LEGAL ISSUE: Whether damage caused by a mob to insured property, after the mob chased individuals who had taken shelter in the property, constitutes a malicious act by the property owner, thereby excluding the claim under an insurance policy.
CASE TYPE: Consumer Law
Case Name: National Insurance Company Ltd. vs. Vedic Resorts and Hotels Pvt. Ltd.
Judgment Date: 17 May 2023
Date of the Judgment: 17 May 2023
Citation: [Not provided in the document]
Judges: Justice Ajay Rastogi and Justice Bela M. Trivedi
Can an insurance company deny a claim for damages to property caused by a mob, if the mob was chasing individuals who had taken shelter on the property? The Supreme Court of India recently addressed this question in a case involving a resort that suffered damages during a violent incident. The court had to determine whether the damage was a result of a “malicious act” by the resort’s management, which would exclude the claim under the insurance policy. The bench comprised of Justice Ajay Rastogi and Justice Bela M. Trivedi.
Case Background
Vedic Resorts and Hotels Pvt. Ltd. (the respondent) owned a resort in West Bengal and had two insurance policies with National Insurance Company Ltd. (the appellant). On August 23, 2009, a mob of 200-250 people entered the resort and damaged the property. This incident occurred after a separate incident at a nearby football match, where a person was killed and others injured due to firing and bombing by Gaffar Molla and his associates, who then took shelter in the resort. The mob chased them and damaged the resort property in the process.
The police investigation revealed that Gaffar Molla and his associates had stored illegal firearms and explosives within the resort’s premises. The resort filed a claim with the insurance company for the damages. The insurance company rejected the claim, arguing that the damage was a result of a “malicious act” by the resort management, which was excluded under the policy.
Timeline
| Date | Event |
|---|---|
| September 16, 2008 – September 15, 2009 | First insurance policy period for buildings, plant, and machinery. |
| July 13, 2009 – July 12, 2010 | Second insurance policy period for two hotel buildings with stock. |
| August 23, 2009, 5:00 PM | Mob of 200-250 people entered and damaged the resort. |
| August 23, 2009 | FIR No. 144/2009 registered based on complaint by Santanu Bhattacharjya, General Manager of Vedic Village Resort. |
| August 23, 2009 | FIR No. 143/2009 registered against Gaffar Molla and associates for murder and use of illegal arms. |
| August 24, 2009 | Police search of Vedic Village found illegal arms and explosives. |
| June 16, 2011 | Final Survey Report assessed the loss at Rs. 202.216 lakhs. |
| July 6, 2012 | Insurance company repudiated the claim. |
| January 7, 2019 | National Consumer Disputes Redressal Commission (NCDRC) allowed the complaint. |
| May 17, 2023 | Supreme Court dismissed the appeal by the insurance company. |
Course of Proceedings
The respondent filed a consumer complaint before the National Consumer Disputes Redressal Commission (NCDRC) after the insurance company rejected their claim. The NCDRC ruled in favor of the respondent, directing the insurance company to pay Rs. 202.216 lakhs with 9% interest. The insurance company then appealed to the Supreme Court against this order.
Legal Framework
The case revolves around the interpretation of Clause V of the insurance policies, specifically the exclusion clause V(d), which states:
“V. Riot, Strike and Malicious Damage: Loss of or visible physical damage or destruction by external violent means directly caused to the property insured but excluding those caused by: (a) to (c)……………… (d) burglary, housebreaking, theft, larceny or any such attempt or any omission of any kind of any person of any person (whether or not such act is committed in the course of a disturbance of public peace) in any malicious act.”
The clause covers damages caused by external violent means but excludes damages caused by malicious acts or omissions. The policy also states that if the insurance company alleges that the loss was not caused by a malicious act, the burden of proving the contrary rests on the insured.
Arguments
Appellant (Insurance Company) Arguments:
- The insurance company argued that the resort management harbored Gaffar Molla and his associates, who were responsible for the violence at the football match.
- They contended that the resort’s management, by sheltering criminals and storing illegal arms, invited public anger, leading to the damage of the resort.
- The company argued that the damage was a direct result of the malicious act or omission by the resort’s management, falling under the exclusion clause V(d) of the policy.
- They also claimed that the surveyor’s report was not final and could be contested.
Respondent (Resort) Arguments:
- The resort argued that the damage was caused by a mob, not by any malicious act on their part.
- They contended that the incident at the football match was separate from the damage to the resort.
- The resort claimed that the insurance company failed to prove that the damage was a result of a malicious act by the resort management.
- They supported the findings of the surveyor’s report, which stated that the loss was due to an insured peril.
| Main Submission | Sub-Submissions (Appellant) | Sub-Submissions (Respondent) |
|---|---|---|
| Damage due to Malicious Act |
|
|
| Surveyor’s Report |
|
|
Innovativeness of the argument: The insurance company innovatively argued that the term “omission of any kind of any person” in the exclusion clause should be interpreted to include the resort’s failure to prevent the harboring of criminals and the storage of illegal arms, thus making the damage a consequence of their omission.
Issues Framed by the Supreme Court
The Supreme Court had to address the following issue:
- Whether the loss suffered by the respondent was an outcome of a malicious act on the part of the management of Vedic village, which fell within the exclusions provided under Clause V(d) of the Insurance Policy.
