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Tuesday, January 1, 2019

demolition ~ by Municipal Authority - Apex Court on Insurer's liability for that !!


The Indian market now predominantly follows the “All India Fire Tariff”. The Tariff has been subjected to revisions and amendments from time to time. During 1980s, the Fire Tariff presented bewildering demonic proportions being of big volume and too difficult even for the Insurers. During those days, there were restrictions of ‘night work’, usage of petrol / flammable material, material in open and for each of these there were restrictions by way of warranties and additional premium.


In Cricket, when the stumps are hit and dislodges at least the bails – a batsman is out bowled ~ sometimes one is cleaned – demolished .. this post is different.

The Tariff was largely simplified and released with a new look effective April 1987 when there were three variants Fire Policy A, B & C. The Standard Fire and Special Perils Policy (Material damage) which came into effect from April 2003, defines Fire as : other than destruction or damage caused to the property insured by (a) its own fermentation, natural heating or spontaneous combustion (b) its undergoing any heating or drying process (c) burning of property insured by order of any Public Authority.

The Standard Fire & special Perils Policy besides the Operative clause contains (named perils) :12 Perils; 13 General exclusions and 15 General Exclusions.

Riot, Strike & Malicious Damage (RSMD) is a named peril covered – the wording inter-alia reads :Loss of or visible physical damage or destruction by external violentmeans Directly caused to the property insured but excluding thosecaused by:

(a) total or partial cessation of work or the retarding or interruption orcessation of any process or operations or omissions of any kind.
(b) permanent or temporary dispossession resulting from confiscation,commandeering, requisition or destruction by order of theGovernment or any lawfully constituted Authority.
(c) permanent or temporary dispossession of any building or plant orunit or machinery resulting from the unlawful occupation by anyperson of such building or plant or unit or machinery or preventionof access to the same.
(d) burglary, housebreaking, theft, larceny or any such attempt or anyomission of any kind of any person (whether or not such act iscommitted in the course of a disturbance of public peace) in any
malicious act.

Of the above (b)  .. .. …  destruction by order of the Govt or any lawfully constituted Authority became the subject matter of litigation, now decided by the Supreme Court of India.   The appeal was made by the Insurer against a judgment of a Division Bench of the High Court of Jammu and Kashmir of July 2016. The High Court affirmed the decision of the Jammu and Kashmir Consumer Disputes Redressal Commission by which an insurance claim was allowed for Rs.17.28 lakhs.  The Insurer failed in their challenge of the State Commission before the High Court.  Cross-objections filed before the High Court by the insured for the grant of interest were also rejected. Hence, there are two appeals: one by the insurer and the second by the insured, against the judgment of the High Court.


The claim of the insured before the State Commission was that it owns a building known as Patel House which is situated at Akhnoor road, Jammu. It was claimed that the building was constructed in 1984 with due permission of the municipality. In 1993, additional construction was raised, it is alleged, with the permission of the municipality. According to the insured, on a notice issued under Section 229 of the Jammu and Kashmir Municipal Corporation Act 2000, he had approached the Jammu and Kashmir Special Tribunal which compounded the infraction in 1996. The Municipal Corporation initiated a demolition drive. Apprehending action against his property, the insured instituted a suit in the Court of the First Civil Subordinate Judge,Municipal Magistrate, Jammu where an ad-interim injunction was granted,restraining the Corporation from proceeding, except in accordance with law.

The Municipal Corporation demolished the front portion of the building. The Insured was carrying on a business of sanitary ware in the premises. As a result of the demolition, the insured claimed that it suffered damage in the amount of Rs.19.55 lacs.

The claim before the State Commission was founded on a policy of insurance (Standard Fire Policy)  obtained by the insured. The insurance policy contained the following exclusion:

“V. Riot, Strike, Malicious and Terrorism Damage Loss of or visible physical damage or destruction by external violent means directly caused to the property insured but
excluding those caused by:-
a) xxxx
b) Permanent or temporary dispossession resulting from confiscation, commandeering, requisition or destruction by order of the Government or any lawfully constituted Authority.”

Relying on the aforesaid exclusion, the Insurer repudiated the claim on the ground that the action of demolition was carried out by the municipal authorities and was hence by order of a lawfully constituted authority.

