How Claims Are to be Repudiated: Courts

There are many things to be kept in mind when an insurer wants to exercise their right to repudiate a claim. Courts feel that as the insured is the weaker party in an insurer contract great due diligence is required by an insurer so that the repudiation is not reversed by a court of law. Some of the issues are:

1.     Insurer should not Rely on Technical or Unfair Interpretation of Policy

The insurer cannot rely on hyper-technical or unfair interpretation of the policy terms to avoid or repudiate coverage. In the case ‘M/S. Opg Energy (P) Ltd vs The New India Assurance Company’ (2018) the Madras HC, said that “the insurer cannot be allowed to take shelter under a Hyper Technical Interpretation of the Insurance Contract and contend that it is not liable for the damage caused. Once the Policy covers natural calamities unless it takes, various forms of natural calamities within its fold, the very object of the insurance would be defeated. To interpret the Policy of Insurance in the way suggested by the Insurance Company in the case on hand would amount to nullifying the very contract of the Insurance. If the Insurance Company is allowed to rely upon the Beaufort scale measurements and deny the claim the very object of the contract of Insurance would be nullified. As seen from the definition of the word Storm in the New Webster’s Dictionary as well as Ramanatha Aiyar's Advanced Law Lexicon, it is clear that the word Storm used is more general in nature and it cannot be confined only to the occurrence of wind with a speed of above 88 kms per hour.”

2.     Exclusion cannot be assumed when there is no exclusion

In the case “United India Insurance Co. Ltd vs M/S Kiran Combers & Spinners” (2006) Supreme Court, it was seen that as per the fire policy taken the perils for flood, storm and tempest were covered on payment of extra 20% premium. The court commented as follows: “Therefore, there is no dispute that the incident has taken place during the coverage of the policy and the cause of the damage is flooding of water into the building. The basic submission which has been addressed by learned counsel for the appellant was that the company has not covered subsidence. Subsidence means " the gradual caving in or sinking of an area of land". But on account of the water flooding into the premises of the claimant-respondent's factory from Kohinoor Woollen Mills, the land caved in as a result of which one column of the building collapsed. The question is whether subsidence was covered in the policy or not. In this connection, a reference may be made to the terms of the policy.

Clause 8 of the policy deals with exclusions:

" 8. Any loss or damage occasioned by or through or in consequence directly or indirectly of any of the following occurrence namely,

(a)   Earthquake, volcanic eruption, or other convulsion of nature. (b) Typhoon, storm, cyclone, tempest, Hurricane, Tornado, Flood and Inundation etc.

Perusal of the aforesaid clause would clearly show that there is no exclusion clause for subsidence. Clause 8(b) only talks of typhoon, storm, cyclone, tempest, hurricane, tornado, flood and inundation. None of the events mentioned above includes subsidence. 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 policy is covered for flood and inundation for which the claimant is covered by paying extra premium, therefore, now to say that the policy has not covered subsidence, which is not a clause in the present policy cannot be sustained. Therefore, on the basis of this ground, repudiation of the claim of the claimant by the appellant does not appear to be justified.”

3.     Reading Down Exclusions: The Main Purpose Rule

The Supreme Court in the case Skandia Insurance Co. Ltd vs Kokilaben Chandravadan & Ors (1987) referred to the Main Purpose Rule. In the UK case Glynnn v. Margetson & Co. [1893 AC 351, 357], Lord Halsbury, L.C. stated: “It seems to me that in construing this document, which is a contract of carriage between the parties, one must in the first instance look at the whole instrument and not at one part of it only. 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.”

Exclusion Clauses will be read narrowly while coverage clauses will be read broadly

Arising from the fact that insurance is for protection, courts across the world, finds it necessary to limit the misuse of exclusion by insurers. Hence, they follow the principle that coverage clauses are to be interpreted broadly and exclusion clauses narrowly. In the case State Farm Mut. Auto. Ins. Co. v. Partridge (1973) the California Supreme Court stated the following: “Initially we point out that the insurer overlooks the fact that although the language in the two policies is substantially similar, past authorities have made it abundantly clear that an entirely different rule of construction applies to exclusionary clauses as distinguished from coverage clauses. Whereas coverage clauses are interpreted broadly so as to afford the greatest possible protection to the insured, exclusionary clauses are interpreted narrowly against the insurer.”

On similar lines the Supreme Court in the case Canara Bank vs. M/s United India Insurance Co. Ltd.& Ors (2020) stated the following: “21. The principles relating to interpretation of insurance policies are well settled and not in dispute. At the same time, the provisions of the policy must be read and interpreted in such a manner so as to give effect to the reasonable expectations of all the parties including the insured and the beneficiaries. It is also well settled that coverage provisions should be interpreted broadly and if there is any ambiguity, the same should be resolved in favour of the insured. On the other hand, the exclusion clauses must be read narrowly. The policy and its components must be read as a whole and given a meaning which furthers the expectations of the parties and also the business realities. According to us, the entire policy should be understood and examined in such a manner and when that is done, the interpretation becomes a commercially sensible interpretation.”. 

