Unless insured is duly informed, exclusionary clauses not applicable: SC

New India Assurance Co. Ltd. Vs Paresh Mohanlal Parmar (Supreme Court of India)

Supreme Court of India on Insurance Claim: Unless insured is duly informed, exclusionary clauses not applicable.

In this case the Supreme Court of India in one of its judgements in a case involving Insurance Claim has held that unless the insured is duly informed, Exclusionary Clauses will not be applicable.

BRIEF FACTS:

This appeal has been filed against the judgment of National Consumer Disputes Redressal  Commission dated 19.07.2011 in First  Appeal No.45/2007 by which the First Appeal of the respondent was  allowed and National Commission allowed the complaint and directed to pay an amount of Rs.20,00,000/- (Rupees Twenty Lakhs only) to  the respondent with interest @ 6% p.a. from the date of repudiation  till filing of the complaint and 9% from the date of filing of  compliant till the date of realization of the entire amount.

The respondent obtained a burglary and house breaking Insurance Policy for the period from 5.06.2003 to 4.06.2004 from the appellant Insurance Company to insure his property for a total sum insured of Rs.20 Lakhs. During the night of 11.01.2004 an incidence of theft took place and 324 mobile phones were found to be stolen from the godown and FIR lodged with the concerned Police SHORTLY.

Insurance Company was informed and their surveyor visited and submitted his preliminary report dated 16.1.2004.

The complaint was also submitted to Insurance ombudsman by the appellant. Vide order dated 9.12.2005 the Insurance ombudsman rejected the representation on the ground that they have no pecuniary jurisdiction.

The Insurance Company repudiated the claim and reiterated its stand of repudiation. The respondent filed a complaint before the State Commission.

STATE COMMISSION: By order dated 21.12.2006 the State Commission dismissed the complaint filed by the respondent relying upon the judgment of this Court in United India Insurance Co.Ltd. Vs.  Harchand Rai Chandan Lal 2004(8)SCC 644.

United India Insurance Co.Ltd. Vs.  Harchand Rai Chandan Lal 2004(8)SCC 644. This appeal is directed against the order passed by the National Consumer Disputes Redressal Commission, New Delhi in Revision Petition No.2159 of 2002 confirming the order passed by the State Consumer Disputes Redressal Commission, New Delhi as well as the order passed by the Consumer Disputes Redressal Forum-II (District Forum II), New Delhi. The question arose that according to the complaint burglary took place from the cashier’s cash box. The surveyor’s report was that the stolen jewels had not been kept in safe locker and the theft was not covered under burglary insurance policy. Though the District Forum directed the insurance company to pay a sum of Rs. 43,729.25 however, the State Commission observed that what is insured is not the contents of the cash box but the jewels kept in the safe which means a safety locker made by Tansi as agreed to in the proposal form. And it was observed that jewels kept in the cashier’s cash box which were not covered by the policy. The State forum overruled the order passed by the District Forum. The order passed by the State Commission in revision was reversed by the National Commission. The matter came before this Court in Special Leave Petition by Insurance Company. Their Lordships’ observed that there was no necessity of referring to the dictionaries for understanding the meaning of the word “safe” which the parties in the instant case are proved to have understood while submitting the proposal and accepting the insurance policy. The cashier’s box could not be equated with the safe within the meaning of the insurance policy. The alleged burglary and the removal of the jewellery from cash box, the cash box was not covered by the insurance policy between the parties. The insurance policy has to be construed having reference only to the stipulations contained in it and no artificial farfetched meaning could be given to the words appearing in it. And, therefore, they set aside the order of the National Commission. Similarly, in the case of Oriental Insurance Co.Ltd. Vs. Sony Cheriyan reported in (1999) 6 SCC 451 an insurance was taken out under the Motor Vehicles Act, 1988 in which their Lordships observed: “The insurance policy between the insurer and the insured represents a contract between the parties. Since the insurer undertakes to compensate the loss suffered by the insured on account of risks covered by the insurance policy, the terms of the agreement have to be strictly construed to determine the extent of liability of the insurer. The insured cannot claim anything more than what is covered by the insurance policy.” Similarly in the case of General Assurance Society Ltd. Vs. Chandumull Jain and Anr. reported in (1966) 3 SCR 500 the Constitution Bench has observed that the policy document being a contract and it has to be read strictly. It was observed, ” In interpreting documents relating to a contract of insurance, the duty of the court is to interpret the words in which the contract is expressed by the parties, because it is not for the court to make a new contract, however reasonable, if the parties have not made it themselves. Looking at the proposal, the letter of acceptance and the cover notes, it is clear that a contract of insurance under the standard policy for fire and extended to cover flood, cyclone etc. had come into being.” Therefore, it is settled law that the terms of the contract have to be strictly read and natural meaning be given to it. No outside aid should be sought unless the meaning is ambiguous. From the above discussion, we are of the opinion that theft should have preceded with force or violence as per the terms of insurance policy. In order to substantiate a claim an insurer has to establish that theft or burglary took place preceding with force or violence and if it is not, then the insurance company will be well within their right to repudiate the claim of the insurer. However, all the three forums have already awarded compensation and the amount has been paid to the respondent, therefore, on the point of equity we would not like to disturb the payment which has already been made. However, in view of legal position stated by us, the orders of the District Forum, State Commission and the National Commission cannot be upheld.

