Bajaj Allianz General Insurance Co. Ltd. and Ors. Vs. The State of Madhya Pradesh - (Supreme Court) (24 Apr 2020)

While construing a contract of insurance, it is not permissible for a Court to substitute the terms of the contract

MANU/SC/0410/2020

Insurance

The present appeals arise from a judgment of the National Commission which in first appeal upheld the judgment of the State Commission. The SCDRC held the Appellant to be deficient in its service and directed it to pay compensation of ` 64,89,205 towards the cost of repair of a helicopter to the Respondent. Both the Appellant and the Respondent had preferred appeals against the order of the SCDRC. The NCDRC dismissed the appeal preferred by the Appellant and partly allowed the appeal preferred by the Respondent for enhancement of compensation and awarded interest at the rate of six percent per annum.

The issue before this Court is whether storage, unpacking and assembly of the helicopter at New Delhi would fall outside the scope of the expression "ordinary course of transit", terminating coverage under the policy.

The purpose of the marine transit insurance policy is to cover the consignment from risks associated with transportation of the consignment from one place to another. It is fundamental for those responsible for carrying the cargo to ensure that all stages of the transportation are effected with reasonable promptness. "In transit", however, does not necessarily mean that the consignment needs to be in continuous motion at all times. A mere brief suspension must however be in furtherance of the ordinary course of transit. During the ordinary course of transit, the consignment might frequently come to rest or be temporarily stored in the dock awaiting loading or customs clearance. However, unduly protracted steps in the cargo's transportation are not within, and may terminate, the "ordinary course of transit."

In the present case, the insured voluntarily decided to store the helicopter in the hangar at New Delhi out of commercial convenience and not in furtherance of the transit. In addition, the insured by assembling the knocked down helicopter for the purposes of flying it to Bhopal changed the nature of the consignment and exposed the Appellant to operational risks beyond the scope of the policy.

For the Respondent to prove its case, a mere assertion that the loss incurred during the course of transit is not sufficient. The burden of proof lies on the Respondent to show that the loss incurred was covered within the terms of the policy and that on a balance of probabilities there existed a proximate cause between the loss incurred and the helicopter being in transit. The Respondent has adduced no evidence to supports its case.

After the Respondent informed the Appellant on 23 November 2005 that upon inspection, the tail boom of the helicopter was found to be damaged, the Appellant promptly appointed a surveyor, who in its report concluded that The damage to the tail boom had occurred at Hangar, IGI Airport Delhi after substantial assembly but prior to test flight and not during transit and hence, would not fall under the purview of marine insurance policy as issued to the insured. On the basis of the surveyor's report, the Appellant rejected the claim of the Respondent on 10 April 2006.

It is evident from the contents of the above letter written by the Directorate of Aviation, Government of Madhya Pradesh that the Respondent did not challenge the surveyor's report. The Respondent has on the balance of probabilities failed discharge its burden that the damage to the helicopter incurred during the course of transit. No proximate cause has been shown between the damage to the helicopter and the helicopter being in a state of transit. Hence, it is difficult for this Court to come to the conclusion that the damage to the helicopter incurred during the course of transit.

While construing a contract of insurance, it is not permissible for a court to substitute the terms of the contract. The court should always interpret the words used in a contract in a manner that will best express the intention of the parties. The NCDRC has incorrectly proceeded on the path that, the ordinary course of transit would include assembling of the helicopter at New Delhi and the policy covered all risks till the time the helicopter did not reach Bhopal. The risks associated with the assembled helicopter were not covered within the purview of the policy, as the subject-matter which had been insured was a helicopter being transported in a packaged knocked down condition.

The act of assembling the helicopter with a view to having it flown under its own power, instead of transporting the packaged knocked down helicopter further to Bhopal by road, would not constitute as storage in the ordinary course of transit. The interpretation adopted by the NCDRC strikes fundamentally at the purpose of the policy and is not in accordance with sound commercial principles. The interpretation altered the character of the risk insured beyond the scope of the policy as agreed between the parties.

The interpretation placed on the terms of the insurance policy was manifestly incorrect and that the impugned orders of the NCDRC and SCDRC are unsustainable. The appeals are accordingly allowed and the impugned judgments and orders of the NCDRC and the SCDRC shall stand set aside.

Tags : INSURANCE POLICY TERMS INTERPRETATION LEGALITY