Judicial Development In Pakistan On The Terms And Conditions Of The Fire Insurance Policies, Which Are Universal

A Full Bench of the Lahore High Court in the case of Universal Insurance Company considered the fire insurance policy's conditions # 13, 18 and 19, providing for forfeiture of benefits or non-liability under the policy after a specified period.

The question for determination before the Full Bench, referred to by a Division Bench, was, whether or not the conditions of contract of insurance incorporated in the policy of insurance against the risk of fire or lightning providing for "(a) forfeiture of all benefits under the policy if no action or suit is commenced within three months of the rejection of the claim (if made) or (in case of an arbitration taking place) after the arbitrator or arbitrators or umpire shall have made their award" and stipulating that "(b) in no case whatever is the insurance company to 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 subject of pending action or arbitration" were void under section 28 of the Contract Act, 1872.

Section 28 of the Contract Act provides, every agreement, by which any party thereto is restricted absolutely from enforcing his right under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals or which limits the time within which he may thus enforce his rights is void to that extent.

The question touching the validity of the portion of the contract of insurance against damage by fire or lightning providing for forfeiture of all benefits under the policy, if no action or suit is commenced within three months of the rejection of the claim and curtailing the period during which the liability of the insurance company is sustainable has been repeatedly considered before various superior Courts of Pakistan and India for over seven decades. Many a vain attempt has been made on behalf of the concerned parties to have the contract declared void under section 28 of the Contract Act, 1872. Though the Courts have several times examined the issue at length, they have accepted the view formed, and law laid down by the Bombay High Court (Division Bench comprising of Scott, C.J., and Batchelor, J. in Baroda Spinning and Weaving Company Limited v. Satyanarayan Marine and Fire Insurance Company Limited AIR 1914 Bom. 225(2) declaring such an agreement to be valid. The usual clause of the contract of insurance relating to forfeiture of benefits under the fire insurance policy in case of failure of commencement of suit or action within three months of rejection of claim is couched in the language of clause 13 of insurance contract.

The Lahore High Court, while considering the question involved, held:

(Quote)

The import of implications and effects of the agreements and statutory provisions involving forbearance to sue for some time in the circumstances which...