 The State Commission allowed the claim under the insurance policy for Rs.17.28 lakhs + litigation costs of Rs.10,000/- The State Commission opined that the order of demolition passed by the Municipal Corporation had not been brought on the record and, in its absence,the exclusion would not operate. In appeal, the High Court affirmed the view of the State Commission, holding that it was incumbent on the insurer to establish that the exclusion contained in the policy of insurance was attracted by placing on record the orders of a lawfully constituted authority by which demolition was ordered. While affirming the view of the State Commission, the High Court held that in the absence of such an order being produced on the record, the insurer was liable to indemnify the loss sustained by the insured.

Before the Apex Court, the  principal basis on which the complaint was allowed by the State Commission was  called into question with Insurer submitting that  it was not in dispute that the demolition was caused by the Municipal Corporation. To substantiate this submission, the insurer relied upon the averments contained in the consumer complaint which were extracted to be :

5) That after the constitution of the Municipal Corporation,Municipal Corporation had started demolition drive to remove the encroachment and illegal constructions.
6) …..
7) That the Municipal Corporation in spite of the injunction issued by the Court, demolished the front portion of the building which was duly compounded by the Appellate Court, in violation of the Court order and also in violation of the order already passed compounding the constructions.
8) …..
9) …..
10) That the Municipal Commissioner, Jammu without any authority and taking law into his own hands in violation of the Court order dated 10.04.2003 demolished the front portion of the building and totally damaged the Cabin fitting, display items electric systems etc without any notice to the complainants thereby causing a loss of Rs.19,55,946/-

The building and the material including Furniture and Fixture etc. were insured by the respondent for an amount of Rs. 1,23,50,000/- for which insurance covers were issued by the respondent vide policy no. 350700/11/02/00119 for the period 03.05.2002 to midnight 02.05.2003.

11) That the Commissioner, Municipality and ExecutiveOfficer to show their loyalty towards the Government in violation of Court order and fully well knowing that the complainants are owners of the land demolished the front portion of the building .. .. .. …

In his counter affidavit filed in these proceedings, the Commissioner ofthe Jammu Municipal Corporation  stated that in order to remove encroachments/projections over public premises including over footpaths, streets and drains, the Municipal Corporation issued a public notice in the daily editions of ‘Kashmir Times’ and ‘Daily Excelsior’. The notice made an appeal for the removal of projections, platforms and encroachments which were not in conformity with the building line provided by the Jammu Master Plan and Prevention of Ribbon Development Act 1953.After the period stipulated in the public notice ended, demarcations were carried out in areas where there were encroachments and the encroachers including the private respondents were directed to remove the encroachment.

Without getting in to the technicalities of the demolition, the issue agitated in the present case was the applicability of exclusion contained in the Policy.  Both the State Commission as well as the High Court were of the view that the exclusion was not attracted having due regard to the judgment of this Court in National Insurance Company v Irshad where the Court held that ‘where there is an exclusionary clause in an insurance policy, the burden lies on the insurer to establish that the exclusion is attracted. Any ambiguity must be construed in favour of the insured. Purporting to apply this principle, the State Commission and the High Court held that the insurer had failed to establish that there was an order of the Municipal Corporation for carrying out demolition and hence the exclusion was not attracted.

Apex Court, however held that -  we find merit in the submission of the insurer that there was no dispute about the fact that the demolition was carried out under the authority of the Municipal Corporation. As the averments in the consumer complaint indicate, the insured proceeded on the basis that the Municipal Corporation had carried out the work of demolition. There could be no dispute about the factual position since, as a matter of fact, the insured has instituted a suit for diverse reliefs including a challenge to the action of the Municipal Corporation. Hence the basis on which the claim was allowed is fundamentally flawed.

The essential aspect which needs to be considered is whether the exclusion was attracted. Mr Jayant Bhushan, learned senior counsel appearing on behalf of the insured submits that Clause V postulates that there must be a “destruction by order of the government or any lawfully constituted authority”. Learned counsel submits that the exclusion postulates that there must be an action in accordance with law. In this submission, an act of illegal demolition by the Municipal Corporation will not fall within the purview of the exclusion. Hence, it has been urged, that the judgment of the State Commission, as affirmed by the High Court, is correct.

On the other hand, Ms.Awantika Manohar, learned counsel appearing on behalf of the insurer has submitted that the demolition was carried out by the Municipal Corporation. This action clearly falls within the ambit of the expression “destruction by order of any lawfully constituted authority”. Learned counsel submitted that the validity of the action of the municipal authority is the subject matter of a pending suit. In determining as to whether the exclusion is attracted, what the Court must assess is whether the demolition was carried out by order of any lawfully constituted authority. The grounds of challenge in the suit are distinct from the claim under the insurance policy. Hence, once it is found that the demolition was by the order of the Municipal Corporation which is a lawfully constituted authority under the Jammu and Kashmir Municipal Corporation Act 2000, the exclusion is attracted.

