Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

Civil Appeal No 2371 of 2019

M/s Shivram Chandra Jagarnath Cold Storage & Anr .... Appellant(s)

Versus

New India Assurance Company Limited & Ors ....Respondent(s)

JUDGMENT

Dr Dhananjaya Y Chandrachud, J

1.The appeal arises from a judgement of the National Consumer Disputes

Redressal Commission

1

dated 14 August 2018 in Consumer Case No 37 of 2010.

2.The insurance claim of the appellants arose under a Deterioration of Stock

Policy

2

which covered the stock of potatoes stored by the appellant in cold

storage. The relevant terms of the DOS Policy indicated that:

“...THIS POLICY OF INSURANCE WITNEESETH

that in consideration of the insured having paid to

the company the premium mentioned in the

schedule hereon the company hereby agrees with

the insured that at any time during the period of

insurance stated in the Schedule II or during any

subsequent period for which the insured pays and

the company may accept the premium for the

renewal of this policy the company will indemnify

the insured in the manner and to the extent

1“NCDRC”

2 “DOS Policy”

1

hereinafter provided for damage to the stocks

described in schedule II by contamination and/or

deterioration, putrefaction as a result of rise in

temperature in the Refrigeration Chambers

caused by any loss of or damage due to an

accident, as defined hereinafter to the Plant and

Machinery 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.”

3.The proviso to the above provision stipulated that:

“Provided always that:

(i) During the entire period of this insurance the

Insured shall be in possession of a qualified

permission in writing of the competent Licensing

Authority to operate the Cold Storage.

(ii) At the time of loss or damage the said stocks are

contained in the said Refrigeration Chambers.

(iii) The Plant and Machinery 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.

(iv) 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.

(v) 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.

(vi) 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.The expression “accident” was defined in clause (a) of the definitions as

follows:

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“a) Any sudden or unforeseen loss or damage to the

Plant and Machinery described in schedule of this

Policy due to an accident caused covered by the

machinery insurance policy specified in schedule I

and not hereinafter excluded.”

5.Among the exceptions to the DOS Policy, clause (vi) stipulated that the

insurer would not be liable for:

“(vi) Any damage if the temperature in the

Refrigeration chambers does not exceed 4.4

degree Celsius.”

6.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.”

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

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

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;

ii) 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.”

8.On 10 October 2008, the appellants furnished intimation to farmers 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 was stated that the loading of the stock was

carried out at the normal temperature and that until then, the proper temperature

was maintained, which was mentioned in the logbook. The relevant extract from

the communication contains the statement that:

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“iii.…at the time of loading, the loading was done at

the normal temperature and till date the proper

temperature was maintained, which is mentioned

in the log-book.”

9.The claim form which was lodged on 11 November 2008 required a

specific disclosure in Clause 12 of what, according to the insured, was the cause

for the deterioration of the stock. The query was not filled up. Subsequently, on

17 February 2009, the statement of the representative of the first appellant was

recorded by the surveyor in which it was asserted that the main cause for rotting

of the potatoes was a rise in the temperature in the months of September and

October; and that the appellants had regularly checked the temperature recorded

in the logbook which the operator had erroneously recorded. This was a clear

departure from the earlier statement that the required temperature had been

maintained, as recorded in the log sheets.

10.The log sheets which have been produced by the appellants on the record

indicate that the temperature was well within the stipulated range of 4.4

0

C (40

0

F)

prior to 18 October 2008. The material which has 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 the time of loading and until the date of the

communication, the proper temperature was maintained. This submission is, in

fact, borne out by the log sheet. The exceptions to the Policy made it abundantly

clear that the insurer would not be liable for any damage if the temperature in the

Refrigeration Chamber did not exceed 4.4

0

C. Consequently, clause 6 of the

warranties required the insurer to ensure that during the period of storage, 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 that the temperature was maintained

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at all material times, would clearly attract the exceptions to the policy.

