Insurance policies should be construed on the principles of construction generally applicable to commercial and consumer contracts - Insurance claim for damage to helicopter of MP govt unsustainable: SC

The SC on April 24, 2020 {Bajaj Allianz General Insurance Co Ltd & Anr v. The State of Madhya Pradesh} held that for the respondent to prove its case, a mere assertion that the loss incurred during the course of transit is not sufficient. It was held that the burden of proof lies on the respondent to show that the loss incurred was covered within the terms of the policy and that on a balance of probabilities there existed a proximate cause between the loss incurred and the helicopter being in transit. It was held that the respondent has adduced no evidence to supports its case. 

It was further held by the SC Bench, comprising of Justice D.Y. Chandrachud & Justice Ajay Rastogi, that the provisions of an insurance contract must be imparted a reasonable business like meaning bearing in mind the intention conveyed by the words used in the policy document. It was held that Insurance policies should be construed according to the principles of construction generally applicable to commercial and consumer contracts. It was held that the court must interpret the words in which the contract is expressed by the parties and not embark upon making a new contract for the parties. It was held that a reasonable construction must therefore be given to each clause in order to give effect to the plain and obvious intention of the parties as ascertainable from the whole instrument. It was observed that the liability of the insurer cannot extend to more than what is covered by the insurance policy. It was held that in order to determine whether the claim falls within the limits specified by the policy, it is necessary to define exactly what the policy covered and to identify the occurrence of a stated event or the accident prior to the expiry of the policy.

It was observed that the insurance policy issued by the insurer to the insured represents a contract between the parties. The insurer undertakes to compensate the insured for the losses covered under the insurance cover subject to the terms and conditions of the policy.

It was held, in present case, in terms of Clause 8, for the respondent to prove its case, the basic and fundamental fact which needs to be proved is that: (i) the respondent must have an insurable interest in the subject matter insured at the time of loss; and (ii) the loss insured against occurred during the period covered by the policy.

It was observed that the line of approach adopted by the NCDRC is evidently incorrect. It was held that while construing a contract of insurance, it is not permissible for a court to substitute the terms of the contract. It was held that the court should always interpret the words used in a contract in a manner that will best express the intention of the parties. It was held that the NCDRC has incorrectly proceeded on the path that the ordinary course of transit would include assembling of the helicopter at New Delhi and the policy covered all risks till the time the helicopter did not reach Bhopal. It was held that the risks associated with the assembled helicopter were not covered within the purview of the policy, as the subject-matter which had been insured was a helicopter being transported in a packaged knocked down condition. It was held that the act of assembling the helicopter with a view to having it flown under its own power, instead of transporting the packaged knocked down helicopter further to Bhopal by road, would not constitute as storage in the ordinary course of transit. It was observed that the interpretation adopted by the NCDRC strikes fundamentally at the purpose of the policy and is not in accordance with sound commercial principles. It was held that the interpretation altered the character of the risk insured beyond the scope of the policy as agreed between the parties.

In the present case, the respondent purchased a “Transit Marine Insurance Policy” from the appellant on 21 July 2005, to cover the transportation of a Bell – 430 Helicopter from Langley, Canada to Bhopal, India. The policy covered risks associated with transportation of the helicopter in a disassembled state as cargo through a carrier. But the respondent assembled the helicopter at the hangar in New Delhi.

The issue before the Supreme Court in present case was whether storage, unpacking and assembly of the helicopter at New Delhi would fall outside the scope of the expression “ordinary course of transit”, terminating coverage under the policy? It was answered in affirmative by the SC.

The SCDRC held that the appellant to be deficient in its service and directed it to pay compensation of ₹ 64,89,205 towards the cost of repair of a helicopter to the respondent. The NCDRC dismissed the appeal preferred by the appellant and partly allowed the appeal preferred by the respondent for enhancement of compensation and awarded interest at the rate of six percent per annum. The SC set aside both the judgments.

It was held by the SC that the interpretation placed on the terms of the insurance policy was manifestly incorrect and that the impugned orders of the NCDRC and SCDRC are unsustainable. 

The appeals were accordingly allowed and the impugned judgments and orders of the NCDRC and the SCDRC were set aside by the SC. The consumer complaint, as a result, stands dismissed of the respondent.