2022 Supreme(SC) 1146

SUPREME COURT OF INDIA
Surya Kant, M.M. Sundresh, JJ.
M/s Texco Marketing Pvt. Ltd. - Appellant
Versus
TATA AIG General Insurance Company Ltd. & Ors. - Respondents
CIVIL APPEAL NO. 8249 OF 2022 [Arising out of SLP (Civil) No. 25457 of 2019]
Decided On : 09-11-2022

IMPORTANT POINTS
(1) Insurance contracts are special contracts premised on notion of good faith – It is not a leverage or a safeguard for Insurer, but is meant to be pressed into service on a contingency, being a contract of speculation.
(2) When a court of law is satisfied that a fraud, or misrepresentation resulted in execution of contract through suppression of existence of a mutually destructive clause facilitating a window for Insurer to escape from liability while drawing benefit from consumer, resultant relief will have to be granted.

Headnote:

(A) Insurance – Adhesion Contract – Adhesion contracts are otherwise called Standard-Form Contracts – Contracts of Insurance are one such category of contracts – These contracts are prepared by Insurer having a standard format upon which a consumer is made to sign – He has very little option or choice to negotiate terms of contract, except to sign on dotted lines – Concept of freedom of contract loses some significance in a contract of insurance – Such contracts demand a very high degree of prudence, good faith, disclosure and notice on part of Insurer, being different facets of doctrine of fairness – Though, a contract of insurance is a voluntary act on part of consumer, obvious intendment is to cover any contingency that might happen in future – Insurer is expected to keep that objective in mind, and that too from point of view of consumer to cover risk as against a plausible repudiation. (Paras 9 and 10)

(B) Insurance – Exclusion Clause – An exclusion clause in a contract of insurance has to be interpreted differently – Not only onus but also burden lies with Insurer when reliance is made on such a clause – Insurance contracts are special contracts premised on notion of good faith – It is not a leverage or a safeguard for Insurer, but is meant to be pressed into service on a contingency, being a contract of speculation – An insurance contract by its very nature mandates disclosure of all material facts by both parties – An exclusion clause has to be understood on touch-stone of doctrine of reading down in light of underlining object and intendment of contract – It can never be understood to mean to be in conflict with main purpose for which contract is entered – A party who relies upon it, shall not be one who committed an act of fraud, coercion or misrepresentation, particularly when contract along with exclusion clause is introduced by it – Such a clause has to be understood on prism of main contract – Main contract once signed would eclipse offending exclusion clause when it would otherwise be impossible to execute it. (Paras 11 and 12)

(C) Insurance Act, 1938 – Section 45 – Insurance Regulatory and Development Authority (Protection of Policy Holder’s Interests) Regulation, 2002 – Clauses 3(ii) and 4 – Duty of Disclosure, Good Faith and Notice – Very high standard of good faith, disclosure and due compliance of notice is required on part of Insurer, keeping in view unique nature of an insurance contract – Act of good faith on part of Insurer starts from time of its intention to execute contract – Disclosure should be a norm and what constitutes a material fact requires a liberal interpretation – It is only when an insurer is not intending to act on an exclusion clause, such principles may not require strict compliance – These three elements are interconnected and overlapping – It is foremost duty of Insurer to give effect to a due disclosure and notice in its true letter and spirit – When an exclusion clause is introduced making contract unenforceable on the date on which it is executed, much to knowledge of Insurer, non-disclosure and failure to furnish a copy of contract by following procedure required by statute, would make said clause redundant and non-existent. (Paras 14 and 15)

(D) Contract Act, 1872 – Sections 17, 18 and 19 – Fraud and Misrepresentation – What constitutes act of “fraud” or “misrepresentation” is a question of fact – Once an act of fraud, coercion or misrepresentation is proved, agreement being a contract becomes voidable at option of party against whom it was done – Aggrieved party has option to either declare contract as voidable or insist upon its due performance – When a court of law is satisfied that a fraud, or misrepresentation resulted in execution of contract through suppression of existence of a mutually destructive clause facilitating a window for Insurer to escape from liability while drawing benefit from consumer, resultant relief will have to be granted. (Paras 24, 25, 26 and 27)

(E) Consumer Protection Act, 1986 – Section 21(A) [Consumer Protection Act, 2019 – Sections 49 and 59 – Insurance – Standard Fire & Special Perils policy – Fire accident in shop – Claim repudiated by invocation of Exclusion Clause – Both Fora have held concurrently that respondent No. 1 was conscious of fact that contract was entered into for insuring a shop situated in basement – Such position is not only a factual one but also accepted by respondents as no challenge has been laid against impugned order – Similarly, there was no specific denial on non-compliance of adequate notice – National Commission has not given any finding on this aspect, though it was dealt with in extenso by State Commission – Section 21(A) of Consumer Protection Act, 1986 is not akin to Section 96 of Code of Civil Procedure, 1908 – Even otherwise, impugned order has not considered all relevant materials which were duly taken note of by State Commission – Once it is proved that there is a deficiency in service and that respondent No. 1 knowingly entered into a contract, notwithstanding exclusion clause, consequence would flow out of it – Order passed by National Commission set aside. (Paras 36, 37, 40 and 41)

Facts of the case:

Appellant secured a Standard Fire & Special Perils policy from respondent on 28.07.2012. The policy was effective from 28.07.2012 to 27.07.2013. It was meant to cover a shop situated in the basement of building. However, the exclusion clause of the contract specifies that it does not cover the basement. shop met with a fire accident for which appellant raised a claim. Surveyor of respondent No. 1 also made inspection, on the basis of which the appellant was instructed to refurnish its shop for the purpose of due evaluation. While arriving at the sum payable, Surveyor did notice the fact that the earlier inspections were made and that fact that the shop was in a basement was to the knowledge of the insurer. Claim made was repudiated by respondent No. 1, taking umbrage under exclusion clause.

Findings of Court:

We would like to extend a word of caution to all insurance companies on the mandatory compliance of Clause (3) and (4) of IRDA Regulation, 2002. 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.

Result : Appeal allowed in part.