11.Mr Sanjeev Kumar, counsel appearing on behalf of the appellants,

however, sought to rely on the conclusion which was reflected in the report of the

surveyor. The conclusion is as follows:

“In my opinion the sprouting could have taken

place only due to higher humidity and temperature

in the chamber, which however does not tally with

the dry and wet bulb temperatures recorded in the

log book. There seems to be no other cause for

the sprouting.

The loading was within the licensed capacity, as

per computerized stock details provided.”

12.The above conclusion cannot be read in isolation from the entirety of the

surveyor’s report. On the contrary, the report contains a specific finding that the

temperature had not exceeded 40

0

F. Further, the surveyor notes that there is a

contradiction in the statements of the appellants dated 14 October 2008 and 17

February 2009. The appellants had earlier stated on 14 October 2008 that the

temperature of the storage was maintained within permissible limits, but claimed

on 17 February 2009 that the sprouting was a result of the rise in the temperature

in the months of September and October, and the operator had erroneously

recorded the temperature. The surveyor specifically notes that “there is no

evidence in support of rise in temperature…the evidence in the shape of

logbooks and earlier statements of the insured establishes that the temperature

never exceeded 40 Deg F till 14 October 2008”. Therefore, the surveyor

observed that the claim could not be accepted in view of clause (vi) of the

exceptions to the policy. Thus, the insurer accordingly disclaimed any liability. In

Sikka Papers Ltd. v. National Insurance Company Ltd. & Ors.

3

, this Court

3 (2009) 7 SCC 777

5

observed that although the surveyor’s report is not the last word, there must be a

legitimate reason to depart from it. In the present case, the appellants have not

advanced any legitimate reasons to depart from the surveyor’s report and in fact

have relied on a portion of the report to buttress the submission that the

temperature of the cold storage had arisen over 40

0

F, which as we have

highlighted above is a partial reading of the report.

13.MN Srinivasan and K Kannan in Principles of Insurance Law have

explained the role of exceptions in an insurance policy. The insurer seeks to

indemnify the insured only against such losses that are “caused by certain perils

arising under normal conditions whose effects are statistically estimated.” The

insurer may not wish to accept liability for other perils that may result in losses

that are of great magnitude. Thus, exceptions are inserted to exempt the liability

of the insurer for which it would be otherwise liable.

4

Likewise, AW Baker in The

Law Relating to Accidental Insurance states that ‘excepted clauses’ are inserted

ex abundanti cautela in insurance policies to inform the insured that losses

attributable to excepted causes will not be indemnifiable. In New India

Assurance Company Ltd. v. Rajeshwar Sharma & Anr.

5

, the following extract

from The Law Relating to Accidental Insurance was relied upon by a two-judge

Bench of this Court, of which one of us (Justice DY Chandrachud) was a part:

“The object of exceptions is to define with greater

precision the scope of the policy by making clear

what is intended to be excluded and contrasting

with what is intended to be included.

Since exceptions are inserted in the policy mainly

for the purpose of exempting the insurers from

liability for a loss which, but for the exception,

would be covered by the policy, they are

4 MK Srinivasan & K Kannan, Principles of Insurance Law (LexisNexis India, 10

th

Ed., 2018)

5 (2019) 2 SCC 671

6

construed against the insurers with utmost

strictness and it is the duty of the insurers to

except their liability in clean and unambiguous

terms. The onus of proving that the loss falls

within the exception lies upon 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

14.In New India Assurance (supra), it was held that if there is no ambiguity in

the clause exempting the insurer from a liability arising from an excepted cause,

the insurance claim can be rejected by the insurer. In Oriental Insurance Co.

Ltd. v. Sony Cheriyan

7

, a two-judge Bench of this Court observed that an

insurance policy must be strictly construed to identify the extent of the insurer’s

liability. This Court held that where a truck was insured only for carrying

unhazardous goods in terms of the permit issued under the Motor Vehicles Act

1988, an insurance claim could not have been raised when the truck caught fire

while carrying ether solvent which is classified as a hazardous substance under

Table III to Rule 137 of the Central Motor Vehicles Rules 1989. Though the rules

mentioned ‘ethyl ether’ as a hazardous substance, this Court observed that ether

solvent is only a descriptive term for ether and ether and ethyl ether are the same

substance. This Court held thus:

“17. 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.

