The Supreme Court on Monday (20.11.2023) reiterated that an insured cannot claim anything more than what is covered by the insurance policy. The Court also said the terms of an insurance policy, which determine the liability of the insurance company, must be read strictly.
Referring to the recent ruling in National Insurance Company Ltd. v. Chief Electoral Officer, the Apex Court said that the rule of contra proferentem would not be applicable to a commercial contract like a contract of insurance. This rule says that if any clause in the contract is ambiguous, it must be interpreted against the party that introduced it. However, for a contract of insurance, this would not apply since an insurance contract is bilateral and mutually agreed upon, like any other commercial contract, a bench of Justice Abhay S Oka and Justice Rajesh Bindal observed.
According to the facts of the case, the owner of a BMW car met with an accident at Gurgaon due to which the car was damaged beyond repair. He had taken two protections: one was a motor insurance policy of Bajaj General Insurance Company Ltd. (the insurer), and the other was the BMW Secure Advance Policy (the BMW Secure).
The case of the owner was that on a conjoint reading of the two policies, if the car suffers damage of more than 75% of Insured Declared Value (IDV), a new car must be provided to the insured. The owner approached the State Consumer Disputes Redressal Commission, Delhi which directed the insurer and BMW to indemnify the owner for a total loss of the BMW 3 Series 320D car by replacing the car with a new car of the same make/model. The insurer and BMW then approached the NCDRC which dismissed their appeals. Subsequently, they approached the Apex Court.
Interpreting clause (3), of the insurance policy of the insurer, the court held that an option is available to the insurer to repair the vehicle or replace the vehicle. “In case of total loss/constructive total loss, instead of paying the amount as aforesaid, the insurer has an option available to replace the vehicle with a new one. Thus, it is not the right of the insured under the policy conditions to always claim replacement of the car. It is at the option of the insurer.” the Court concluded, interpreting the policy.
Interpreting the policy issued by BMW, the Court found that there was no specific provision in the policy for replacement of a vehicle in case there is a total loss or constructive total loss or theft of the vehicle. The Court also held that, BMW can be held liable under the BMW Secure, when it is established that the insurer under the motor insurance policy has accepted the case of total loss or constructive total loss of the vehicle.
Examining the issue of whether the repudiation of the insurance policy by the insurer was valid, in detail, the court concluded that none of the grounds of repudiation had any substance.
Thus, the Court held that there was a deficiency in service rendered by the insurer and BMW under clause (g) of Section 2 of the Consumer Protection Act,1986. Therefore, the owner was entitled to compensation from both of them, the Court held.
As per clause (3) of the Motor Insurance Policy, the constructive total cost of the vehicle, the liability of the insurer would not exceed the IDV of the vehicle minus the value of the wreck the court highlighted. Accordingly the amount payable by the insurer was quantified at Rs.25,83,012.45 by the Court.
The Court also held that since it was not pleaded by BMW that the vehicle of the same make was not available or, if it was available, what was the cost of the vehicle on that day, a reasonable amount will have to be granted on account of the difference in the value of the vehicle involved in the accident and the value of a new car of the same make. The Court accordingly directed the insurer to pay a difference of Rs.3,74,012/ to the owner.
Hence the appeals were partly allowed and the direction of the State Commission, confirmed by the National Commission to replace the car was substituted by a direction to pay monetary compensation.
