Order Date: Not Specified
Order Name: Bajaj Allianz General Insurance Co. Ltd. Vs. P. Santha Kumari
Case No.: F.A. No. 204/2022
The National Consumer Disputes Redressal Commission (NCDRC), led by AVM J. Rajendra, recently ruled that ambiguous terms in an insurance policy should be interpreted in favor of the insured party.
Brief Facts of the Case
The complainant, who runs a coconut business, had taken a loan from a bank, using her stock as collateral. The bank insured this stock with Bajaj Allianz General Insurance. Unfortunately, a fire broke out, destroying a significant amount of her coconuts. She reported the incident both to the fire department and the insurance company. However, the insurer denied her claim, stating that their policy only covered stock stored in fully enclosed premises. The complainant argued that her stock was kept in a covered area with four walls and that she was unaware of these specific policy terms until after the incident.
The complainant then approached the State Commission of Andhra Pradesh, which ruled in her favor. The State Commission ordered the insurer to pay Rs. 16,42,617 for the loss of coconuts, with 9% interest, Rs. 50,000 as compensation, and Rs. 10,000 for costs. The bank was also directed to pay Rs. 1,50,000 as compensation and Rs. 10,000 for costs. Dissatisfied with this decision, the insurer appealed to the National Commission.
Contentions of the Insurer
The insurer contested the complainant’s status as a ‘consumer’ under the Act and reiterated that the insurance policy only covered stock stored in enclosed spaces. They emphasized that only Rs. 16,42,612 worth of stock was affected and adhered to the terms of the policy in denying the claim. The bank argued that obtaining insurance was not mandatory for the loan and that the complainant was free to choose any insurer. They denied any service deficiencies and did not challenge the State Commission’s order.
Observations by the National Commission
The National Commission noted that the main issue was whether the coconuts stored in the specified area were covered under the insurance policy. While the insurer acknowledged that the premises were insured, they argued that coverage only applied to stock in enclosed spaces, excluding open areas. The complainant maintained that the insured premises included both enclosed and open areas surrounded by walls.
The Commission referred to the policy’s "Open Stock Warranty," which stated that coverage was limited to stock in closed premises, creating ambiguity. To resolve this, the Commission cited legal precedents, especially Haris Marine Products v. ECGC Ltd., which supports the principle of contra proferentem. This principle means that any unclear terms should be interpreted in favor of the insured party.
After considering the surveyor’s assessment and the nature of the loss, the National Commission upheld the State Commission’s order. They found no legal flaws in the State Commission’s reasoning. However, they referenced DLF Homes Panchkula Pvt. Ltd. v. D.S. Dhanda, noting that multiple compensations for a single deficiency were not justified. Consequently, the Commission adjusted the compensation amounts.
The National Commission directed the insurer to pay Rs. 16,42,617 for the loss of coconuts, including simple interest at 9% per annum. Additionally, both the insurer and the bank were ordered to pay Rs. 20,000 each towards litigation costs.
Takeaway:
This ruling underscores the importance of understanding insurance policy terms. Ambiguities in insurance contracts are likely to be interpreted in favor of the insured, providing a significant protection for consumers.
