M/S SHIVRAM CHANDRA JAGARNATH COLD STORAGE & ANR. versus NEW INDIA ASSURANCE COMPANY LIMITED & ORS. on 24 January 2022

1. The appeal arises from a judgement of the National ConsumerDisputes Redressal Commission[1] dated 14 August 2018 in ConsumerCase No 37 of 2010.

1 “NCDRC”

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A2. The insurance claim of the appellants arose under aDeterioration of Stock Policy[2] which covered the stock of potatoes storedby the appellant in cold storage. The relevant terms of the DOS Policyindicated that:

“...THIS POLICY OF INSURANCE WITNEESETH that inBconsideration of the insured having paid to the company thepremium mentioned in the schedule hereon the company herebyagrees with the insured that at any time during the period ofinsurance stated in the Schedule II or during any subsequent periodfor which the insured pays and the company may accept thepremium for the renewal of this policy the company will indemnifyCthe insured in the manner and to the extent hereinafter providedfor damage to the stocks described in schedule II by contaminationand/or deterioration, putrefaction as a result of rise in temperaturein the Refrigeration Chambers caused by any loss of or damagedue to an accident, as defined hereinafter to the Plant andDMachinery specified in schedule I and indemnifiable under theMachinery Insurance Policy in force. The total liability of theCompany under this policy shall be limited to the sum insuredspecified in Schedule II.”

3. The proviso to the above provision stipulated that:E“Provided always that:

(i) During the entire period of this insurance the Insured shallbe in possession of a qualified permission in writing of thecompetent Licensing Authority to operate the Cold Storage.

F(ii)At the time of loss or damage the said stocks are containedin the said Refrigeration Chambers.

(iii) The Plant and Machinery specified in schedule I is insuredunder the Machinery Insurance Policy in force and thepayment shall have been made or liability admitted underGsuch insurance; if no payment shall have been made undersuch insurance solely as a result of operation of any ‘Excess’thereunder Liability of the company under this Policy shallnot be affected.

H2 “DOS Policy”

(iv) The Insured maintains, on a daily basis, a stock book in theProforma prescribed by the company, in which the type,quantity and value of the stocks stored and the beginningand end of the storage period are entered for eachRefrigeration chambers separately.

(v) During the entire period of storage the Insured records inLog Book as per the Proforma supplied by the companythe reading of the temperature and relative humidity of theRefrigeration Chambers as also the suction discharge andoil pressure on four hourly basis throughout the day.

(vi) stock Book, Log Book and all other records of the Insuredrelating to the stocks stored shall at all reasonable times beopen to inspections by duly authorized representatives ofthe company.”

4. The expression “accident” was defined in clause (a) of thedefinitions as follows:

“a)Any sudden or unforeseen loss or damage to the Plant andMachinery described in schedule of this Policy due to anaccident caused covered by the machinery insurance policyspecified in schedule I and not hereinafter excluded.”

5. Among the exceptions to the DOS Policy, clause (vi) stipulatedthat the insurer would not be liable for:

“(vi) Any damage if the temperature in the Refrigerationchambers does not exceed 4.4 degree Celsius.”

6. Similarly, clause (viii) provided the following exception to theliability of the insurer in the case of:

“(viii) Any loss arising from improper storage insufficient circulationof air/non-uniformity of temperature for whatsoeverreasons.”

7. The warranties to the DOS Policy, inter alia, stipulated asfollows:

“6. The Insured shall take care to see that:

i)the temperature inside the cold Chambers are brought downto 34 Degree F (1.1. Degree C) in all floors of all thechambers before loading commences and; A

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Aii)Further ensure that the temperature in all the chambersdoes not exceed 59 Degree F (10 Degree C) during theentire period of loading and 40 Degree F (4.4 Degree C)during the subsequent period of storage.”

8. On 10 October 2008, the appellants furnished intimation toBfarmers that the stock of potatoes had sprouted while in the cold storage.On 13 October 2008, a claim was submitted to the insurer. Significantly,in the communication of the appellants dated 14 October 2008, it wasstated that the loading of the stock was carried out at the normaltemperature and that until then, the proper temperature was maintained,which was mentioned in the logbook. The relevant extract from theCcommunication contains the statement that:

“iii.…at the time of loading, the loading was done at the normaltemperature and till date the proper temperature wasmaintained, which is mentioned in the log-book.”

D9. The claim form which was lodged on 11 November 2008required a specific disclosure in Clause 12 of what, according to theinsured, was the cause for the deterioration of the stock. The query wasnot filled up. Subsequently, on 17 February 2009, the statement of therepresentative of the first appellant was recorded by the surveyor inwhich it was asserted that the main cause for rotting of the potatoesEwas a rise in the temperature in the months of September and October;and that the appellants had regularly checked the temperature recordedin the logbook which the operator had erroneously recorded. This was aclear departure from the earlier statement that the required temperaturehad been maintained, as recorded in the log sheets.

