We often observe that warranties are inserted in marine insurance policies to protect insurers’ interests. However, Courts construe insurance policies in a manner consistent with commercial efficacy and business common sense, avoiding interpretations that defeat the very object of coverage.
The decision arrived in the case of Sohom Shipping Pvt. Ltd vs M/S. The New India Assurance Co. Ltd on 7 April, 2025 2025 INSC 453-CIVIL APPEAL NO. 2323 OF 2021 marks a significant development in Indian insurance jurisprudence by reaffirming that insurance contracts must be interpreted in a commercially sensible manner rather than through rigid literalism. The Court emphasised that standard-form warranties and exclusionary clauses cannot be enforced if their strict application renders the policy illusory or defeats the very purpose of insurance coverage. While reiterating the continuing relevance of the doctrines of uberrima fides and contra proferentem, the judgment clarified that ambiguity must be real and not artificially constructed. The ruling further underlines the obligation of insurers to draft clear and carefully tailored policy conditions, particularly in marine insurance contracts, and cautions against the indiscriminate use of standard form warranties without regard to the practical realities of the voyage insured. In doing so, the Court sought to balance contractual certainty with fairness, commercial efficacy, and the assured’s legitimate expectations.
Factual Background
Sohom Shipping Pvt. Ltd., the insured and the appellant in the present case, obtained a single-voyage insurance policy from The New India Assurance Co. Ltd. for its newly acquired barge, “Srijoy II,” covering the voyage from Mumbai to Kolkata for the period between 16 May 2013 and 15 June 2013. The policy carried a condition that the ‘voyage should commence & complete before the monsoon sets in’. The policy also imposed a Special Warranties, inter alia, that the “vessel to depart in local weather conditions not exceeding Beaufort Scale No. 4
It may be noted here that Sohom Shipping Pvt. Ltd was engaged in the shipping business, with offices at Sougor Road, Kulpi; Diamond Harbour; Haldia; and Kolkata. Indian Register of Shipping(IRS) allowed Sohom Shipping Pvt. Ltd to undertake its voyage vis-à-vis MS Circular No. 03 of 2008. The Director General of Shipping (DGS) issued a “No objection” with respect to the same. The vessel started its voyage on 06.06.2013.
Unfortunately, the very next day, i.e., 07.06.2023, the vessel was anchored off near Ratnagiri Port owing to inclement weather and subsequent engine failure. Ultimately, the vessel ran aground. Sohom Shipping Pvt Ltd. immediately sought assistance from the New India Assurance Co. Ltd for towing and salvaging the vessel after the Insurance Contract had expired. On 25.07.2013, Sohom Shipping Pvt. Ltd issued a ‘Notice of Abandonment’ to New India Assurance Co. Ltd, claiming a total loss on the ground that the repair of the vessel would be more expensive than the amount insured, and requesting a Constructive Total Loss.
On 12.09.2013, New India Assurance Co. Ltd issued a ‘Repudiation Notice’ rejecting the claim of Sohom Shipping Pvt Ltd on the ground that the vessel set sail after ‘monsoon set in’, breaching the special condition in the Insurance Contract. Subsequently, the surveyor appointed by the respondent issued its final report concluding that the insured was in wilful breach of the condition.
Peeved by the repudiation of the insurance claim, the insured filed a consumer complaint under Section 21 of COPRA before the National Consumer Disputes Redressal Commission, New Delhi (NCDRC). The NCDRC Vide dated 13.04.2021, dismissed the complaint on the ground that the insured suppressed material facts by not disclosing all its plans to the insured, and did not act in good faith, thereby compromising the doctrine of Uberrimæ fidei. The insured preferred an appeal challenging the above order under section 67 of the Consumer Protection Act, 2019, which governs appeals against orders of the National Commission.
Contentious Issues –
1. Whether the insured breached the condition that the “voyage should commence and be completed before the onset of monsoon,” and if so, whether it must be construed contra proferentemagainst the insurer and whether such breach justified repudiation of the claim by the insurer.
2. Whether the insured’s duty of uberrimæ fides was broken by omission or misstatement in the proposal form, thus justifying repudiation?