18. In the instant case, while specifying the

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

7 (1999) 6 SCC 451

7

“Limitations as to Use”, it was clearly mentioned

that the policy was meant to cover only carriage of

goods as defined within the meaning of the Motor

Vehicles Act, 1988. The “permit” granted to the

respondent under the Act specified the nature of

goods which he could carry on the vehicle. It was

provided in the “permit” itself that the respondent

could carry “all kinds of unhazardous goods

including fish except those prohibited. It is obvious

that the “permit” was not granted for carrying

hazardous goods. It has already been specified

above the ether which was being transported by

the respondent in his vehicle is a hazardous

substance indicated in Table III under Rules 137.

There was, therefore, a specific prohibition

operating against the respondent from carrying a

hazardous and, that too, flammable substance in

his vehicle which, under the “permit” granted to

him, could be utilised only for carrying

unhazardous goods under the Motor Vehicles

Act.” (emphasis supplied)

In a similar vein, a two-judge Bench of this Court in Oriental Insurance Co. Ltd.

v. Samayanallur Primary Agriculture Coop. Bank

8

held that an insurance

policy must be construed only with reference to its stipulations and no artificial

meaning can be given to the words of the policy. This Court observed that a cash

box cannot be classified as a ‘safe’ within the meaning of a burglary insurance

policy and the insurer was exempted from any liability arising from the theft of

jewelry and cash from the cash box. The exceptions to an insurance policy must

be construed strictly since they reflect the agreement between the parties with

respect to the losses that are covered by the insurance policy. Any departure

from this principle is possible only if the terms of the policy are ambiguous or

unclear. In Sangrur Sales Corporation v. United India Insurance Company

Ltd. & Anr.

9

, a two-judge Bench of this Court, of which one of us (Justice DY

Chandrachud) was a part, held that in the event two constructions are possible or

if there is any ambiguity, a construction that is beneficial to the insured should be

8 (1999) 8 SCC 543

9 (2020) 16 SCC 292

8

adopted consistent with the purpose of the policy.

15.Another instance where exception clauses may be interpreted to the

benefit of the insured is when the exception clauses are too wide and not

consistent with the main purpose or object of the insurance policy. In BV

Nagaraju v. Oriental Insurance Co. Ltd., Divisional Officer, Hassan

10

, a two-

judge Bench of this Court read down an exception clause to serve the main

purpose of the policy. However, this Court clarified that the breach of the

exception clause was not so fundamental in nature that would have led to the

repudiation of the insurance policy. In that case, the terms of the insurance policy

allowed an insured vehicle to carry six workmen, excluding the driver. When the

vehicle met with an accident, it was carrying nine persons apart from the driver.

The insured had moved a claim for repair of the vehicle, which was rejected by

the insurer. Allowing the claim, this Court held thus:

“7. It is plain from the terms of the Insurance

Policy that the insured vehicle was entitled to

carry 6 workmen, excluding the driver. If those

6 workmen when travelling in the vehicle, are

assumed not to have increased any risk from

the point of view of the Insurance Company on

occurring of an accident, how could those

added persons be said to have contributed to

the causing of it is the poser, keeping apart

the load it was carrying. Here, it is nobody's

case that the driver of the insured vehicle was

responsible for the accident. In fact, it was not

disputed that the oncoming vehicle had

collided head-on against the insured vehicle,

which resulted in the damage. Merely by lifting

a person or two, or even three, by the driver or

the cleaner of the vehicle, without the

knowledge of the owner, cannot be said to be

such a fundamental breach that the owner

should, in all events, be denied

indemnification. The misuse of the vehicle was

somewhat irregular though, but not so

fundamental in nature so as to put an end to

10 (1996) 4 SCC 647

9

the contract, unless some factors existed

which, by themselves, had gone to contribute

to the causing of the accident. In the instant

case, however, we find no such contributory

factor. In Skandia case [(1987) 2 SCC 654] this

Court paved the way towards reading down the

contractual clause by observing as follows: (SCC

pp. 665-66, para 14)

