Exclusion Clauses Must Not Refute Insurance Policy's Purpose, NCDRC Holds Universal Sompo General Insurance Co. Liable

Brief Facts:

Jindal & Company (“Complainant”) approached Allahabad Bank (“Bank”) to avail a loan facility. The executive of Universal Sompo General Insurance Co. (“Insurance Company”) persuaded the Complainant to take an insurance policy as a part of the joint venture between the Bank and the Insurance Company. The Complainant signed the proposal form without being allowed to read it. Several assurances such as coverage of all risks, including the Complainant's property and basement, were given.

Subsequently, the Bank deducted Rs. 39,419/- from the Complainant's account for the policy. However, it failed to provide a cover note to the Complainant, despite several requests. Further, during the subsistence of the policy, the Complainant's basement, stock and equipment were flooded due to heavy rainfall. The Insurance Company was informed, and the Complainant was assured that its claim would be processed. However, after the incident, when the Complainant finally received the cover note for the policy, the basement was excluded from coverage.

The Complainant made further attempts to resolve the matter and provide the requisite documents. However, the claim was denied. Later, the Complainant also notified theft at its premises. However, the Insurance Company again refused to settle the claim. With no settlement, the Complainant filed complaints with the Insurance Regulatory and Development Authority (“IRDA”). The Insurance Company finally repudiated the claim by citing the exclusion of the basement from policy benefits.

Feeling aggrieved, the Complainant filed a consumer complaint in the State Consumer Disputes Redressal Commission, Uttarakhand (“State Commission”). The State Commission dismissed the complaint. Dissatisfied by the order of the State Commission, the Complainant filed an appeal before the National Consumer Disputes Redressal Commission (“NCDRC”), New Delhi. In response, the Insurance Company and the Bank contended that the Complainant violated policy terms by storing stock in the basement and that the policy clearly stated exclusions.

Observations of the NCDRC:

The NCDRC observed that the State Commission dismissed the complaint solely based on the fact that the Complainant's stock was stored in the basement, which was excluded from coverage. However, the proposal form signed by the Complainant clearly covered the stock stored in the basement under the 'occupation/business activity' section.

It was further observed that if the Insurance Company wanted to exclude the basement, it could have refused to issue the policy and refunded the premium amount. Reliance was placed on Texco Marketing Pvt. Ltd. vs TATA AIG General Insurance Co. Ltd. [(2023) 1 SCC 428], wherein it was held that an exclusion clause against the object of an insurance contract renders the contract non-executable, and the insurer cannot benefit from such a clause or plead estoppel.

Therefore, the NCDRC held that the Insurance Company voluntarily and knowingly entered into the contract, despite the exclusion clause. This defeated the policy's purpose. As a result, the Insurance Company was ordered to pay Rs. 16,03,520/- (loss assessed by the surveyor) to the Complainant, along with 9% interest. It was also directed to pay Rs. 50,000/- for the legal costs incurred by the Complainant.

Case Title: M/s Jindal & Co. vs Universal Sompo General Insurance Co. Ltd. and Others

Case No.: First Appeal No. 176 of 2016

Advocate for the Original Complainant/Appellant: Mohd. Parvez Dabas

Advocate for the Opposite Party: Mr Rajat Khattry (for the Insurance Company); Mr Dinesh Chandra Tripathi (for the Insurance Company's Head Office and Allahabad Bank)

Date of Pronouncement: 14th October 2024