Moosajees Lfd. v. Insurance Corporation
Insurance Corporation of Ceylon
COURT OF APPEAL.
VYTKIALINGAM, T. AND VICTOR PERERA, J.
S.C 312/71 (F)—D.C. COLOMBO 70932.
SEPTEMBER "1, 1978.
Contract of insurance—Breach of warranty—Effect—Action required tobe instituted within three months of claim being rejected—Duty ofinsurer to inform assured in clear language that claim rejected—Nopenal consequence otherwise—Construction of language used by insurer.
The plaintiff sued the defendant claiming a sum of Rs. 186,421.70 on apolicy of insurance in respect of certain property damaged by fire. Thedefendant denied liability inter alia on the ground that the action hadnot been instituted within 3 months i ^r the claim had been rejectedas required by the Policy.
The defendant had written a letter D1 to the plaintiff on the plaintiffmaking its claim informing the plaintiff that there was no liability onthe part of the defendant on account of certain warranties contained inthe policy having been violated. The preliminary issue of law in respectof this question was heard by the learned trial judge who answered thesame against the plaintiff and dismissed its action. The plaintiff appealed.
What the defendant did by the letter D1 was to inform theplaintiff that because of the breach of the warranties there was nolonger a valid contract of insurance imposing any liability on thedefendant Corporation. It was not a rejection of the plaintiffs claim assuch and in a case such as this where there was a highly penalconsequence flowing from rejection of a claim, it was the duty of thedefendant to inform the plaintiff in clear and precise language that theclaim had been rejected. Accordingly, the provision in the policy that“if the claim be made and rejected and an action or suit be not
commenced within three months after such rejectionall benefit
under this policy shall be forfeited ” had no application and the actionalthough not brought within three months of the said letter D 1 wasnot out of time.
Per Vythialingam, J:
(a) “ A warranty in a contract of insurance is a condition or contingencyand unless that be performed there is no contract. It is perfectlyimmaterial for what purpose a warranty is introduced but being insertedthe contract does not exist unless it be literally complied with. Asubstantial performance is not enough. If there is a warranty nothingtantamount will do or answer the purpose; it must be strictly performeda& being part of the agreement.”
Sri Lanka Law Reports
(1978-79) 2 S.L.R.
(b)' “‘In contracts of insurance where the language used by theinsurer is ambiguous the Courts will lean in favour of that interpretationwhich favours the assured”.
APPEAL from the District Court, Colombo.
C. Ranganathan, Q.C., with B, C. F. Jayaratne, for the plaintiff-appellant.
E. R. S. R. Coomaraswamy, with E. R. S. R. Coomaraswamy (Jnr.), forthe defendant-respondent.
Cur. adv. vult
October 31, 1978.
The plaintiff-appellant filed this action against the defendant-respondent for the recovery of a sum of Rs. 186,421.70 said tobe due on a policy of insurance in respect of certain propertywhich had been damaged by fire. The defendant denied liabilitieson various grounds and at the trial on 10.2.1971 defendant'sCounsel raised two issues as follows : —
“ (7) Did the defendant on or about 12.12.1968 repudiate liabi-lity and refuse to pay the claim of the plaintiff ?
If so, (a)is the claim of the plaintiff forfeited and (b)can the plaintiff have and maintain this action ? ”
These issues were tried as preliminary issues of law and afterhearing Counsel for both sides the trial Judge answered issue 7and 8 (a) in the affirmative and 8(b) in the negative and dis-missed plaintiff’s action with costs. The plaintiff has appealedfrom this order. These issues are said to arise on the defendant’spleading in paragraph 13 (o) (iii) of the answer which is asfollows:—
“ (o) The aforesaid insurance policy No. F. 36340 contained
inter alia, the following conditions and/or warranties..
If the claim be in any respect fraudulent, or if anyfalse declaration be made or used in support thereof,or if any fraudulent means or devices are used by theinsured or anyone acting on his behalf to obtain anybenefit under this policy; or if the loss or damage beoccasioned by the wilful act or with the connivanceof the Insured, or if the claim be made and rejectedand an action or suit be not commenced within threemonths after such rejection or (in the case of an arbi-tration taking place in pursuance of the 18th conditionof this Policy) within three months after the arbitratoror arbitrators or umpire shall have made their award,all benefit under this Policy shall be forfeited ”.
CA Moosajees Ltd. v. Insurance Corporation (Vythialingam, J.)
