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Sangrur Sales Corporation v. United India Insurance Company Limited And Another
Factual and Procedural Background
The appellant insured his sanitaryware shop located at Gausala Road, Sangrur under a “Standard Fire and Special Perils Insurance Policy” issued by the first respondent (United India Insurance Company). The sum insured was Rs 18,00,000 for the period 21-6-2011 to 20-6-2012.
On 29-3-2012 the showroom collapsed after subsidence caused by excavation work on an adjacent plot. An FIR was lodged the next day and the insurer was promptly informed. After appointing a surveyor, the insurer repudiated the claim on 11-5-2012.
The appellant filed a consumer complaint before the District Consumer Disputes Redressal Forum, Sangrur, which awarded the full claim with 9% interest. The State Commission affirmed the award on 5-5-2016, but the National Consumer Disputes Redressal Commission (NCDRC) reversed it on 7-3-2018, accepting the insurer’s reliance on an exclusion clause. The present appeal to the Supreme Court followed; delay was condoned and leave granted. Although served, the insurer did not appear before the Court.
Legal Issues Presented
- Whether exclusion clause VIII(e) in the “Standard Fire and Special Perils Insurance Policy” bars recovery when subsidence damage is caused by excavation carried out by a third party on neighbouring premises.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| United India Insurance Co. Ltd. v. Pushpalaya Printers (2004) 3 SCC 694 | Ambiguities in insurance contracts must be construed in favour of the insured. | Used to justify adopting the interpretation of Clause VIII(e) that is more beneficial to the insured when two constructions are possible. |
Court's Reasoning and Analysis
1. Clause VIII covers loss from subsidence or landslide but expressly excludes several situations listed in sub-clauses (a)–(e). Sub-clause (e) specifies “demolition, construction, structural alterations or repair of any property or groundworks or excavations.”
2. The appellant had not undertaken any demolition, construction, alterations, repairs, or excavation on his own property. The harmful excavation was carried out entirely by a neighbour on an adjacent plot.
3. The Court read the language of sub-clause (e) in context. The qualifying words “of any property” attach to “demolition, construction, structural alterations or repair,” not to “groundworks or excavations.” There is no wording extending the exclusion to excavations undertaken by third parties on other property.
4. Where a policy provision is reasonably capable of two interpretations, the principle from Pushpalaya Printers requires adoption of the one favourable to the insured. Accordingly, the exclusion must be confined to excavations performed by the insured on the insured premises.
5. NCDRC erred by applying the exclusion despite the absence of any act or omission by the appellant that brought the case within sub-clause (e).
Holding and Implications
APPEAL ALLOWED; NCDRC JUDGMENT SET ASIDE; ORDERS OF DISTRICT FORUM (AS AFFIRMED BY STATE COMMISSION) RESTORED.
Direct Effect: The appellant is entitled to Rs 18,00,000 with 9% interest as awarded by the District Forum; no order as to costs.
Broader Implication: The decision reinforces the principle that ambiguities in exclusion clauses of insurance contracts will be resolved in favour of the insured, but it does not establish a new legal test beyond settled precedent.
D.Y. Chandrachud, J.— Delay condoned. Leave granted. This appeal arises from a judgment and order of the National Consumer Disputes Redressal Commission (“Ncdrc”) dated 7-3-2018 2018 SCC OnLine NCDRC 1908.
2. The appellant obtained a “Standard Fire and Special Perils Insurance Policy” from the first respondent to cover his shop situated at Gausala Road, Sangrur. The shop was insured in the value of Rs 18,00,000 and the policy was valid from 21-6-2011 to 20-6-2012. On 29-3-2012, the showroom in which the appellant carried on the business of sanitaryware collapsed as a result of the work of excavation which was being carried on in an adjacent plot. A first information report was lodged on 30-3-2012 at Police Station Sangrur and intimation of the loss was given to the insurer. A surveyor was appointed. The claim was repudiated by the insurer on 11-5-2012. This led to the institution of the consumer complaint before the District Consumer Disputes Redressal Forum (“the District Forum”), Sangrur. The District Forum allowed the claim in the amount of Rs 18,00,000, together with interest at 9% p.a. from the date of the institution of the complaint. The order of the District Forum was upheld by the State Consumer Disputes Redressal Commission (“Scdrc”), Punjab on 5-5-2016. However, in a revision filed by the insurer, Ncdrc reversed the order awarding the claim.
3. The notice was issued in the present proceedings on 22-4-2019. The office report indicates that the insurer has been served. There is no appearance on its behalf.
