Insurance Law - Storage, Unpacking, Assembly Of Helicopter Outside Scope Of 'Ordinary Course Of Transit' : SC Sets Aside Insurer's Liability To Compensate MP Government [Read Judgment]

The Supreme Court on Friday set aside the National Consumer Disputes Redressal Commission's order requiring Bajaj Allianz General Insurance to pay Rs. 64 lakh by way of compensation to Madhya Pradesh government for wrongful repudiation of a claim of damages to a helicopter in transit from Canada to Bhopal. 

The issue before the bench of Justices D. Y. Chandrachud and Ajay Rastogi whether storage, unpacking and assembly of the helicopter at New Delhi would fall outside the scope of the expression "ordinary course of transit", terminating coverage under the policy.

Facts of the case

The respondent government purchased a "Transit Marine Insurance Policy" from the appellant insurance company on 21 July 2005, to cover the transportation of a Bell – 430 Helicopter from Langley, Canada to Bhopal, India. By an acceptance letter, the appellant set out the transit route for the transportation of the helicopter by air, sea and road. Subsequently, the proposed route was altered as follows: "Transit Details: Langley to Pithampur/Bhopal (by road/ by air)."

The policy schedule issued by the appellant indicated that the policy was issued from 22 July 2005 for transportation of the helicopter with standard packaging from Langley to Bhopal for a total sum insured of ₹ 20,00,00,000.

The policy was to be governed by the accompanying clauses that included, inter alia, Institute Cargo Clauses (Air Cargo) , Institute War Clauses (Air Cargo), Institute Strike Clauses (Air Cargo), and an Institute Theft Pilferage Non Delivery Clause that listed out the terms and conditions of all damages and loss covered under the policy. The duration of the policy was to be governed in terms of Clause 5 of the ICC.

On 5 October 2005, the helicopter was transported in a knocked down state by air to New Delhi. On 13 October 2005, the helicopter was cleared by the customs and was shifted to a hangar at New Delhi. On 21 October 2005, the helicopter was inspected by a representative of the manufacturer during routine inspection and the window of the crew door was reported to be damaged. The respondent sought the permission of the Director General of Civil Aviation to fly the helicopter to Bhopal but was denied permission on account of the damage to the window of the crew door. By a letter dated 22 October 2005, the respondent informed the appellant of the damage and stated that the helicopter was "being assembled at the Hangar of Indamer Co. located at Delhi so that the Helicopter can fly from Delhi to Bhopal".

On 23 November 2005, the respondent informed the appellant that upon inspection, the tail boom of the helicopter was found to be damaged. A surveyor was appointed by the appellant to assess the alleged damage to the window of the crew door and the tail boom of the helicopter. By a report dated 14 March 2006, the surveyor concluded that "The damage to window glass of pilot seat and damage to tail boom of helicopter are two separate incidents not related to each other. The replacement cost of damaged window glass of pilot seat is below Rs 10,00,000 and hence would fall under the excess prescribed under the policy. The damage to the tail boom had occurred at Hangar #3, Bay 15/33 IGI Airport Delhi after substantial assembly but prior to test flight and not during transit and hence would not fall under the purview of marine insurance policy as issued to the insured."

By a letter dated 10 April 2006, the appellant informed the respondent that the damage to the tail boom was not detected during transit or customs clearance and it was only detected in the third week of November 2005 before which multiple inspections had been carried out and no damage was reported earlier. The appellant further informed the respondent that the representatives of the manufacturer had also admitted that the loss to the tail boom was only noticed in the month of November. On 10 April 2006, the appellant informed the respondent that both the losses claimed were inadmissible. By a letter dated 11 April 2006, the respondent responded to the above letter stating that even though the damage was noticed after a month of customs clearance, the policy of transit was up to Bhopal and therefore, damage to the helicopter in the month of November 2005 would also be covered under "transit". The appellant repudiated the claim of the respondent by a letter dated 11 July 2006 on the ground that the loss that occurred to the helicopter was after the duration of the policy had ended as mentioned in Clause 5 of the ICC: "In the present case, the destination of the consignment of air transit was New Delhi Airport. The cargo [aircraft] was to be assembled at this location and then aircraft was to fly to Bhopal. The flight would be out of the Marine Transit scope of insurance. The named destination "Bhopal" of issued policy has no relevance in this context. Thus, insurance cover ended on delivery at the final warehouse, premises or place of storage..."

