Read Judgment: Narsingh Ispat Ltd v. Oriental Insurance Company Ltd. & Anr 

Tulip Kanth

New Delhi, May 04, 2022:  While adjudicating upon a dispute relating to an Insurance Policy, the Supreme Court has set aside the judgment of the National Consumer Disputes Redressal Commission and observed that the decision to repudiate the policy could not be sustained as the insurance company relied upon the definition of terrorism in various penal statutes when the Exclusion Clause contained an exhaustive definition of acts of terrorism.

The Division Bench of Justice Ajay Rastogi and Justice Abhay S. Oka was considering an appeal under Section 23 of the Consumer Protection Act, 1986 challenging the judgment of the National Consumer Disputes Redressal Commission whereby the appellant’s consumer complaint was dismissed by the Commission.

The facts of this case were such that the appellant had taken Standard Fire and Special Perils Policy from the respondent-insurance company for the period from June 28, 2009 to June 27, 2010 and the policy was in respect of Engineering Workshop and Plant at Village Khunti District Saraikela, Jharkhand. The total sum assured was Rs.26,00,00,000 and the appellant paid a premium of Rs.2,20,462. According to the appellant, the policy covered the loss caused to the property of the appellant on account of fire, lightning, explosion, riots, strike etc.

The appellant lodged a claim on the basis of the said policy, based on the incident when after midnight of March 22, 2010, about 50-60 anti-social people with arms and ammunition entered the factory premises of the appellant at a Village in Jharkhand. 

According to the appellants, the mob demanded money and jobs for local people and substantial damage was caused to its factory, machinery and other equipment.As per theappellant, the object of the incident was to terrorise the management of the appellant and workers in the factory by forcing them to pay a ransom to the miscreants. An FIR was also registered at the instance of the appellant based on the said incident. The appellant lodged a regular claim with the respondent company on the basis of the policy and a surveyor appointed by the respondent-insurance company carried out the survey and assessed the loss at Rs.89,43,422. However, by addressing a letter on December  21, 2010, the appellant claimed that the respondent-insurance company was liable to make an interim payment of Rs 1.5 crores.

By a letter the respondent-insurance company repudiated the appellants’ claim by placing reliance on the Exclusion Clause in the policy regarding loss or damage caused by the acts of terrorism. Then the appellant filed the complaint mentioned above before the Commission complaining about deficiency in the service offered by the respondent-insurance company.The Commission held that because of the Terrorism Damage Exclusion Warranty (Exclusion Clause), the respondent company was justified in repudiating the claim of the appellant based on the policy of insurance. It was held that the damage caused to the factory and equipment of the appellant was due to an act of terrorism.Aggrieved thereof, the appellants filed this appeal.

Relying upon the Criminal Law (Amendment) Act, 1908, it was submitted that it was a case of unlawful association as defined in Section 15 of the Amendment Act of 1908 and under Section 17 thereof, the unlawful association is made an offence. It was submitted that the very fact that the provisions of the Amendment Act of 1908 have been applied showed that the loss caused to the appellant was due to a terrorist act. He submitted that the burden was on the appellant to show that liability arose under the said policy.

The Division Bench opined that the repudiation of the policy made by the respondent was based on the Preliminary Survey Report, Investigation Report and the Final Survey Report but the Survey Reports couldnot throw any light on the question whether there was an act of terrorism as it did not record any factual findings regarding the incidents which caused the loss. In the Investigation Report it was observed by the investigator that it was not conclusively proved that the persons involved in the incident belonged to Maoist or similar groups. The FIR and Closure Report also did not refer to acts of terrorism as defined under Exclusion Clause. The Final Report (Closure Report) showed that the police had registered a First Information Report against 105 miscreants who could not be traced, asserted the Bench.

The Bench took note of the fact that in a letter dated April 15, 2010, the appellant stated that the purpose of the anti-social persons was to create terror so that the appellant would be forced to pay a ransom. The Exclusion clause defined the act of terrorism. Given the definition, the actions can be termed as acts of terrorism provided the same are committed for political, religious, ideological or similar purposes. The words similar purposes would have to be construed ejusdem generis, added the Bench.

Considering the fact that the respondent had not discharged the burden of bringing the case within the four corners of the Exclusion Clause, the Top Court said, “When the policy itself defines the acts of terrorism in the Exclusion Clause, the terms of the policy being a concluded contract will govern the rights and liabilities of the parties. Therefore, the parties cannot rely upon the definitions of terrorism in various penal statutes since the Exclusion Clause contains an exhaustive definition of acts of terrorism.”

Thus, the Bench concluded that the Commission committed an error by applying the Exclusion Clause. Moreover, the policy specifically covered the damage to the insured’s property caused by violent means.

It was further observed that the policy covered explicitly a liability arising out of the damage to the property of the insured due to riots or the use of violent means. Hence, the decision to repudiate the policy couldot be sustained. Under the insurance policy, there were different limits prescribed for various acts covered by the policy. 

Taking into consideration the fact that it was noted in the impugned Judgment that the parties had filed affidavits-in-lieu of evidence before the Commission, the Bench held that an adjudication will have to be made on the quantum of the amount payable to the appellant after appreciating the evidence on record, including the valuation reports. However, the valuer appointed by the respondent-company had valued the loss caused to the appellant at approximately Rs.89,00,000. 

Thus, the Bench directed that the appellant will be at liberty to file an application for withdrawal of the amount before the Commission pending complaint. If such an application would be filed by the appellant, then the Commission may examine on its own merits and decide the same in accordance with law.

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