Ambiguities In Insurance Contracts Must Be Interpreted In Favour Of Insured: NCDRC

The National Consumer Disputes Redressal Commission presided by AVM. J. Rajendra, held that ambiguities in insurance contracts should be resolved in favour of the insured to ensure fairness, as they are the weaker party

Brief Facts of the Case

The complainant, Punjab University, is a well-known university that has been purchasing General Insurance policies from the insurer for over 20 years, covering various properties and assets against risks such as fire and burglary. In the year 2015-16, a new Senior Branch Manager mistakenly renewed the policy, insuring only the “Building Super Structure” and excluding essential items like furniture and fixtures. Despite this error, the university's policy was renewed and covered assets worth over Rs. 1 crore. A fire incident occurred in the Secretariat building, prompting the university to file a claim with the insurer, who assessed the claim as 'NIL' due to the mistaken coverage. The university submitted a claim for Rs. 43,67,668 based on the depreciated value of the damaged assets, but the insurer settled the claim as 'No claim.' Consequently, the university argued that the insurer's actions constituted deficiency in service and unfair trade practices, leading to a complaint filed with the State Commission of Chandigarh, seeking compensation for the depreciated value of the assets, mental anguish, and litigation costs. The State Commission allowed the complaint and directed the insurer to pay Rs. 43,67,668 with simple interest at 9% per annum, along with Rs. 5,00,000 for deficiency in service and Rs. 33,000 in litigation costs.

Contentions of the Insurer

The insurer argued that the complainant had a specific “Standard Fire and Special Perils Policy” rather than a general insurance policy, with distinct terms applicable to the insured items, and claimed that the complainant was aware of these conditions and failed to provide necessary documents to the surveyor; thus, the claim was denied based on the surveyor's findings and the policy's terms, with the insurer denying any deficiency in service or unfair trade practice.

Observations by the National Commission

The National Commission observed that the policy in question was a “Standard Fire and Special Perils Policy,” which provided coverage for property damage due to fire and other hazards, and that the complainant, an educational institution, had maintained this policy for years. Despite the insurer's claim that subsequent renewals excluded certain assets like computers, the commission noted that the policy simply bifurcated the sum insured without excluding coverage for those assets. The surveyor's report calculated the insurer's liability as nil due to deductions under the excess clause, but the commission found this unacceptable since the complainant had submitted all necessary documentation, and the surveyor failed to account for the full extent of the damage. The commission referred to the Supreme Court's ruling in Sri Venkateswara Syndicate v. Oriental Insurance Company Limited, where it was emphasized that surveyors appointed by insurance companies play a crucial role in claims assessment and their reports must be accorded due importance. The Court held that while insurers have discretion to accept or reject a surveyor's report, such rejection must be based on reasonable grounds and not arbitrary decisions. If the surveyor's report is prepared in good faith and with proper diligence, the insurer should not dismiss it without valid justification. In another significant case, Khatema Fibres Ltd. v. New India Assurance Company Ltd., the Supreme Court reinforced the principle that ambiguities in insurance contracts must be resolved in favor of the insured. The Court asserted that if a surveyor fails to comply with the required standards of conduct, or if the insurer arbitrarily rejects a surveyor's findings, this could constitute a deficiency in service. The ruling underscored the necessity for insurers to provide clear and fair assessments of claims, ensuring that their discretion in rejecting claims is exercised judiciously.

Ultimately, the commission concluded that the insurer's actions were unjustified, reaffirming the State Commission's order, and dismissed the insurer's appeal.

Case Title: New India Assuranc Co. Ltd. Vs. Punjab University

Case Number: F.A. No. 1004/2019

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