Introduction

The Supreme Court of India, in M/s. Isnar Aqua Farms v. United India Insurance Co. Ltd. (Civil Appeal No. 1077 of 2013), addressed an insurance dispute arising from prawn mortality caused by White Spot Disease. The appellant, Isnar Aqua Farms, challenged the repudiation and undervaluation of its insurance claim by the insurer. The Court examined whether the insurer’s rejection was justified and the appropriate compensation due under the policy.

Facts of the Case

• In 1994, Isnar Aqua Farms insured 22,67,000 prawns across 37 ponds in Andhra Pradesh for ₹1.2 crores.

• An outbreak of White Spot Disease caused substantial prawn mortality.

• The appellant submitted a claim; the insurer denied it, citing lack of documentation and non-compliance with policy conditions.

• NCDRC initially awarded ₹17.64 lakhs with 9% interest.

• In 2009, the Supreme Court remanded the case; NCDRC revised the award to ₹30.69 lakhs with 10% interest.

• Dissatisfied, the appellant approached the Supreme Court again to determine the correct compensation.

Issues of the Case

1. Whether the insurance policy permitted the insurer to reject the claim.

2. Whether the NCDRC’s valuation of the loss was appropriate.

3. Determination of the proper amount of compensation and interest under the facts and policy terms.

Judgment

The Supreme Court partially allowed the appeal and held:

• Insurer’s Unjustified Repudiation:
  The Court observed that the insurer wrongly rejected the Directorate of Fisheries’ Death Certificate, which confirmed disease-related mortality and provided prawn weight. Once valid documentation was submitted, the insurer could not disregard it.

• Inappropriate NCDRC Valuation:
  NCDRC partially relied on a discredited second surveyor report, which was speculative. The Court noted that ignoring prior credible evidence, such as the Death Certificate and initial surveyor’s report, was improper.

• Correct Method of Calculation:
  Under the insurance policy, compensation is the lowest of:

  • Input Cost Method: ₹75,98,361

  • Unit Cost Method: ₹75,87,750 ✅ (recognized as correct)

  • Fortnightly Valuation Method: ₹79,20,000

  The insurer was ordered to pay the remaining ₹45,18,263.20 after adjusting for prior payment of ₹30,69,486.80.

• Interest Awarded:
  The Court maintained 10% simple interest, in line with RBI statistics for 1995–96, as awarded by NCDRC.

• Conduct of Insurer:
  The Court emphasized that insurance contracts require utmost good faith (uberrima fides). Arbitrary delays and disregard of credible evidence were condemned.

Final Order:

• Insurer to pay ₹45,18,263.20 within six weeks, plus 10% simple interest.

Conclusion

The Supreme Court’s decision underscores:

• The importance of following policy terms for claim settlement.

• Insurers must act fairly and cannot arbitrarily deny valid claims.

• Court reinforced the claimant’s right to prompt and adequate compensation, discouraging profit-driven or biased claim denials.