NEW INDIA ASSURANCE CO. LTD. v. M/S H.M. INTERNATIONAL

insurance provider and referred to as the Opposite Parties /Insurer (OPs).

3. The Complainant filed Consumer Complaint No. 291/1999 before the State Commission on 16.09.1999 which was partly allowed vide order dated 31.08.2007. As against the same, the OP filed Appeal No. 645/2007 before this Commission on 12.11.2007. Vide order dated 13.03.2013, this Commission remanded the matter back to State Commission for a fresh review. The State Commission upheld part of its previous judgment in the Order dated 01.05.2018. Dissatisfied, the Appellant/OP filed the instant Appeal no. 1415/2018 before this Commission.

4. Brief facts of the case, as per the Complainant, are that vide letter dated 12.09.1995, the Complainant requested the OP to issue an open policy covering all risks, wars, and SRCC (Strike, Riot, and Civil Commotion) for Rs. 25 lakhs. OP had issued an insurance cover note on 18.09.1995. Although the original policy was presumably issued on 09.10.1995 in lieu of the cover note, the complainant did not receive the policy. During August 1996, the Complainant shipped a consignment of 100% cotton power loom bed sheets of invoice value of Rs.46,65,678/-. The stock was designated for export 'by Sea,' as indicated in the invoice dated 02.08.1996. Shipping Bill (No. 7492 dated 05.08.1996) for the export of goods was processed by Customs authorities. On 07.10.1996, the Complainant received information from the transport agency (Sotra Transport) that the vessel carrying the stocks had run aground, and General Average (GA) had been declared. In response, the Complainant lodged an insurance claim with the OP. Following no response, a reminder was sent on 29.10.1998, followed by a fax message on 15.11.1996. OP's surveyors submitted a report on 20.11.1996, but no further action was taken by the OP. Being concerned about its reputation, the Complainant reloaded the goods by paying GA, incurred demurrage costs of USD 4204, and issued an extra endorsement on 07.01.1997. In response to these actions, the OP, on 13.07.1999, informed them that their claim was under consideration. The OP repudiated the claim on the following grounds:

a. As per terms of the marine insurance policy, the carriage by sea not covered; b. The shipment which was in fact on C & F basis did not fall within the ambit of the policy; and as such the complainant had no insurable interest in the goods."

5. Aggrieved by the OP's inaction, they filed CC No. 291/1999 before the State Commission, seeking relief of Rs.9,01,929/-. This included compensation of Rs.4,32,690/- with 18% interest from January 1997 to August 1999, totaling Rs.13,34,889. Additionally, the Complainant claimed Rs.2,00,000/- as damages for the loss of business and goodwill, Rs.50,000/- for various expenses (postage, conveyance, traveling, phone calls, fax

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messages, etc.), and Rs.26,314.90, which was the amount paid by the complainant to the Credit Card along with interest.

6. In the reply before the State Commission, the OP admitted issuing of marine cover note No. 0047080 dated 18.09.1995, followed by a marine open policy No. 2131170200395, valid from 18.09.1995 to 17.09.1996 for Rs.25 lakhs. This policy covered consignments of leather garments and similar goods securely packed in polybags sent by air from New Delhi to USA, USSR, Canada, and other European countries. The OP argued that the Complainant, with the intention of fraud, added the word "Sea" after the words "By Air" by interpolating the copy of the cover note. The OP asserted that the complainant deliberately withheld the policy to conceal this fraudulent act. The OP further claimed that the Complainant made several requests for endorsements against the policy and referred to a request letter dated 16.11.1995, where the Complainant mentioned that their merchandise is sent by air. The OP contended that out of the 25 consignments, most were sent by air, and only three consignments, being the last ones, were sent by sea. The Complainant, realizing that the claim was not covered under the policy, deposited USD 16,530/- towards General Average/ salvage charges and paid USD 4204.40 towards demurrages. Additionally, the OP argued that the shipment in question was on Cost and Freight (C & F) basis and did not fall within the policy's ambit. Therefore, they had no insurable interest in the goods

7. The learned State Commission partly allowed the complaint, issuing the following Order-

"16. Shipping bill dated 05.08.1996, Ex.CW-I/13 shows the nature of the contract as 'CIF'. Union Bank of India, Okhla Industrial Area, Ph.I, New Delhi vide its Certificate dated 09.11.1999 clarified that it had received full amount for the invoice dated 02.08.1996 which was on CIF basis. These documents lead to a safe inference that the insurance was done by the ensured on 'CIF' basis.

