In Claims – Technical or Real: which Breaches will be upheld by Courts

In the case Versloot Dredging BV and another v HDI Gerling Industrie Versicherung AG and others [2016] UKSC 45, the UK Supreme Court stated: “35. The second reason is that the insurer’s assessment of a claim is of a quite different character from his assessment of a risk at the pre-contract stage. In deciding whether to accept the risk and on what terms, the insurer has a complete discretion…. But when deciding whether to accept a claim under an existing contract, the insurer’s position is very different. He has no discretion, because he is already bound…. Ultimately, his assessment is simply an attempt to predict what a court would decide.” It is therefore instructive to see how courts decide what is a real breach or a technical breach when dealing with claims.

Courts had occasions to look at the difference - take Motor TP cases: ?In the olden days there was a limit of Rs. 50,000 in all, as liability for bus passengers. Hence if there were 2 passengers who were injured, the maximum for each would be Rs. 25,000 only. But what if there were 50 or more injured? Such a matter went to the Supreme Court and they decided that that the term ‘accident’ applied to the passenger concerned and not to the vehicle. This, in those days, created consternation among insurers. Today it is forgotten as the liability is unlimited in most TP matters.

Another example is the overloading of passengers in passenger vehicles. Insurers were strict that anything beyond what is in the permit, is violation and the claim cannot be allowed. When it came to Motor TP claims, the court took the view that overcarrying of passengers is the most normal thing in India and the intention of the Act is to protect innocent third parties. Hence the court ruled that howsoever the vehicle was overloaded, if it was not overloaded in a criminally negligent manner, then the insurer is liable. However, one common practice was passenger travelling on the roof of the bus. Courts did not compensate these accidents as the passengers voluntarily took an unacceptable risk. However, in the unfortunate case of a conductor, who went to issue tickets, and fell off the bus roof as the driver started driving pre-maturely, the claim was found payable under the WC Act.

Coming to later days, in the case B.V. Nagaraju vs M/S. Oriental Insurance Co. (1996), the Supreme Court had many things to state. The issue was whether “the alleged breach of carrying humans in a goods' vehicle more than the number permitted in terms of the insurance policy, is so fundamental a breach so as to afford ground to the insurer to eschew liability altogether”. The SC noted that in this case the negligence was on the part of another oncoming vehicle. “Merely by lifting a person or two, or even three, by the driver or the cleaner of the vehicle, without the knowledge of owner, cannot be said to be such a fundamental breach that the owner should, in all events, be denied indemnification” said the SC. Here the SC introduced the principle of fundamental breach to distinguish it from a breach that was technical.

The SC also referred to the “main purpose rule” originally cited in the UK case Glynn v. Margetson & Co. [1893 AC 351, 357], where it was ruled that “Looking at the whole instrument, and seeing what one must regard ...... as its main purpose, one must reject words, indeed whole provisions, if they are inconsistent with what one assumes to be the main purpose of the contract.” However, by the time the Nagaraj case was decided the doctrine of fundamental breach was rejected by the House of Lords, which the SC admitted: “the continued validity of the rule was acknowledged when the doctrine was rejected by the House of Lords in?Suissee Atlantique Societed' Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale?[1967 1 AC 361]. However, the SC felt that wide exclusion clauses will be read down to the extent to which they are inconsistent with the main purpose, or object of the contract.

The above may be scoffed as relating to Motor Liability cases. In property damage claims, courts have been even more strident in some cases. The Madras High Court in the case M/S.Opg Energy (P) Ltd vs The New India Assurance Company (2013), stated: “15. In United India Insurance Co. Ltd., v. Kiran Combas and Spinners reported in 2007 (1) SCC 368, the Hon’ble Supreme had pointed out that adopting a Hyper Technical meaning to the terms of the Policy with a view to defeat any purpose of the contract of the Insurance cannot be allowed by the Courts.” In the Kiran Combas case the surveyor invented a ‘subsidence’ exclusion when no such term was found in the exclusion section. The SC sated: “We fail to understand from where the surveyor has brought the expression "subsidence" although clause 8 which specifically talks about exclusions, does not mention anything like subsidence.”

The Supreme Court of India, in the case Om Prakash vs. Reliance General Insurance & Anr. 2017, commented that delay of 8 days in intimating a theft claim to the insurer was a technical breach. The SC stated that that the word “immediately”’ cannot be construed narrowly so as to deprive claimant the benefit of the settlement of a genuine claim, particularly when the delay was explained. It further held, that rejection of the claim on purely technical grounds and in a mechanical manner will result in loss of confidence of policy holders in the insurance industry. In addition it held, that the condition regarding the delay shall not be a shelter to repudiate the insurance claims which have been otherwise proved to be genuine.

In the case Gurshinder Singh vs Sriram General Insurance Co. Ltd. (2020), the SC said: “We concur with the view taken in the case of Om Prakash (supra), that in such a situation if the claimant is denied the claim merely on the ground that there is some delay in intimating the insurance company about the occurrence of the theft, it would be taking a hyper technical view.”

The issue of Breach also brought in the concept of non-standard settlements, (already in vogue in the PSU days). It was first used by the NCDRC, and the Supreme Court in the case in the case Manjeet Singh vs National Insurance Company Ltd. (2017), the Supreme Court in para 5, stated that: “The violation of the condition should be such a fundamental breach so that the claimant cannot claim any amount whatsoever. As far as the violation in carrying passengers is concerned, this has consistently been held not to be a fundamental breach…”. In this case the driver gave a lift to some passengers, who were technically not legally allowed to be in the vehicle, but after that they did something far worse. In the words of the SC: “No doubt, these passengers turned against the driver and stole the truck, but this, the driver could not have foreseen. In the cases cited above, such claims where there is breach of policy, have been treated to be non-standard claims and have been directed to be settled at 75%.”