Explosion Exception and Statutory Fitness: Supreme Court Restricts Insurers’ Reliance on BPP Exclusion Clause 5

Case: Kopargaon Sahakari Sakhar Karkhana Ltd (now known as Karmaveer Shankarrao Kale Shahkari Shakhar Karkhana Ltd) v. National Insurance Co. Ltd & Anr

Citation: 2025 INSC 1315

Court: Supreme Court of India (Civil Appellate Jurisdiction)

Date: 13 November 2025

Bench: Pamidighantam Sri Narasimha, J. and Manoj Misra, J. (Per Manoj Misra, J.)

Introduction

This decision recalibrates how exclusion clauses in Boiler and Pressure Plant (BPP) insurance policies are to be applied when an explosion occurs during the subsistence of a statutory fitness certificate under the Boilers Act, 1923. The Supreme Court emphasizes that insurers bear a heavy burden to prove non-disclosure or misrepresentation before repudiating claims, and that exclusionary language must be read in light of the policy’s main purpose—indemnifying against accidental loss. The Court also clarifies the weight to be accorded to surveyors’ reports, particularly when they are ambivalent on causation or produced belatedly.

Background

The appellant sugar factory held a BPP policy covering Boiler No. GT-23 for Rs. 1.60 crores (1 February 2005 to 31 January 2006).
On 12 May 2005, a significant incident occurred. The insured pleaded an explosion that caused two boiler tubes to detach; the insurer later described tubes “slipping off” due to corrosion and aging.
The boiler had a valid statutory certificate of fitness issued on 17 November 2004 under the Boilers Act, 1923, and was registered and permitted for use during the relevant crushing season.
National Insurance repudiated the claim on 22 June 2005, invoking Exclusion Clause 5 of the BPP policy (addressing defects due to corrosion, wear, bulging, etc., unless resulting from explosion or collapse).
The Maharashtra State Consumer Commission partly allowed the complaint. On appeal, the NCDRC reversed, applying Exclusion Clause 5. The insured appealed to the Supreme Court.

Summary of the Judgment

Explosion not seriously disputed: The Court held that the factum of explosion was not traversed by the insurer in pleadings and was not denied in the initial repudiation letter, making it a foundational and largely uncontested fact.
Exclusion Clause 5 inapplicable: The Court read Clause 5 as not barring claims where the defects (e.g., slippage, bulging, corrosion) result from an explosion or collapse. Ambivalent survey reports could not negate the pleaded explosion.
No failure of duty to disclose: There was no evidence that the insured failed to disclose material facts or misrepresented facts—no specific queries were shown to have been asked about tube ages or life; no statutory life-limit was proven; and the boiler was statutorily certified and registered.
Heavy burden on insurer where boiler is statutorily fit: A valid statutory certificate under the Boilers Act creates a prima facie presumption of fitness, shifting a heavy burden to the insurer to prove unfitness, misrepresentation, or suppression at inception if repudiation is to succeed.
Surveyors’ reports not conclusive: While survey reports warrant due regard, the reports here were ambivalent on explosion causation and were introduced late, and could not conclusively justify repudiation.
Article 136 jurisdiction exercised: The Court declined to relegate parties to a writ remedy under Articles 226/227 given the advanced stage and the Supreme Court’s discretionary powers under Article 136.
Outcome: NCDRC’s order was set aside. Liability was affirmed against the insurer. The matter was remitted to NCDRC only for determination of the quantum of compensation payable to the insured; all other issues stood closed.

Analysis

Key Issues Considered

Whether repudiation under Exclusion Clause 5 of the BPP policy was justified on a case of tube slippage from corrosion and aging.
Whether the insured failed its duty of utmost good faith by non-disclosure/misrepresentation of material facts (such as age/condition of tubes).
How to treat surveyor reports, especially those introduced belatedly and expressing ambivalence on causation (explosion vs. deterioration).
The legal implications of statutory registration and fitness under the Boilers Act during the relevant period.
The Court’s readiness to entertain the appeal despite the argument based on alternative remedies (Universal Sompo).