17. The open policy covered a risk of Rs.1.5 crores but in the present case sum assured was Rs.25 lakhs only. Cost of the consignment was Rs.46,65,678/-. Loss suffered by the complainant has to be restricted to the payment made by him in getting the cargo released. Documents placed on record by the complainant show that he had paid USD 20,734/-for this purpose. Exchange rate at the relevant time was Rs.43.50. Calculated thus, the complainant suffered a loss of Rs.9,01,929/-

. Complainant had been writing letters and reminders to the OP for sanctioning the said claim but the OP did not respond. Complainant then filed the present complaint. It was during the pendency of the present complaint that the OP repudiated the claim.

18. In view of the reasons given above, complaint is allowed. OP is directed to pay

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to the complainant an amount of Rs.9,01,929/- along with interest @8% from the date of filing of this complaint i.e. w.e.f. 16.09.1999 till the date of its realization. Complaint is accordingly disposed of. File be consigned to record room."

8. Being aggrieved by the impugned order dated 01.05.2018 of the State Commission, the OP Insurer (Appellant herein) has filed this present Appeal no. 1726 of 2016 with the following prayer:

" In view of the foregoing submission it is respectfully prayed that Your Lordship may be pleased to set aside the order passed by the Hon'ble State Commission and dismiss the complaint with costs in favour of the appellants."

9. In his arguments, the learned Counsel for Appellant reiterated the grounds of appeal and contended that, having sold the goods to an overseas buyer and realizing the value of consignment as per the Bank Realisation Certificate, the Respondent suffered no loss. Therefore, the Respondent is not an aggrieved person and cannot maintain the complaint. He asserted that the Respondent transferred title documents to the buyer upon acceptance of the Bill of Exchange, relinquishing any insurable interest in the stock. The insurance cover provided was specifically for consignments sent by air, as confirmed vide Respondent's letter dated 16.11.1995. He alleged that the copy of the cover note filed by the Respondent, indicating sea transit, is a clear act of forgery. The endorsement dated 17.09.1996, showing insurance cover only by air, contradicted the Respondent's claim of sea transit being allowed by the Appellant. He referred to the definition of Marine Insurance business in Section 13A of the Insurance Act, 1938, highlighting that it includes transit by land or water. However, when insurance is specifically for carriage by air, the Respondent cannot claim that it includes carriage by sea also. He pointed out that the sale contract was on a Cost and Freight (C & F) basis, not a Cost, Insurance, and Freight (CIF) basis. According to INCOTERMS, the property in the goods passes to the consignee once the goods pass the ship's rail at the Indian Port of Shipment in a C&F sale. The Respondent had no insurable interest in the goods after they passed the ship's rail, and, as a result, the policy obtained by the Respondent is not liable for General Average (GA) claim. As per Section-8 of the Marine Insurance Act, 1963, the assured must be interested in the subject matter insured at the time of the loss. In this case, the Respondent was not so interested and was not at risk at the time of the loss when the ship ran aground, leading to declaration of GA by the Shipping Company. The consignee was liable to meet the GA requirements through its own sources, and the Respondent failed to prove that they incurred GA liability and discharged the same. The Respondent failed to submit any documents to show the amount of GA deposited or a copy of the GA Adjuster report, indicating a lack of good faith. The Respondent's claim lacks a basis, and the amount claimed is not the correct and relevant to the consignment. They claimed demurrage, which is not allowed under the policy. Further, the learned Counsel alleged forgery on several counts by the Complainant, including forging the sale invoice to show a CIF sale, forging the cover note to indicate coverage for

