Insurance – Respondent-ECGC provides a range of credit risk insurance cover to exporters – Appellant-exporter paid premium to ECGC for the Single Buyer Exposure Policy which covered foreign buyer’s failure to pay for goods exported – Coverage of the Policy was w.e.f 14.12.2012-13.12.2013 – The vessel set sail on 15.12.2012 – The Bill of Lading was prepared 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 overseas buyer defaulted on payment – Appellant’s claim rejected by ECGC – Filed complaint before NCDRC, dismissed – On appeal, held: A plain reading of the policy in question demonstrates that it was taken to protect against failure of the foreign buyer in paying the Indian exporter for goods exported – It was not a policy taken to cover in-transit insurance, and the cause of action triggering the claim arose much later, i.e., on 14.02.2013, well within the coverage of the policy – While interpreting insurance contracts, the risks sought to be covered must also be kept in mind – The date of loading goods onto the vessel, which commenced one day prior to the effective date of the policy, is not as significant as the date on which the foreign buyer failed to pay for the goods exported, which was well within the coverage period of the Policy – Thus, the claim could not be dismissed simply on such basis, especially given that the date of loading the goods onto the vessel was immaterial to the purpose for which the policy was taken by the appellant – On harmoniously construing the documents of the policy, it is in fact the date on the Bill of Lading, and not the Mate’s Receipt / date of shipment which ought to be considered as the date of ‘despatch / shipment’, for the Bill of Lading is the legal document conferring title and possession of the goods to the carrier – Further, 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 – Impugned order set aside and the appellant’s complaint is allowed – Foreign Trade (Development and Regulation) Act, 1992.
Insurance – Rule of contra proferentem – Standard form insurance policies – Contract d’ adhesion or boilerplate contracts – Reconciliation of ambiguous terms – Held: 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 favour of the insured, i.e., against the drafter of the policy – The rule of contra proferentem thus protects the insured from the vagaries of an unfavourable interpretation of an ambiguous term to which it did not agree – The rule assumes special significance in standard form insurance policies, called contract d’ adhesion or boilerplate contracts, in which the insured has little to no countervailing bargaining power – This consideration is highlighted in the present case, since the risks that respondentECGC is mandated to cover is its business, and other insurers rarely foray into the field.
Allowing the appeal, the Court
HELD: 1.1 The date of loading goods onto the vessel, which commenced one day prior to the effective date of the policy, is not as significant as the date on which the foreign buyer failed to pay for the goods exported, which was well within the coverage period of the Policy. Thus, the claim could not be dismissed simply on such basis, especially given that the date of loading the goods onto the vessel was immaterial to the purpose for which the policy was taken by the appellant. [Para 15][311-G-H; 312-A]
1.2 The rule of contra proferentem protects the insured from the vagaries of an unfavourable interpretation of an ambiguous term to which it did not agree. The rule assumes special significance in standard form insurance policies, called contract d’ adhesion or boilerplate contracts, in which the insured has little to no countervailing bargaining power. This consideration is highlighted in the facts of this case, since the risks that ECGC is mandated to cover is its business, and other insurers rarely foray into the field. A plain reading of the policy in question demonstrates that it was taken to protect against failure of the foreign buyer in paying the Indian exporter for goods exported. It was not a policy taken to cover in-transit insurance, and the cause of action triggering the claim arose much later, i.e., on 14.02.2013, well within the coverage of the policy. While interpreting insurance contracts, the risks sought to be covered must also be kept in mind. As argued on behalf of the appellant, the Mate’s Receipt indicating the completion of loading of the goods onto the ship was issued on 15.12.2012, pursuant to which the vessel sailed on 15.12.2012, and the Bill of Lading was issued on 19.12.2012. The term ‘despatch’ -contained in the policy implied ‘completion’ of handing over of possession of the goods to the first carrier (the ship herein), and not the date on which the loading ‘commenced’ – such an interpretation would give rise to an absurdity. On harmoniously construing the documents of this policy, it is the in fact the date on the Bill of Lading, and not the Mate’s Receipt /date of shipment which ought to be considered as the date of ‘despatch / shipment’, for the Bill of Lading is the legal document conferring title and possession of the goods to the carrier. Therefore, reliance on the DGFT Guidelines to disallow the claim of the appellant was not good in law. [Paras 16-18][313-G; 314A-C, F-G; 315-B]
1.3 The DGFT Guidelines are part of a ‘Handbook of Procedures (Volume I)’ to enforce the Foreign Trade Policy of 2009-2014, which in turn emerge from Section 5 of the Foreign Trade (Development and Regulation) Act, 1992. 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. 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 exempt from 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. The impugned order of the NCDRC is hereby set aside; the appellant’s complaint is consequently allowed. ECGC is hereby directed to pay the claim amount of ` 1,96,38,400/- crores to the appellant, with interest at the rate of 9% p.a. [Paras 19-22][315B-C; 316-G; 317-A-D] General Assurance Society Ltd. v. Chandumull Jain [1966] 3 SCR 500 – followed.
United India Insurance Co. Ltd. v. Pushpalaya Printers (2004) 3 SCC 694 : [2004] 2 SCR 631; Sushilaben Indravadan Gandhi v New India Assurance Company Ltd., (2021) 7 SCC 151; Jacob Punnen & Anr. v United India Insurance Co. Ltd. (2021) SCC Online SC 1207; Peacock Plywood (P) Ltd. v. Oriental Insurance Co. Ltd. (2006) 12 SCC 673 : [2006] 10 Suppl. SCR 140 relied on. Shaw Wallace & Co. Ltd. v. Nepal Food Corpn. (2011)
15 SCC 56 : [2011] 15 SCR 1181; Modern Insulators Ltd. v Oriental Insurance Co. Ltd., (2000) 2 SCC 734 : [2000] 1 SCR 1076; Polymat India (P) Ltd. & Ors. v National Insurance Co. Ltd. & Ors. (2005) 9 SCC 174 : [2004] 6 Suppl. SCR 535; United India Insurance Co. Ltd. v. Harchand Rai Chandan Lal (2004) 8 SCC 644 : [2004] 4 Suppl. SCR 662; LIC v. Insure Policy Plus Services (P) Ltd. (2016) 2 SCC 507; Industrial Promotion & Investment Corpn. of Orissa Ltd. v. New India Assurance Co. Ltd. (2016) 15 SCC 315; Polymat India (P) Ltd. v. National Insurance Co. Ltd. (2005) 9 SCC 174 : [2004] 6 Suppl. SCR 535; Export Credit Guarantee Corpn. of India Ltd. v. Garg Sons
International (2014) 1 SCC 686 : [2013] 1 SCR 336; Rainy Sky SA v. Kookmin Bank [2011] UKSC 50; Arnold v. Britton [2015] UKSC 36; Woods v Capita Insurance [2017] UKSC 24 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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