New India Assurance Company Limited and Ors. Vs.Rajeshwar Sharma and Ors. - (Supreme Court) (07 Dec 2018)

Where there is an exclusionary Clause in an insurance policy, burden lies on insurer to establish that exclusion is attracted

MANU/SC/1449/2018

Consumer

Present appeals arise from a judgment of a Division Bench of the High Court. The High Court has affirmed the decision of the Commission by which an insurance claim was allowed in the amount of Rs. 17.28 lacs. New India Assurance Company Limited, the insurer, failed in its challenge to the decision of the State Commission before the High Court.

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. Further, 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. The issue in the present case is confined to whether the exclusion under the policy of insurance was attracted

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. This Court has 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.

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 Municipal Corporation is indeed a lawfully constituted authority, being a statutory authority under the Jammu and Kashmir Municipal Corporation Act, 2000. 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.

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." The State Commission and the High Court were in error in allowing the claim under the policy of insurance. The appeal filed by the insurer is allowed.

Tags : INSURER LIABILITY EXEMPTION