“… When the option is between opting for a view

which will relieve the distress and misery of the

victims of accidents or their dependants on the

one hand and the equally plausible view which will

reduce the profitability of the insurer in regard to

the occupational hazard undertaken by him by

way of business activity, there is hardly any

choice. The Court cannot but opt for the former

view. Even if one were to make a strictly

doctrinaire approach, the very same conclusion

would emerge in obeisance to the doctrine of

‘reading down’ the exclusion clause in the light of

the ‘main purpose’ of the provision so that the

‘exclusion clause’ does not cross swords with the

‘main purpose’ highlighted earlier. The effort must

be to harmonize the two instead of allowing the

exclusion clause to snipe successfully at the main

purpose. The theory which needs no support is

supported by Carter's ‘Breach of Contract’ vide

paragraph 251. To quote:

“Notwithstanding the general ability of contracting

parties to agree to exclusion clauses which

operate to define obligations there exists a rule,

usually referred to as the ‘main purpose rule’,

which may limit the application of wide exclusion

clauses defining a promisor'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:

‘It seems to me that in construing this document,

which is a contract of carriage between the

parties, one must in the first instance look at the

whole instrument and not at one part of it only.

Looking at the whole instrument, and seeing what

one must regard … as its main purpose, one must

reject words, indeed whole provisions, if they are

inconsistent with what one assumes to be the

main purpose of the contract.’

Although this rule played a role in the

development of the doctrine of fundamental

breach, the continued validity of the rule was

acknowledged when the doctrine was rejected

by the House of Lords in Suisse Atlantique

Societe d' Armement Maritime SA v. NV

Rotterdamsche Kolen Centrale [(1967) 1 AC

361 : (1966) 2 All ER 61 : (1966) 2 WLR

10

944]. Accordingly, wide exclusion clauses will

be read down to the extent to which they are

inconsistent with the main purpose, or object

of the contract.” (emphasis added)

16.In the present case, there is no ambiguity in the terms of the exception.

The exception to the DOS Policy clearly provides that the insurer would not be

liable for “[a]ny damage if the temperature in the Refrigeration chambers does not

exceed 4.4 degree Celsius.” The surveyor’s report indicates that the temperature

never exceeded 40

0

F, which was also accepted by the appellants in their

communication dated 14 October 2008. The assertion that the rotting of the

potatoes resulted from a higher temperature was only made on 17 February

2009, which the NCDRC in its impugned judgement dated 14 August 2018 has

characterised as an “afterthought”. Thus, in terms of the insurance policy, the

insurer is not liable for damage caused to the potatoes as the temperature of the

storage did not rise above 40

0

F. Further, unlike in BV Nagaraju (supra), the

exception, in this case, is neither too wide nor in conflict with the main purpose of

the insurance policy. The insurance policy covers the deterioration of potatoes

that have been stocked in cold storage by the appellants. The temperature of the

cold storage is fundamental to the health of the potatoes relating to which the

policy has been undertaken. This is distinguishable from the exception relating to

the number of persons a vehicle can carry, which was the subject matter of the

exception in BV Nagaraju (supra). The insurer has identified a temperature of 40

0

F as the optimum temperature, at which rotting of the potatoes should not occur

and thus has exempted itself of any liability resulting from the deterioration of

potatoes occurring at a temperature that is below or equivalent to 40

0

F. There is

no reason to read down clause (vi) of exceptions to the DOS Policy because it is

11

not in conflict with the main purpose of the policy.

17.Therefore, we have, for the reasons indicated above, accepted the

submission which has been urged on behalf of the insurer by Ms Awantika

Manohar, learned counsel that the claim was correctly repudiated by the insurer,

having regard to the specific exceptions in the policy.

18.In this backdrop, the judgement of the NCDRC rejecting the consumer

complaint does not warrant interference. The appeal shall accordingly stand

dismissed.

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

…………...…...….......………………........J.

[Dr Dhananjaya Y Chandrachud]

…..…..…....…........……………….…........J.

[Dinesh Maheshwari]

New Delhi;

January 24, 2022

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