Insurance company cannot deny a genuine claim on the basis of dubious argument or fact

The Supreme Court has ruled that an insurance company, particularly a government-backed entity like ECGC, cannot deny a genuine claim based on an ambiguous interpretation of policy terms. In this case, the court found that ECGC had wrongly rejected an exporter's claim by relying on external guidelines to define the shipment date, rather than interpreting the ambiguous policy wording in favour of the insured. The court emphasised that if an insurance contract term is unclear, it should be construed against the insurer.

HARIS MARINE PRODUCTS Vs. EXPORT CREDIT GUARANTEE CORPORATION (ECGC) LIMITED

THE APEX COURT HELD THAT

Denying the appellant's claim on account of upholding an unfavourable interpretation of an ambiguous term would entail the respondent not performing its duties as a government company.

BRIEF FACTS

• 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 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.
• ECGC rejected the appellant's claim on severallevels: 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' , 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.

NATIONAL CONSUMER DISPUTES REDRESSAL FORUM

• The appellant, feeling aggrieved, complained of deficiency of service, and approached the NCDRC for compensation. ECGC resisted the claim.
• By the impugned order, NCDRC upheld the rationale of the IRC and rejected the appellant's contention that in absence of a clearly specified provisionin 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.

SUPREME COURT OBSERVATIONS & DECISION

• The appellant moved the Supreme Court against the NCDRC's order that relied on the guidelines by the Directorate General of Foreign Trade in interpreting the date of 'Onboard Bill of Lading' (December 13, 2012) as the date of 'dispatch' or 'shipment', and thereby dismissed the claim of the appellant to not fall within the effective dates of the policy (starting from December 14, 2012). It refused the appellant's contention to apply the rule of verba chartium fortius accipiuntur contra proferentum (that is, if the words of a contract are ambiguous, of two equally possible meanings, they should be interpreted against the drafter of the contract and not against the other party).
• The appellant's counsel, Senior Advocate Anjana Prakash, submitted that the policy did not clarify the date of 'dispatch' or 'shipment' or the exact date of the initiation of the coverage.
• Prakash submitted that the date of the issue of Mate's Receipt that indicates the date of completion of loading of goods, being December 15, 2012, must be considered over December 13, 2012 (the date on the Bill of Lading).
• She further laid emphasis on the fact of Letter of Credit not being issued, and thus, on the non-applicability of the date of 'Onboard Bill of Lading.' It was Prakash's contention that in the case an ambiguous term was used in a contract, the rule of contra proferentum must be invoked and the contract must be interpreted to the benefit of the appellant.
• Reflecting on the rule of contra proferentum, the court observed: "it is entrenched in our jurisprudence that 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 the favour of the insured, i.e., against the drafter of the policy."
• Deviating from the rule of contra proferentem, even if in the present instance the 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 the DGFT Guidelines.
• The court relied on its judgment by a Constitution Bench in General Assurance Society Ltd vs. Chandumull Jain (1966)and a catena of other judgments to interpret ambiguities in a contract of insurance, in the light of the rule of contra proferentum. It opined that the rule was to be applied to protect the insured from the "unfavourable interpretation of an ambiguous term."
• ECGC enjoys a significant position in the market for export credit insurance in India – in F.Y. 2012-2013, the total income received by way of premiums exceeded Rupees one thousand crores, with the figures only growing ever since. It is the only government company offering such niche services and is exemptfrom following the Trade Credit Insurance Guidelines periodically revised by the Insurance Regulatory and Development Authority of India. To deny the 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 the appellant had transacted with the respondent on several previous occasions.
• Particularly, while interpreting the motive behind the policy in question, the court found that the policy was intended "to protect against the failure of foreign buyer in paying the Indian exporter for goods exported," and not to cover in-transit insurance.
• On the question of the date of 'despatch' or 'shipment,' the court held that the date on the Bill of Lading, that is, the legal document conferring title and possession of the goods to the carrier must be considered, and not the Mate's Receipt.
• However, it was further observed that in absence of any execution of the Letter of Credit, the date of 'onboard' Bill of Lading was not applicable. It held that denying the appellant's claim on account of upholding an unfavourable interpretation of an ambiguous term would entail the respondent not performing its duties as a government company.
• Setting the order of the NCDRC, the Court directed the respondent to pay the claim amount of Rs. 2.45 crores to the appellant, with an interest rate of 9 per cent per annum.

CONCLUSION

The decisions of Apex Court in this case is appreciable. An insurance company cannot deny a genuine claim on the basis of dubious argument or fact. Being a government backed company ECGC must act to protect interest of its customers. The date on Bill of Lading, that is , the legal document conferring title and possession of the goods to the carrier must be considered and not the Mate's receipt as defined in DGFT Guidelines. It is an established concept that if there any ambiguity found, while deciding any terms and conditions of an insurance policy, then interpretation must favour the insured " the rule of contra proferentum."

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