3. Whether the special warranty is a condition precedent whose breach disentitles the assured to any remedy under the policy?
4. Whether the special condition imposed by the insurer was ambiguous, non-material, and impliedly waived by the insurer, thereby preventing the insurer from denying liability.
Submission of the Insured –
The insured argued that the insurer knew, or should have known, that the insurance policy covered the monsoon or foul weather period. Therefore, the insurer should not reject the claim on the ground that the voyage took place during bad weather.
The insured also argued that the special condition in the policy was not important because the insurer was already aware that the voyage would happen during the monsoon season. Further, even if the condition is considered important, the insurer had, in effect, waived it when issuing the policy. This is because the one-month insurance cover included the monsoon period, and the insurer knew that the vessel would travel from Mumbai to Kolkata through Kerala waters, where the monsoon normally begins on 1 June.
The insured further contended that the Court should apply the common law principle of verba chartarum fortius accipiuntur contra proferentem, commonly known as the “contra proferentem” rule, against the insurer. According to the insured, the phrase in question was ambiguous when viewed in light of the surrounding circumstances and extrinsic evidence. In support of this contention, reliance was placed on General Assurance Society Ltd. v. Chandumull Jain & Anr., Industrial Promotion and Investment Corporation of Orissa Ltd. v. New India Assurance Company Ltd. & Anr., and Dawsons Ltd. v. Bonnin.
The insured also submitted that the insurer had failed to exercise reasonable due diligence, as the policy was issued with full knowledge of the prevailing circumstances.
Further, it was argued that if the special condition were to be construed as a condition precedent, it would lead to absurd results, since virtually every claim would fall within the mischief of the condition. In this regard, reliance was placed on Ramji Karamsi v. The Unique Motor and General Insurance Co. Ltd.
Submission by the Insurer –
The insurer contended that the order passed by the National Commission was well-reasoned, lawful, and valid, and therefore did not warrant any interference. It was argued that the insured had breached the special condition by commencing the voyage after the onset of the monsoon. The insured was also alleged to have violated Clause 3.1.2 of the Insurance Contract by sailing in waters where the wave height exceeded 2 metres, contrary to the conditions prescribed by the IRS.
The insurer further emphatically submitted that the special condition was clear, precise, and capable of definite determination, thereby negating any allegation of ambiguity and consequently excluding the application of the rule of contra proferentem. The insurer further contended that the insured had committed forgery and fabricated the policy produced before the authorities, as no amendment to the special condition had ever been agreed upon or effected between the parties.
It was further submitted by the insurer that, in terms of DGS Notice No. 03/2008, the foul weather season commences from 1 June, whereas the policy in question remained valid from 16.05.2013 to 15.06.2013. The insurer emphasised that the insured had made no disclosure in its proposal/application of any intention to sail during the foul-weather season.
In support of its submissions, the insurer/respondent relied upon the decisions of the Supreme Court in Sea Lark Fisheries v. United India Insurance Co. & Anr., Deokar Exports (P) Ltd. v. New India Assurance Co. Ltd., Contship Container Lines Ltd. v. D.K. Lall & Ors., Rajankumar & Brothers (Impex) v. Oriental Insurance Co. Ltd., and Hind Offshore (P) Ltd. v. Iffco-Tokio General Insurance Co. Ltd.Top of Form
Court’s Discussion and Analysis –
The Court carefully considered the submissions of both sides and perused the material on record. The sole question for consideration is whether the special condition was breached, thereby justifying the insurer’s / respondent’s de facto repudiation of the insured’s claim.
The Court deemed it appropriate to examine the conditions contained in the proposal, upon which the insurer relied to repudiate the insured’s claim. In this regard, the ‘Special Conditions’ in the ‘Policy Schedule for Voyage Insurance’ stipulated as follows:
“Subject to:
1. Institute Voyage Clause 01.08.1989;
2. Excess 1% of S.I., with the warranty that the voyage shall commence and conclude before the onset of the monsoon.”
Under “Voyage Details”, the insured stated that the voyage would be from Mumbai to Kolkata.
