Role of exceptions in an insurance policy?

Role of exceptions in an insurance policy?

1. Background: The case involves a dispute between M/S Shivram Chandra Jagarnath Cold and The New India Assurance Company Limited, originating from a judgement by the National Consumer Disputes Redressal Commission (NCDRC) dated 14 August 2018.
2. Insurance Claim: The dispute revolve around an insurance claim under a Deterioration of Stock Policy for potatoes stored in cold storage.
3. Policy Terms: The insurance policy covers damage to stocks due to contamination, deterioration, or putrefaction caused by accidents leading to a rise in temperature in refrigeration chambers caused by any loss of or damage due to an accident, as defined hereinafter to the Plant and Machinery (P&M) specified in schedule I and indemnifiable under the Machinery Insurance Policy in force.

The total liability of the Company under this policy shall be limited to the sum insured specified in Schedule II.

4. Policy Provisions: The policy contains provisions such as:
5. Insured shall be in possession of a qualified permission in writing of the competent Licensing Authority to operate the Cold Storage.
6. At the time of loss or damage the said stocks are contained in the said Refrigeration Chambers.

iii. The P&M specified in schedule I is insured under the Machinery Insurance Policy in force and the payment shall have been made or liability admitted under such insurance; if no payment shall have been made under such insurance solely as a result of operation of any ‘Excess’ thereunder Liability of the company under this Policy shall not be affected.

1. The Insured maintains, on a daily basis, a stock book in the Proforma prescribed by the company, in which the type, quantity and value of the stocks stored and the beginning and end of the storage period are entered for each Refrigeration chambers separately.
2. During the entire period of storage the Insured records in Log Book as per the Proforma supplied by the company the reading of the temperature and relative humidity of the Refrigeration Chambers as also the suction discharge and oil pressure on four hourly basis throughout the day.
3. Stock Book, Log Book and all other records of the Insured relating to the stocks stored shall at all reasonable times be open to inspections by duly authorized representatives of the company.
4. Policy Exceptions and warranties

Clause (vi) stipulated that the insurer would not be liable for: Any damage if the temperature in the Refrigeration chambers does not exceed 4.4 degree Celsius.”

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

(viii) Any loss arising from improper storage insufficient circulation of air/non-uniformity of temperature for whatsoever reasons.”

The warranties to the DOS Policy, inter alia, stipulated as follows:

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

1. i) the temperature inside the cold Chambers are brought down to 34 Degree F (1.1. Degree C) in all floors of all the chambers before loading commences and; Further ensure that the temperature in all the chambers does not exceed 59 Degree F (10 Degree C) during the entire period of loading and 40 Degree F (4.4 Degree C) during the subsequent period of storage.”
2. Claim and Communication: The appellants initially claimed proper temperature maintenance based on logbook entries. However, they later attributed damage to a temperature rise. Log sheets indicated temperatures within the policy’s limit prior to October 18, 2008. In a letter dated October 14, 2008, they asserted continuous proper temperature maintenance. This aligns with the policy’s exception clause, absolving the insurer of liability if temperatures stayed below 4.4°C. Therefore, the insurer rightfully disclaimed liability based on the appellants’ admission of continuous temperature maintenance.
3. Surveyor’s Report: The surveyor’s report found no evidence of a temperature rise beyond the specified limit, contradicting the appellants later contention of temperature increase.
4. Legal Principles: Legal principles regarding insurance policy exceptions are discussed, emphasizing strict construction and onus of proof on the insurer. Court held,

“The insurance policy between the insurer and the insured represents a contract between the parties. Since the insurer undertakes to compensate the loss suffered by the insured on account of risks covered by the insurance policy, the terms of the agreement have to be strictly construed to determine the liability of the insurer. The insured cannot claim anything more than what is covered by the insurance policy. That being so, the insured has also to act strictly in accordance with the statutory limitations or terms of the policy expressly set out therein.”

10. Court Analysis: In the present case, the exception in the DOS Policy clearly states that the insurer would not be liable for any damage if the temperature in the refrigeration chambers does not exceed 4.4 degrees Celsius. The surveyor’s report confirmed that the temperature never exceeded this limit, a fact acknowledged by the appellants themselves in their communication on October 14, 2008. The assertion that the potatoes rotted due to higher temperatures was only made later, characterized as an “afterthought” by the NCDRC.

Unlike in BV Nagaraju, where the exception was subject to interpretation due to its width and potential conflict with the policy’s main purpose, the exception in this case is clear and aligns with the insurance policy’s objective. The policy covers the deterioration of potatoes stored in cold storage, making the temperature fundamental to the potatoes’ health. The insurer identified 4.4 degrees Celsius as the optimum temperature to prevent potato rotting and exempted itself from liability for damage occurring at or below this temperature.

There is no reason to reinterpret clause (vi) of the exceptions in the DOS Policy as it does not conflict with the policy’s main purpose. Therefore, the insurer is not liable for the damage caused to the potatoes as the temperature remained within the specified limit, and the exception clause is clear and consistent with the policy’s objective.

11. Decision and Conclusion: The court rejected the appellant’s argument to read down the exception clause, stating it was not too wide and aligned with the policy’s main purpose. The court upheld the NCDRC’s decision to dismiss the consumer complaint, finding in favour of the insurer due to adherence to policy terms and exceptions. The appeal was dismissed, affirming the insurer’s repudiation of the claim, and pending applications were disposed.

In conclusion, the case underscores the importance for insured parties to:

1. thoroughly understand the exceptions mentioned in their insurance policies and diligently adhere to the conditions and warranties.
2. It highlights the significance of clear communication and documentation regarding adherence to policy terms, especially when filing claims.

iii. Insureds should recognize that exceptions serve to define the boundaries of coverage and that any deviation from policy conditions may affect their ability to make successful claims.

1. Therefore, it is crucial for insureds to regularly review their insurance policies, seek clarification if needed, and ensure strict compliance with all stated conditions.
2. By doing so, insured parties can mitigate the risk of claim denials and ensure they receive the intended benefits of their insurance coverage.