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transit by sea, and presenting a forged Bank Realization Certificate. He asserted Section 19 of the Marine Insurance Act, 1963, stating that the contract of marine insurance is based upon the utmost good faith, and any lack of good faith can justify the denial of the claim by the insurer. The repudiation of the claim is legal and justified. He further argued that the State Commission failed to consider critical relevant points and forgery committed by the Respondent. He urged that for multiple reasons the impugned needs to be set aside.

10. The learned Counsel for the Respondent/Complainant reiterated the facts of the case and emphasized that the Appellant's surveyors were sent on 20.11.1996, but no further action was taken. To mitigate the situation, the Respondent was compelled to reload the goods by paying General Average (GA) costs amounting to USD 16,530. Additionally, the Respondent had to pay USD 4204 towards demurrage. On 07.01.1997, the Appellant issued a MARINE Extra Endorsement. Despite multiple reminders, the Appellant, on 13.07.1999, informed them that the claim was under consideration. Subsequently, due to the inaction of the Appellant, the Respondent filed the present complaint for the claim with interest. As regards coverage under marine insurance, he referred to the Marine cover Note of the Policy issued on 18.09.95, which explicitly mentioned "by Air/Sea." He argued that if the Appellant contend that the original cover note was forged, they could have produced the carbon copy. Non-production of the carbon copy indicates that their argument is baseless. Marine Declaration Form filed by Respondent clearly states "by Air/Sea." Moreover, the Respondent's letters to the Marine Technical Dept on 30.10.1996 and 31.10.1996 expressed the intention to cover goods dispatched by sea since the inception of the policy, leading to an order for an extra endorsement. He has also referred to the Export, Shipping Bill dated 05.08.1996, Shut Out Notice sent on 09.08.1996, and a Certificate from Union Bank of India, all supporting the contention that the export was done on a CIF basis. He contended that the denial of coverage for sea perils, despite the evident marine peril of the vessel running aground led to severe financial consequences for the Respondent. The recording of other stocks sent through sea in the same ledger under the open marine policy supports the consistent coverage of sea perils. The Respondent's deposit for GA and salvage securities, prompted by the Appellant's inaction, is a direct result of their deficiency and inefficiency. The amendments to the Consumer Protection Act are asserted to be prospective, ensuring their entitlement as consumer. The Appellant's contention that the Respondent has no insurable interest is untenable and insisted on rightful reimbursement of the claimed amount, along with interest and demurrage.

11. I have examined the pleadings and associated documents placed on record and rendered thoughtful consideration to the arguments advanced by learned Counsels for both the parties.

12. The primary issue pertains to denial of coverage for sea perils by the Appellant under the policy in question. It is undisputed that the vessel carrying the stocks of the Respondent ran aground, resulting in GA and salvage operations. As a sequel to Appellant's denial of claim, the Complainant had to deposit a substantial amount towards GA and salvage securities. The key question is the legality of claim repudiation for subject loss sustained by

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the Complainant.