NATIONAL CONSUMER DISPUTES REDRESSAL FORUM:  The first appeal was filed before the Commission. The commission by the impugned judgment has allowed the appeal.

The Commission took a view that when the lock of the godown was found on the Street and that the culprit was convicted under Section 454 IPC, it may be gathered that element of force was present when the culprit entered the premises of the godown.

The Commission also returned the finding that relevant terms and conditions of the Insurance Policy were not brought to the knowledge of the insurer. Aggrieved by the judgment of the National Commission, this appeal has been filed.

THE POINTS PUT BY INSURANCE COMPANY BEFORE SUPREME COURT:

Learned counsel for the appellant contents that the claim of the respondent was not covered by the policy. He has referred to Clause 3A as extracted by the State Commission and submits that there being no force entry in the premises and the premises having been opened by duplicate key, the claim was not covered.

With regard finding of the Commission that terms and conditions were not informed to Insured, he submits that the State Commission has held that terms and conditions were informed but the National Commission has erroneously observed that the State Commission has not dealt with the matter.

SUPREME COURT OBSERVATION

The Court noted that it cannot find any tangible material to infer that the relevant terms and conditions of the Insurance Policy were brought to the knowledge of the appellant.

It said:

“Before we embark upon a discussion on the issue regarding breach of the terms of the Insurance Policy, it may be mentioned that the other contentions of the respondents were rejected by the State Commission. The appellant also had contended before the State Commission that he was not furnished with the terms and conditions of the insurance policy when the insurance policy was taken by him. The fact that the appellant took a relevant insurance policy covering the period between 5.06.2003 to 4.06.2004 is not in dispute.

The case of the appellant was that the annexure containing terms of the insurance policy had not been attached along with the document of the policy furnished to him. Though the respondents denied such averment of the appellant in their written version yet the appellant reiterated the same stand in his rejoinder affidavit filed before the state Commission.

The State Commission did not deal with this aspect of the matter. In our opinion, it was necessary for the respondents to prove that the terms and conditions of the Insurance Policy were furnished to the appellant when the policy document was issued in his favor.

 

We have not come across any tangible material to infer that the relevant terms and conditions of the Insurance Policy were brought to the knowledge of the appellant.”

The Court also took notice of the submission of the Counsel for the appellant in which it was stated that is the National Commission erred in observing that the State Commission didn’t deal with the aspect, whereas the State Commission has dealt with.