Precedents Cited and Their Influence

Canara Bank v. United India Insurance Co. Ltd. (2020) 3 SCC 455
- Principle: A prudent insurer must ascertain the nature/value/condition of the insured subject; an insurer cannot take advantage of its own failure to verify before issuing a policy.
- Application: The Court used this to underscore that the insurer, having bound the risk post a statutory certificate, cannot later repudiate based on alleged age/corrosion absent specific queries, inspection constraints, or proven misrepresentation.
Skandia Insurance Co. Ltd. v. Kokilaben Chandravadan (1987) 2 SCC 654 and B.V. Nagaraju v. Oriental Insurance Co. Ltd. (1996) 4 SCC 647 (followed in Mata Ram v. National Insurance Co. Ltd. (2018) 18 SCC 289)
- Principle: Exclusion clauses should not defeat the main purpose of an insurance contract and may be read down to effectuate indemnity.
- Application: The Court read Clause 5 in a manner consonant with indemnity for explosion-related loss, refusing to let post-incident corrosion findings frustrate the policy’s core protective function.
Sikka Papers Ltd. v. National Insurance Co. Ltd. (2009) 7 SCC 777 and Sri Venkateswara Syndicate v. Oriental Insurance Co. Ltd. (2009) 8 SCC 507
- Principle: Surveyor’s reports deserve due regard as expert assessments.
- Application: The Court acknowledged the principle but stressed context—where reports are ambivalent on explosion and come late, they cannot become the sole anchor for repudiation, especially against untraversed pleadings and a valid statutory certificate.
Universal Sompo General Insurance Co. Ltd. v. Suresh Chand Jain (2023 SCC OnLine SC 87; (2024) 9 SCC 148)
- Principle: Questions regarding appropriate forum and alternate remedy.
- Application: The Court exercised Article 136 discretion to proceed (given the case maturity), clarifying that its jurisdiction is not inherently ousted and that relegation is a prudential, not mandatory, choice.
Halsbury’s Laws of England (Fourth Ed., Reissue 2003, Vol. 25)
- Principles of utmost good faith, materiality, the scope of disclosure, and the onus on the insurer to prove breach of disclosure obligations.
- Application: Grounded the Court’s articulation that absent specific questions, statutory duties, or demonstrable knowledge, non-disclosure cannot be presumed.

Legal Reasoning

Uncontroverted Explosion as the Causal Core
- The insured specifically pleaded a “loud explosion” causing tube slippage.
- The insurer did not traverse this in its written statement; repudiation did not deny explosion.
- Legal effect: The Court treated the explosion as a largely undisputed fact, which—if accepted—directly engages the explosion exception embedded within Clause 5.
Construction of Exclusion Clause 5 (BPP Policy)
- Clause 5 excludes defects due to wear, corrosion, grooving, fractures, bulging, etc., but contains a carve-out: “unless such defect, fractures, failure or bulging result in explosion or collapse.”
- The Court emphasized that when defects are discovered after an explosion, one cannot assume pre-existing, disqualifying deterioration unless the evidence shows the defects were unrelated to the explosion.
- Ambivalent survey reports and untraversed pleadings tip construction against repudiation and in favor of cover.
Utmost Good Faith, Disclosure, and Burden of Proof
- The insurer bears the onus to prove non-disclosure or misrepresentation of material facts at inception.
- No specific questions were shown to have been asked about tube age or life; no statutory life-limit for tubes was shown; no evidence that the insured withheld information it knew or should have known.
- With a statutorily certified boiler and no pleading of fraud or inspection denial, repudiation on alleged non-disclosure could not stand.
Statutory Fitness under the Boilers Act as Prima Facie Evidence of Fitness
- Registration, inspection, and certification under the Boilers Act (Sections 6–8, 19, 21) are significant regulatory assurances.
- Where the accident occurs during the subsistence of a statutory certificate, a heavy burden lies on the insurer to prove unfitness, suppression, or misrepresentation to defeat cover.
Surveyors’ Reports: Due Regard, Not Deference in Ambiguity
- Reports here said tubes slipped and noted corrosion/age (some tubes from 1986) but were not categorical that there was no explosion; one report even acknowledged possible reclassification under machinery insurance.
- Given their ambivalence and late introduction at the appellate stage, the reports could not overcome the explosion plea, the statutory certificate, and the insurer’s pleading gaps.
Article 136 and Alternate Remedy
- The Court retained the appeal, underscoring that Article 136 power is available against NCDRC decisions and that relegation to writ proceedings is discretionary, especially inappropriate when the matter is ripe for decision.

Impact and Implications

For the Insurance Industry

Underwriting standards: Insurers must actively seek and record specific information at proposal stage (e.g., age of boiler components, maintenance history, prior repairs) and/or conduct pre-binding inspections, particularly for high-risk industrial assets.
Policy wording: Exclusion clause wording (like Clause 5) should be clear on how explosion interacts with pre-existing defects. Ambiguity will likely be resolved in favor of coverage when the main purpose of the policy is undermined otherwise.
Claims handling: If repudiating based on pre-existing deterioration, insurers must:
- Clearly plead non-disclosure, misrepresentation, or fraud.
- Demonstrate causation that is independent of the explosion or show that no explosion occurred.
- File surveyor reports promptly at the trial/State Commission stage to avoid adverse inferences.

