Supreme Court Upholds Insurance Claim Repudiation in Bridge Collapse Case: United India Insurance Co. Ltd. vs. M/s Hyundai Engineering & Construction Co. Ltd. (2024) INSC 431 (16 May 2024)

Date of the Judgment: 16 May 2024
Citation: (2024) INSC 431
Judges: Pamidighantam Sri Narasimha, J. and Aravind Kumar, J.
Can an insurance company deny a claim if the insured’s actions contributed to the loss? The Supreme Court of India recently addressed this question in a case involving the collapse of a bridge. The court examined whether the insurance company was justified in rejecting a claim based on the findings of an expert committee and a surveyor’s report, which pointed to design flaws and construction deficiencies. The judgment was delivered by a two-judge bench consisting of Justice Pamidighantam Sri Narasimha and Justice Aravind Kumar, with the opinion authored by Justice Pamidighantam Sri Narasimha.

Case Background

The National Highway Authority of India (NHAI) awarded a contract to a joint venture of M/s Hyundai Engineering & Construction Co. Ltd. and M/s Gammon India for the design, construction, and maintenance of a cable-stayed bridge across the Chambal River in Kota, Rajasthan. The project was valued at ₹213,58,76,000. The contract stipulated a 40-month construction period, followed by a 6-year maintenance period, including a 2-year defect-notification phase. NHAI also engaged M/s Louis Berger Group Inc. (USA) and M/s COWI A/S (Denmark) as consultants for the project.

United India Insurance Co. Ltd. issued a Contractor’s All Risk Insurance Policy covering the interests of NHAI and the joint venture contractors. The policy was effective from 05.12.2007 to 04.12.2011, with a total insured amount of ₹213,58,76,000. The policy covered material damage but excluded losses due to faulty design, defective workmanship, and errors during construction unless they resulted in physical loss or damage.

On 24.12.2009, while construction was underway, a portion of the bridge collapsed, resulting in the deaths of 48 workers. The Ministry of Road Transport and Highways formed an Expert Committee to investigate the cause of the collapse. An FIR was also filed against the contractors under Sections 304 and 308 of the Indian Penal Code, 1860.

NHAI notified the insurance company about the incident on 29.12.2009, seeking indemnification of the loss. The contractors claimed ₹151,59,94,542 as compensation. The Expert Committee submitted its report on 07.08.2010, citing design shortfalls, poor workmanship, and lack of stability as contributing factors to the collapse. The insurance company’s surveyor assessed the net loss at ₹39,09,92,828 but recommended rejecting the claim due to policy violations. Consequently, the insurance company repudiated the claim on 21.04.2011.

The contractors requested a reconsideration, submitting reports from independent experts who claimed that there was no design fault. The insurance company reaffirmed its repudiation on 17.04.2017. Subsequently, the contractors filed a consumer complaint before the National Consumer Disputes Redressal Commission (NCDRC) on 24.01.2019.

Timeline

Course of Proceedings

The National Consumer Disputes Redressal Commission (NCDRC) initially rejected the insurance company’s preliminary objection that the case involved complex questions of law and fact and was not suitable for summary jurisdiction under the Consumer Protection Act, 1986. The NCDRC also dismissed the limitation objection, holding that the limitation period began from the date of the second repudiation (17.04.2017) and not the first (21.04.2011).

On the merits, the NCDRC held that the Expert Committee’s report was inconclusive. It relied on independent expert reports submitted by the contractors, concluding that there was no design defect and that the contractors were not at fault. The NCDRC also considered NHAI’s decision to allow the contractors to complete the project as evidence of their competence. The NCDRC directed the insurance company to pay ₹39,09,92,828 with 9% interest from 21.04.2011. However, an undated addendum to the judgment revised the claim amount to ₹151,59,94,542, which was later not supported by the respondents.

