Ambiguous Insurance Terms Should Be Interpreted In Favour of Insured: NCDRC Holds Bajaj Allianz Insurance Liable For Deficiency In Service

Brief Facts of the Case

The complainant, engaged in the coconut business, had obtained a loan from the bank, secured by hypothecation of stock. The bank insured the stock with Bajaj Allianz General Insurance/insurer under a policy. A fire broke out at her premises, destroying a large quantity of coconuts. The complainant reported the incident to the fire department and the insurer. The insurer's surveyor assessed the loss, but the claim was repudiated, citing that the policy covered stock stored only in closed premises. The complainant argued that the stock was kept in a covered space with four walls and claimed she was unaware of the policy's specific terms until after the incident. The complainant filed a complaint before the State Commission of Andhra Pradesh, which allowed the complaint. It directed the insurer to pay Rs. 16,42,617 towards the loss of coconuts with 9% interest and Rs. 50,000 as compensation, along with Rs. 10,000 as costs to the complainant. It also directed the bank to pay Rs. 1,50,000 as compensation and Rs. 10,000 as costs to the complainants. Aggrieved by the State Commission's order, the insurer appealed to the National Commission.

Contentions of the Insurer

The insurer disputed the complainant's classification as a 'consumer' under the Act and acknowledged the specifics of the insurance policy, emphasizing that coverage extended only to stock stored in enclosed spaces. They argued that only Rs. 16,42,612 worth of stock was affected, adhering to the policy's terms and subsequently denying the claim. Furthermore, the Bank argued before the State Commission that securing insurance was not obligatory for obtaining the loan and highlighted the complainant's freedom to select any insurer. They denied any service deficiencies and disclaimed responsibility for the insurance issue. However, the bank did not contest the State Commission's order.

Observations by the National Commission

The National Commission observed that the main issue in this case was whether the coconuts stored in the specified premises were covered under the insurance policy. The insurer, while acknowledging the insurance of the premises, contended that coverage extended only to stock stored within closed premises, excluding open areas. On the other hand, the complainant argued that the insured premises encompassed enclosed spaces and open areas enclosed by walls. The Commission noted that the policy's “Open Stock Warranty” explicitly stated that coverage applied solely to stock stored in closed premises, creating ambiguity in its interpretation. To resolve this ambiguity, the Commission referred to legal precedents, notably Haris Marine Products v. ECGC Ltd., which upheld the principle of contra proferentem in insurance contracts. This principle dictates that ambiguous terms should be interpreted in favor of the insured party. Considering the facts presented, including the surveyor's assessment and the nature of the loss due to fire, the National Commission affirmed the State Commission's order, finding no legal flaw in its reasoning. However, it also cited DLF Homes Panchkula Pvt. Ltd. v. D.S. Dhanda, emphasizing that multiple compensations for a single deficiency were not justifiable. As a result, the Commission modified the compensation amounts awarded by the State Commission accordingly.

The National Commission directed the insurer to compensate the complainant with Rs. 16,42,617 for the loss of coconuts, including simple interest at 9% per annum. Additionally, the insurer and the bank, were instructed to reimburse the complainant Rs. 20,000 each towards litigation costs.

Case Title: Bajaj Allianz General Insurance Co. Ltd. Vs. P. Santha Kumari

Case Number: F.A. No. 204/2022