Case Title: Narsingh Ispat Ltd. vs Oriental Insurance Company Ltd. & Anr, CA 10671/2016
Summary
The Supreme Court has ruled that insurance companies cannot rely on external definitions of terrorism in their policies, as the Exclusion Clause provides a comprehensive definition of acts of terrorism. In the case of Narsingh Ispat Ltd versus Oriental Insurance Company Ltd, the Supreme Court ruled that the parties cannot rely on the Exclusion Clause, as it contains an exhaustive definition of acts of terrorism. The insurance company, Oriental Insurance Company Ltd., denied a claim for loss of Rs 89 lakhs in relation to an incident in 2010. The National Consumer Disputes Redressal Commission upheld the insurer’s action, but the insured filed an appeal with the Supreme Court. The court reinstated the appellant’s complaint and ordered it to be reheard by the Commission, despite the court’s conclusion that there was no justification for applying the Exclusion Clause. The court also ordered the insurance company to remit Rs 89 lakh into the Registry of the NCDRC. The appellant will have the option to submit a request to rescind the amount with the Commission.
About the case
In accordance with a ruling by the Supreme Court, the parties involved in an insurance policy are bound by the provisions outlined in the exclusion clause. In the event that the insurer wishes to invalidate the policy, it cannot rely on definitions found in external sources, such as statutes. “The rights and liabilities of the parties shall be governed by the provisions of the concluded contract, provided that the policy explicitly defines acts of terrorism in the Exclusion Clause.
An bench consisting of Justices Ajay Rastogi and Abhay S Oka ruled in the case Narsingh Ispat Ltd versus Oriental Insurance Company Ltd that the parties cannot rely on the definitions of ‘terrorism’ in various penal statutes since the Exclusion Clause contains an exhaustive definition of acts of terrorism.” The subject matter of the case pertained to the renunciation of a Standard Fire and Special Perils Policy held by a company domiciled in Jharkhand. The company filed a claim for loss in the amount of Rs 89 lakhs in relation to an incident that occurred on March 23, 2010. Approximately 5,060 armed antisocial entered the factory premises and demanded salary payments and employment opportunities for local residents. The insurer, Oriental Insurance Company Ltd., denied the claim on the grounds that damages resulting from acts of terrorism were excluded under the Exclusion Clause. The action of the insurer was upheld by the National Consumer Disputes Redressal Commission.
The insured filed an appeal with the Supreme Court, contesting the NCDRC order. The insurance company posited that the entry of 120 individuals armed with destructive intent into the appellant’s factory premises constitutes evidence of terrorism, as it was intended to instill fear among the appellant’s employees and management. Additionally, one contended that the classification of the attack as a terrorist act was established by the police’s citation of provisions from the Criminal Law Amendment Act 1909 in the FIR. When the policy expressly covers a liability deriving from the insured’s property damage, the Supreme Court ruled that an insurance company’s repudiation of the policy on the basis of an exclusion clause cannot be upheld. The Supreme Court has reinstated the appellant’s complaint and ordered it to be reheard by the Commission, despite its conclusion that there was no justification for applying the Exclusion Clause. The bench noted that the parties are unable to depend on definitions of ‘terrorism’ found in different penal statutes, as the Exclusion Clause provides a comprehensive definition of terrorist acts.
In applying the Exclusion Clause, the Commission, in accordance with the judgment, therefore erred. In addition, the bench noted that the policy provides coverage for damages that result from rioting or the use of violent means. The tribunal based its decision on the Supreme Court’s ruling in the Ishar Das Madan Lal case, which stated: “In the event that a policy contains such an exclusionary clause, the insurer shall provide evidence that the case is covered by that clause.” It is conventional wisdom that in situations of uncertainty, the insurance contract should be interpreted in favor of the policyholder. Bench members observed that the respondent’s repudiation of the policy is supported by the Investigation Report, Preliminary Survey Report, and Final Survey Report.
The survey reports failed to provide any insight into the question of whether terrorism occurred, the investigation report stated that the affiliation of those involved with Maoist or similar groups could not be conclusively established, and the closure report made no reference to acts of terrorism as defined in the exclusion clause. The court ordered the insurance company to remit Rs 89 lakh into the Registry of the NCDRC no later than Monday, after remanding the case to the NCDRC. “Extraordinary renewal shall result in the funds being deposited into the interest-bearing account.” Concurrently, while the complaint is pending, the appellant (insured firm) will have the option to submit a request to rescind the amount with the Commission. “The Commission may examine and decide such an application on its own merits and in accordance with the law if filed by the appellant,” the highest court stated.