4.     The Principle of Contra Proferentem

An important case where the above rule was applied was: United India Insurance Co. Ltd vs M/S. Pushpalaya Printers (2004) where the Supreme Court stated that “it is a settled position in law that if there is any ambiguity or a term is capable of two possible interpretations one beneficial to the insured should be accepted consistent with the purpose for which the policy is taken, namely, to cover the risk on the happening of certain event. Although there is no ambiguity in the expression "impact", even otherwise applying the rule of contra proferentem, the use of the word "impact" in clause 5 in the instant policy must be construed against the appellant (i.e., insurer).” 

5.     Public Policy and Insurance

It is generally accepted that insurance is a matter having strong public interest and thus no insurer is free to issue a policy against the provisions of the Constitution, other relevant laws as also insurance regulations. Insurance as needs to be practiced is a mixture of private contractual legal practices as also the laws and regulations of the country. This is deemed to be a safeguard for the insured.

In March 2018 the Madras High Court in the case ‘Dr.Shanthi Rengarajan vs The Oriental Insurance Company’ referred to Delhi High Court delivered only on 26.02.2018 in the case of M/s.United India Insurance Company Limited vs. Jai Parkash Tayal. The question was whether the disease diagnosed is a genetic disorder and the expenses incurred towards genetic disorders are not payable, is justifiable. In other words, whether the reasons stated for rejection is unfair, unjust and unreasonable which cannot withstand the judicial scrutiny if such reason violates Article 14 of the Constitution of India. The question before the Delhi HC was as to whether persons having genetic disorders can be discriminated against in the context of health insurance. The plaintiff therein suffered from Hypertrophic Obstructive Cardiomyopathy and was hospitalised for some time. The expenses incurred was sought by way of insurance claim, which was rejected by the Insurer therein on the reason that expenses met out for genetic diseases are not payable as per the policy which contains genetic exclusion clauses. The Madras HC pointed out that “The Delhi High Court extensively considered the said issue by doing a wonderful research work with comparative study of the said issue in various countries and thereafter, found that the objection raised by the Insurance Company cannot be sustained.

6.     Waiver: If a Ground is not Invoked in the Repudiation Letter, it cannot be Raised Later

In the case M/s Galada Power and Telecommunication Ltd. v United India Insurance Co. Ltd. and Another Etc. (2010) The Supreme Court stated in para 17 that “In the instant case, the insurer was in custody of the policy. It had prescribed the clause relating to duration. It was very much aware about the stipulation made in clause 5(3) to 5(5), but despite the stipulations therein, it appointed a surveyor. Additionally, as has been stated earlier, in the letter of repudiation, it only stated that the claim lodged by the insured was not falling under the purview of transit loss. Thus, by positive action, the insurer has waived its right to advance the plea that the claim was not entertainable because conditions enumerated in duration clause were not satisfied.”

However, the Supreme Court clarified it stance in another claim in the case M/S. Sonell Clocks and Gifts Ltd. vs The New India Assurance Co. Ltd. on 21 August, 2018 where it had distinguished the issue decided in the case M/s. Galada Power and Telecommunication Ltd. Vs. United India Insurance Co. Ltd. and Another Etc. on facts and held that the appointment of a surveyor cannot, as a matter of law, be construed as a waiver of the terms and conditions of the insurance policy. In Sonnel Clocks, the insurer had taken a specific plea in the repudiation letter that the loss was not conveyed within the stipulated period. Hence the singular issue before this Court was only whether the insurer had waived the condition as to delay in intimation by appointing a surveyor.  

7.     To Repudiate Claim, If The Same Are Not Communicated To The Insured.

In the case Bharat Watch Company Vs. National Insurance Co. Ltd. (2016), the Supreme Court has made it amply clear that in the event that the terms of exclusion of a policy are not communicated to the insured, the insurer cannot rely upon the same in order to reject the claim.

In this case the insured had a showroom to sell its watches. In 2001, after the shop was closed for the day, a theft occurred in the shop. A Police Report was filed. In the survey report it was recorded that the theft may have taken place utilizing duplicate keys and that there were no signs of forcible entry. On the basis of the said report, the insured’s claim came was repudiated. Thereafter, the case went all the way to the Supreme Court from the District Forum.  Construing the terms of exclusion in an insurance policy against burglary, the Supreme Court held that where loss or damage is caused without forcible/ violent entry to the premises, the claim would not be maintained. However, since the conditions of exclusion under the policy document were not handed over to the insured and in the absence of the insured being made aware of the terms of exclusion, the insurer could not invoke the same to repudiate the claim.