Legal Framework

The Supreme Court referred to the following legal principles:

• Insurance as a Contract of Indemnification: The Court reiterated that insurance is a contract for a specific purpose, designed to cover defined losses. The terms of the insurance contract must be read strictly.
• Exclusion Clauses: Exclusion clauses in insurance contracts are to be interpreted strictly and against the insurer. The insurer must prove that the event falls within the exclusionary clause.
• Burden of Proof: The burden of proving the applicability of an exclusionary clause lies on the insurer. The evidence must unequivocally establish that the event sought to be excluded is specifically covered by the exclusionary clause.

The Court cited the following cases to support these principles:

• Oriental Insurance Co. Ltd. v. Sony Cheriyan, (1999) 6 SCC 451
• United India Insurance Co. Ltd. v. Levis Strauss (India) (P) Ltd., (2022) 6 SCC 1
• New India Assurance Co. Ltd. v. Rajeshwar Sharma, (2019) 2 SCC 671
• Canara Bank v. United India Insurance Co. Ltd., (2020) 3 SCC 455
• Oriental Insurance Co. Ltd. v. Samayanallur Primary Agricultural Coop. Bank, (1999) 8 SCC 543
• Texco Marketing P. Ltd. v. TATA AIG General Insurance Company Ltd., (2023) 1 SCC 428
• National Insurance Company Ltd. v. Vedic Resorts and Hotels Pvt. Ltd., 2023 SCC OnLine SC 648
• National Insurance Co. Ltd. v. Ishar Das Madan Lal, 2007 (4) SCC 105
• National Insurance Company Ltd. v. Hareshwar Enterprises (P) Ltd., (2021) SCC Online SC 628

Arguments

Appellant (United India Insurance Co. Ltd.) Arguments:

• The insurance company argued that the collapse of the bridge was due to a combination of factors, including faulty design, poor workmanship, and lack of stability in the partially completed structure.
• They relied on the Expert Committee’s report, which highlighted several deficiencies in the design and construction process, including variations introduced on-site without approval, the casting of the lateral span in multiple parts instead of a monolithic structure, and changes in the construction sequence.
• The insurance company also relied on the surveyor’s report, which detailed the critical and vulnerable nature of the junction at Pylon P4, the unstable equilibrium created, the shearing of the slab, and the release of restraints on the bearings before completion of the main spans.
• The insurance company contended that the surveyor’s report was credible evidence, which remained unrebutted by the respondents.
• They argued that the exclusion clauses in the insurance policy were applicable, as the loss resulted from faulty design and defective workmanship.

Respondents (M/s Hyundai Engineering & Construction Co. Ltd. & Ors.) Arguments:

• The contractors argued that the Expert Committee’s report was inconclusive and did not identify the precise reasons for the collapse.
• They relied on independent expert reports, which stated that there was no fault in the design of the bridge.
• The contractors contended that NHAI’s decision to allow them to continue the project indicated that they were competent and not at fault.
• They argued that the insurance company had not discharged the burden of proving the applicability of the exclusion clauses.
• They submitted that the surveyor’s report was not conclusive and did not hold the respondents responsible for negligence.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue addressed by the Court was:

1. Whether the insurance company was justified in repudiating the insurance claim based on the exclusion clauses in the policy, considering the findings of the Expert Committee and the surveyor’s report.

Treatment of the Issue by the Court

The following table demonstrates how the Court decided the issue:

Authorities

The Supreme Court relied on the following authorities:

Cases:

