1. Credit risk insurance claim — Dispute over interpretation of shipment date — Denial of coverage based on external trade guidelines. (Para 1 , 2 , 3 )
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2022 Supreme(SC) 362
SUPREME COURT OF INDIA
Uday Umesh Lalit, S. Ravindra Bhat, Pamidighantam Sri Narasimha, JJ.
HARIS MARINE PRODUCTS – APPELLANT
VERSUS
EXPORT CREDIT GUARANTEE CORPORATION (ECGC) LIMITED – RESPONDENT
Civil Appeal No. 4139/2020
Decided On : 25-04-2022
Important Points
IMPORTANT POINTS
(1) 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 insured.
(2) While interpreting insurance contracts, risks sought to be covered must also be kept in mind.
(1) 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 insured.
(2) While interpreting insurance contracts, risks sought to be covered must also be kept in mind.
Subject
Insurance - Interpretation of Insurance Policies
Act Referred
Headnote
Consumer Protection Act, 1986 – Section 23 – [Consumer Protection Act, 2019 – Section 67] – Carriage of Goods by Sea Act, 1925 – Insurance – Single Buyer Exposure Policy – Default in payment of goods by overseas buyer – Rejection of claim – Date of loading goods onto Vessel, which commenced one day prior to effective date of policy, is not as significant as date on which foreign buyer failed to pay for goods exported, which was well within coverage period of Policy – Claim could not be dismissed simply on such basis, especially given that date of loading goods onto Vessel was immaterial to the purpose for which policy was taken by appellant – 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 insured, i.e., against drafter of policy – Rule of contra proferentem protects Insured from vagaries of an unfavourable interpretation of an ambiguous term to which it did not agree – Policy in question was taken to protect against failure of foreign buyer in paying Indian exporter for goods exported – It was not a policy taken to cover in-transit insurance, and cause of action triggering claim arose much later, well within coverage of policy – While interpreting insurance contracts, risks sought to be covered must also be kept in mind – Reliance on DGFT Guidelines to disallow claim of appellant was not good in law – Date of ‘onboard’ Bill of Lading is not applicable to present facts as no letter of credit was executed, much less providing for application of such date – ECGC could not have denied appellant’s claim, even on a consideration of DGFT Guidelines – To deny appellant’s claim over an incorrect interpretation of an ambiguous term, that too with delay amounting to only one day, goes against such duties, especially given the fact that appellant had transacted with respondent on several previous occasions – Impugned order of NCDRC set aside and appellant’s complaint is consequently allowed – ECGC directed to pay claim amount of Rs. 2.45 Crores to appellant, with 9% interest. (Paras 15, 16, 17, 18, 20, 21 and 22)
Facts of the case:
Appellant is aggrieved by order of the National Consumer Disputes Redressal Commission (“NCDRC”) dismissing its complaint. The issue urged by appellant is whether NCDRC was correct in placing reliance on guidelines issued by the Directorate General of Foreign Trade (“DGFT Guidelines”) to interpret the date of ‘despatch / shipment’ in Single Buyer Exposure Policy of the respondent and thereby deny appellant’s claim.
Findings of Court:
Deviating from the rule of contra proferentem, even if in the present instance third-party DGFT Guidelines were to be applied, it would not favour the ECGC, as a plain reading of provision 9.12 shows that the date on the Bill of Lading has to be considered as the date of despatch / shipment. The date of ‘onboard’ Bill of Lading is not applicable to the present facts as no letter of credit was executed, much less providing for application of such date. Therefore, ECGC could not have denied the appellant’s claim, even on a consideration DGFT Guidelines.
Result : Appeal allowed.
Legal Category Hierarchy
Advocates appeared:
For the Appellant(s) :Mahesh Thakur, Shahbaaz Hossain, Ajay Kanojiya, Vipasha Singh Shailja Das, Advocates
For the Respondent(s):Rajnish Kumar Jha 1, Advocates
For the Appellant(s) :Mahesh Thakur, Shahbaaz Hossain, Ajay Kanojiya, Vipasha Singh Shailja Das, Advocates
For the Respondent(s):Rajnish Kumar Jha 1, Advocates
Table of Contents
2. Whether ambiguous policy terms should be interpreted via external guidelines or the contra proferentem rule — Definition of shipment date in commercial insurance. (Para 4 , 5 , 6 , 7 , 9 , 10 , 11 )
3. Ambiguous terms in insurance contracts must be construed in favor of the insured — Contextual interpretation and business common sense outweigh literalist external guidelines. (Para 12 , 13 , 14 , 15 , 18 , 20 , 21 )
4. Ambiguous terms in standard form insurance contracts are construed contra proferentem against the insurer to protect the insured from imprecise drafting. (Para 16 , 17 )
