Supreme Court Clarifies “Standard Aircraft” in Insurance Policy: Bharti AXA vs. Priya Paul (2020)

Date of the Judgment: 07 February 2020

Citation: (2020) INSC 120

Judges: Justice Mohan M. Shantanagoudar and Justice R. Subhash Reddy

Can an insurance company deny a claim by arguing that a motorized glider is not a “standard type of aircraft”? The Supreme Court of India addressed this question in a recent case, clarifying the scope of insurance policy exclusions related to aviation accidents. The core issue was whether the insurance company was liable to pay the claim of the deceased, who died in a glider crash, given the specific exclusions in the insurance policy. The Supreme Court, in a judgment authored by Justice Mohan M. Shantanagoudar, held that the insurance company was liable to pay the claim.

Case Background

In June 2013, Respondent No. 1, Priya Paul, along with her family, vacationed in Canada. On June 29, 2013, her son took a sightseeing flight in a two-seater motorized glider at the Pemberton Soaring Centre in British Columbia. Tragically, the glider collided with a Cessna 150 aircraft mid-air, resulting in the death of all occupants of both aircraft. Priya Paul filed an insurance claim with Bharti AXA General Insurance Co. Ltd. based on a personal accident policy taken by her son. The insurance company rejected the claim, arguing that the deceased was not a fare-paying passenger in a standard aircraft as per the policy terms.

Timeline:

Legal Framework

The insurance policy contained the following exclusionary clauses:

“7. General Exclusions of the Policy
PROVIDED ALWAYS THAT the Company shall not be liable under this policy for-
…
ix) Any claim in respect of accidental death or permanent disablement of the Insured/Insured Person:
…
iii) whilst engaging in aviation or ballooning whilst mounting into, dismounting from or traveling in any aircraft or balloon other than as a passenger (fare paying or otherwise) in any duly licensed standard type of aircraft anywhere in the world.
…
xiv) Insured/insured person whilst flying or taking part in aerial activities (including cabin crew) except as a fare-paying passenger in a regular scheduled airline or air charter company.”

The term “aircraft” is defined under Section 2(1) of the Aircrafts Act, 1934:

“(1) “aircraft” means any machine which can derive support in the atmosphere from reactions of the air, other than reactions of the air against the earth’s surface and includes balloons whether fixed or free, airships, kites, gliders and flying machines”

Arguments

Appellant (Bharti AXA General Insurance Co. Ltd.) Arguments:

• Glider Not a Standard Aircraft: The appellant argued that the glider was not a standard aircraft because it primarily relied on aerodynamics rather than engine power for flight. The engine was only for takeoff and landing. They cited the definition of “glider” under the Aircraft Act, 1934, and the Glider Flying Handbook to support this argument. They also referred to the Aircraft Rules, 1937, which distinguish between licenses for power-driven and non-power-driven aircraft.

• Glider Not Duly Licensed: The appellant contended that the glider was not duly licensed, as the license relied upon by the National Commission was merely a municipal business license.

• Deceased Not a Passenger: The appellant argued that a person undertaking a round-trip flight cannot be considered a passenger.

• Pemberton Soaring Centre Not an Air Charter Company: The appellant argued that the Pemberton Soaring Centre was not a regular scheduled airline or air charter company, relying on correspondence with the lawyer of the co-owner of the center and a report from a Canadian investigator.

Respondent (Priya Paul) Arguments:

• Glider is a Duly Licensed Standard Aircraft: The respondent argued that a glider is classified as an aircraft under the Aircraft Act and that the failure to expressly exclude gliding from the policy indicated an intention to include it. They also argued that the glider was a motorized glider and should be considered a standard aircraft. The TSBC report also stated that the aircraft was certified, equipped and maintained in accordance with the existing regulations.

• Deceased was a Fare-Paying Passenger: The respondent contended that the deceased was a fare-paying passenger at all times during the flight, as the glider had two seats, one for the pilot and one for the passenger. The widow of the pilot also stated that the deceased was a fare-paying passenger.

• Pemberton Soaring Centre was an Air Charter Company: The respondent argued that the term “charter” implied the hire or lease of a vehicle in its entirety, which was being done by the facility while offering gliders for sightseeing.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for determination:

1. Whether the glider involved in the accident was an aircraft?
2. Whether it was a standard aircraft?
3. Whether the aircraft was duly licensed?
4. Whether the Pemberton Soaring Centre was an air charter company or regular schedule airline?
5. Whether the deceased was traveling on the glider as a fare-paying passenger?

Treatment of the Issue by the Court

Authorities

Cases:

• United India Insurance Co. Ltd. v. Pushpalaya Printers, (2004) 3 SCC 694 – The Supreme Court of India referred to this case to emphasize that if there is any ambiguity or a term is capable of two possible interpretations, one beneficial to the insured should be accepted.
• General Assurance Society Ltd. v. Chandmull Jain [AIR 1966 SC 1644: (1966) 3 SCR 500] – This case was cited to highlight that in a contract of insurance, there is a requirement of uberrima fides (good faith) on the part of the assured, and the contract is likely to be construed contra proferentem (against the company) in case of ambiguity or doubt.

Statutes and Rules:

• Section 2(1) of the Aircrafts Act, 1934 – Defines “aircraft” to include gliders.
• Section 3(1) of the Aeronautics Act, 1985 of Canada – Defines “aircraft” similarly to the Indian Act.
• Rule 3(26) of the Aircraft Rules, 1937 – Defines “glider” as a non-power-driven heavier-than-air aircraft.
• Canadian Aviation Regulations (SOR/96-433) – Defines “glider” as a non-power-driven heavier-than-air aircraft.