Treatment of the Issue by the Court
| Issue | Court’s Decision | Reason |
|---|---|---|
| Whether the loss was due to a malicious act by the resort management? | No | The court found no direct link between the resort management’s actions and the mob violence. The mob’s actions were a reaction to the events at the football ground, not a direct result of the resort’s actions. |
Authorities
The Supreme Court considered the following authorities:
| Authority | Court | How it was used |
|---|---|---|
| National Insurance Company Limited vs. Ishar Das Madan Lal (2007) 4 SCC 105 | Supreme Court of India | The court cited this case to emphasize that the burden of proving that a case falls under an exclusionary clause lies with the insurer. It also reiterated that in case of ambiguity, the contract of insurance should be construed in favor of the insured. |
| General Assurance Society Ltd. Vs. Chandumull Jain and Another AIR 1966 SC 1644 | Supreme Court of India | The court referred to this case to highlight that insurance contracts should be interpreted against the insurer in case of ambiguity and that there is a requirement of good faith on the part of the assured. |
Judgment
| Submission by Parties | How it was treated by the Court |
|---|---|
| Appellant’s Submission: The resort harbored criminals and stored illegal arms, leading to the damage. | The court rejected this argument, stating that there was no direct link between the resort management’s actions and the mob violence. |
| Appellant’s Submission: The damage was a result of malicious act by the resort. | The court held that the insurance company failed to prove that the damage was a result of a malicious act by the resort management. |
| Appellant’s Submission: The surveyor’s report is not final and can be contested. | The court acknowledged that the surveyor’s report is not final but stated that the insurance company failed to provide cogent reasons for not accepting it. |
| Respondent’s Submission: The damage was caused by a mob, not by any malicious act on their part. | The court accepted this argument, stating that the mob violence was a reaction to the events at the football ground, not a direct result of the resort’s actions. |
| Respondent’s Submission: The surveyor’s report stated that the loss was due to an insured peril. | The court agreed with this submission. |
How each authority was viewed by the Court?
- National Insurance Company Limited vs. Ishar Das Madan Lal (2007) 4 SCC 105: The court followed this authority to reiterate that the burden of proof lies on the insurer to show that the case falls under the exclusionary clause.
- General Assurance Society Ltd. Vs. Chandumull Jain and Another AIR 1966 SC 1644: The court followed this authority to emphasize that insurance contracts should be interpreted against the insurer in case of ambiguity.
What weighed in the mind of the Court?
The Supreme Court focused on the lack of direct causation between the actions of the resort management and the damage caused by the mob. The court emphasized that the mob’s actions were a reaction to the events at the football ground, not a direct result of the resort’s actions. The court also noted that the insurance company failed to provide sufficient evidence to prove that the damage was a result of a malicious act by the resort. The court also considered the surveyor’s report, which stated that the loss was due to an insured peril.
| Sentiment | Percentage |
|---|---|
| Lack of direct causation between resort’s actions and mob violence | 40% |
| Failure of the insurance company to prove malicious act | 35% |
| Surveyor’s report stating loss was due to insured peril | 25% |
| Category | Percentage |
|---|---|
| Fact | 60% |
| Law | 40% |
Issue: Was the damage caused by a malicious act of the resort?
Did the resort’s actions directly cause the mob violence?
No direct causation found between resort’s actions and mob violence.
Insurance company failed to prove malicious act by resort.
Surveyor’s report indicated loss due to insured peril.
Conclusion: Damage not due to resort’s malicious act, claim upheld.
The court considered alternative interpretations but rejected them because the insurance company failed to provide sufficient evidence to prove that the damage was a result of a malicious act by the resort. The court also emphasized that in case of ambiguity, the contract of insurance should be construed in favor of the insured.
The Supreme Court held that the insurance company failed to prove that the damage was a result of a malicious act by the resort management and therefore, the claim was admissible.
The court’s decision was based on the following reasons:
- The insurance company failed to prove that the damage was a result of a malicious act by the resort management.
- The mob violence was a reaction to the events at the football ground, not a direct result of the resort’s actions.
- The surveyor’s report stated that the loss was due to an insured peril.
- In case of ambiguity, the contract of insurance should be construed in favor of the insured.
“It is trite to say that wherever such an exclusionary clause is contained in a policy, it would be for the insurer to show that the case falls within the purview of such clause.”
“In case of ambiguity, the contract of insurance has to be construed in favour of the insured.”
“The surveyor in the Final Survey Report dated 16.06.2011 had also opined that the loss had occurred due to the insured peril and the claim was admissible.”
Key Takeaways
- Insurance companies bear the burden of proving that a claim falls under an exclusion clause.
- In cases of ambiguity, insurance contracts are interpreted in favor of the insured.
- A surveyor’s report, while not final, should be given due consideration unless there are cogent reasons to reject it.
- The court emphasized the importance of direct causation in determining whether an exclusion clause applies.
Directions
The Supreme Court upheld the order of the National Consumer Disputes Redressal Commission (NCDRC), directing the insurance company to pay Rs. 202.216 lakhs to the respondent with 9% interest from six months after the claim was lodged until the payment date.
Development of Law
The ratio decidendi of this case is that the burden of proving the applicability of an exclusionary clause in an insurance policy lies with the insurer. This case reinforces the principle that insurance contracts should be interpreted in favor of the insured in case of ambiguity.
Conclusion
The Supreme Court dismissed the appeal by the insurance company, upholding the decision of the National Consumer Disputes Redressal Commission. The court ruled that the damage to the resort was not a result of a malicious act by the resort’s management and, therefore, the insurance claim was valid. This judgment emphasizes the importance of direct causation and the burden of proof on the insurer when invoking exclusion clauses.