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10. The log sheets which have been produced by the appellantson the record indicate that the temperature was well within the stipulatedrange of 4.4[0] C (40[0] F) prior to 18 October 2008. The material whichhas been placed on the record indicates that the case of the appellants,as evidenced in the letter dated 14 October 2008, was that both at theGtime of loading and until the date of the communication, the propertemperature was maintained. This submission is, in fact, borne out bythe log sheet. The exceptions to the Policy made it abundantly clear thatthe insurer would not be liable for any damage if the temperature in theRefrigeration Chamber did not exceed 4.4[0] C. Consequently, clause 6 ofthe warranties required the insurer to ensure that during the period ofHstorage, the temperature did not exceed 40[0] F (4.4[0] C). Having regard

to the specific terms of the policy, the admission of the appellants thatthe temperature was maintained at all material times, would clearly attractthe exceptions to the policy.

11. Mr Sanjeev Kumar, counsel appearing on behalf of theappellants, however, sought to rely on the conclusion which was reflectedin the report of the surveyor. The conclusion is as follows:

“In my opinion the sprouting could have taken place only due tohigher humidity and temperature in the chamber, which howeverdoes not tally with the dry and wet bulb temperatures recorded inthe log book. There seems to be no other cause for the sprouting.

The loading was within the licensed capacity, as per computerizedstock details provided.”

12. The above conclusion cannot be read in isolation from theentirety of the surveyor’s report. On the contrary, the report contains aspecific finding that the temperature had not exceeded 40[0] F. Further,the surveyor notes that there is a contradiction in the statements of theappellants dated 14 October 2008 and 17 February 2009. The appellantshad earlier stated on 14 October 2008 that the temperature of the storagewas maintained within permissible limits, but claimed on 17 February2009 that the sprouting was a result of the rise in the temperature in themonths of September and October, and theoperator had erroneouslyrecorded the temperature. The surveyor specifically notes that “there isno evidence in support of rise in temperature…the evidence in the shapeof logbooks and earlier statements of the insured establishes that thetemperature never exceeded 40 Deg F till 14 October 2008”. Therefore,the surveyor observed that the claim could not be accepted in view ofclause (vi) of the exceptions to the policy. Thus, the insurer accordinglydisclaimed any liability. In Sikka Papers Ltd. v. National InsuranceCompany Ltd. & Ors.[3], this Court observed that although thesurveyor’s report is not the last word, there must be a legitimate reasonto depart from it. In the present case, the appellants have not advancedany legitimate reasons to depart from the surveyor’s report and in facthave relied on a portion of the report to buttress the submission that thetemperature of the cold storage had arisen over 40[0] F, which as we havehighlighted above is a partial reading of the report.

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A13. MN Srinivasan and K Kannan in Principles of InsuranceLaw have explained the role of exceptions in an insurance policy. Theinsurer seeks to indemnify the insured only against such losses that are“caused by certain perils arising under normal conditions whose effectsare statistically estimated.” The insurer may not wish to accept liabilityfor other perils that may result in losses that are of great magnitude.BThus, exceptions are inserted to exempt the liability of the insurer forwhich it would be otherwise liable.[4] Likewise, AW Baker in The LawRelating to Accidental Insurancestates that ‘excepted clauses’ areinserted ex abundanti cautela in insurance policies to inform the insuredthat losses attributable to excepted causes will not be indemnifiable. InCNew India Assurance Company Ltd. v. Rajeshwar Sharma & Anr.[5],the following extract from The Law Relating to AccidentalInsurancewas relied upon by a two-judge Bench of this Court, of whichone of us (Justice DY Chandrachud) was a part:

“The object of exceptions is to define with greater precision theDscope of the policy by making clear what is intended to be excludedand contrasting with what is intended to be included.

Since exceptions are inserted in the policy mainly for the purposeof exempting the insurers from liability for a loss which, but forthe exception, would be covered by the policy, they are construedEagainst the insurers with utmost strictness and it is the duty of theinsurers to except their liability in clean and unambiguous terms.The onus of proving that the loss falls within the exception liesupon the insurers, unless by proving the language of the exception,the assured is expressly required to prove that, in the circumstances,the exception does not apply.”[6]F

14. In New India Assurance (supra), it was held that if there isno ambiguity in the clause exempting the insurer from a liability arisingfrom an excepted cause, the insurance claim can be rejected by theinsurer. In Oriental Insurance Co. Ltd. v. Sony Cheriyan[7], a two-judge Bench of this Court observed that an insurance policy must beG