5. Impugned order set aside — Complaint allowed — Insurer directed to pay claim amount with interest. (Para 22 )
6. How should ambiguous terms in a commercial contract be interpreted?
Courts should use a unitary exercise considering the language and background knowledge to ascertain what a reasonable person would understand, preferring constructions consistent with business common sense over a purely literalist approach. (Para 12 , 13 , 14 )
7. What is the rule of contra proferentem in insurance contracts?
Where a policy term is truly ambiguous and admits more than one meaning, the court will adopt the construction favorable to the insured, as the insurer is responsible for ensuring precision and clarity in the drafting. (Para 16 )
8. Does the contra proferentem rule apply to standard form or boilerplate contracts?
Yes, the rule assumes special significance in contracts d' adhesion or boilerplate contracts where the insured has little to no countervailing bargaining power to negotiate the terms. (Para 16 )
9. Can external guidelines be used to interpret a private insurance contract?
Terms of the policy govern the contract between parties. Outside aid should not be sought unless the meaning is ambiguous, and external guidelines cannot be unilaterally relied upon to disallow a claim if they contradict the parties' intentions. (Para 7 , 8 , 18 )
JUDGMENT
S. Ravindra Bhat, J.:
1. With consent of counsel for the parties, the appeal was heard finally. The appellant is aggrieved by an order1[ CC No. 1546/2016, dated 13.07.2020] of the National Consumer Disputes Redressal Commission (hereinafter, “NCDRC”) dismissing its complaint. The issue urged by the appellant is whether the NCDRC was correct in placing reliance on guidelines issued by the Directorate General of Foreign Trade (hereinafter, “DGFT Guidelines”)2[Ministry of Commerce and Industry, Directorate General of Foreign Trade, Foreign Trade Policy, Handbook of Procedures (Volume I) w.e.f. 27.08.2009 – 31.03.2014] to interpret the date of ‘despatch/shipment’ in the Single Buyer Exposure Policy of the respondent (hereinafter, “Policy”), and thereby deny the appellant’s claim.
The facts
2. The appellant is an exporter of fish meat and fish oil, whereas the respondent (hereafter, “ECGC”) is a government company (under the control of the Ministry of Commerce and Industry, Union Government). ECGC provides a range of credit risk insurance cover to exporters. On 13.12.2012, the appellant paid premium to ECGC for the Policy (bearing no. 0540000143), which covered foreign buyer’s failure to pay for goods exported. The coverage of this Policy, (with effect from 14.12.2012-13.12.2013), was for Rs. 2.45 crores. The vessel (Tiger Mango Voyage 62) set sail on 15.12.2012. The Bill of Lading (hereinafter, “BOL”) was prepared on 19.12.2012, with a line specifying the date of ‘onboard’ (i.e., date on which vessel commenced loading the goods in question on board) as 13.12.2012. The vessel delivered the goods on 22.01.2013. The overseas buyer defaulted on payment. The appellant then lodged a claim with ECGC on 14.02.2013.
3. ECGC rejected the appellant’s claim on several levels; with the final rejection by the Independent Review Committee (hereinafter, “IRC”) on 28.03.2015. IRC’s view was that the date of ‘despatch/shipment’ (provided in the Policy) was not clearly defined, and it placed reliance on the definition contained in the DGFT Guidelines. For containerized cargo, the same was to be interpreted as the date of ‘Onboard Bill of Lading’3 Id., Chapter 9 Definitions – Clause 9.12(i) (Date of shipment/Dispatch in respect of Exports by Sea), which in the present case was 13.12.2012. This was just a day prior to the effective date of the Policy, i.e., 14.12.2012. It was therefore reasoned that the appellant was not entitled to the claim amount. The appellant, feeling aggrieved, complained of deficiency of service, and approached the NCDRC for compensation. ECGC resisted the claim.
4. By the impugned order, NCDRC upheld the rationale of the IRC and rejected the appellant’s contention that in absence of a clearly specified provision in the Policy, it was entitled to the benefit of the rule of verba chartarum fortius accipiuntur contra proferentem (hereinafter, “contra proferentem”). Hence the present appeal.
Contentions of parties
5. Ms Anjana Prakash, the appellant’s Senior Advocate, brought the Court’s attention to the relevant clause in the Policy, which is reproduced as follows:
“Part IV – Definitions
(1) DESPATCH OR DESPATCHED
‘Despatch’ means passing or handing over of the goods to the first carrier for through carriage to the place where the Insured Buyer or his nominee is to accept them ‘despatched’ will be construed accordingly”.
Ms Prakash submitted that a plain reading of the above stipulation did not clarify the exact date of initiation of the coverage. However, the condition must be interpreted to mean the date on which the vessel set sail, and not the initial date of loading of the goods, given that four thousand containers were to be loaded, which took time, and was completed by 10 PM on 14.12.2012. Thus, possession by the first carrier (the vessel herein) could only be completed when all the goods were loaded, and the vessel sailed. To support her submissions, Ms Prakash alluded to the Mate’s Receipt, i.e., the receipt issued by th