4. The dispute between the parties turns on a construction of Clause VIII(e) of the policy of insurance. Before adverting to the exclusions, it is necessary to extract the relevant part of the insurance policy, which reads as follows:
“In consideration of the insured named in the schedule hereto having paid to United India Insurance Company Ltd. (hereinafter called “the Company”) the full premium mentioned in the said schedule, the company agrees (subject to the conditions and exclusions contained herein or endorsed or otherwise expressed hereon) that if after payment of the premium the property insured described in the said schedule or any part of the such property to be destroyed or damaged by any of the perils specified hereunder during the period of insurance named in the said schedule or of any subsequent period in respect of which the insured shall have paid and the Company shall have accepted the premium required for the renewal of the policy, the Company shall pay to the insured the value of the property at the time of the happening of its destruction or the amount of such damage or at its option reinstate or replace such property or any part thereof.”
5. Clause VIII is in the following terms:
“VIII. Subsidence and landslide including rock slide: loss, destruction or damage directly caused by subsidence of part of the site on which the property stands or landslide/rock slide excluding:
(a) the normal cracking, settlement or bedding down of new structures
(b) the settlement or movement of made-up ground
(c) coastal or river erosion
(d) defective design or workmanship or use of defective materials
(e) demolition, construction, structural alterations or repair of any property or groundworks or excavations.”
6. Clause VIII brings within the purview of the insured perils a loss, destruction or damage directly caused by subsidence of a part of the site on which the property stands or a landslide/rock slide, but excludes, what is stipulated in sub-clauses (a) to (e) thereafter. The exclusion in sub-clause (a) refers to the normal cracking, settlement or bedding down of new structures. The exclusion in clause (d) refers to defective design or workmanship or use of defective materials. The crucial exclusion is the one in sub-clause (e) which has weighed with Ncdrc. Clause (e) relates to the demolition, construction or structural alterations or repair of any property or groundworks or excavations.
7. In the present case, the appellant was not engaged in any work of demolition, construction or structural alterations nor was it engaged in any repair of its property. The excavation which was the cause of the loss, was being carried on in a neighbouring plot and not by the appellant in his own property. In the absence of a specific qualification indicating that the exclusion will apply to an excavation being carried on by a third party, the reasonable construction of sub-clause (e) of Clause VIII is that it should apply only to a situation where the excavation is being carried on by the insured himself in his own property. Significantly, the words “of any property” qualify the words preceding them, namely, “demolition, construction, structural alterations or repair” and not the words that follow.
8. It is well settled that in the event that two constructions are possible or in the event of an ambiguity, that construction which is beneficial to the insured should be accepted consistent with the purpose for which the policy was taken, namely, to cover the risk on the happening of a certain event. (See in this context, the decision of this Court in United India Insurance Co. Ltd. v. Pushpalaya Printers (2004) 3 SCC 694.)
9. Ncdrc, in reversing the concurrent views of the District Forum and Scdrc, held thus: (Sangrur Sales Corpn. case 2018 SCC OnLine NCDRC 1908, SCC OnLine NCDRC para 10)
“10. On bare reading of the above, it is clear that as per the abovenoted condition, the loss caused to the insured property due to demolition, construction, structural alterations or repair of any property or ground works or excavations is excluded from the risk covered. On perusal of Para 3(b) of the copy of complaint placed on record, it is evident that as per the stand taken by the complainant on 29-3-2012 the insured showroom had fallen accidentally as a result of subsidence and land sliding due to digging work being carried out by the neighbour in adjacent plot. It is also alleged in the said paragraph that a daily Diary Report No. 54 dated 30-3-2012 regarding the incident was duly lodged with Police Station Sangrur. From the aforesaid admission on the part of the complainant, it is evident that loss was caused to the insured because of collapse of the insured building as a result of excavation work being carried out in the adjacent plot resulting in subsidence and land sliding. Thus, in my view, in view of the abovenoted specific exclusion clause, the petitioner/insurance company was justified in repudiating the insurance claim.”
10. The error of Ncdrc lies in reading the exclusion in regard to excavations as being applicable in a situation such as the present where the cause which resulted in the damage was a work of a third party which was carrying on an excavation in independent premises. It is not in dispute that no part of the excavation was attributable to any act or omission on the part of the appellant. Hence, to read the exclusion, as being attracted in the present case, would not be to a reasonable construction of the policy of insurance.
11. For the above reasons, we allow the appeal and set aside the impugned judgment and order of Ncdrc dated 7-3-2018 2018 SCC OnLine NCDRC 1908. In consequence, we restore the order of the District Forum dated 5-5-2016, as affirmed by Scdrc. In the circumstances, there shall be no order as to costs.
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