The insured is entitled to the amount for which the goods were insured even if that be less than the actual value of the goods.

The Hon’ble Supreme Court of India in the case titled I.C. Sharma Vs The Oriental Insurance Co. Ltd. (Civil Appeal no. 3167 OF 2017)decided on 10.01.2018affirmed that the person insured is entitled to the amount of the goods insured, even if they may be lesser than the actual value of the goods compromised.

Challenge

The main ground in the petition filed by the Insurance Company was that a large number of items which had been claimed to be stolen were not insured and there was a lot of under-insurance.

The National Commission held that once the appellant had supplied a list of articles for the original policy, if there was any change in the list the insured party should have filed a fresh list. The National Commission in the review petition took into consideration the fact that the new insurance policy did not require a list of items to be given.

Hence the primary question before the Supreme Court was “what comprises of under-insurance – and what is the effect thereof?”. Under-insurance means that the insured has taken out an insurance policy in which he has valued the insured items for a sum which is less than the actual value of the insured item.

This is harmful to the policy holder and not to the Insurance Company because even if the entire insured property is lost, the policy holder will only get the maximum sum for which the property has beeninsured and not a paisa more than the sum insured

Held

The Supreme court held that the insured is entitled to the amount for which the goods were insured even if that be less than the actual value of the goods.

The supreme court further clarified that the Insurance Company can apply the principle of averaging out when all the goods are not destroyed. This means is that if the value of the goods is more than the sum for which they are insured then it is presumed that the policy holder has not taken out insurance policy for the un-insured value of the goods. The claim is allowed by applying the principle of averaging out, i.e. the insured is paid an amount proportionate to the extent of insurance as compared to the actual value of the goods insured.

The Supreme Court further clarified that if all or most of the items of value covered under the policy are stolen, then the insurance company is bound to pay the value of the goods insured.