Insurer Can't Use Definition Of "Terrorism" In Penal Laws To Repudiate Claim When Exclusion Clause Exhaustively Defines It : Supreme Court
The Supreme Court has held that the terms in the exclusion clause in an insurance policy will govern the parties and that the insurer cannot rely upon definitions in external sources such as statutes to repudiate a policy."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 Supreme Court has held that the terms in the exclusion clause in an insurance policy will govern the parties and that the insurer cannot rely upon definitions in external sources such as statutes to repudiate a policy.
"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" a bench comprising Justices Ajay Rastogi and Abhay S Oka held in the case Narsing Ispat Ltd versus Oriental Insurance Company Ltd.
The issue in the case related to the repudiation of a Standard Fire and Special Perils Policy of a Jharkhand-based firm. The claim for loss to the tune of Rs 89 lakhs was lodged by the company with respect to an incident of March 23, 2010, in which about 5,060 armed anti-socials entered the factory premises and demanded money and jobs for local people. The insurer, Oriental Insurance Company Ltd, repudiated the claim invoking the Exclusion Clause which excluded damages arising out of acts of terrorism.The National Consumer Disputes Redresal Commission upheld the insurer's action.
Challenging the NCDRC order, the insured appealed to the Supreme Court.
The insurance company argued that the fact that 120 people entered the factory premises of the appellant along with weapons and carried out large scale destruction shows that it was an act of terrorism to terrorise the workers of the appellant and its management. It was further argued that the fact that the police has invoked the provisons of the Criminal Law Amendment Act 1909 in the FIR meant that the attack was a terrorist act.
The Supreme Court held that an insurance company's decision to repudiate a policy based on exclusion clause cannot be sustained when the policy explicitly covers a liability arising out of the damage to the property of the insured.
While holding that there was no warrant for applying the Exclusion Clause, the Supreme Court has restored appellant's complaint and directed it to be heard by the Commission afresh.
The bench observed that the parties cannot rely on definitions of 'terrorism' in various penal statutes since the Exclusion Clause contains an exhaustive definition of acts of terrorism.
Therefore, according to the bench, the Commission committed an error by applying the Exclusion Clause.
The bench also noted that the policy covers damage arising out of riots or use of violent means.
With regard to the question of burden of proof, the bench relied on Supreme court's order in the Ishar Das Madan Lal's case where it was observed that "Wherever such an exclusionary clause is contained in a policy, it would be for the insurer to show that the case falls within the purview thereof. In a case of ambiguity, it is trite, the contract of insurance shall be construed in favour of the insured."
The bench noted that the repudiation of the policy made by the respondent is based on the Preliminary Survey Report, Investigation Report and the Final Survey Report.
Out of these, the Survey Reports didn't throw any light on the question whether there was an act of terrorism, the Investigation Report recorded that it is not conclusively proved that the persons involved in the incident belonged to Maoist or similar groups, and the Closure Report did not refer to acts of terrorism as defined under Exclusion Clause.
Restoring the matter to the NCDRC, the Court directed the insurance company to deposit the sum of Rs 89 lakh in the Registry of the Commission within one month from Monday. "The same shall be deposited in the interest-bearing account on auto renewal basis. At the same time, the appellant (insured firm) will be at liberty to file an application for withdrawal of the amount before the Commission pending complaint. If such an application is filed by the appellant, the Commission may examine on its own merits and decide the same in accordance with law," the top court said.
Case Title:Narsingh Ispat Ltd. vs Oriental Insurance Company Ltd. & Anr, CA 10671/2016
Citation : 2022 LiveLaw (SC) 443
Headnotes -
Insurance Law -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 (Para 13)
Insurance Law - Burden is on the insurer to show case falls within the purveiw of exclusion clause- In case of ambiguity, benefit goes to the insured - referred to National Insurance Co Ltd vs Ishar Das Madan Lal (2007) 4 SCC 105 (Para 12)
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