4 MK Srinivasan & K Kannan, Principles of Insurance Law (LexisNexis India, 10th Ed.,2018)

5 (2019) 2 SCC 671

6 AW Baker Welford, The Law Relating to Accidental Insurance (Butterworth &Company, 1923), p.126H7 (1999) 6 SCC 451

strictly construed to identify the extent of the insurer’s liability. ThisCourt held that where a truck was insured only for carrying unhazardousgoods in terms of the permit issued under the Motor Vehicles Act 1988,an insurance claim could not have been raised when the truck caughtfire while carrying ether solvent which is classified as a hazardoussubstance under Table III to Rule 137 of the Central Motor VehiclesRules 1989. Though the rules mentioned ‘ethyl ether’ as a hazardoussubstance, this Court observed that ether solvent is only a descriptiveterm for ether and ether and ethyl ether are the same substance. ThisCourt held thus:

“17. The insurance policy between the insurer and theinsured represents a contract between the parties. Sincethe insurer undertakes to compensate the loss suffered bythe insured on account of risks covered by the insurancepolicy, the terms of the agreement have to be strictlyconstrued to determine the liability of the insurer. Theinsured cannot claim anything more than what is coveredby the insurance policy. That being so, the insured has also toact strictly in accordance with the statutory limitations or terms ofthe policy expressly set out therein.

18. In the instant case, while specifying the “Limitations as toUse”, it was clearly mentioned that the policy was meant to coveronly carriage of goods as defined within the meaning of the MotorVehicles Act, 1988. The “permit” granted to the respondent underthe Act specified the nature of goods which he could carry on thevehicle. It was provided in the “permit” itself that the respondentcould carry “all kinds of unhazardous goods including fish exceptthose prohibited. It is obvious that the “permit” was not grantedfor carrying hazardous goods. It has already been specified abovethe ether which was being transported by the respondent in hisvehicle is a hazardous substance indicated in Table III under Rules137. There was, therefore, a specific prohibition operating againstthe respondent from carrying a hazardous and, that too, flammablesubstance in his vehicle which, under the “permit” granted to him,could be utilised only for carrying unhazardous goods under theMotor Vehicles Act.”

(emphasis supplied)

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(emphasis supplied)

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AIn a similar vein, a two-judge Bench of this Court in OrientalInsurance Co. Ltd. v. Samayanallur Primary Agriculture Coop.Bank[8] held that an insurance policy must be construed only with referenceto its stipulations and no artificial meaning can be given to the words ofthe policy. This Court observed that a cash box cannot be classified as a‘safe’ within the meaning of a burglary insurance policy and the insurerBwas exempted from any liability arising from the theft of jewelry andcash from the cash box. The exceptions to an insurance policy must beconstrued strictly since they reflect the agreement between the partieswith respect to the losses that are covered by the insurance policy. Anydeparture from this principle is possible only if the terms of the policyCare ambiguous or unclear. In Sangrur Sales Corporation v. UnitedIndia Insurance Company Ltd. & Anr.[9], a two-judge Bench of thisCourt, of which one of us (Justice DY Chandrachud) was a part, heldthat in the event two constructions are possible or if there is any ambiguity,a construction that is beneficial to the insured should be adopted consistentwith the purpose of the policy.D

15. Another instance where exception clauses may be interpretedto the benefit of the insured is when the exception clauses are too wideand not consistent with the main purpose or object of the insurancepolicy. In BV Nagaraju v. Oriental Insurance Co. Ltd., DivisionalOfficer, Hassan[10], a two-judge Bench of this Court read down anEexception clause to serve the main purpose of the policy. However, thisCourt clarified that the breach of the exception clause was not sofundamental in nature that would have led to the repudiation of theinsurance policy. In that case, the terms of the insurance policy allowedan insured vehicle to carry six workmen, excluding the driver. When theFvehicle met with an accident, it was carrying nine persons apart fromthe driver. The insured had moved a claim for repair of the vehicle,which was rejected by the insurer. Allowing the claim, this Court heldthus:

“7. It is plain from the terms of the Insurance Policy thatGthe insured vehicle was entitled to carry 6 workmen,excluding the driver. If those 6 workmen when travellingin the vehicle, are assumed not to have increased any risk 8 (1999) 8 SCC 543

