1985 PLP 1317 (SCMR)

(a) the insurable value shall be actual value or in the case of works in course of construction, the estimated value of the property on the relevant date after giving due allowance for depreciation (b) (c) Explanation I.‑‑ For the purposes of this rule, the 'actual value' shall be: (i) to (iii) ............ (iv) in cases of a building, the amount equal to 40 times the annual rental value of the building as assessed by the appropriate assessing authority. (v) "

11. We have given our anxious consideration to the contentions raised by the learned counsel and these appear to us to have considerable weight and with great respect of the High Court, we cannot agree with the view taken by it.

12. While considering the abovenoted contentions, it must be kept in mind that we are called upon to interpret a rule relating to the business of "insurance"; the preamble to the Ordinance itself states that the object of this Ordinance is to provide for the insurance of certain goods and property against war risks. The word insurance is not defined in the Ordinance in question. Nor, for that matter, has it been defined in the Insurance Act of 1938, which is essentially in the nature of a regulatory Statute and only governs the manner in which the business of insurance is to be carried out. The concept of or the principle behind the law of insurance, (which is now a worldwide business and is essentially in the nature of a wager based on scientifically calculated 'acturisl' figures) is also not to be found in the aforementioned statute. Hence, in order to obtain the conceptual overview of the law of insurance, one has to turn to judicial decisions by Courts of foreign countries like England where the principles and practice relating to the business of insurance have developed during the course of centuries. The locus classicus is the decision of the Court of Appeal of England in the case of Castellain v. Preston and others 1882‑3 (II) QBD 380 at 386), which lays down as under:‑‑ "In order to give my opinion upon this case, I feel obliged to revert to the very foundation of every rule which has been promulgated and acted on by the Courts with regard to insurance law. The very foundation, in my opinion, of every rule which has been applied to insurance law is this, namely, that the contract of namely, contained in a marine or fire policy is a contract of indemnity, and of indemnity only, and that this contract means that the assured, in case of a loss against which the policy has been made, shall be fully indemnified. That is the fundamental principle of insurance, and if ever a proposition is brought forward which is at variance with it, that is to say, which either will prevent the assured from obtaining a full indemnity, or which will give to the assured more than a full indemnity, that proposition must certainly be wrong." In order to illustrate this concept of insurance of goods or property, as enunciated in Castellain's case the learned counsel for the appellant gave the following example: If a person was to purchase a car worth Rs. 2,00,000 and get it insured for the same amount, i.e. its actual value, and the car is completely destroyed in an accident, the insurer would be entitled to claim the entire amount of Rs. 2,00,000 from the insurance company. If, however, the car is not completely destroyed but is only partially damaged in the accident then, under the law of insurance, he would be entitled to be indemnified only to the extent of loss suffered by the insured i.e. the amount necessary to repair and restore the car back into its original position before the accident and not a single pice more. But if the same car is got insured by the owner for an amount much higher than its actual value, say Rs. 10 lacs (Rs. 10,00,000 and the premium is also paid in accordance thereto, and the car gets completely destroyed in an accident, then, under the law of insurance he would still not be entitled to claim more than the actual price of the car, namely Rs. 2,00,

000. In other words he would be entitled only to be indemnified for the actual loss incurred by him and would not be allowed to make any profit by getting the car (or any other property) insured for an amount higher than its actual value. The view that the concept of insurance is based on the principle of indemnity, i.e. that the insurer is liable (in cases where the property is insured for its full value) to compensate the insured, to the extent of the loss suffered by him, is supported by provision of section 5 of the Ordinance itself, which prescribes that any Scheme made by the Government under section 4 with respect to any property insurable under this Ordinance, may provide, inter alias‑‑ "(a) ." (b) that the payment due under a policy of insurance issued under the scheme may, at the option of the Central Government, take either of the following forms, namely: (i) payment ..of the cost necessary to restore the property as far as practicable to the condition in which it existed before the occurrence of the damage, or (ii) compensation for the loss in value ascertained on the basis of values and prices ruling at the time at which the policy of insurance was taken out or at which the loss occurred, whichever is less, suffered by the property as a result of the damage after due allowance has been made for depreciation during the current period of insurance cover; ; In other words the legislation has ensured through the abovenoted provisions that in the case of damage to any building or property during or in connection with a war, the Government may only pay so much money (subject to provision of section 4) as is necessary to restore the property to its original condition, or pay him a sum equivalent to the loss in the value of the building ascertained on the basis of the value or prices at the time when the policy was made or when the loss was suffered, and no more. It may be mentioned that while the actual value in the case of goods in transit, factories or ships the insurable value is calculated by formulas provided in clauses (i), (ii), (iii) and (v), respectively of Explanation‑I to rule

