In CIVIL APPEAL NO. 4139/2020-SC- Top Court directs Export Credit Guarantee Corp. to pay claim amount of Rs 2.45 crore to Haris Marine, says ambiguous term in insurance contract is to be construed harmoniously by reading contract in its entirety Justices Uday Umesh Lalit, S. Ravindra Bhat and Pamidighantam Sri Narasimha [25-04-2022]

Read Order: HARISH MARINE PRODUCTS Vs. EXPORT GUARNTEE CORPORATION LIMITED.

LE Correspondent

New Delhi, April 26, 2022: Setting aside the NCDRC order and directing the Export Credit Guarantee Corporation to pay the claim amount of Rs 2.45 crore to the appellant-complainant in a dispute pertaining to the interpretation of the date of despatch/shipment in the Single Buyer Exposure Policy, the Supreme Court has opined that denying the appellant’s claim over an incorrect interpretation of an ambiguous term goes against ECGC’s duties.

Referring to the rule of The Larger Bench of Justice Uday Umesh Lalit, Justice S. Ravindra Bhat and Justice Pamidighantam Sri Narsimha said, “It is entrenched in our jurisprudence that an ambiguous term in an insurance contract is to be construed harmoniously by reading the contract in its entirety. If after that, no clarity emerges, then the term must be interpreted in favour of the insured, i.e., against the drafter of the policy.”The Bench also relied on the principle of business common sense laid down by the Supreme Court of UK while dealing with ambiguous terms in insurance contracts. 

The present appeal was preferred by the appellant against the order of the National Consumer Disputes Redressal Commission, dismissing its complaint.  

Brief facts of the case were such that the Export Credit Guarantee Corporation, a government company,provides a range of credit risk insurance cover to exporters.The appellant company-Haris Marine is an exporter of fish and meat oil and on December 13, 2012, the appellant paid a premium to ECG  for the Policy which covered foreign buyers failure to pay for goods exported.  The coverage of this Policy was for Rs. 2.45 crores. The vessel (Tiger Mango Voyage 62) set sail on December 15,2012. The Bill of Lading was prepared on December 19,2012, with a line specifying the date of onboard (i.e., date on which vessel commenced loading the goods in question on board) as December 13,2012. The vessel delivered the goods on January 22,2013. The overseas buyer defaulted on payment. Then, he appellant then lodged a claim with ECGC on February 14,2013.

However, the claim of the appellant was rejected on several grounds. Reason given by the Independent Review Committee was that the date of the dispatch was ambiguous. Reliance was placed on the definition contained in the DGFT Guidelines and in view of the same it was stated that the appellant was not entitled to claim the amount . The appellant approached NCDRC but the NCDRC conceded with the reasoning of IRC and the claim of the appellant was rejected by passing the impugned order.  This impugned order was assailed by the appellant by way of present appeal.

Appellant was of the view that in the absence of a vivid provision incorporated in the Policy, he was entitled to the benefit of the rule of Contra proferentem. The Counsel for the appellant reproduced a relevant clause from the Policy “Dispatch” which said that it means passing or handing over of the goods to the first carrier for through carriage to the place where the Insured Buyer or his nominee is to accept them ‘dispatched’ will be construed accordingly. The Counsel submitted that in the above stated clause no clarification was mentioned concerning the exact date of the initiation of coverage, which was the subject matter in the present appeal. It was further submitted that the date that shall be taken into consideration should be December 15, 2012 and not December 13, 2012, as the former represented the date when the vessel set sail. 

The respondent, EGC on the other hand, submitted that being a government insurance company it needs to adhere to the DGFT guidelines and definitions mentioned therein. Relying on the definition of dispatch/ shipment under the DFT guidelines, the Counsel for the respondent contended that the date December 13, 2012 was to be taken into consideration which was a day prior to the effective date of the policy. 

The Court while dealing with the present case also observed the principle laid down by the Supreme Court of UK in the case of Rainy Sky SA v Kookmin Bank, wherein the Supreme Court in order to deal with the ambiguous terms in the insurance contracts relied on the principle of business common sense. The Supreme Court of UK in the case cited above held that if there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other.

The Apex Court after considering all the relevant documents and by application of the aforesaid principle was of the opinion that the date of loading goods onto the vessel, which commenced one day prior to the effective date of the policy, was not as significant as the date on which the foreign buyer failed to pay for the goods exported, which was well within the coverage period of the Policy. Thus, the claim could not be dismissed simply on such basis, especially given that the date of loading the goods onto the vessel was immaterial to the purpose for which the policy was taken by the appellant.

 Reliance was placed on its judgment in General Assurance Society Ltd. v. Chandumull Jain, wherein it was held that in other respects there is no difference between a contract of insurance and any other contract except that in a contract of insurance there is a requirement of uberrima fides in good faith on the part of the assured and the contract is likely to be construed contra proferentem that is against the company in case of ambiguity or doubt. 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. 

It was further submitted that a simple reading of the policy in question represents that the objective of taking the same by the appellant was to protect against the failure of payment on behalf of the foreign buyer. Reliance was placed on the case of Peacock Plywood (P) Ltd. v. Oriental Insurance Co. Ltd. to state that while interpreting an insurance contract, the risk and the objective for which the policy was taken by the insurer shall be considered. In the case above it was held that an insurance policy is to be construed in its entirety. A marine insurance policy does not come to an end only because the ship became stranded at a port. While construing a contract of insurance, the reason for entering thereinto and the risks sought to be covered must be considered on its own terms. 

According to the Bench, a plain reading of the policy in question demonstrates that it was taken to protect against failure of the foreign buyer in paying the Indian exporter for goods exported. It was not a policy taken to cover in-transit insurance, and the cause of action triggering the claim arose much later, i.e., on February 14, 2013, well within the coverage of the policy. 

Additionally, the Court observed that the term “dispatch” mentioned in the policy meant completion of handing over the possession of  goods to the first carrier and not the date on which the loading commenced as such an interpretation lacked rationality. Thus, rejecting the claim of the appellant by placing reliance on the DGFT guidelines was not good in law, the Court noted. 

It was also opined that deviating from the rule of contra proferentem, even if in the present instance the third-party DGFT Guidelines were to be applied, it would not favour the ECGC, as a plain reading of provision 9.12 showed that the date on the Bill of Lading had to be considered as the date of despatch / shipment. The date of the onboard Bill of Ladingwas not applicable to the present facts as no letter of credit was executed, much less providing for application of such date. Therefore, as per the Bench, ECGC could not have denied the appellants claim, even on a consideration the DGFT Guidelines.

In the light of the above observations and submissions, the Top Court quashed the impugned order of NCDRC and allowed the appellant’s claim. As a result, ECGC was directed to pay the claimant Rs 2.45 crore with  interest at the rate of 9% p.a.