NCDRC Holds Bajaj Allianz Insurance Liable For Service Deficiency Due To Ambiguous Terms

NCDRC Holds Bajaj Allianz Insurance Liable For Service Deficiency Due To Ambiguous Terms

Affirms the State Commission's order and found no flaw with its reasoning

The National Consumer Disputes Redressal Commission (NCDRC) has held that the vague terms in an insurance contract should be interpreted in favor of the insured party in the event of a dispute.

The complainant, dealing in the coconut business, obtained a loan from the bank, secured by the hypothecation of stock.

The bank insured the stock with Bajaj Allianz General Insurance (insurer) under a policy.

However, a fire broke out at the complainant’s premises, destroying a numerous coconuts. She reported the incident to the fire department and the insurer. The latter's surveyor assessed the loss, but the claim was repudiated, citing that the policy covered stock stored only in closed premises.

The complainant argued that the stock was kept in a covered space with four walls, and she was unaware of the policy's specific terms until after the incident.

She approached the Andhra Pradesh State Commission, which allowed the complaint.

It directed the insurer to pay Rs.16,42,617 for the loss of coconuts with 9 percent interest, Rs.50,000 as compensation and Rs.10,000 as litigation costs.

It also directed the bank to pay Rs.1,50,000 in compensation and Rs.10,000 as costs to the complainant.

Aggrieved by the State Commission's order, the insurer appealed before the NCDRC.

However, the bank did not contest the order of the State Commission.

The insurer argued before the National Commission the complainant's classification as a 'consumer' under the Consumer Protection Act, 1986, acknowledging the specifics of the insurance policy. It emphasized that the coverage extended only to the stock stored in enclosed spaces.

It added that only Rs.16,42,612 worth of stock was affected, adhering to the policy's terms, and subsequently, denied the claim.

It contended that the bank had submitted before the State Commission that securing insurance was not obligatory for obtaining the loan and highlighted the complainant's freedom to select any insurer. It denied service deficiency and disclaimed responsibility for the insurance.

The National Commission presided over by AVM J. Rajendra, noted that the issue was whether the coconuts stored in the specified premises were covered under the insurance policy.

While acknowledging the insurance of the premises, the insurer contended that the coverage extended only to the stock stored within the closed premises, excluding open areas. On the other hand, the complainant argued that the insured premises encompassed enclosed spaces and open areas enclosed by walls.

The bench observed that the policy's ‘Open Stock Warranty’ explicitly stated that the coverage applied solely to the stock stored in closed premises, creating ambiguity in its interpretation.

It cited the precedent in the Haris Marine Products v. ECGC Ltd case, wherein the principle of contra proferentem was adhered to in the insurance contracts. The principle dictated that ambiguous terms should be interpreted in favor of the insured party.

Thus, the National Commission affirmed the State Commission's order and found no flaw with its reasoning.

However, it also cited the DLF Homes Panchkula Pvt. Ltd. v. D.S. Dhanda case, emphasizing that multiple compensations for a single deficiency were not justifiable. Thus, the Commission modified the compensation amounts awarded by the State Commission.

The NCDRC directed the insurer to compensate the complainant by paying Rs.16,42,617 for the loss of coconuts, including interest at 9 percent per annum. The insurer and the bank were also instructed to reimburse the complainant Rs.20,000 each, towards litigation costs.