7. These, in substance, provide as follows:‑‑ "Explanation I.‑‑For the purposes of this rule, the 'actual value' shall be:‑‑ (i) in case of goods, the amount for which the goods are insured against the risks of fire with any insurer registered in Pakistan; (ii) in case of goods in transit, the amount for which the respective letter of credit has been opened, or as the case may be, the invoice value of such goods; (iii) in case of a factory, the sum equal to the approximate cost price to the owner on the date of application of similar new plant, machinery, building and other components of the factory less depreciation on such cost price calculated according to the rates prescribed under the Income‑tax Act, 1922 (XI of 1922) for the period for which the asset has been in use, provided that the minimum insurable value shall not be less than 25$ of the value of similar property, when new; (iv) in case of ships, the sum equal to the approximate cost price to the owner on the date of application of similar new ships, less depreciation on such cost price calculated according to the rates prescribed under the Income‑tax Act, 1922 (XI of 1922), for the period for which the ship has been in use, provided that the minimum insurable value shall not be less than 25% of the value of similar ship, when new. " It is noteworthy that the figures arrived at through these formulas clearly have direct relationship with the actual value of the goods or goods in transit, factories or ships (as the case may be). But in the case of buildings, Explanation 1(iv) provides an absolutely arbitrary formula, namely, that the insurable value would always be equal to 40 times the annual rental value of the building as assessed by the appropriate assessing authority. It is obvious that by using this formula one can hardly ever expect to arrive at a figure approximating the actual value of the building i.e. amount of money which may be sufficient to rebuild the building in case of total destruction. The reason is clear because a 'building' as defined in section 2(a) of the Ordinance includes the structure but not the land on which it is built. Now, the rent that the building may, fetch has direct relationship with the location of the land upon which it is constructed. Suppose, for instance, that two identical buildings are built, one on the Mall Road, Lahore (or say, on the Tariq Road in Karachi) and the other is built 10 miles away from either of the said cities. The cost of their construction (or reconstruction in case of destruction) would be the same, while there would be enormous difference in the rent that each building would fetch. The value of the building arrived at according to the prescribed formula of 40 times the annual rental value in either case, would have no relationship with its 'actual value'.

13. Now, as already mentioned, the definition of words 'insurable value' as given in section 2(j) of the Ordinance in relation to property means the value of the property "as ascertained for the purpose of insurance" i.e. for the 'purposes of indemnifying the insured/owner in case the building actually gets damaged or destroyed, as a result of something which is covered by the term "war risk" as defined in section 2(b) of the Ordinance. But, as explained above, the value arrived at by the application of the formula prescribed by Explanation I(iv) to rule 7(a) would, in a large number of cases, have no nexus whatsoever with value of the building for the purpose of indemnifying the insured/owner for the loss suffered in case of destruction thereof. In some cases it would be absolutely insufficient to meet the liability, while in others, it would unnecessarily be high, requiring the owner to pay unduly large sums of money as premium, and merely serve the purpose of collecting revenue for the Government, rather than that of indemnifying the insured/owner, who as explained earlier, would only be entitled to be compensated to the extent of the actual loss suffered.

14. The learned counsel for the respondent sought to justify the abovenoted formula (i.e. 40 times the annual rental value) by urging that this very formula was applied by the Displaced Persons (Settlement and Rehabilitation) Act, 1958, for arriving at the prices of the buildings for the purposes of settlement which was generally accepted as reasonable and, as such, there should be no objection to its adoption under the War Risks Insurance Rules, 1971. 14‑A. This argument does not take into consideration the fact that the value of the buildings for the purpose of settlement was based on 40 times the annual rental value because at the time of adoption of this formula by the said Act of 1958, the assessment which held the field was the one made by the Excise and Taxation Department in 1946 and was extremely low. The formula of 40 times of annual rental value could, therefore, be justifiably used in arriving at the appropriate value of a building in the late fifty's or early sixty's. It may also be noticed, for example, that for the purpose of levying Wealth Tax the value of the building is computed, under instructions issued by the Central Board of Revenue at 10 times the current annual rental value, i.e., the rental value based on the current or the latest assessment.