13. Towards asserting his contention that the claim was covered under Marine Insurance, the Complainant relied upon his letter of request for issuance of open policy showing that the merchandise of the Complainant was to be sent by air or by sea. The letter dated 12.09.1995 contained an endorsement dated 15.09.1995 by a representative of OP viz. Shri YP Vig. The Complainant stated that Shri YP Vig was the Assistant Divisional Manager of OP and had agreed for the request and endorsed that the Complainant to be their valued client, he has been doing their marine insurance for the last 3 years and collected premium of Rs.1.50 lakh and that there was no claim till then. Undisputedly, OP issued the Complainant a Cover Note dated 18.09.1995 and the premium chargeable is stated to have been received in advance. Against the column 'Per (Conveyance)', it has been recorded as 'By Air/ Sea'. The learned State Commission considered that visual scrutiny did not show any tampering of the document. The Cover Note is original one and written in hand. Writings 'by Air' and 'Sea' are in same handwriting and in the same ink. To further the claim, the Complainant placed on record a letter dated 30.10.1996 from the OP to its internal Dept namely Marine Technical Dept which reveals that the issue pertaining to mode of conveyance being granted under the policy is by Air, and accordingly the rates of war & SRCC and stamp duty were charged. As it was realised that it was the intention of the insured to cover sea perils at the time of effecting insurance, they accepted and forwarded declaration No. 3553 dated 12.08.1996 notifying the consignment from New Delhi to Moscow under Bill of lading No. DEL-100007 dated 12.08.1996 for Rs.46,95,678/- under the aforesaid policy. It is also undisputed that, in the Cover Note the OP referred to it as "Marine Cover Note", which is self-explanatory as regards scope of providing cover. In the absence of any records to the contrary and made known to the Complainant prior to the consignment being dispatched, it is evident that the cover note in question intended to cover all Marine perils as well.

14. In the present case, there is also scope to consider existence of some ambiguity in communications between the parties and the terms of insurance contract. In this regard, Hon'ble Supreme Court in Haris Marine Products versus export credit guarantee corporation (ECGC) Limited, 2022 SCC OnLine SC 509 has held that when there is any ambiguity in the terms and conditions of the contract then the court has the discretion to interpret it in favour of the Insured by applying the principle of 'Contra Proferentem'. The relevant portion of the said judgment reads as under:-

"22. Reconciliation of ambiguous terms in commercial contracts has been a contentious issue across jurisdictions. A 2011 decision by the Supreme Court of the United Kingdom (hereafter, "UK Supreme Court") in Rainy Sky SA v. Kookmin Bank was concerned with the interpretation of refund guarantees given by a ship builder to the buyers, and whether the same was triggered when the ship builder started facing financial difficulties and was subjected to a debt workout procedure. Allowing the appeal, the UK Supreme Court provided the guiding principle for resolution of such ambiguity, keeping the 'business common sense' as central:

"The language used by the parties will often have more than one potential meaning. I

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would accept the submission made on behalf of the appellants that the exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. In doing so, the court must have regard to all the relevant surrounding circumstances. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other."

(emphasis supplied)

23. This principle was further developed by the UK Supreme Court in Arnold v. Britton. The facts were that a 99-year lease specified that service charge of £90 levied every year was subject to 10% increase annually. The lessees submitted that by the end of the lease agreement, the service charge payable would be very high, exceeding the cost of providing the services. The UK Supreme Court refused to depart from the natural meaning of the clause, holding that:

"When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to "what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean", to quote Lord Hoffmann in Chartbrook Ltd. v. Persimmon Homes Ltd. [2009] UKHL 38, [2009] 1 A.C. 1101, para 14. And it does so by focussing on the meaning of the relevant words, in this case clause 3(2) of each of the 25 leases, in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions. In this connection, see Prenn at pp 1384-1386 and Reardon Smith Line Ltd. v. Yngvar Hansen-Tangen (trading as HE Hansen-Tangen) [1976] 1 WLR 989 (2), 995-997 per Lord Wilberforce, Bank of Credit and Commerce International SA (in liquidation) v. Ali [2002] 1 A.C. 251, para 8, per Lord Bingham, and the survey of more recent authorities in Rainy Sky, per Lord Clarke at paras 21-30". (emphasis supplied)

24. Thus, a decisive method was suggested to construe the ambiguity of a term used in a commercial contract. This was applied by the UK Supreme Court in Woods v. Capita Insurance.¹⁷ The facts in brief are that the buyer of an insurance company relied on an indemnity clause to recover losses paid in the form of compensation to the customers of the insurance company to which the company has mis-sold products. According to the indemnity clause, any complaint to the Financial Services Authority (hereinafter