For Industrial Policyholders

Regulatory compliance strengthens claims: Maintaining current certifications under the Boilers Act significantly fortifies coverage positions.
Preserve evidence and plead causation: Prompt intimation, detailed incident reports (with the fact of explosion, if applicable), and maintenance records are crucial.
Proposal disclosures: Answer proposal questions thoroughly. If not asked, you are generally not obliged to volunteer facts unknown to you or not reasonably knowable in the ordinary course of business.

For Consumer Fora and Courts

Reading down exclusions: Reaffirmation that exclusions should not thwart the principal object of indemnity, especially after an insured peril materializes (explosion/collapse).
Surveyor reports: Due regard is essential; however, their evidentiary value turns on clarity, timing, and consistency with pleadings.
Pleading discipline matters: Untraversed pleadings on critical facts (like explosion) carry significant weight.

Complex Concepts Simplified

Utmost Good Faith (Uberrimae Fidei): Insurance contracts require full and honest disclosure of material facts by both parties. The insurer must prove a breach to avoid liability.
Material Fact: A fact that would influence a prudent insurer’s decision to accept the risk or set premiums. If not asked and not reasonably knowable, failure to disclose may not be a breach.
Exclusion Clause: A policy provision that removes coverage for specified risks or circumstances. Courts construe them narrowly when they undermine the policy’s main purpose. Where a clause contains an exception (e.g., “unless defects result from explosion”), that exception is given full effect.
Surveyor’s Report: Expert assessment of cause and quantum; it’s persuasive but not automatically conclusive—especially if late or equivocal.
Statutory Fitness Certificate (Boilers Act, 1923): A regulatory approval to operate a boiler after inspection. Its validity at the time of accident is strong prima facie evidence of fitness.
Non-standard settlement: A pragmatic claims practice (often 75%) used where there are technical breaches unrelated to causation; here, the Supreme Court did not endorse or quantify but remitted quantum to NCDRC.

Practical Checklists

For Insurers

At proposal stage, seek specific disclosures on:
- Age and specification of boiler and tubes/components;
- Maintenance logs, inspection reports, and prior failures;
- Operational parameters and any deratings from statutory limits.
Pre-bind inspection for high-value BPP risks; document findings.
Draft clear causation language in exclusions; align with explosion/collapse exceptions.
In claims:
- Plead specific non-disclosures/misrepresentations with particulars;
- File surveyor reports early; reconcile findings to pleadings;
- Address statutory certificates and show why they are displaced on evidence.

For Insureds

Maintain up-to-date statutory certificates (Boilers Act) and accessible records of inspections/repairs.
Immediately notify incidents; preserve physical evidence and logs; record witness accounts, particularly if an explosion was heard or observed.
Respond fully to proposal questions; if uncertain, disclose the basis of your knowledge and any limitations.
Seek your own technical assessment where surveyor conclusions are ambivalent or contest causation.

What Happens Next: Quantum on Remand

The Supreme Court restored First Appeal No. 580/2012 (insurer) and First Appeal No. 166/2013 (insured) to the NCDRC solely to determine the quantum of compensation. Key items NCDRC may examine include:

Verification of repair bills and disallowance of doubtful items (as the State Commission had done).
Appropriate salvage deduction, if any, based on evidence.
Whether any “non-standard” percentage is warranted and on what legal basis, given the Supreme Court’s finding on liability and exclusion.
Rate and commencement of interest (the State Commission had awarded 6% p.a. from 3 July 2006).

Key Takeaways

When an explosion occurs during a valid statutory fitness period, and the explosion is not seriously disputed, insurers cannot rely on BPP Exclusion Clause 5 to repudiate merely because corrosion or aging is discovered post-incident.
The duty of disclosure is bounded by what is asked and reasonably knowable; absent specific queries or evidence of misrepresentation, repudiation on non-disclosure grounds is unsustainable.
Surveyor reports receive due regard but are not determinative when they are late, ambivalent on causation, or inconsistent with pleadings and statutory certifications.
Exclusions must be read to preserve the main purpose of insurance; explosion exceptions within exclusions must be honored.
Article 136 remains available to correct such errors without relegation to writ remedies where the matter is ripe for decision.

Conclusion

This decision fortifies the principle that insurance exclusions cannot be weaponized to defeat the very protection for which premiums are paid, particularly in industrial-risk contexts governed by rigorous statutory regimes. By recognizing the explosion exception within Clause 5 and assigning a heavy burden of proof to insurers where statutory fitness exists, the Supreme Court ensures that repudiations rest on robust, timely, and specific evidence rather than post hoc inferences from latent defects revealed by the insured peril itself. Going forward, insurers must tighten underwriting and pleading practices, and policyholders should leverage statutory compliance and precise causation narratives to vindicate coverage.