vehicle cannot be accepted, having regard to the statutory requirement that a motor vehicle cannot be put to use without an RC and an insurance cover. The condition No.3 in Ext.P3 which provides an option for the insured to choose whether he wants to abandon the Salvage has not been violated in any manner. The option is still available with the petitioner to either choose to abandon ## W.P.(C)No.27258 of 2020 :-20-: or to retain the Salvage. The only difference is that if he chooses to retain the Salvage, he can claim only for a partial loss and not for a complete loss. The next contention of the petitioner that she has a right to be indemnified for the loss, also has to be appreciated with reference to the two kinds of losses that are possible, i.e., total loss and partial loss. It is for the petitioner to choose between the two. Having agreed to accept an insurance cover which says that where the cost of repair exceeds 75% of the IDV, it is to be treated as a constructive total loss, the petitioner can no longer contend that there can only be an actual total loss and no constructive total loss. Even when the fiction of the constructive total loss is put in place, the petitioner gets the option to choose between the constructive total loss or partial loss and this right is still not taken away. It cannot hence be said that there is a compulsion that the petitioner has to claim under constructive total loss alone, since she can choose not to abandon the insured subject. Having W.P.(C)No.27258 of 2020 :-21-: regard to the above findings, it cannot also be contended that there is a denial of the right to use property. So also, the petitioner is not entitled to contend that the IDV should have been taken as written down value, particularly since she had taken the insurance by showing the IDV as Rs.8,19,000/and paid the premium on that. The only other contention is the one based on the judgment in **Vania Silk(supra).** The Hon'ble Supreme Court, in the above case was considering whether capital gains tax is invited on the amount received by the insured as compensation for the loss. The contention was that the amount received from the insurance company was against the Salvage and that it is in effect the amount received on sale of Salvage. The Hon'ble Supreme Court held that the Salvage in a total loss means that the property itself is not available and hence there is nothing available to be transferred. On the above reasoning, it was found that it is not a sale that is involved and only the payment consequent to an indemnity agreement. The above judgment will not ## W.P.(C)No.27258 of 2020 :-22-: help the petitioner's case in any manner. At the same time, the judgment reinforces the fact that in the case of a total loss, nothing remains as a title to the subject insured. A constructive total loss where the insured abandons the subject insured, thereby converting it into a total loss, is also on the same footing. As far as the report of the surveyor is concerned, the challenge is only on the aspect of the differential valuation, which cannot be sustained for the reasons already stated above. In the light of the decisions in **Roshan Lal (supra)** and **Sikka Papers(supra)** , the report of the surveyor has to be given due weight and no grounds are made out to interfere with the same. 12. The 2[nd] respondent has issued Ext.P4 order after having the Salvage valued again, due to the passage of time. The order of the 2[nd] respondent, which gives the option to the petitioner to either choose a claim under constructive total loss or a claim under partial loss based on the valuation W.P.(C)No.27258 of 2020 **==> picture [29 x 10] intentionally omitted <==** made by the approved surveyor, is very much in accordance with law. 13. In the result, the Writ petition fails and is dismissed. The parties shall bear their respective costs. All pending interlocutory applications are closed. Sd/- **T.R.RAVI JUDGE** ami/ W.P.(C)No.27258 of 2020 :-24-: ## **APPENDIX OF WP(C) 27258/2020** ## PETITIONERS' EXHIBITS - EXHIBIT P1 TRUE COPY OF REGISTRATION CERTIFICATE ISSUED TO THE PETITIONER ON 15.2.2016 FOR THE CAR BEARING REGISTRATION NO.KL 32 J 3949. - EXHIBIT P2 TRUE COPY OF POLICY CERTIFICATE DATED 13.9.2018 ISSUED TO THE PETITIONER BY THE 1ST RESPONDENT. - EXHIBIT P3 TRUE COPY OF POLICY WORDING FOR CAR DOWNLOADED FROM THE 1ST RESPONDENT'S WEBSITE. - EXHIBIT P4 TRUE COPY OF AWARD NO.IO/KOC/A/GI/0066/2020-2021 DATED 28.10.2020 ISSUED BY THE 2ND RESPONDENT IN COMPLAINT NO. KOC G 054 1920-0319. ## RESPONDENTS' EXHIBITS - EXHIBIT R1(A) TRUE COPY OF THE LETTER DATED 20.02.2019 ISSUED BY RESPONDENT TO THE PETITIONER - EXHIBIT R1(B) TRUE COPY OF THE LETTER DATED 19.3.2019 ISSUED BY RESPONDENT TO THE PETITIONER - EXHIBIT R1(C) TRUE COPY OF THE LETTER DATED 15.05.2019 ISSUED BY PETITIONER - EXHIBIT R1(D) TRUE COPY OF THE SURVEY REPORT DATED 02.10.2020