The ‘Special Warranties’ stipulated, vessel to depart in local weather condition not exceeding Beaufort Scale No. 4 & favourable synoptic meterological situation. The master to exercise his discretion to alter course & speed or to enter port of refuge/shelter in case of adverse weather sea conditions/weather warings emergency/navigational hazard. The relevant national & international regulations regarding lights, ags & shapes should be complied with.”
Since it was a specific Voyage policy, it had a classification clause. Therefore the Court examined Clause 3 of the Insurance Contract providing the Classification Clause which stated (CLASSIFICATION (3.1) It is the duty of the Assured, Owners and Managers at the inception of and throughout the period of this insurance to ensure that 3.1.1 the vessel is classed with a Classification Society agreed by the Underwriters and that her class within that Society is maintained, 3.1.2 any recommendations requirements or restrictions imposed by the vessel’s Classification Society which relate to the vessel’s seaworthiness or to her maintenance in a seaworthy condition are complied with by the dates required by that Society.
3.2. In the event of any breach of the duties set out in Clause 3.1 above, unless the Underwriters agree to the contrary in writing, they will be discharged from liability under this insurance as from the date of the breach provided that if the vessel is at sea at such date the Underwriters’ discharge from liability is deferred until arrival at her next port.”
The insurer relied on Clause 3.1.2 and the breach of the special condition in the policy to justify repudiating the Insurance Contract.
The Court interpreted the phrase “before monsoon sets in” in the Special Conditions to mean before the commencement of the monsoon. Both parties relied on the DGS Circular dated 25.04.2008, which defines the foul weather period as commencing from 1st May in the Bay of Bengal along the East Coast and from 1st June in the Arabian Sea along the West Coast. Accordingly, the phrase required the voyage to commence and conclude before 1st May on the East Coast and before 1st June on the West Coast.
The Court addressed the insured’s argument that the special condition is ambiguous, leading to its construction contra proferentem. The Court held that the doctrine of contra proferentem applies only where there exists a real ambiguity in the clause. The rule cannot be invoked to artificially create ambiguity; the ambiguity must first be established. Further, even if a clause appears ambiguous in isolation, the doctrine would not apply where its meaning becomes clear upon reading the policy as a whole. Likewise, where one interpretation harmonizes the clause with the remainder of the policy, that interpretation ought to be preferred.
Applying the aforesaid principle, the Court observed that it was unable to find the special condition contained in the policy to be ambiguous per se. However, the Court observed that rejecting the application of the rule of contra proferentem does not weaken the appellant’s case regarding the validity and material importance of the condition itself.
Counsel for the Insurer placed the completed proposal form before the Hon’ble Court for its consideration. The insurer contended that the insured had made no disclosure therein regarding any intention to undertake a voyage during the foul season. It was argued that, in response to the query, “Will the vessel be laid up during the South West or North East Monsoon? If so, please state (a) where she will be laid up; and (b) the period for which she will be laid up,” the insured had answered, “At Kolkata Harbour.” According to the Insurer, this response clearly indicated that the vessel would remain laid up during the foul season and would not undertake any voyage. Consequently, it was submitted that the doctrine of uberrimæ fidei had been breached by the conduct of the insured.
In response, counsel for the insured submitted that the proposal form expressly stated that “the insurance is required to undertake delivery voyage from Ghodbunder Jetty to Kolkata Harbour,” with the insurance period being from 16.05.2013 to 15.06.2013.
The Court observed that there was no dispute that the policy had been obtained for a one-month period, i.e., from 16.05.2013 to 15.06.2013, specifically to cover the voyage from Mumbai to Kolkata. Further, the DGS Circular clearly stated that the foul weather season on the East Coast commences from 1st May itself. In these circumstances, the insurer’s contention that it had no knowledge of the intended voyage and had assumed that the vessel would remain laid up at Kolkata Harbour during the foul season was held to be untenable and liable to be rejected.
