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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