The NCDRC by its judgment dated 10 August 2018, upheld the finding of the SCDRC that there was a deficiency of service on behalf of the appellant in repudiating the claim. In addition to the compensation which was granted by the SCDRC, the NCDRC awarded "interest compensation by way of damages" at the rate of six percent per annum from the date of repudiation till realisation. Assailing the decision of the NCDRC, the appellant has filed the Special Leave Petition in SC.

Conclusions of the bench

The Apex Court noted that the duration of the policy attached and commenced from the time the insured cargo left the warehouse, premises or place of storage at the place named in the policy and continued during the "ordinary course of transit". Further, the words "in transit" do not require transportation of the consignment in a single trip from the commencement to the final destination but includes those interruptions in motion that are incidental to or in furtherance of the conveyance or transportation of the consignment.

"The words of the policy ought to be construed so as to conform to the usual and ordinary method of pursuing the venture or operation. The question of what does and does not constitute a deviation in furtherance of the conveyance of the goods is a question of fact that must be determined by both the intent of the policy and the actions of the parties. An action that is wholly unrelated to the usual or ordinary method of pursuing the transportation of goods would prevent the goods from being covered under the definition of the expression 'in transit' under the policy. Words used in the policy must be construed in their commercial setting having regard to the purpose of the policy", observed the bench.

The judges recorded that appellant issued a policy cover to the respondent providing coverage for the transport of the helicopter from Langley to Bhopal. The helicopter was transported in a knocked down state by air to Delhi. It cleared customs and on the same day, the respondent after taking possession of the cargo shifted it to the hangar at New Delhi. It is undisputed that at the time of customs clearance, no damage was reported. It was when the helicopter was inspected by the representative of the manufacturer during a routine inspection that damage was reported to the window of the crew door of the helicopter.

In a communication addressed by the representative of the manufacturer for placing an order for a crew door window, it was stated that "further unpacking of the Fuselage Assembly was carried out and no other damage was evident." By a subsequent letter, the respondent informed the appellant of the said damage by stating: "On the helicopter reaching Delhi, the package was opened it was found that some of its parts were found broken during transit. Presently, the Helicopter is being assembled at the Hangar of Indamer Co. located at Delhi so that the Helicopter can fly from Delhi to Bhopal."

"The contents of the above letter negate the submission of the learned counsel for the respondent that the helicopter was shifted to the hangar for the purposes of assembling and preparing it for further transportation by road to Bhopal. It is evident from the above letter that the intention of the respondent was to assemble the helicopter at New Delhi and to fly it to Bhopal. The helicopter was transported from Langley in a "knocked down state". The specific act of unpacking the cargo at New Delhi in furtherance of the purpose of assembling it for the flight to Bhopal indicated that the transportation of the cargo in a knocked down state had come to an end. The act of unpacking the helicopter for the purpose of assembling it for undertaking the flight to Bhopal was unrelated to the usual or ordinary method of pursuing the transportation of the cargo insured. The policy covered only those risks that were associated with the transportation of the helicopter and did not cover the risks associated with the flight or operation of the helicopter", states Justice Chandrachud.