• Oriental Insurance Co. Ltd. v. Sony Cheriyan, (1999) 6 SCC 451 – This case was cited to support the principle that insurance is a contract for a specific purpose, which is to cover defined losses.
• United India Insurance Co. Ltd. v. Levis Strauss (India) (P) Ltd., (2022) 6 SCC 1 – This case was cited to support the principle that insurance is a contract for a specific purpose, which is to cover defined losses.
• New India Assurance Co. Ltd. v. Rajeshwar Sharma, (2019) 2 SCC 671 – This case was cited to support the principle that exclusion clauses in insurance contracts are interpreted strictly and against the insurer.
• Canara Bank v. United India Insurance Co. Ltd., (2020) 3 SCC 455 – This case was cited to support the principle that exclusion clauses in insurance contracts are interpreted strictly and against the insurer.
• Oriental Insurance Co. Ltd. v. Samayanallur Primary Agricultural Coop. Bank, (1999) 8 SCC 543 – This case was cited to support the principle that exclusion clauses in insurance contracts are interpreted strictly and against the insurer.
• Texco Marketing P. Ltd. v. TATA AIG General Insurance Company Ltd., (2023) 1 SCC 428 – This case was cited to support the principle that the burden of proving the applicability of an exclusionary clause lies on the insurer.
• National Insurance Company Ltd. v. Vedic Resorts and Hotels Pvt. Ltd., 2023 SCC OnLine SC 648 – This case was cited to support the principle that the burden of proving the applicability of an exclusionary clause lies on the insurer.
• National Insurance Co. Ltd. v. Ishar Das Madan Lal, 2007 (4) SCC 105 – This case was cited to support the principle that the evidence must unequivocally establish that the event sought to be excluded is specifically covered by the exclusionary clause.
• National Insurance Company Ltd. v. Hareshwar Enterprises (P) Ltd., (2021) SCC Online SC 628 – This case was cited to support the principle that the surveyor’s report is a credible evidence and the court may rely on it until a more reliable evidence is brought on record.

Legal Provisions:

• Sections 304 and 308 of the Indian Penal Code, 1860 – These sections were mentioned in the context of the FIR lodged against the respondents for offences related to causing death by negligence and attempt to commit culpable homicide.
• Consumer Protection Act, 1986 – This Act was mentioned in the context of the NCDRC’s jurisdiction and the filing of the consumer complaint by the respondents.

Judgment

The Supreme Court allowed the appeal filed by the insurance company and set aside the order of the NCDRC. The Court held that the insurance company was justified in repudiating the claim based on the exclusion clauses of the insurance policy. The Court found that the evidence presented by the insurance company, including the Expert Committee’s report and the surveyor’s report, sufficiently proved that the collapse was due to a combination of factors, including faulty design and poor workmanship, which were excluded under the policy.

How each authority was viewed by the Court?

• The Court relied on the principles laid down in Oriental Insurance Co. Ltd. v. Sony Cheriyan (1999) 6 SCC 451* and United India Insurance Co. Ltd. v. Levis Strauss (India) (P) Ltd. (2022) 6 SCC 1* to define insurance as a contract of indemnification for specific losses.
• The Court followed the principles laid down in New India Assurance Co. Ltd. v. Rajeshwar Sharma (2019) 2 SCC 671*, Canara Bank v. United India Insurance Co. Ltd. (2020) 3 SCC 455* and Oriental Insurance Co. Ltd. v. Samayanallur Primary Agricultural Coop. Bank (1999) 8 SCC 543* to interpret exclusion clauses strictly against the insurer.
• The Court relied on Texco Marketing P. Ltd. v. TATA AIG General Insurance Company Ltd. (2023) 1 SCC 428* and National Insurance Company Ltd. v. Vedic Resorts and Hotels Pvt. Ltd. 2023 SCC OnLine SC 648* to emphasize that the burden of proving the applicability of an exclusionary clause lies on the insurer.
• The Court followed National Insurance Co. Ltd. v. Ishar Das Madan Lal 2007 (4) SCC 105* to support the principle that the evidence must unequivocally establish that the event sought to be excluded is specifically covered by the exclusionary clause.
• The Court relied on National Insurance Company Ltd. v. Hareshwar Enterprises (P) Ltd. (2021) SCC Online SC 628* to support the principle that the surveyor’s report is a credible evidence.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• The Court placed significant weight on the findings of the Expert Committee, which was constituted by the Ministry of Road Transport and Highways and comprised experts in civil engineering. The Committee’s report highlighted critical deficiencies in design and construction.
• The Court also relied on the surveyor’s report, which detailed the sequence of events and the critical points of failure. The surveyor’s evidence was considered credible as it remained unrebutted.
• The Court emphasized that the insurance contract must be interpreted strictly, and the exclusion clauses should be applied if the insurer proves their applicability. The burden of proof was on the insurer, which the Court found to be discharged through the Expert Committee and surveyor’s reports.
• The Court rejected the independent expert reports submitted by the contractors, noting that these reports were theoretical in nature and not based on site inspections.
• The Court also rejected the argument that NHAI’s decision to allow the contractors to continue the project was evidence of their competence, stating that the decision was an economic one and did not negate the applicability of the exclusion clauses.

