Contract of service versus Contract for service; An Insurance dispute perspective
The Hon’ble Supreme Court of India vide an order dated 15th April, 2020 passed in matter of SushilabenIndravadan Gandhi & Anr. v. The New India Assurance Company Limited & Ors. explained the difference between Contract of service and contract for service whilst analysing an insurance claim. In the present matter, Dr. Alpesh Gandhi, an honorary ophthalmic with the Rotary Eye Institute, Navasari had died while travelling in a mini-bus that was owned by the Rotary Eye Institute, Navsari (“Insured”) due to rash and negligent driving of the driver. The Insured had taken up a “Private Car B” policy from the New India Assurance Company Limited wherein, it had paid an additional premium for endorsement IMT-5. The endorsement IMT-5 gave additional accidental personal coverage to unnamed passengers other than the insured, his paid driver or cleaner or a person employed by the insured and coming within the scope of the Workman Compensation Act, 1923 to the scale of 100% compensation in case of death.
Consequently, the wife of the deceased filed a petition under Section 166 of the Motor vehicles Act, 1988 before the Motor Accidental Claim Tribunal and claimed compensation to the tune of Rs. 1 crore for the death of Dr. Gandhi. The Tribunal held that the employment arrangement between the deceased surgeon and the Insured was that of a ‘Contract for Service’ and thus the deceased was not an employee of the insured hospital. On this basis, the MACT directed the insurance company along with the insured hospital and driver of the mini-bus to pay compensation of Rs.37,63,100/- along with interest at the rate of 8%p.a. However, the Insurance Company aggrieved by the said order filed an appeal before the Hon’ble High Court of Gujarat, who gave a contrary judgment on the aspect of the limitation of liability clause under the Insurance Policy. Vide the said clause, the Insurance Company is exempted from any liability towards third party wherein the death arises out of and in the course of the employment of such person. It further held that since the contract between the Insured and the deceased surgeon was a ‘Contract of Service’, the liability of insurance company toward the deceased doctor was limited to the extent of Rs.50,000/-. Consequently, the wife of the deceased surgeon filed an appeal before the Hon’ble Supreme Court of India for enhancing the amount of compensation.
Whilst dealing with the aspect as to whether the deceased can be said to be employed by the Insured, the Hon’ble Supreme Court examined the terms and conditions of the contract executed between the Insured and the deceased. On perusal of the said contract, the Hon’ble Supreme Court observed that the said contract was captioned as a ‘Contract for Services’ and that the designation of the deceased was that of an Honorary Ophthalmic Surgeon at the Rotary Eye Institute, Navsari. Further, the amount of INR 4000 to be paid to the deceased every month was declared to be honorarium as opposed to salary. Additionally, the deceased was not entitled to any financial benefits as would have been available to other regular employees so far as the leave rules were concerned.
In light of the above, the Hon’ble Supreme Court observed that depending on the different factual scenarios, the courts can only perform a balancing act weighing all relevant factors which point in one direction as against those which point in the opposite direction to determine the nature of the contractual arrangement between the parties. It further propounded that the balancing process may depend on the context in which a finding is to be made. Thus, if the context is one of a beneficial legislation being applied to weaker sections of society, the balance tilts in favour of declaring the contract to be a ‘Contract of Service’. On the other hand, where the context is that of legislation other than beneficial legislation or only in the realm of contract, and the context of that legislation or contract would point in the direction of the relationship being a contract for service, then, other things being equal, the context may then tilt the balance in favour of the contract being construed to be one which is for service.
Accordingly, the Hon’ble Supreme Court by performing a balancing act held that considering the terms of the contract as explained hereinabove and the fact that the appointment was contractual for a tenure of 3 years and extendable only by mutual consent, which could be terminated by notice on either side, this inter alia show that the Insured and the deceased were dealing with each other more as equals than as master-servant, thereby clarifying that the deceased was not a regular employee of the Insured.
Further, as regards the second question pertaining to the limitation of liability clause in the insurance policy, the court proceeded to analyze if the expression “employment” is to be construed widely or narrowly – if widely construed, a person may be said to “employed” by an
employer even if he is not a regular employee of the employer.
At this juncture, the court applied the principle of contra proferentum and inter alia concluded that a wider meaning that has been canvassed for by the insurance company cannot possibly be given, since the language immediately before, “in the course of”, indicates that the “employment” can only be that of a person regularly employed by the employer. Further, assuming that there is an ambiguity or doubt, the contra proferentum rule referred to hereinabove, upon being applied, makes it clear that such “employment” refers only to regular employees of the Institute. Since the deceased was not a regular employee, the said rule shall have no stance. Accordingly, the Hon’ble Supreme Court concurred with the findings recorded by the Motor Accident Claims Tribunal and set aside the order passed by the High Court.
