Will an Exclusionary Clause Under an Insurance Policy Apply in Instances When the Insured is Not Duly Informed?

A recent decision of the Hon’ble Supreme Court in New India Assurance Co. Ltd. vs Paresh Mohanlal Parmar encapsulates the legal principle of good faith and its equal application to the insured and insurer.

In the present regime, the case of the respondent before the Hon’ble Supreme Court was that the annexure containing terms of the insurance policy had not been attached along with the document of the policy furnished to him and therefore the Court had to establish if the same can be made a valid ground for upholding the claim.

The facts of the case are that the respondent had obtained a Shopkeepers Insurance Policy from the appellant Insurance Company covering the risk of fire, theft and burglary for a total sum insured of Rs.20 Lakhs. During the currency of the policy, mobile phones were stolen by an ex-employee who used duplicate keys to open the locks. Consequently, upon requesting for settlement of the claim the same was repudiated on grounds that the incident is not covered under the term burglary or housebreaking as per the terms of the Policy.

Aggrieved by the same, a complaint was filed before the District Forum which was subsequently dismissed essentially by relying on the judgment delivered by the Hon’ble Supreme Court in United Insurance Co. Ltd. Vs. Harchand Rai Chandan Lal wherein it was ruled that in order to substantiate a claim, an insured has to establish that theft or burglary took place preceding with force or violence and if the said element is not established, then the insurance company will be well within its rights to repudiate the claim of the insured.

Subsequently, an appeal and Revision Petition were filed before the State and National Commission, respectively. However, it was observed that the terms and conditions including the definition of burglary, housebreaking was very much a part of the contract of insurance and the insured failed to show any evidence that he was not informed of the terms and conditions of the insurance policy, thus entitling the Insurance Company to repudiate the claim.

Further, as regards the question pertaining to the relevant terms and conditions of the Insurance Policy not being brought to the knowledge of the insurer, Hon’ble Supreme Court stated that it was necessary for the Insurance Company to prove that the terms and conditions of said Policy were furnished to the Insured when the policy document was issued in his favor.

Additionally, the Court relied upon the judgment delivered in Bharat Watch Company through its partner Vs. National Insurance Company Ltd. wherein it was concluded that in the absence of the appellant being made aware of the terms of the exclusion, it is not open to the insurer to rely upon exclusionary clauses. On perusal of the same, it was concluded that the decision in Harchand Rai will have no application since there was no dispute of the policy document issued to the insured.

In view of such complexities, it was stated that the “NCDRC missed the concurrent findings of both the District Forum and SCDRC that the terms of exclusion were not made known to the insured. If those conditions were not made known to the insured, as is the concurrent finding, there was no occasion for NCDRC to render a decision on the effect of such an exclusion”.

In light of the above, it was upheld that an insurance company is duty bound to disclose all material facts including the terms and conditions of an insurance policy and therefore the present appeal was dismissed.