Logical Reasoning:

The Court considered alternative interpretations, such as the independent expert reports submitted by the respondents, but rejected them due to their theoretical nature and lack of site-specific evidence. The Court also considered the argument that NHAI’s decision to allow the contractors to continue the project was evidence of their competence but held that this was an economic decision and did not negate the applicability of the exclusion clauses. The Court ultimately concluded that the evidence overwhelmingly supported the insurance company’s decision to repudiate the claim.

The Court’s decision was based on the following reasons:

• The Expert Committee, comprising experts in civil engineering, found significant deficiencies in design and construction.
• The surveyor’s report detailed the sequence of events leading to the collapse and supported the findings of the Expert Committee.
• The respondents failed to provide credible evidence to rebut the findings of the Expert Committee and the surveyor.
• The insurance contract was to be interpreted strictly, and the exclusion clauses applied as the insurer had discharged the burden of proof.
• The independent expert reports submitted by the respondents were theoretical in nature and not based on site inspections.
• NHAI’s decision to allow the contractors to continue the project was an economic decision and did not negate the applicability of the exclusion clauses.

The Court quoted the following from the Expert Committee report:

“a combination of factors such as lack of stability and robustness in the structure, shortfall in design, lack of quality workmanship have all contributed to the collapse”

“the primary responsibility lies with the contractor, M/s Hyundai and Gammon (JV) who are responsible for allowing the structure to reach a vulnerable stage without taking adequate precautions and the re is a shortfall in the design”

The court also quoted from the surveyor’s report

“The shearing of the slab is purely a Design aspect.”

There was no minority opinion in this case.

The Court’s reasoning was based on a strict interpretation of the insurance contract and a thorough analysis of the evidence. The Court’s decision highlights the importance of adhering to contractual terms and the need for insured parties to ensure that their actions do not contribute to the loss. The decision also underscores the evidentiary value of expert reports and surveyor’s assessments in insurance disputes.

Key Takeaways

• Insurance contracts are to be interpreted strictly, and exclusion clauses will be applied if the insurer proves their applicability.
• Expert reports and surveyor assessments are crucial evidence in insurance disputes.
• The burden of proving the applicability of exclusion clauses lies on the insurer.
• Insured parties must ensure that their actions do not contribute to the loss, as this may lead to denial of claims.
• Independent expert reports must be based on site-specific evidence to be considered credible.

Directions

The Supreme Court set aside the impugned order of the NCDRC. There were no further directions.

Development of Law

The ratio decidendi of this case is that insurance contracts are to be interpreted strictly, and exclusion clauses will be applied if the insurer proves their applicability through credible evidence, such as expert reports and surveyor assessments. This case reinforces the principle that the burden of proof lies on the insurer to demonstrate the applicability of exclusion clauses and that mere theoretical reports are not sufficient to rebut the findings of site-specific investigations. This decision does not change the previous position of law but reinforces the existing principles.

Conclusion

The Supreme Court’s decision in United India Insurance Co. Ltd. vs. M/s Hyundai Engineering & Construction Co. Ltd. upholds the insurance company’s repudiation of the claim. The court emphasized the importance of adhering to the terms of insurance contracts and the need for credible evidence to support claims. The judgment underscores the significance of expert reports and surveyor assessments in insurance disputes and reinforces that insurance companies can deny claims if the insured’s actions or negligence contributed to the loss, provided the policy has exclusion clauses to that effect.