9 (2020) 16 SCC 292

H10 (1996) 4 SCC 647

from the point of view of the Insurance Company onoccurring of an accident, how could those added personsbe said to have contributed to the causing of it is the poser,keeping apart the load it was carrying. Here, it is nobody’scase that the driver of the insured vehicle was responsiblefor the accident. In fact, it was not disputed that theoncoming vehicle had collided head-on against the insuredvehicle, which resulted in the damage. Merely by lifting aperson or two, or even three, by the driver or the cleanerof the vehicle, without the knowledge of the owner, cannotbe said to be such a fundamental breach that the ownershould, in all events, be denied indemnification. The misuseof the vehicle was somewhat irregular though, but not sofundamental in nature so as to put an end to the contract,unless some factors existed which, by themselves, had goneto contribute to the causing of the accident. In the instantcase, however, we find no such contributory factor. In Skandiacase [(1987) 2 SCC 654] this Court paved the way towards readingdown the contractual clause by observing as follows: (SCC pp.665-66, para 14)

“… When the option is between opting for a view which willrelieve the distress and misery of the victims of accidents or theirdependants on the one hand and the equally plausible view whichwill reduce the profitability of the insurer in regard to theoccupational hazard undertaken by him by way of business activity,there is hardly any choice. The Court cannot but opt for the formerview. Even if one were to make a strictly doctrinaire approach,the very same conclusion would emerge in obeisance to the doctrineof ‘reading down’ the exclusion clause in the light of the ‘mainpurpose’ of the provision so that the ‘exclusion clause’ does notcross swords with the ‘main purpose’ highlighted earlier. The effortmust be to harmonize the two instead of allowing the exclusionclause to snipe successfully at the main purpose. The theory whichneeds no support is supported by Carter’s ‘Breach of Contract’vide paragraph 251. To quote:

“Notwithstanding the general ability of contracting parties to agreeto exclusion clauses which operate to define obligations thereexists a rule, usually referred to as the ‘main purpose rule’, which A

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may limit the application of wide exclusion clauses defining apromisor’s contractual obligations. For example, in Glynn v.Margetson & Co. [1893 AC 351 : (1891-94) All ER Rep 693](AC at p. 357), Lord Halsbury, L.C. stated:

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‘It seems to me that in construing this document, which is a contractBof carriage between the parties, one must in the first instancelook at the whole instrument and not at one part of it only. Lookingat the whole instrument, and seeing what one must regard … asits main purpose, one must reject words, indeed whole provisions,if they are inconsistent with what one assumes to be the mainpurpose of the contract.’

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Although this rule played a role in the development of thedoctrine of fundamental breach, the continued validity ofthe rule was acknowledged when the doctrine was rejectedby the House of Lords in Suisse Atlantique Societe d’Armement Maritime SA v. NV Rotterdamsche KolenDCentrale [(1967) 1 AC 361 : (1966) 2 All ER 61 : (1966) 2WLR 944]. Accordingly, wide exclusion clauses will be readdown to the extent to which they are inconsistent with themain purpose, or object of the contract.”

(emphasis added)

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16. In the present case, there is no ambiguity in the terms of theexception. The exception to the DOS Policy clearly provides that theinsurer would not be liable for “[a]ny damage if the temperature in theRefrigeration chambers does not exceed 4.4 degree Celsius.” Thesurveyor’s report indicates that the temperature never exceeded 40[0] F,Fwhich was also accepted by the appellants in their communication dated14 October 2008. The assertion that the rotting of the potatoes resultedfrom a higher temperature was only made on 17 February 2009, whichthe NCDRC in its impugned judgement dated 14 August 2018 hascharacterised as an “afterthought”. Thus, in terms of the insurance policy,Gthe insurer is not liable for damage caused to the potatoes as thetemperature of the storage did not rise above 40[0] F. Further, unlike inBV Nagaraju (supra), the exception, in this case, is neither too wide norin conflict with the main purpose of the insurance policy. The insurancepolicy covers the deterioration of potatoes that have been stocked incold storage by the appellants. The temperature of the cold storage isHfundamental to the health of the potatoes relating to which the policy has

been undertaken. This is distinguishable from the exception relating tothe number of persons a vehicle can carry, which was the subject matterof the exception in BV Nagaraju (supra). The insurer has identified atemperature of 40[0] F as the optimum temperature, at which rotting ofthe potatoes should not occur and thus has exempted itself of any liabilityresulting from the deterioration of potatoes occurring at a temperaturethat is below or equivalent to 40[0] F. There is no reason to read downclause (vi) of exceptions to the DOS Policy because it is not in conflictwith the main purpose of the policy.

17. Therefore, we have, for the reasons indicated above, acceptedthe submission which has been urged on behalf of the insurer by MsAwantika Manohar, learned counsel that the claim was correctlyrepudiated by the insurer, having regard to the specific exceptions in thepolicy.

18. In this backdrop, the judgement of the NCDRC rejecting theconsumer complaint does not warrant interference. The appeal shallaccordingly stand dismissed.

19. Pending application, if any, stands disposed of.

Ankit Gyan

Appeal dismissed.

(Assisted by : Rahul Rathi, LCRA)

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