Recently, the Supreme Court of India has examined the legal position on the interpretation of insurance policies in the context of a Contractor’s All Risk Insurance Policy (“CAR Policy”). A CAR Policy is meant to cover the contractor against risks in relation to construction projects.
In the present case, the Insured was awarded the contract for the design, construction and maintenance of a cable-stayed bridge (“Project”) for which the Insured placed a CAR Policy. During the course of the Project, a part of the bridge collapsed leading to the death of 48 workers. An investigation into the incident by an investigation committee lead to the conclusion that the Insured was at fault due to a flaw in the design of the Project. On the contrary, the Insured provided three independent expert reports to demonstrate that there was no flaw in the Project.
The Insurer had appointed a Surveyor who examined the claim and while assessing the loss at approximately Rs.39 Crores, rejected the claim on the grounds that the Insured had breached the terms of the policy and the claim squarely fell under the exclusions of the Policy.
Two years after repudiation of the claim, the Insured filed a complaint against the Insurer before the National Consumer Dispute Redressal Forum (“NCDRC”) for deficiency in service. The NCDRC disregarded the Insurer’s contentions that the NCDRC’s summary jurisdiction was inappropriate for determining the complex question of the Insured’s claim and directed the Insurer to settle the Insured’s claim at Rs.39 Crores. Subsequently, the NCDRC amended its Order directing the claim to be settled at Rs.141 Crores (Approx.).
Aggrieved, the Insurer approached the Apex Court which overturned the NCDRC judgement based on its analysis that Insurance is a contract of indemnity for a specific purpose and the terms of such contract ought to be interpreted strictly. Further stating that “The insurer cannot be asked to cover a loss that is not mentioned in the policy. Exclusion clauses in insurance contracts are interpreted strictly and against the insurer as they have the effect of completely exempting the insurer of its liabilities.” The Court also condemned NCDRC’s unilateral revision of the settlement amount under the Policy to an amount higher than sought by the Insured and higher than the amount assessed by Surveyor without hearing either party.
The Supreme Court noted that the surveyor’s report formed part of the evidence as the surveyor testified in the proceedings and its testimony was uncontroverted. However, the expert reports relied on by the Insured were not placed in evidence as the experts did not testify to the same. Accordingly, the Supreme Court placed reliance on the finding of the court in the case of National Insurance Company Ltd. v. Hareshwar Enterprises (P) Ltd and National Insurance Co. Ltd. v. Vedic Resorts and Hotels Pvt. Ltd., wherein it was held that the surveyor’s report is credible evidence, and the court may rely on it until more reliable evidence is brought on record.
Thus, based on the Surveyor’s report, the strict interpretation of the CAR Policy and due consideration to the exclusions mentioned in the CAR Policy, the Supreme Court set aside the NCDRC judgement.
This judgement goes to reiterate the significance of a literal interpretation of the insurance contracts. As has been held time and again, an insurance contract is one of indemnity and must be read strictly to give obvious meaning to clauses. Whilst the NCDRC judgment was overturned by the Supreme Court, the judgment underscores the relevance of the Surveyor’s assessment by reaffirming that it is credible evidence unless it is shown by to be unreliable. The burden of showing such unreliability would be on the party disputing the assessment.
AUTHORS: Smiti Tewari (Partner) and Simran Grover (Associate)