The Court thus observed that when the National Commission has returned the finding that terms and conditions of the policy were not brought to the knowledge of the respondent, as it is contrary to the finding of the State Commission, the findings of the State Commission shall be treated to have been overruled.

The Court also stated that the principles laid down in United India Insurance Co.Ltd. v. Harchand Rai Chandan Lal 2004(8) SCC 644 cannot be applied to the present case.

It observed:

“Having held this, SCDRC also came to the conclusion that the exclusion would in any event not be attracted. The finding of SCDRC in regard to the interpretation of such an exclusionary clause is evidently contrary to the law laid down by this Court in Harchand Rai. However, the relevance of that interpretation would have arisen provided the conditions of exclusion were provided to the insured.

NCDRC missed the concurrent findings of both the District Forum and SCDRC that the terms of exclusion were not made known to the insured. If those conditions were not made known to the insured, as is the concurrent finding, there was no occasion for NCDRC to render a decision on the effect of such an exclusion.”

The thus on the ground of all the above observations, dismissed the appeal.

CONCLUSION:   we are aware that an Insurance Policy is a contract binding insurer and the insured. It is a contract of good faith in which insured has to disclose all relevant material facts to the insurance company on the basis of which the insurance company decide to underwrite the risk and the amount of premium to be charged. A policy document is prepared by the insurance company on the specified and standard terms and conditions, in this case insured has nothing to say. While interpreting clauses of an insurance policy, courts generally favor the insured. It is duty of the insured to reveal all terms, conditions or exclusions to the insured and if there is any negligence on the part of insurer to explain such terms and conditions, then insurer cannot repudiate the claim on that basis. In the above case the point of contention was that the exclusion clauses were not explained to the insured. Thus, it is utmost important for insurance company to explain and take a declaration from the insured that he /she has understand and fully explained terms and conditions of the insurance policy to avoid further litigation.

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FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER

This appeal has been filed against the judgment of National Consumer Disputes Redressal Commission dated 19.07.2011 in First Appeal No.45/2007 by which the First Appeal of the respondent was allowed and National Commission allowed the complaint and directed to pay an amount of Rs.20,00,000/- (Rupees Twenty Lakhs only) to the respondent with interest @ 6% p.a. from the date of repudiation till filing of the complaint and 9% from the date of filing of compliant till the date of realization of the entire amount.

The respondent obtained a burglary and house breaking Insurance Policy for the period from 5.06.2003 to 4.06.2004 from the appellant Insurance Company to insure his property for a total sum insured of Rs.20 Lakhs. During the night of 11.01.2004 an incidence of theft took place and 324 mobile phones were found to be stolen from the godown and FIR lodged with the concerned Police Authority.

Insurance Company was informed and their surveyor visited and submitted his preliminary report dated 16.1.2004. The complaint was also submitted to Insurance ombudsman by the appellant. Vide order dated 9.12.2005 the Insurance ombudsman rejected the representation on the ground that they have no pecuniary jurisdiction.

The Insurance Company repudiated the claim and reiterated its stand of repudiation. The respondent filed a complaint before the State Commission. By order dated 21.12.2006 the State Commission dismissed the complaint filed by the respondent relying upon the judgment of this Court in United India Insurance Co.Ltd. Vs. Harchand Rai Chandan Lal 2004(8)SCC 644. The first appeal was filed before the Commission. The commission by the impugned judgment has allowed the appeal. The Commission took a view that when the lock of the godown was found on the Street and that the culprit was convicted under Section 454 IPC, it may be gathered that element of force was present when the culprit entered the premises of the godown.

The Commission also returned the finding that relevant terms and conditions of the Insurance Policy were not brought to the knowledge of the insurer. Aggrieved by the judgment of the National Commission, this appeal has been filed.

