Insurance Coverage - Theft vs Criminal Breach of Trust
Insurance policies usually cover dispossession risks such as theft, burglary, misappropriation or conversion. By dispossession, we mean the action of depriving someone of their property or possessions.
In the Indian Penal Code (IPC), theft is a cognisable offence u/s 378 (Sec 303 as per Bharatiya Nyaya Sanhita or BNS), but Criminal Breach of Trust (CBT) comes u/s 406 (Sec 316 as per BNS).
The insurance policies differ in terms of how dispossession is covered.
A burglary policy may cover only theft (either with or without forcible entry). But it may not cover theft where it is aided or abetted or committed by employees of the insured. So CBT cover is not available under a burglary policy. The insured may have to take a fidelity guarantee policy in addition to burglary policy.
The Industrial All Risks policy doesn’t cover CBT as well as larceny. Larceny, as opposed to theft, is minor or petty crimes like shoplifting, pickpocketing etc., which involves unlawful taking of someone else’s property. However, the IPC doesn’t distinguish larceny from theft. IAR policy doesn’t define larceny as well. It may therefore be difficult to apply the larceny exclusion practically in the Indian context.
But a commercial crime policy usually covers all types of dispossession risks including theft and CBT. Both internal and external crimes are covered.
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Similarly, marine policies may cover theft and CBT. While marine cargo policy as per Institute Cargo Clauses (A), does not define theft or CBT specifically and does not exclude them either, marine hull policies cover only “violent theft”. There is however no definition of what constitutes violent theft under ITC (Hulls) clause. Essentially, there has to be some amount of violence that accompanies the theft. Usually, theft is a PA (partial average) claim and hull policies have high deductibles for PA compared to nil deductibles for TL/CTL claims. So minor thefts like passengers stealing items from a ship would fall under the deductible anyway. Barratry of the crew, which is a form of CBT, is one of the perils can be covered under both Cargo and Hull policies.
It is important to note that there has to be the concept of “entrustment” underpinning CBT claims. Entrustment means the party committing the crime of CBT should be entrusted with property or he or she should have dominion or control over the property. When dispossession is done by an employee, the employee would normally have entrustment of the property.
However, entrustment may be narrowly construed by the courts. In National Insurance Co. Ltd vs M/S Ishar Das Madan Lal on 20 February, 2007, the Supreme Court held that the word 'entrust' would imply giving responsibility to a person upon whom the owner has confidence. It envisages establishment of a relationship. Therefore a situation where a customer enters into a jewellery shops and under the pretence of trying the items, runs away with it, is not CBT, but theft. Out of necessity, the owner or his agent must allow a customer to inspect the merchandise, that shopowner wants to sell. For the said purpose, if he hands over the item to the prospective buyer, the possession in the legal sense is not handed over. The owner or his agent does not lose complete control thereover. No entrustment therefore happens as a consequence.
In case of a motor comprehensive policy also, CBT is implicitly covered as the policy covers “malicious acts” which is a broader term that includes dispossession. If a paid driver takes the vehicle and disappears with it, then it does not become a CBT, but is a case of theft. This has been decided by National Consumer Disputes Redressal Commission (NCDRC) in Jagrut Nagrik & Anr. vs Oriental Insurance Company Limited on 9 February, 2018.
To conclude, it is important for the insurers and their loss adjusters to look at the substantive aspect of the dispossession that has happened to determine the coverage under the policy. The section of the IPC under which the police has registered a case is not the only determinative factor. So if the police register a case u/s 406 instead of 378, it doesn’t necessarily mean that CBT has happened instead of theft. Conversely, if the police has indeed registered a case u/s 378, it also doesn’t mean that there is no CBT.
Technical Consultant Worked with Cholamandalam Ms Gen Insurance, New India Assurance co. Ltd
4moVery elaborate and well written and useful Hari.I am curious to know if a burglar is injured or dies in the process of criminal trespass due to negligent( Loose wiring) or an unlawful act like electric fencing is there a liability to owners and if so is claim payable under personal liability section.?
AVP at Union Insurance
4moSir, thanks....in relation to this topic, under a CGL policy issued to a security services company, what would be the position as to the liability of the Insured towards their customers/clients for a theft committed by a security personnel provided by the security company....is this a liability arising out of business activities... thanks...also will the CGL policy will respond to this claim.
Former Chief Manager at The New India Assurance Co. Ltd.
4moThank you for sharing an interesting article! When Insurers will be in a position to ignore the allotted section in the police report and determine liability based on the exact occurrence , we will embark on "principle based" claim settlement.
Regional Underwriting Head at The New India Assurance Co. Ltd.
4moAnother excellent post. Saving it for future references
General Insurance Professional - Independent
4moWhile reserving my comments on the topic, let me clarify in HULL insurance PA is Particular Average like GA not partial Average.