15. In view of the above discussion we hold that the provisions of rule 7(a) read with Explanation I(iv) thereto, are not only unreasonable but are also bad for being violative of the parent statute and must, therefore, be struck down.

16. We may, now also deal with the question whether deduction for depreciation as provided under rule 7(a) of the War Risks Rules, 1971, is admissible in respect of buildings that have already been completed, or only in the ~:ase of buildings that are still under construction. Rule 7(a) may again be reproduced for facility of reference: ‑‑ "7(a). The insurable value shall be actual or, in the case of works in course of construction, the estimated value of the property on the relevant date after giving due allowance for depreciation."

17. The cardinal and the primary principle of interpretation of statutes is to construe the provisions in accordance with their ordinary dictionary meaning and in case of any ambiguity to give them such meanings as is in consonance with the purpose of the legislation in question. As already explained in paragraph 8 above, the principle behind the law of insurance is to ensure that persons who take out an insurance policy for their property against any risk, should be indemnified or reimbursed for the damage or loss sustained by them as a result of the risk for which they are covered. Rule 7 seeks to provide for determination of the 'insurable value' of the property i.e. , value which should be placed on any property, including buildings, sought to be insured so that it can be ascertained at the time of taking out the insurance policy as to what would be the amount to which the owner of the building insured would be entitled in case of total or partial damage/loss to his property. Clause (a) to rule 7 provides as to what would be the 'insurable value' of a building sought to be insured under the War Risks Ordinance, 1971. It mentions two categories of buildings: (i) those which have already been constructed; and (11) those which are in the course of construction and have not yet been completed. In the case of completed buildings the insurable value has been equated with the actual value of the building, while in the case of buildings 'in the course of construction', the insurable value has been placed at the estimated value of the property on the relevant date. This stands to reason, because the value of a building which is still under construction will depend upon the fact as to how much construction has already been carried out. For example, in the case of a building which has been erected only upto the plinth, the value would definitely be much less than a similar building which has been completed right upto the roof. As such, it would, indeed, be necessary to estimate its value at the relevant date, in the light of construction already carried out.

18. The main question, however, which falls for determination is the meaning of the words "after giving due allowance for depreciation", occurring at the end of clause (a) to rule

7. The question is whether it applies only to buildings which are still under construction or also to buildings which have already been completed. The ambiguity has been caused by the fact that a comma has been placed in provision in question i.e. rule 7(a) after the word 'or' instead of the word 'date'. This lends to the construction that the deduction for depreciation can be allowed only in the case of buildings still 'under construction' and not in the case of buildings which have already been completed. But obviously such a construction would lead to an utter absurdity. It is evident that a building which is still 'under construction' when the policy is taken out cannot be said to have undergone any appreciable depreciation. But where a building has already been' completed it may either be a recent construction or say, 10 years or even 30 years old, it can be safely assumed to have depreciated in value, depending on its age, because with passage of time they start deteriorating due to weather conditions and various other factors. Although in rare cases even buildings still under construction can also undergo, slight deterioration because of certain external factors, which may take place before the policy is taken out, but generally it is the older completed buildings, in which the process of deterioration has already set in, that can be said to have undergone some depreciation in value. But a already observed the construction to be placed on a statute must, besides being reasonable, also be in consonance with the intention o the legislature as manifested, inter alia, by the policy of the law in question. Moreover as held by Mr. Justice Muhammad Munir in Gurmakh Singh v. Commissioner, Income‑tax, Lahore A I R 1944 Lah. 353, if a provision, as punctuated, leads to an absurd result or conflicts with some other provision of the statute the punctuations must yield to reasonable and consistent interpretation. We are, therefore, of the considered opinion that clause (a) of rule 7, provides for allowance for depreciation to be given not only in the case of buildings still under construction but also in case of buildings already constructed.

19. The net result of the above discussion ‑is that the appeal is allowed and we hold that the appellants were not liable to get the buildings insured at the value arrived at by the formula provided by the rule in question i.e. , 40 times the annual rental value. We hold further that while computing the insurable value under clause (a) of rule 7 of the War Risks Rules, allowance for depreciation shall also be admissible in cases of completed buildings including one involved in the present case, namely, the Jubilee Insurance House, I.I. Chundrigar Road, Karachi. M . I . Appeal allowed.