Supreme Court Clarifies Insurance Liability for Excavator Accidents: Sharda Associates vs. United India Insurance Co. Ltd. (25 July 2022)

Introduction

Date of the Judgment: 25 July 2022
Citation: 2022 INSC 628
Judges: Dr. Dhananjaya Y Chandrachud, J. and A.S. Bopanna, J. (authored by Dr. Dhananjaya Y Chandrachud, J.)
Can an insurance company deny a claim for an excavator accident by claiming it was being used as a ‘tool of trade’? The Supreme Court of India recently addressed this question, clarifying the scope of insurance policy exclusions related to the use of heavy machinery. This judgment revolves around whether an excavator, when used for road construction, is considered a ‘tool of trade’ and whether a landslide-induced accident falls under the policy’s exclusion clause. The bench consisted of Justices Dr. Dhananjaya Y Chandrachud and A.S. Bopanna, with the opinion authored by Dr. Dhananjaya Y Chandrachud, J.

Case Background

Sharda Associates (the appellant) owned a JCB Excavator Model 3DX, which was insured with United India Insurance Company Ltd (the respondent). The insurance policy was valid from 5 March 2009 to 4 March 2010, with an Insured Declared Value (IDV) of Rs 13.50 lakhs. On 25 May 2009, while being used on the Shivpuri-Timli Road near Rishikesh, the excavator fell into a deep ditch due to a portion of the road collapsing. This accident resulted in the death of the operator and helper, and the total loss of the excavator. A First Information Report (FIR) was filed on 26 May 2009, stating the accident was due to the road caving in. The insurance company appointed a surveyor who confirmed the road collapse as the cause of the accident. The insurance claim was repudiated by the respondent on 13 April 2010, citing that the excavator was being used as a ‘tool of trade’ and not as a vehicle, and therefore, the accident was not covered under the policy’s Indian Motor Tariff (IMT) 47 condition, as no additional premium was paid for such use.

Timeline

Course of Proceedings

The appellant initially filed a complaint before the District Consumer Disputes Redressal Forum, alleging deficiency of service by the insurer. The District Forum ruled in favor of the appellant on 26 September 2011, directing the insurer to pay Rs 13.50 lakhs with 9% interest. The State Consumer Disputes Redressal Commission (SCDRC) upheld this decision on 1 May 2014. However, the National Consumer Disputes Redressal Commission (NCDRC) reversed these concurrent findings on 12 July 2019, stating that the excavator was being used as a ‘tool’ and not as a ‘vehicle’ at the time of the accident, thus falling under the IMT 47 exclusion unless additional premium was paid. The NCDRC held that since the excavator was being used for road making, it was functioning as a tool. The appellant then appealed to the Supreme Court.

Legal Framework

The case primarily revolves around the interpretation of the insurance policy and the applicability of IMT 47. The policy’s Section I covers loss or damage to the insured vehicle due to various reasons, including accidents, landslides, etc. However, IMT 47 specifies exclusions for certain types of equipment, such as excavators. IMT 47 states:

“IMT 47: Mobile Cranes/ Drilling Rigs/ Mobile Plants/ Excavators/ Navvies / Shovels/ Grabs/ Rippers
It is hereby declared and agreed notwithstanding anything to the contrary contained in this Policy that in respect of the vehicle insured the insurer shall be under no liability:
a)Under Section I of this policy in respect of loss or damage resulting “from overturning arising out of the operation as a tool of such vehicle or of plant forming part of such vehicle or attached thereto except for loss or damage arising directly from fire, explosion self-ignition or lightening or burglary housebreaking or theft.
b)Under Section II except so far as is necessary to meet the requirements of the Motor Vehicles Act, 1988, in respect of liability incurred by the insured arising out of the operation as a tool of such vehicle or of plant farming part of such vehicle or attached thereto.”

The core issue is whether the excavator’s use during road construction constituted its use as a ‘tool of trade’ and whether the accident was a result of ‘overturning’ arising out of such use, thereby excluding it from coverage under IMT 47. The policy also mentions that the exclusion under IMT 47 does not apply if the damage is due to fire, explosion, self-ignition, lightning, burglary, housebreaking, or theft.

Arguments

Appellant’s Arguments:

• The National Consumer Disputes Redressal Commission (NCDRC) was wrong to reverse the concurrent findings of fact by the District Forum and the State Consumer Disputes Redressal Commission (SCDRC), which had concluded that the excavator was not being used as a tool of trade when the accident occurred.
• The accident was caused by a landslide or the collapse of the road, and not by the overturning of the excavator due to its use as a tool, which is not covered by IMT 47.

Respondent’s Arguments:

• IMT 47 is specifically designed to address situations where the excavator is used as a tool, and in such cases, the insurer is not liable unless an additional premium has been paid.
• The police complaint and the survey report indicate that the soil under the machine collapsed, causing the excavator to fall into a ditch, which means it was being used as a tool for road construction.

Issues Framed by the Supreme Court

The central issue before the Supreme Court was the interpretation of the insurance policy, specifically whether the exclusion under IMT 47 applied in this case. The court had to determine:

1. Whether the National Consumer Disputes Redressal Commission (NCDRC) was justified in reversing the concurrent findings of fact that the excavator was not being used as a tool of trade.
2. Whether the accident was a result of the overturning of the excavator due to its use as a tool, or due to a landslide/road collapse, which would not fall under the purview of IMT 47.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court relied on the following authorities:

Cases:

• Lourdes Society Snehanjali Girls Hostel v H&R Johnson (India) Ltd, (2016) 8 SCC 286, Supreme Court of India: This case was cited to emphasize the limited revisional jurisdiction of the National Consumer Disputes Redressal Commission (NCDRC). The Supreme Court reiterated that the NCDRC should not interfere with concurrent findings of fact unless there is a jurisdictional error or material irregularity.
• Sunil Kumar Maity v State Bank of India, Civil Appeal 432 of 2022 (Arising out of SLP(C) 21711 of 2019), Supreme Court of India: This case was cited to further emphasize the limited scope of the NCDRC’s revisional jurisdiction, reinforcing the principle that the NCDRC should not re-appreciate facts already decided by lower forums.