The insured had explicitly disclosed in the proposal form that the purpose of the insurance was to cover the voyage from Ghodbunder Jetty, Mumbai, to Kolkata Harbour. The only reasonable inference arising from such disclosure was that the policy was intended to cover navigation during the foul weather season along both the West and East Coasts. Even assuming that the voyage had commenced immediately on 16.05.2013, the vessel would have reached Kolkata only during the first week of June 2013, by which time the foul weather season on the East Coast had already commenced. Consequently, there existed no conceivable manner in which the insured could have complied with the above policy condition, having regard to the nature of the voyage from Mumbai on the West Coast to Kolkata on the East Coast through multiple coastal States.
The Court further observed that the special condition required the voyage to both commence and conclude before the onset of the monsoon. A strict interpretation of this condition would lead to an anomalous situation where, in the event of a marine peril preventing completion of the voyage, the assured would be incapable of complying with the condition and consequently deprived of any remedy under the policy. Such an interpretation amounts to an absurdity and would defeat the very object and purpose of an insurance contract.
Accordingly, the Court held that the special condition could not be construed as a condition precedent for excluding liability under the policy. Given its non-material character, the condition was deemed to have been impliedly waived by the parties. The Court further noted that the clause appeared to be part of the insurer’s standard form contract and had inadvertently remained incorporated in the policy issued to the insured without a proper exclusion. Accordingly, the Court allowed the insured’s appeal and set aside the order dated 13.04.2021 passed by the NCDRC. The matter was remanded to the NCDRC for the determination of the extent of the insured amount payable by the insurer to the insured.
Concluding Insight by the Author
Unfortunately, insurance consumers in India continue to remain deprived of the reforms introduced under UK law, which modernised the traditional principles governing insurance contracts through the Consumer Insurance (Disclosure and Representations) Act 2012 and the Insurance Act 2015. Insurance contracts have traditionally been regarded as contracts of utmost good faith under the Marine Insurance Act 1906, particularly Section 17 thereof
Under the Marine Insurance Act 1906 (MIA 1906), the duty of utmost good faith extended to the insured’s pre-contractual duty of disclosure as well. Any breach of this pre-contractual duty of good faith entitles the insurer to avoid the contract altogether, irrespective of whether the non-disclosure or misrepresentation was innocent or minor.
However, the position has been significantly reformed by the Consumer Insurance (Disclosure and Representations) Act 2012 in relation to consumer insurance, and by the Insurance Act 2015 in relation to non-consumer insurance. Under Section 3(1) of the Insurance Act 2015, the insured is required to make a “fair presentation of the risk” to the insurer. This requires the insured to disclose every material circumstance which it knows or ought to know, or alternatively provide sufficient information to put a prudent insurer on notice to make further enquiries. The presentation must be reasonably clear and accessible, must not conceal material facts, and every material representation must be substantially correct and made in good faith. The Insurance Act 2015 thus transformed the law from a harsh disclosure regime into a more balanced framework. Under the earlier law, even an innocent or insignificant breach of the duty of utmost good faith could permit the insurer to avoid liability entirely. The 2015 Act, however, introduced proportionate remedies, thereby ensuring a fairer balance between the insurer’s and the insured’s interests.
Under the duty of fair presentation of risk, the insured is required to disclose every material circumstance that they know, or ought to know. Where full disclosure is not possible, the insured must at least provide sufficient information to put a prudent insurer on notice that further enquiries are necessary. The Act, therefore, places significant responsibility on insurers as well. Insurers cannot remain passive once alerted to potential issues; they are expected to make further enquiries where required. They also cannot rely on vague or overly technical terms to repudiate claims, nor can they automatically convert every statement made by the insured into a warranty. In this manner, the concept of fair presentation promotes shared responsibility between the insured and the insurer, while ensuring that remedies for breach remain proportionate.
The case referred to above is a stark illustration of how Indian insurance customers continue to suffer due to the failure to modernise insurance law to keep pace with the evolving and dynamic needs of policyholders. Under the reformed UK regime, once the insurer is put on notice of a potential issue, a greater responsibility is cast upon it to make further enquiries. In such circumstances, the insured is presumed to have made a fair presentation of the risk, and the burden correspondingly shifts to the insurer to seek any additional information it considers necessary. An insurer cannot remain passive, only to later repudiate liability on technical or undisclosed grounds.
Authored by:
Prof (Dr) Abhijit K. Chattoraj
Chartered Insurer
