Case Name: Haris Marine Products v. Export Credit Guarantee Corporation (ECGC) Limited
Citation:(SC) 432
Summary
The Supreme Court has ruled that a vague term in an insurance contract should be interpreted harmoniously by reading it in its entirety. If the term is still unclear, the contra proferentem rule must be used, and the term must be interpreted against the policy’s drafter or in the insured party’s favor. In an appeal challenging the National Consumer Dispute Redressal Commission’s ruling in the insurer’s favor, the Supreme Court overturned the ruling and ordered the issuer to reimburse the claimant for Rs. 2.45 crores, plus interest at the rate of 9% per annum.
The appellant, a government-owned business offering credit risk insurance products, paid a premium on December 13, 2012, for an insurance policy covering nonpayment of export goods by a foreign buyer. The ship sailed on December 15, 2012, but the date of despatch was listed as December 13, 2012. The insured submitted a claim, but the insurance denied it. The Independent Review Committee rejected it, citing the policy’s effective date as December 14, 2012, and the date of dispatch as interpreted under the DGFT Guidelines. The court concluded that the date of goods loading was not as important as the date of the foreign buyer’s default, which was February 14, 2013, and was therefore fully covered by the policy.
About the case
According to the Supreme Court, a vague term in an insurance contract should first be interpreted harmoniously by reading it in its entirety. If the term is still unclear, the contra proferentem rule must be used, and the term must be interpreted against the policy’s drafter, or in the insured party’s favor.
Judges U.U. Lalit, S. Ravindra Bhat, and P.S. Narasimha made up the bench that heard an appeal challenging the National Consumer Dispute Redressal Commission’s ruling in the insurer’s favor. The Supreme Court overturned the ruling and ordered the issuer to reimburse the claimant for Rs. 2.45 crores, plus interest at the rate of 9% per annum.
The responder, or insurer, is a government-owned business that offers exporters a variety of credit risk insurance products. The appellant (insured), which exported fish oil and fish meat, was one of these exporters. The appellant paid a premium on December 13, 2012, for an insurance policy that covered nonpayment of export goods by a foreign buyer. The ship sailed on December 15, 2012. Nonetheless, the date of despatch was listed as December 13, 2012 on the Bill of Lading that was prepared on December 19, 2012. The products were eventually delivered, but the buyer neglected to pay.
The insured submitted a claim, but the insurance denied it. Ultimately, on March 28, 2015, the Independent Review Committee (“IRC”) rejected it, citing that the policy’s effective date was December 14, 2012, and the date of dispatch, as interpreted under the DGFT Guidelines, was December 13, 2012. The insured filed a claim for reimbursement with the National Consumer Disputes Redressal Commission (“NCDRC”), citing a service failure. The NCDRC upheld the IRC’s ruling and its reasoning. On behalf of the appellant, Senior Advocate Ms. Anjana Prakash argued that the policy’s definition of “despatch” did not make clear when the coverage began to take effect. She contended that given the lack of a precise definition, the term would be understood to refer to the date the ship sailed, or December 15, 2012, rather than the date that the commodities were first loaded, or December 13, 2012. She did, however, remind us that the relevant date in this instance would be the date of the bill of lading or the date of the mate receipt, whichever comes first, in accordance with the term of “shipment” in the DGFT Guidelines.
Drawing upon United India Insurance Co. Ltd. v. Harchand Rai Chandan Lal (2004) 8 SCC 644 and LIC v. Insure Policy Plus Services (P) Ltd. (2016) 2 SCC 507, the plaintiff contended that, as a commercial agreement, the policy should have been construed exclusively in accordance with its own provisions, rather than being guided by external guidelines. It was argued, citing Industrial Promotion and Investment Corporation of Orissa Ltd. v. New India Assurance Co. Ltd. (2016) 15 SCC 315, that a policy should be interpreted against the contract drafter (contra proferentem) when it contains an ambiguous term.
In support of the respondent, Mr. Rajnish Kumar Jha, an advocate, stated that the Guidelines were created by the DGFT, a statutory agency charged with promoting and regulating international commerce, in accordance with Section 5 of the Foreign commerce (Development and Regulation) Act, 1992. Since the insurer was a government agency, it was required to follow the same rules. He cited a few rulings, such as Export Credit Guarantee Corporation of India Ltd. v. Garg Sons International (2014) 1 SCC 686, in which the Supreme Court determined that the contra proferentem theory did not apply to contracts involving goods.The Court observed that there was a cross-jurisdictional phenomenon involving the reconciliation of unclear wording in commercial contracts. It made reference to the ruling in Rainy Sky SA v. Kookmin Bank (2011) UKSC 50, wherein the UK Supreme Court held that if two interpretations of an ambiguous term are available, the one that is compatible with business common sense should be considered preferable. The United Kingdom Supreme Court, in the case of Arnold v. Britton (2015) UKSC 36, established certain general guidelines for interpreting written contracts. These guidelines included the clause’s ordinary meaning, its overall purpose, facts known to the parties at the time of execution, and commercial common sense. The UK Supreme Court had stated in Woods v. Capita Insurance (2017) UKCS 24 that the court must understand the contract as a whole.
The Apex Court took note of this observation. By applying the policy’s guiding principles, the Court concluded that the date of goods loading was not as important as the date of the foreign buyer’s default, which was February 14, 2013, and was therefore fully covered by the policy. The intention behind the policy was to cover the default, not the transportation. As a result, the Court stated in Peacock Plywood (P) Ltd. v. Oriental Insurance Co. Ltd. (2006) 12 SCC 673 that each insurance contract’s purpose and the risk it aims to cover must be evaluated on its own merits and that the policy should be read as a whole. In United India Insurance Co. Ltd. v. Pushpalaya Printers (2004) 3 SCC 694, the Apex Court extended support to the contra proferentem rule, which shields the insured against the ‘unfavorable reading of an ambiguous provision to which it did not consent’. When it comes to boilerplate contracts, the rule is very important when the insured has very little negotiating power.
After applying a harmonized interpretation to the policy texts, the Court concluded that the reliance on the DGFT Guidelines was not legal. It did point out that the date on the Bill of Lading had to be taken into account as the date of despatch, so even if the Guidelines were relied upon, the insurer’s position would not be strengthened.