Legal Provisions:

• Section 21(b) of the Consumer Protection Act 1986: This section defines the revisional jurisdiction of the NCDRC. The court referred to this section to highlight that the NCDRC’s power is limited to correcting jurisdictional errors or material irregularities, and not to re-appreciate facts.
• Indian Motor Tariff (IMT) 47: This tariff was central to the dispute, as it outlines the exclusions for certain types of vehicles when used as a tool of trade. The court analyzed the specific conditions under which IMT 47 applies, which includes overturning due to the use of the vehicle as a tool.

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Lourdes Society Snehanjali Girls Hostel v H&R Johnson (India) Ltd, (2016) 8 SCC 286*: The Supreme Court followed this authority to reiterate that the NCDRC should not interfere with concurrent findings of fact unless there is a jurisdictional error or material irregularity.
• Sunil Kumar Maity v State Bank of India, Civil Appeal 432 of 2022 (Arising out of SLP(C) 21711 of 2019)*: The Supreme Court followed this authority to further emphasize the limited scope of the NCDRC’s revisional jurisdiction.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the factual finding that the accident was caused by a road collapse, not by the overturning of the excavator due to its use as a tool. The court emphasized that the NCDRC should not have reversed the concurrent findings of fact made by the District Forum and the SCDRC. The court also focused on the specific language of IMT 47, which excludes liability only when the loss is due to overturning arising out of the operation as a tool. The fact that the accident was caused by a landslide, which was also covered by the policy, was a significant factor in their decision. The court’s reasoning was based on the interpretation of the insurance policy and the application of the facts to the policy terms. The court’s reasoning was based on the interpretation of the insurance policy and the application of the facts to the policy terms.

The Supreme Court considered that the NCDRC had overstepped its revisional jurisdiction by re-evaluating the facts. The court emphasized that the NCDRC’s role is to correct jurisdictional errors or material irregularities, not to re-appreciate evidence. The court noted that the accident was caused by the collapse of the road and not due to the overturning of the excavator while being used as a tool, which is a key factor in determining whether the exclusion under IMT 47 applies. The court also noted that the insurance policy covered losses due to landslides, which further supported the appellant’s claim. The court’s reasoning was based on a careful analysis of the facts, the terms of the insurance policy, and the principles of consumer law.

“The NCDRC was persuaded to adopt the view of the insurer that an excavator could be used either as a tool of trade or as a vehicle and, in the present case, since it was being used for the purpose of road construction, it was not being used as a vehicle.”

“However, the line of reasoning of the NCDRC clearly missed the point that in the present case the accident was caused as a result of a portion of the road having given way.”

“The situation, in the present case, therefore, did not involve loss or damage due to the overturning of the vehicle. Consequently, even if, for the sake of argument, the submission of the insurer that the vehicle was being used as a tool were to be accepted, it is impossible to subscribe to the findings of fact of the NCDRC.”

Key Takeaways

• Insurance policies must be interpreted strictly according to their terms.
• The National Consumer Disputes Redressal Commission (NCDRC) has limited revisional jurisdiction and should not re-appreciate facts already decided by lower forums.
• An excavator being used for road construction is not automatically considered a ‘tool of trade’ for the purposes of insurance exclusions.
• Accidents caused by landslides or road collapses are distinct from accidents caused by the overturning of a vehicle due to its use as a tool.
• Insurance companies cannot deny claims based on technicalities when the accident is clearly covered by the policy.

Directions

The Supreme Court set aside the judgment of the NCDRC and restored the judgment of the SCDRC, which directed the insurer to pay Rs 13.50 lakhs to the appellant, along with interest at 7% from the date of the filing of the consumer complaint.

Development of Law

The ratio decidendi of this case is that the exclusion clause in an insurance policy (IMT 47) regarding the use of an excavator as a tool of trade applies only when the loss or damage results from the overturning of the vehicle arising out of its use as a tool. The Supreme Court clarified that an accident caused by a landslide or road collapse is distinct from an accident caused by the overturning of the vehicle due to its use as a tool. This judgment reinforces the principle that insurance policies must be interpreted strictly according to their terms and that the NCDRC should not interfere with concurrent findings of fact unless there is a jurisdictional error or material irregularity. This case clarifies the scope of IMT 47 and provides guidance on how to interpret similar exclusion clauses in insurance policies, ensuring that insurance companies cannot deny claims based on technicalities when the accident is clearly covered by the policy.

Conclusion

The Supreme Court’s judgment in Sharda Associates vs. United India Insurance Company Ltd. clarifies that insurance companies cannot deny claims for excavator accidents by claiming that the excavator was being used as a ‘tool of trade’ when the accident was caused by a landslide or road collapse, and not by the overturning of the excavator due to its use as a tool. The court emphasized the limited revisional jurisdiction of the NCDRC and restored the concurrent findings of the lower consumer forums, ensuring that the appellant received the insurance claim. This judgment provides important guidance on the interpretation of insurance policy exclusions and the application of consumer law.