For the purposes of this appeal we are only concerned withthe provision in regard to the bringing of the action within threemonths of the rejection of the claim there having been no arbi-tration proceedings. The fire occurred on or about the 19th June,1968 and on 16th July, 1968, the plaintiff forwarded to the defen-dant proof of the loss and made a claim to be indemnified andpaid the sum of Rs. 186,421.70 in respect of the said loss ordamage. On 12tfn December, 1968, the defendant wrote to theplaintiff the letter D1 which I will quote in full as it is thecrux of the case.
“With reference to the above-mentioned claim we wishto inform you thajt there is no liability on the part of fheCorporation as the loss Assessors Messrs. Aitken Spence &Co. Ltd. have informed us that warranties Nos. 16 and 17have been violated ”.
The averment in paragraph 13 (a) (iii) reproduces word forword clause 13 of the Policy which is headed “ Forfeiture ”. Theplaintiff brought this action on 16.6.1969 clearly more than threemontns after it had received the letter Dl. Mr. Ranganathan forthe plaintiff submitted that Dl was not a rejection of the plain-tiff’s claim and therefore, clause 13 does not apply and secondly,even if it was a rejection of the plaintiff’s claim, the defendantby its conduct had waived its right to claim that the benefitsunder the Policy had been forfeited as the action was notbrought within three months of the rejection of the claim.
The trial Judge states in his judgment that “I cannot agreethat repudiation and rejection mean two different things. In myview repudiating the plaintiff’s claim clearly amounts to arejection of the plaintiff’s claim and both mean one and the samething ”. In regard to waiver he merely says that the conduct offhe defendant did not amount to a waiver of their rights underthe clause. The question for decision in this appeal is whetherthe letter Dl is a rejection of the plaintiff’s claim within themeaning of clause 13 of the policy. By Dl the defendants informthe plaintiff that there is no liability on their part as the lossassessors had informed them that warranties No. 16 and 17 hadbeen violated. Warranty No. 16 relates to the availability of afire engine and the holding of fire drills and warranty No. 17relates to the positioning of a fire-extinguisher on the right handside of every door providing access from the open air.
Sri Lanka Law Reports (1978-79) 2S.L.R.
A warranty in a contract of insurance is a condition or contin-gency and unless that be performed there is no contract. It isperfectly immaterial for what purpose a warranty is introducedbut being inserted the contract does not exist unless it be lite-rally complied with. A substantial performance is not enough.If there is a warranty nothing tantamount will do or answerthe purpose; it must be strictly performed as being part of theagreement. So that what the defendants have done by the letterD1 is to inform the plaintiff that because of the breach of thetwo warranties there is no longer a valid contract of insuranceimposing any liability on them. It is not a rejection of the plain-tiff’s claim as such.
Moreover where there is a highly penal consequence flowingfrom the rejection of the claim it is the duty of the defendantto inform the plaintiff in clear and precise language that theclaim has been rejected. I do not say that the identical wordsmust be used. But they must not leave the matter in doubt orleave it to the plaintiff to 'interpret the words used and come tohis own conclusions. In contracts of insurance where the languageused by the insurer is ambiguous the courts will lean in favourof that interpretation which favours the assured. Here the plain-tiff rnay well have thought that he could satisfy the defendantthat there was no breach of the two warranties.
Moreover the conduct of the defendant clearly shows that untila late stage in the case they did not understand D1 to be arejection of the claim. The plaint was filed on 16.6.1969 and inthe answer dated 8.9.1969 although the defendant has set outclause 13 in full nowhere did it take up the specific positionthat the plaint was not filed within three months of the rejec-tion of the claim. Trial commenced on 25-2.1970 when issues wereraised and counsel for the defendants raised issues 4, 5 and 6relating to the violation of the warranties No. 16 and 17 only.No issues were raised in regard to the plaint being out of timeat all. Thereafter evidence wras led on the 26th and 27th July,1970.
It was only on 10.2.1971 when trial was resumed that issues7 and 8 were raised. This clearly shows that it was not in thecontemplation of the defendants that the claim has been rejectedby Dl. If it were otherwise it would have placed this matter inthe forefront of its case and raised these issues at the verycommencement of the trial. I do not think that the defendantcan be allowed to lull the plaintiff into a false sense of securityby using ambiguous language. I hold that Dl is not a rejectionof the plairvtiff’s claim and that plaint is in time.
Nikulas v. Linus (Abdul Cader, J.)
I allow the appeal and set aside the order of the District Judgeand answer issue No. 7 and 8(a) in the negative and 8(b) in theaffirmative. The case will now be proceeded with on the otherissues raised in the case. Plaintiff will be entitled to costs ofthis appeal.
VICTOR PERERA, J.—I agree.
Moosajees Ltd v. Insurance Corporation of Ceylon