Other References:

• Concise Oxford Advanced Learner’s Dictionary – Defined “aircraft” and “glider”.
• Cambridge Advanced Learner’s Dictionary – Defined “aircraft” and “glider”.
• Glider Flying Handbook published by the United States Department of Transportation, Federal Aviation Administration – Referred to by the Appellant to define Glider.
• International Civil Aviation Organisation (ICAO) Manual on the Regulation of International Air Transport – Referred to by the Court to define chartered flights.

Judgment

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

How each authority was viewed by the Court?

• United India Insurance Co. Ltd. v. Pushpalaya Printers, (2004) 3 SCC 694*: The Court followed this authority to emphasize that any ambiguity in the policy should be interpreted in favor of the insured.
• General Assurance Society Ltd. v. Chandmull Jain [AIR 1966 SC 1644: (1966) 3 SCR 500]*: The Court followed this authority to highlight that insurance contracts should be construed against the insurer in case of ambiguity.
• Section 2(1) of the Aircrafts Act, 1934*: The Court relied on this provision to establish that gliders are included in the definition of “aircraft”.
• Section 3(1) of the Aeronautics Act, 1985 of Canada*: The Court used this to support the definition of aircraft.
• Rule 3(26) of the Aircraft Rules, 1937*: The Court relied on this provision to define a glider as a non-power-driven aircraft.
• Canadian Aviation Regulations (SOR/96-433)*: The Court used this to support the definition of a glider.
• Concise Oxford Advanced Learner’s Dictionary*: The Court used this to define aircraft and glider.
• Cambridge Advanced Learner’s Dictionary*: The Court used this to define aircraft and glider.
• Glider Flying Handbook published by the United States Department of Transportation, Federal Aviation Administration*: The Court acknowledged this reference made by the Appellant but did not rely on it for its decision.
• International Civil Aviation Organisation (ICAO) Manual on the Regulation of International Air Transport*: The Court used this to define chartered flights.

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the principle of contra proferentem, which dictates that any ambiguity in an insurance policy must be interpreted against the insurer. The Court emphasized that the insurance company had the opportunity to clearly define “standard type of aircraft” and to explicitly exclude gliders, but failed to do so. This lack of clarity led the Court to adopt a liberal interpretation that favored the insured.

Fact:Law Ratio

The Court’s reasoning was primarily based on legal interpretations and principles, with a lesser emphasis on the specific facts of the case. The Court focused on the interpretation of the insurance policy and the relevant legal definitions.

Logical Reasoning:

The Court considered alternative interpretations, such as the argument that a glider was not a standard aircraft because it was not primarily powered by an engine, but rejected this interpretation due to the lack of a clear definition in the policy and the principle of contra proferentem. The Court also rejected the argument that a round-trip flight did not qualify as passenger travel.

The final decision was reached by applying the principle of contra proferentem, interpreting the ambiguous terms in the policy in favor of the insured, and finding that all conditions for coverage were met.

The court reasoned that the policy should be interpreted in a manner that benefits the insured, especially when the insurer has failed to define key terms or explicitly exclude certain activities. The court also noted that the glider was certified, equipped, and maintained in accordance with regulations, further supporting its classification as a standard aircraft.

The majority opinion was authored by Justice Mohan M. Shantanagoudar, with Justice R. Subhash Reddy concurring. There were no dissenting opinions.

“In the instant case, we agree with the conclusion of the National Commission that had the insurer really intended to exclude gliding activity from the purview of the Policy, it could have done so expressly, similar to the manner in which hang-gliding and para-gliding were excluded in Clause 7(xiii) of the Policy.”

“The usage of as vague a phrase as “standard type of aircraft” in the Policy, thus, suggests to us that the same must be construed in a liberal manner so as to benefit the insured.”

“In our considered opinion, this practice may constitute an own-use charter. Moreover, we note that there is no dispute that the Pemberton Soaring Centre was an incorporated company.”

Key Takeaways

• Insurance policies must be clear and unambiguous. Any vague terms will be interpreted in favor of the insured.
• Insurers should explicitly define terms like “standard type of aircraft” if they intend to exclude certain types of aircraft.
• The principle of contra proferentem will be applied strictly, meaning that ambiguities in insurance contracts will be construed against the insurer.
• A motorized glider can be considered a “standard type of aircraft” in the absence of a specific definition to the contrary in the insurance policy.
• A company offering sightseeing flights in a glider can be considered an “air charter company”.
• A person undertaking a sightseeing flight in a glider is considered a “fare-paying passenger”.

The judgment has significant implications for insurance companies, requiring them to be more precise in their policy language. It also provides clarity for policyholders regarding the coverage of aviation-related accidents.

Directions

The Supreme Court dismissed the appeal filed by the insurance company and upheld the order of the National Consumer Disputes Redressal Commission, directing the insurer to pay the claim amount with interest.

Specific Amendments Analysis

Not Applicable

Development of Law

The ratio decidendi of this case is that in the absence of a clear definition in an insurance policy, the term “standard type of aircraft” should be interpreted liberally to include a motorized glider. This judgment clarifies that insurance companies must be explicit in their policy exclusions and cannot rely on vague language to deny claims. It also reinforces the principle of contra proferentem in insurance law.

Conclusion

The Supreme Court’s judgment in Bharti AXA General Insurance Co. Ltd. vs. Priya Paul & Anr. clarifies the interpretation of “standard type of aircraft” in insurance policies. The Court ruled in favor of the claimant, holding that a motorized glider qualifies as a standard aircraft under the policy’s terms. This decision underscores the importance of clear and unambiguous language in insurance contracts and reinforces the principle of contra proferentem, ensuring that ambiguities are resolved in favor of the insured.