We find considerable merit in the submission which has been urged on behalf of the insurer. Clause V of the insurance policy contains an exclusion,where the destruction of the property has been caused “by order of the government or any lawfully constituted authority”. The expression “by  order of” means under the authority of government or of a lawfully constituted authority. There can be no dispute about the position that the Municipal Corporation is indeed a lawfully constituted authority, being a statutory authority under the Jammu and Kashmir Municipal Corporation Act 2000.From the records as well as from the pleadings before the State Commission,there is no dispute about the fundamental position that the demolition was carried out by the Municipal Corporation. The destruction was hence by order of a lawfully constituted authority. Once this be the position, there can be no manner of doubt that the exclusion under the policy of insurance was attracted.

The position of the common law with respect to the interpretation of exclusionary clauses in insurance policies is no different. The object of the exceptions is to define with greater precision the scope of the policy by making clear what is intended to be excluded and contrasting it with what is intended to be included.Since exceptions are inserted in the policy mainly for the purpose of exempting the insurers from liability for a loss which, but for the exception, would be covered by the policy,they are construed against the insurers with the utmost strictness and it is the duty of the insurers to except their liability in clear and unambiguous terms.

The principles for construing insurance exclusions as laid down in Impact Funding Solutions Ltd v Barrington Support Services Ltd  were relied upon by the England and Wales High Court (Commercial Court) in the case of Crowden and Crowden v QBE Insurance (Europe) Ltd.  While dealing with the question of construction of insurance exclusions, Judge Peter MacDonald Eggers QC observed: … the Court must adopt an approach to the interpretation of insurance exclusions which is sensitive to their purpose and place in the insurance contract. The Court should not adopt principles of construction which are appropriate to exemption clauses - i.e. provisions which are designed to relieve a party otherwise liable for breach of contract or in tort of that liability - to the interpretation of insurance exclusions,because insurance exclusions are designed to define the scope of cover which the insurance policy is intended to afford. To this end, the Court should not automatically apply a contra proferentem approach to construction. That said, there may be occasions, where there is a genuine ambiguity in the meaning of the provision, and the effect of one of those constructions is to exclude all or most of the insurance cover which was intended to be provided. In that event, the Court would be entitled to opt for the narrower construction…”

The Court held that in the present case, there is no ambiguity in Clause V of the insurance policy.The exclusion was clear in exempting the insurer from liability for a loss arising from the destruction of property caused “by order of the government or any lawful authority.”For the above reasons, we are of the view that both the State Commission and the High Court were in error in allowing the claim under the policy of insurance. We would, accordingly, have to allow the appeal filed by the insurer, which we do by setting aside the impugned judgment of the High Court which has affirmed the decision of the State Consumer Disputes Redressal Commission. In consequence, the complaint filed by the insured before the State Commission (CC 2628/2004) shall stand dismissed.

Before concluding, we clarify that since these proceedings are confined to the claim of the insured under the insurance policy, nothing contained in this judgment shall affect the merits of the suit which has been instituted by the insured against the Municipal Corporation. The appeal filed by the insurer is allowed. The appeal filed by the insured shall stand dismissed.

With regards – S. Sampathkumar
12th Dec 2018.

Citation : Supreme Court of India : Civil Appeal no. 11885 of 2018.  New India Assurance (Appellant) Vs Rajeshwar Sharma & Others.

PS:  the final verdict is in favour of Insurer, yet am stumped by the claim, cause, turn of events and the way it was conducted.  The subject matter was demolished (by municipal authorities) – Standard Fire Policy is a ‘named perils’ policy.  The perils covered are :  1) Fire 2) Lightning 3) Explosion/ Implosion 4) Aircraft damage 5) Riot, Strike & Malicious damage 6) Storm, cyclone, typhoon, tempest, hurricane, tornado, flood and inundation 7) Impact damage 8) subsidence and landslide including rockslide 9) bursting and/or overflowing of water tanks … 10) missile testing operations 11) leakage from automatic sprinkler installations and 12) bush fire. 

In a named perils policy, the onus is on the claimants to establish that a loss occurred and that it is attributable to a peril insured.  How would demolition fall within any of the 12 named perils ?  Insurance is always against fortuity ! – why should the case have been defended under an exclusion, when there appears no basic premise for the claim falling  within the ambit of the policy.

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