Learned counsel for the appellant contents that the claim of the respondent was not covered by the policy. He has referred to Clause 3A as extracted by the State Commission and submits that there being no force entry in the premises and the premises having been opened by duplicate key, the claim was not covered. With regard finding of the Commission that terms and conditions were not informed to Insured, he submits that the State Commission has held that terms and conditions were informed but the National Commission has erroneously observed that the State Commission has not dealt with the matter.

Learned counsel for the respondent submits that in view of the fact that relevant terms and conditions were not supplied, the claim of the respondent cannot be rejected. The respondent submits that his case is fully covered by the judgment in 2019(6)SCC 212 (Bharat Watch Company thro its partner Vs. National Insurance Company Ltd.). He submits that, even before the repudiation, by his letter dated 17.03.2005 the respondent has asked for copy of the terms and conditions from the appellant.

We have heard learned counsel for the parties and perused the records.

As noted above, the National Commission has returned the finding that terms and conditions of the policy were not communicated to the appellant which finding are contained in para 7 to the following effect:

“We have heard learned counsel for the parties. We have perused the record of the State Commission. Before we embark upon discussion on the issue regarding breach of the terms of the Insurance Policy, it may be mentioned that the other contentions of the respondents were rejected by the State Commission. The appellant also had contended before the State Commission that he was not furnished with the terms and conditions of the insurance policy when the insurance policy was taken by him. The fact that the appellant took relevant insurance policy covering period between 5.06.2003 to 4.06.2004 is not in dispute. The case of the appellant was that the annexure containing terms of the insurance policy had not been attached along with the document of the policy furnished to him. Though the respondents denied such averment of the appellant in their written version yet the appellant reiterated the same stand in his rejoinder affidavit filed before the state Commission. The State Commission did not deal with this aspect of the matter. In our opinion, it was necessary for the respondents to prove that the terms and conditions of the Insurance Policy were furnished to the appellant when the policy document was issued in his favour. We have not come across any tangible material to infer that the relevant terms and conditions of the Insurance Policy were brought to the knowledge of the appellant.”

The submission of the counsel for the appellant is that National Commission erred in observing that the State Commission did not deal with the aspect, whereas the State Commission has dealt with. When the National Commission has returned the finding that terms and conditions of the policy were not brought to the knowledge of the respondent, as it is contrary to the finding of the State Commission, the findings of the State Commission shall be treated to have been over ruled.

The judgment of this Court relied by counsel for the respondent in 2019(6)SCC 212 (Bharat Watch Company thro its partner Vs. National Insurance Company Ltd.) supra covers the case, wherein following has been laid down in para 7 & 10:

“7 : “The basic issue which has been canvassed on behalf of the appellant before this Court is that the conditions of exclusion under the policy document were not handed over to the appellant by the insurer and in the absence of the appellant being made aware of the terms of the exclusion, it is not open to the insurer to rely upon the exclusionary clauses. Hence, it was urged that the decision in Harchand Rai will have no application since there was no dispute in that case that the policy document was issued to the insured.

“10 : Having held this, SCDRC also came to the conclusion that the exclusion would in any event not be attracted. The finding of SCDRC in regard to the interpretation of such an exclusionary clause is evidently contrary to the law laid down by this Court in Harchand Rai. However, the relevance of that interpretation would have arisen provided the conditions of exclusion were provided to the insured. NCDRC missed the concurrent findings of both the District Forum and SCDRC that the terms of exclusion were not made known to the insured. If those conditions were not made known to the insured, as is the concurrent finding, there was no occasion for NCDRC to render a decision on the effect of such an exclusion.”

In view of the above we are of the opinion that no other issue needs to be considered. The appeal of the appellant is liable to be dismissed on the above ground.

Appeal is dismissed.

Pending application(s) stand disposed of.

The Appeal is dismissed in terms of the signed order. Pending application(s), if any, stand disposed of.

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DISCLAIMER: the case law produced here is only for knowledge of the readers. the views expressed here are personal views of the author and same should not be taken as professional advice. In case of necessity do consult with insurance professionals.