Insurance Contract with Exclusion Clause and Protection of Insured Consumer
Many of the insured consumers have faced situations where the insurance companies fail to honour their commitments under the insurance contracts on one or the other pretext especially of hidden exclusion clauses in the contracts. Much to the dismay of the insured consumer, the insurance companies walk away from their obligations, basis these exclusion clauses in the insurance contracts. But this may hopefully change in the future owning to the recent Supreme Court’s judgment in the matter of Texco Marketing Pvt. Ltd. versus TATA AIG General Insurance Company Ltd. & Ors.1
Texco Marketing Pvt. Ltd. (“Appellant”) secured a Standard Fire & Special Perils Policy (“Policy”) for its shop from TATA AIG General Insurance Company Ltd. (“Respondent”) The shop was situated in the basement of a building. However, the exclusion clause of the insurance contract specified that the Policy did not cover the basement. Due inspection of the shop was made, which was situated on the other side of the road from the office of the Respondent. The Appellant continued to pay the premium. Subsequently, the shop met with a fire accident. While making evaluation for sums payable, the surveyor of Respondent inspected the shop and did notice the fact that the earlier inspections were made and the fact that the shop was in a basement was to the knowledge of the insurer. Still the claim of the Appellant was repudiated by the Respondent seeking protection under the exclusion clause.
Before the State Consumer Disputes Redressal Commission (“SCDRC”), the contention of the Respondent was rejected and it was held that there was no adequate disclosure, and the insurer was deficient in service and indulged in unfair trade practice. In appeal, the National Consumer Disputes Redressal Commission (“NCDRC”) set aside the decision of SCDRC by placing reliance upon the exclusion clause, despite recording the finding that there was deficiency in service. The Appellant aggrieved by the decision of the NCDRC challenged the same before the Hon’ble Supreme Court (“SC”).
The Apex Court considered the issue as to whether an exclusion clause destroying the very contract knowingly entered, could be permitted to be used by a party who introduced it, received premiums and then used it to avoid its liability. The SC, while setting aside the order of NCDRC, analysed several key concepts, doctrines, and laws relevant to an insurance contract to uphold the rights of the insured and enforce the obligations of the insurance companies. Some of the key principles upheld by the SC are discussed below:
The Texco judgment has significant ramifications for the liability of insurance industry owing to its extensive interpretation of exclusion clauses in insurance contracts. Notably, the SC in its judgment has issued a ‘word of caution’ to all the insurance companies to comply with the provisions of the IRDA Regulations, 2002 which mandate fair and open disclosure of all material terms of the policy. Any non-compliance on the part of the insurance companies would take away their right to plead repudiation of contract by placing reliance upon any of the terms and conditions included thereunder.
The Texco judgment has given a fresh perspective to reading the exclusion clauses in the context of the insurance policy and bring much needed relief to the insured consumers. The SC has even extended the scope of the common law principle of acquiescence and estoppel to disallow insurers from taking advantage of their own wrong by using exclusion clause in ways repugnant to the main purpose of the contract.
 Civil Appeal No. 8249 of 2022 [Arising out of SLP (Civil) No. 25457 of 2019]) (2022 SCC OnLine SC 1546
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