"FSA") would be indemnified by the buyer. However, the contract did not clearly

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specify what would happen if the company itself raised a complaint before the FSA. The UK Supreme Court held that a literalist approach to resolving ambiguity in a commercial contract term would yield incorrect results, and a holistic reading was imperative to ascertain meaning of terms agreed to by parties. Dismissing the appeal, the UK Supreme Court finally held that the indemnity clause was in addition to the wide-ranging warranties specified elsewhere in the contract, which was not contrary to business common sense. The agreement might have become a poor bargain for the buyer, but it was not the Court's function to improve that bargain:

"The court's task is to ascertain the objective meaning of the language which the parties have chosen to express their agreement. It has long been accepted that this is not a literalist exercise focused solely on a parsing of the wording of the particular clause but that the court must consider the contract as a whole and, depending on the nature, formality and quality of drafting of the contract, give more or less weight to elements of the wider context in reaching its view as to that objective meaning. ***

Textualism and contextualism are not conflicting paradigms in a battle for exclusive occupation of the field of contractual interpretation. Rather, the lawyer and the judge, when interpreting any contract, can use them as tools to ascertain the objective meaning of the language which the parties have chosen to express their agreement. The extent to which each tool will assist the court in its task will vary according to the circumstances of the particular agreement or agreements. Some agreements may be successfully interpreted principally by textual analysis, for example because of their sophistication and complexity and because they have been negotiated and prepared with the assistance of skilled professionals. The correct interpretation of other contracts may be achieved by a greater emphasis on the factual matrix, for example because of their informality, brevity or the absence of skilled professional assistance. But negotiators of complex formal contracts may often not achieve a logical and coherent text because of, for example, the conflicting aims of the parties, failures of communication, differing drafting practices, or deadlines which require the parties to compromise in order to reach agreement. There may often therefore be provisions in a detailed professionally drawn contract which lack clarity and the lawyer or judge in interpreting such provisions may be particularly helped by considering the factual matrix and the purpose of similar provisions in contracts of the same type. The iterative process, of which Lord Mance spoke in Sigma Finance Corpn (above), assists the lawyer or judge to ascertain the objective meaning of disputed provisions.

On the approach to contractual interpretation, Rainy Sky and Arnold were saying the same thing." (emphasis supplied)

25. On application of the above principle to this Policy, and taking into consideration all relevant documents, this Court is of the opinion that the date of loading goods onto the vessel, which commenced one day prior to the effective date of the policy, is not as

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significant as the date on which the foreign buyer failed to pay for the goods exported, which was well within the coverage period of the Policy. Thus, the claim could not be dismissed simply on such basis, especially given that the date of loading the goods onto the vessel was immaterial to the purpose for which the policy was taken by the appellant.

B. Rule of contra proferentem

26. It is entrenched in our jurisprudence that an ambiguous term in an insurance contract is to be construed harmoniously by reading the contract in its entirety. If after that, no clarity emerges, then the term must be interpreted in favour of the insured, i.e., against the drafter of the policy. In deciding the applicability of a cover note on houses swept away by floods, a Constitution Bench of this Court in General Assurance Society Ltd. v. Chandumull Jain¹⁸ held as follows:

"In other respects there is no difference between a contract of insurance and any other contract except that in a contract of insurance there is a requirement of uberrima fides i.e., good faith on the part of the assured and the contract is likely to be construed contra proferentem that is against the company in case of ambiguity or doubt… (I)n interpreting documents relating to a contract of insurance, the duty of the court is to interpret the words in which the contract is expressed by the parties, because it is not for the court to make a new contract, however reasonable, if the parties have not made it themselves". (emphasis supplied)

15. In view of the foregoing deliberations, I am of the considered view that the well reasoned Order of the learned State Commission dated 01.05.2018 does not suffer from any illegality and thus no intervention is warranted. The FA No. 1415 of 2018 is, therefore dismissed.

16. There shall be no order as to costs.

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