Court rules in favour of Rice Lanka Processing in insurance dispute against Amana Takaful

Friday, 7 February 2025 00:06 - - {{hitsCtrl.values.hits}}

In a significant ruling, the Commercial High Court (Colombo) has delivered judgement in favour of Rice Lanka Processing Ltd. in its longstanding dispute with Amana Takaful PLC over insurance claims related to flood damage. The case, which involved two separate claims amounting to Rs. 14,853,450 and Rs. 51,152,888, revolved around the validity of an insurance cover note issued prior to the incident.

Rice Lanka Processing Ltd. and its primary shareholder Muhammadu Sarabudeen Muhammadu Haroon, filed two lawsuits against Amana Takaful PLC following the rejection of their insurance claims after severe flooding in the North Central Province in December 2012, which caused extensive damage to stocks of rice and paddy stored in warehouses.

The plaintiffs argued that their stock was insured under a cover note issued by Amana Takaful PLC while the final insurance policy was being processed. However, the defendant company denied liability, arguing that no formal insurance contract was in place at the time of the flood.

The court ruled in favour of the plaintiffs, affirming that a valid insurance contract existed between the parties. In its decision, the court acknowledged industry practice, holding that a cover note constitutes a legally binding document that provides interim insurance coverage until the formal policy is issued.

The ruling reinforces the principle that insurance companies must honour cover notes and cannot deny claims solely on the grounds that a final policy was not issued in time. It serves as a strong reminder to insurers that they cannot evade liability after accepting premiums and marks a significant victory for policyholders, emphasising the need for good faith, accountability, and diligence in the issuance of policies and handling of claims.

The plaintiffs Rice Lanka Processing Ltd. and Muhammadu Sarabudeen Muhammadu Haroon were represented in court by Avindra Rodrigo, President’s Counsel, Sahan Kulatunga and Sanuri Rajakaruna. The Defendant Amana Takaful PLC was represented by Romesh de Silva, President’s Counsel, and Shanaka Cooray.