Isabella Mariam

The Kerala High Court Division Bench of Justice Sathish Ninan and Justice P. Krishna Kumar held that losses sustained by a bank due to fraudulent ATM withdrawals carried out using debit cards issued by other banks fall outside the coverage of a Banker's Indemnity Insurance Policy, where the policy expressly excludes losses arising directly or indirectly from the use of automated teller machines. Setting aside a trial court decree in favour of the bank, the court found that the add-on fraud protection cover under the policy extended only to the bank's own debit card holders.

Federal Bank instituted a suit seeking recovery of money from an insurance company under a Banker’s Indemnity Policy obtained for the period from 01.04.2012 to 31.03.2013. The bank alleged that between 11.04.2012 and 20.05.2012 several fraudulent transactions occurred in its ATMs across the country. According to the bank, fraudsters used ATM cards issued by other banks to withdraw amounts of Rs.10,000 or less. After partially collecting the dispensed money, they intentionally left one or two notes in the presenter so that the ATM would automatically retract them after 42 seconds and move the notes to the divert tray. As the retracted notes were not counted by the machine, the entire withdrawal amount stood reversed to the customer’s account. The bank claimed that such transactions caused a total loss of Rs.83,34,600 and sought indemnification under the insurance policy.

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The insurance company repudiated the claim contending that the alleged losses were not covered under the policy. It argued that exclusion clauses specifically barred losses arising directly or indirectly from the use of automated teller machines and fraudulent use of computer or EDP systems. It further contended that the additional cover only increased limits under the base policy and that the add-on fraud protection cover applied solely to debit card holders of the bank. The trial court decreed the suit holding that the transactions constituted fraudulent transactions covered under the policy, following which the insurer filed the present appeal.

The court examined the scope of the Banker's Indemnity Policy and its exclusion clauses in detail, recording several significant observations on the interpretation of insurance contracts and the coverage available under the policy.

On the question of ATM-related losses, the court observed that exception clause (i) of the policy specifically excludes losses arising out of the use of ATMs, covering any direct or indirect use. The court stated that "the instances in question, which have arisen out of the use of ATM, are excluded from the policy cover" and further recorded that "what is covered under the policy is, a theft occurring in the premises of the ATM counter and malicious damage of the ATM; it does not extend to a fraudulent use of the ATM."

On the scope of the additional policy, the court observed that the extension merely enhanced the monetary limits for existing coverage categories and did not introduce new risks, stating that "the additional policy only adds an additional limit to the original policy" and "does not relate to any item which is not included in the principal policy but only provides additional limit."

On the add-on fraud protection cover, the court noted that "in the additional policy, protection is given to the debit card holders of the plaintiff Bank alone, against fraudulent transactions" and concluded that "the policy excludes losses arising directly or indirectly out of the use of ATMs including the transactions in question." The court further observed that the fact that fraudulent use of the plaintiff bank's own debit cards was specifically included in the add-on cover implied that there was no coverage with regard to fraudulent use of other banks' debit cards.

On the applicability of the unities doctrine, the court, relying on Kuwait Airways Corporation v. Kuwait Insurance Co. [SAK (1996) 1 Lloyd's Rep. 664], stated that "the occurrences in the present case have happened at various parts of the country, in different ATMs, and spread over a span of one month, the 'unities doctrine' does not apply to the facts at hand. So also there is no case of unity of intent. Therefore, it cannot be held that the losses arose out of one event."

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On the excess clause, the court observed that "on the facts of the present case, the reliance on the excess clause essentially amounts to repudiation. The defendants having not relied upon the same in their letter of repudiation, cannot be permitted to fall back upon it to deny the claim in its entirety." The court, however, added that the non-applicability of the excess clause was of no avail to the plaintiff, given its findings on the other points.

The Court directed that the appeal filed by the insurance company be allowed and the decree passed by the trial court be set aside.  “The decree and judgment of the trial court are set aside and the suit will stand dismissed. Parties to bear their respective costs.”

Advocates Representing the Parties

For the Petitioners: Sri. George Cherian (Senior Advocate), Smt. Latha Susan Cherian, Smt. K.S. Santhi

For the Respondents: Shri. Madhu Radhakrishnan

Case Title: New India Assurance Co. Ltd. & Ors. v. Federal Bank Ltd.
Neutral Citation: 2026: KER:17903
Case Number: RFA No. 202 of 2017
Bench: Justice Sathish Ninan, Justice P. Krishna Kumar