Exclusion Clauses In Insurance Contracts To Be Construed Strictly & Against Insurer

Summary:

[1]In the instant case, the Hon’ble Supreme Court of India addressed the dispute arising from an insurance claim related to the collapse of a bridge under construction by Hyundai Engineering. The National Consumer Disputes Redressal Commission (NCDRC) had directed United India Insurance to pay Rs. 39,09,92,828, later revised to Rs. 151,59,94,542, which was challenged by the insurance company.

Facts:

The National Highway Authority of India (NHAI) awarded a contract for the construction of a cable-stayed bridge to a joint venture between Hyundai Engineering and Gammon India. United India Insurance issued a Contractor’s All Risk Insurance Policy covering the project for Rs. 213,58,76,000 from December 5, 2007, to December 4, 2011. On December 24, 2009, part of the bridge collapsed, resulting in the death of 48 workers.

An Expert Committee was formed to investigate the collapse, which cited factors such as design flaws, poor workmanship, and unexpected loads. Hyundai and Gammon India claimed Rs. 151,59,94,542 for the damage. United India Insurance, following a surveyor’s recommendation, rejected the claim citing policy violations by the respondents.

The NCDRC ruled in favor of Hyundai and Gammon India, directing United India Insurance to pay Rs. 39,09,92,828, later revised to Rs. 151,59,94,542, with interest at 9% per annum from the date of repudiation.

Issues:

1. Whether United India Insurance was liable to pay the claim given the alleged violations of policy conditions by Hyundai and Gammon India.
2. The appropriateness of NCDRC’s summary jurisdiction in handling complex factual and legal questions.
3. Determining the correct starting point for calculating the limitation period for filing the consumer complaint.
4. Whether the assessment of damages by the NCDRC was consistent with the findings of various expert reports and the surveyor.

Judgment:

At the outset, the Court expressed surprise at the NCDRC’s addendum, which enhanced the amount payable from Rs.39,09,92,828/- to Rs. 151,59,94,542/- without hearing the parties. It was noted that the JV itself had restricted its case to Rs.39,09,92,828/-. As the JV’s counsel maintained that the claim was confined to Rs.39,09,92,828/-, the court did not go into the issue further.

Moving on, the court analyzed the issue of exclusionary clauses in contracts, as the policy in the present case excluded cover in case there was damage due to faulty design, for cost of replacement, repair or rectification of defective material and/or workmanship, for cost of rectification/correction of any error during construction, etc.

Referring to the decision in Texco Marketing P. Ltd. v. TATA AIG General Insurance Company Ltd., the court reiterated that the burden of proving applicability of an exclusionary clause is on the insurer. Although, it must not be interpreted in a manner that conflicts with the main intention of the insurance.

It was held that the appellant sufficiently discharged the burden on it, by relying on the reports of the Expert Committee and the surveyor. The independent reports relied on by the JV, the court observed, were unexhibited documents and none of the experts were examined as witness before NCDRC. Moreover, these were theoretical in nature and not based on site-inspection (unlike the surveyor’s).

Insofar as the NCDRC’s finding that the Expert Committee report was inconclusive, the court referred to certain discrepancies between the approved drawing plans and the actual construction illustrated in the report. Notably, the report spoke of changes in sequence of construction without consulting/informing the design consultants of the project and changes brought about without proper technical review. So far as the surveyor’s report, the court noted that it was evidence tendered by the appellant, which was not treated as unreliable by NCDRC. Pertinently, the surveyor report noted – (i) The sequence of operations in the construction of the Bridge were changed in actual construction, and (ii) Change in allocation of works amongst the JV Partners played a key role in the quality of workmanship. In view of the above, the court allowed the insurance company’s appeal and set aside the NCDRC’s order.

Analysis:

The Supreme Court’s decision reflects a thorough examination of the contractual obligations and the insurance policy’s terms. The bridge collapse case highlights the complexities involved in large infrastructure projects, where multiple factors can contribute to structural failures. The Court’s emphasis on independent expert reports over the surveyor’s initial assessment suggests a broader view of liability and causation.

The ruling underscores the importance of clarity in insurance contracts, especially regarding coverage exclusions and conditions. The Court’s approach in affirming the NCDRC’s jurisdiction and its interpretation of the limitation period aligns with the principles of justice, ensuring that technicalities do not obstruct substantive justice.

[1] https://webapi.sci.gov.in/supremecourt/2023/7964/7964_2023_15_1503_53160_Judgement_16-May-2024.pdf

BEFORE THE HON’BLE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 1496 OF 2023

UNITED INDIA INSURANCE CO. LTD. v. M/S HYUNDAI ENGINEERING & CONSTRUCTION CO. LTD. & ORS.

JUDGMENT DATED 16TH MAY, 2024