The main legal point established in the judgment is that the interpretation of insurance policies should be in favor of the insured, and the contra proferentem rule should be applied to resolve ambiguities in the wording of the policy.

IA No.5524/2009 (Exemption)

Allowed, subject to just exceptions.

O.M.P. 227/2009

1. This petition by Bharat Heavy Electricals Limited (‘BHEL’) under Section 34 of the Arbitration and Conciliation Act, 1996 (‘Act’) is directed against the impugned Award dated 27th January 2009 passed by the learned sole Arbitrator in the disputes between BHEL and the Respondent, Bajaj Allianz General Insurance Company Limited, arising out of the ‘Standard Fire and Special Perils Policy’ (Impact Damage) [hereinafter referred to as ‘the policy’] dated 1st April 2005.

2. BHEL is stated to be one of the leading manufacturing and engineering public sector enterprises inter alia engaged in the business of design, manufacturing and installation services of power generating equipment on turnkey basis for thermal, hydro, gas and nuclear power plants in India and abroad. At one of its major plants in Ramchandrapuram, Hyderabad, BHEL inter alia undertakes manufacturing and assembling of turbo generator equipments ranging from 60 MW to 120 MW sets, pumps and heaters etc.

3. On 14th March 2005 a tender was floated by BHEL inviting offers for fire, marine and material issued to sub-contractor insurance policy for ten of its major units. Section III A provided for Special Conditions of Contract. Clauses 1 and 2 thereof read as under:

“Clause 1, Scope of Policy: Scope of these specifications cover issuance and servicing of Standard Fire on Special Perils Policy providing cover on ‘All Risks’ basis in the best interest of ‘Insured’ (BHEL) against physical loss or damage to the properties/assets ....

Clause 2, Scope of Cover: Basically ‘All Risks’ as per Tariff and Add ons opted for by units.”

4. The bid submitted by the Respondent company, which is engaged in providing general insurance, on 24th March 2005 was accepted by the Petitioner by its letter dated 31st March 2005. A declaration was made by the Respondent as part of the Annexure D stating that no deviation had been made in the tender and that the Respondent accepted all specifications without any reservation whatsoever. A separate Memorandum of Understanding (‘MoU’) was executed between the Petitioner and the Respondent which provided that “all the stipulations of the tender documents, clarifications and correspondences would be considered part of the contract agreement.”

5. For BHEL premises at Ramachandrapuram, Hyderabad, the Respondent issued a policy for total amount of Rs.531,06,88,196 for a period of two months between 1st April 2005 and 31st March 2006 which covered the following perils:

(i) As per the Standard Fire and Special Perils Policy Clauses,

(ii) Impact Damage due to insured own vehicle/animal.

The document additionally contained the following clauses and endorsements:

"Earthquake, designation of property clause, local authorities clause, reinstatement value clause, terrorism damage exclusion endorsement, impact damage endorsement due to insured own vehicle/animal cover endorsement."

6. Relevant to the present case is the "impact damage clause" which reads as under:

“Impact damage due to Insured’s own Rail/Road Vehicles, Forklifts, cranes, stackers and the like and articles dropped therefrom.

Policy may be extended to cover the above subject to the following endorsement wordings:

“In consideration of an additional premium it is hereby agreed and declared that the policy is extended to cover loss and/or damage caused due to impact by direct contact to Insured’s property caused by Insured’s own Rail/Road Vehicles, Forklifts, cranes, stackers and the like and articles dropped therefrom.”

7. On 9th February 2006, a Gas Turbine Rotor (GTR) weighing 50MT, while being moved to the assembly section by lifting beam hooked to crane was lifted to height of approximately 4 metres. While moving to a distance of 20M, the said GTR suddenly slipped from lifting beam and fell on the shop floor. It resulted in substantial damage from the impact of contact with the ground. On the same date, i.e., 9th February 2006