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CASE NO.: Appeal (civil)  2333 of 2006

PETITIONER: New India Assurance Co. Ltd.

RESPONDENT: Harshadbhai Amrutbhai Modhiya & Anr.

DATE OF JUDGMENT: 28/04/2006

BENCH: P.K. BALASUBRAMANYAN

JUDGMENT: J U D G M E N T (ARISING OUT OF .S.L.P) NO.20126 OF 2005)

P.K. BALASUBRAMANYAN, J.:

1.              I respectfully agree and would allow the appeal  as proposed by my learned brother.

2.              The law relating to contracts of insurance is part  of the general law of contract.  So said Roskill Lord Justice  in Cehave vs. Bremer ([1976] Q.B. 44).      This view was  approved by Lord Wilberforce in Reardon Smith vs.  Hanson-Tangen (1976 [1 WLR] 989, wherein he said "it is  desirable that the same legal principles should apply to  the law of contract as a whole and that different principles  should not apply to the different branches of that law".   A  contract of insurance is to be construed in the first place  from the terms used in it, which terms are themselves to  be understood in their primary, natural, ordinary and  popular sense.   ( See Colinvaux’s Law of Insurance 7th  Edition paragraph 2-01).  A policy of insurance has  therefore to be construed like any other contract.  On a  construction of the contract in question it is clear that the  insurer had not undertaken the liability for interest and  penalty, but had undertaken to indemnify the employer  only to reimburse the compensation the employer was  liable to pay among other things under the Workmen’s  Compensation Act.   Unless one is in a position to void the  exclusion clause concerning liability for interest and  penalty imposed on the insured on account of his failure  to comply with the requirements of the Workmen’s  Compensation Act of 1923, the insurer cannot be made  liable to the insured for those amounts.    

3.              Section 17 of the Workmen’s Compensation Act  voids only a contract or agreement whereby a workman  relinquishes any right of compensation from the employer  for personal injury arising out of or in the course of the  employment and insofar as it purports to remove or  reduce the liability of any person to pay compensation  under the Act.   As my learned brother has noticed, in the  Workmen’s Compensation Act, there are no provisions  corresponding to those in the Motor Vehicles Act, insisting  on the insurer covering the entire liability arising out of an  award towards compensation to a third party arising out  of a motor accident.   It is not brought to our notice that  there is any other law enacted which stands in the way of  an insurance company and the insured entering into a  contract confining the obligation of the insurance

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company to indemnify to a particular head or to a  particular amount when it relates to a claim for  compensation to a third party arising under the  Workmen’s Compensation Act.   In this situation, the  obligation of the insurance company clearly stands limited  and the relevant proviso providing for exclusion of liability  for interest or penalty has to be given effect to.  Unlike the  scheme of the Motor Vehicles Act the Workmen’s  Compensation Act, does not confer a right on the claimant  for compensation under that Act to claim the payment of  compensation in its entirety from the insurer himself.     The entitlement of the claimant under the Workmen’s  Compensation Act is to claim the compensation from the  employer.   As between the employer and the insurer, the  rights and obligations would depend upon the terms of the  insurance contract.   Construing the contract involved  here it is clear that the insurer has specifically excluded  any liability for interest or penalty under the Workmen’s  Compensation Act and confined its liability to indemnify  the employer only against the amount of compensation  ordered to be paid under the Workmen’s Compensation  Act.   The High Court was, therefore, not correct in holding  that the appellant\027 insurance company, is also liable to  pay the interest on the amount of compensation awarded  by the Commissioner.  The workman has to recover it from  the employer.