The judgment acknowledges=d that in the present case, the transit policy only covered such risks that may have arisen by the venture or operation being carried out in the usual or ordinary manner and not risks that were out of the scope of the policy. Change in the character of the helicopter from a knocked down state to a ready to fly state exposed the appellant to risks not contemplated by the parties under the policy. The effect of the alteration of the subject-matter insured is outside the scope of the agreed cover and brings an end to the policy. Once the nature of the subject- matter was altered, the cargo cannot be said to be in transit and the appellant is absolved from any liability arising out of any subsequent damage to the consignment. Exposure to risks associated with the flight substantially and unnecessarily added to the risks of the journey that were not covered by the policy- "Accordingly, the submission of the learned counsel for the respondent that the cover against risks would be provided till the time the helicopter was not delivered at the final destination of Bhopal is unsustainable. Once the respondent intended to alter the subject-matter it becomes irrelevant to determine whether the hangar at New Delhi was a transit store or the final destination of delivery"

Further, it was noted that the ICC provides that the policy may terminate upon the assured choosing to use an alternate place of delivery, prior to the destination named therein for one of two purposes, either for storage other than in the ordinary course of transit or for allocation or distribution of the cargo-

"In the present case, storage of the helicopter in the hangar at New Delhi awaiting replacement of the spare window cannot be said to be incidental or in furtherance of the carriage of the goods to the ultimate destination. It would be unreasonable to suggest that the transit policy intended to cover indefinite storage of the helicopter at the hangar in New Delhi not brought about by the requirements of transport but determined by commercial convenience of the respondent. The degree of deviation of storing the helicopter at the hangar awaiting replacement of the spare window is at variance with the ordinary course of transit. Ordinary course of transit is the period when the cargo is in the course of transportation, and not in the immediate control of the buyer or seller"

The judgment reads that after the goods cleared customs, the helicopter was in possession of the respondent and it took a voluntary decision of retaining the helicopter in New Delhi on the basis of commercial convenience. Considering that he intention of the respondent was not to prepare the helicopter for transportation by road to Bhopal but to assemble the helicopter in New Delhi and fly it to Bhopal, the bench concluded that once the respondent decided to leave the goods in the hangar at New Delhi for its commercial convenience not associated with or in furtherance of the requirements of their carriage to Bhopal, the transit insurance ended.

"if the respondent decided to retain the helicopter in New Delhi awaiting the arrival of the replacement window from USA, it could have issued a notice to the underwriters to continue the cover of carriage till the time the repairs were carried out. However, the respondent did not issue any notice seeking extension of the insurance cover under Clause 6 of the ICC", added the bench.

Next, the Court proceeded to determine the question of whether the damage to the helicopter had occurred during the course of transit from Langley to Delhi.

"For the respondent to prove its case, a mere assertion that the loss incurred during the course of transit is not sufficient. The burden of proof lies on the respondent to show that the loss incurred was covered within the terms of the policy and that on a balance of probabilities there existed a proximate cause between the loss incurred and the helicopter being in transit. The respondent has adduced no evidence to supports its case", reads the judgment.

It became evident to the Court from the contents of a letter written by the Directorate of Aviation, Government of Madhya Pradesh that the respondent did not challenge the surveyor‟s report. Instead it accepted the finding of the surveyor that the damage to the helicopter took place only in November 2005, after the helicopter had been cleared through customs on 13 October 2005. Accepting the report of the surveyor, the Directorate sought to contend that the ordinary course of transit extended until Bhopal.

"While construing a contract of insurance, it is not permissible for a court to substitute the terms of the contract. The court should always interpret the words used in a contract in a manner that will best express the intention of the parties", articulated Justice Chandrachud.

It is stated that the NCDRC has incorrectly proceeded on the path that the ordinary course of transit would include assembling of the helicopter at New Delhi and the policy covered all risks till the time the helicopter did not reach Bhopal. The risks associated with the assembled helicopter were not covered within the purview of the policy, as the subject-matter which had been insured was a helicopter being transported in a packaged knocked down condition. The act of assembling the helicopter with a view to having it flown under its own power, instead of transporting the packaged knocked down helicopter further to Bhopal by road, would not constitute as storage in the ordinary course of transit.

"The interpretation adopted by the NCDRC strikes fundamentally at the purpose of the policy and is not in accordance with sound commercial principles. The interpretation altered the character of the risk insured beyond the scope of the policy as agreed between the parties", declared the top court, allowing the appeals and dismissing the consumer complaint.

Case Details
Title : Bajaj Allianz General Insurance Co Ltd and Anr vs State of Madhya Pradesh
Case No : Civil Appeal No. 2366-67/2020

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