Insurance claims can't be rejected on definitions of terrorism, says SC

The verdict came on a plea of Narsingh Ispat Ltd, the insurance claims of which under the Standard Fire and Special Perils Policy, was repudiated by the Oriental Insurance Company Ltd

In a significant verdict, the Supreme Court on Monday held that the parties, including insurance firms, cannot rely on definitions of terrorism in various penal laws to repudiate insurance claims which have to be governed by the definition of the term given in the policy.

The verdict came on a plea of Narsingh Ispat Ltd, a Jharkhand-based firm, the insurance claims of which under the Standard Fire and Special Perils Policy, was repudiated by the Oriental Insurance Company Ltd by taking recourse of the 'exclusion clause' in the policy regarding loss or damage caused by acts of terrorism.

The repudiation was upheld by the National Consumer Disputes Redressal Commission (NCDRC) which referred to the definitions of the term 'terrorism' provided under various penal laws.

A bench comprising Justices Ajay rastogi and Abhay S Oka set aside the verdict of the apex consumer body, NCDRC, and restored the complaint of the insured firm besides asking the insurance firm to deposit the sum of Rs 89 lakh in the Registry of the Commission within one month from Monday.

“The same shall be deposited in the interest­-bearing account on auto renewal basis. At the same time, the appellant (insured firm) will be at liberty to file an application for withdrawal of the amount before the Commission pending complaint. If such an application is filed by the appellant, the Commission may examine on its own merits and decide the same in accordance with law,” the top court said.

The verdict, penned by Justice Oka, dealt in detail the exclusion terms on the ground of terrorism of the policy and said the insurance company did not discharge the "burden of bringing the case within the four corners of the Exclusion Clause”.

“When the policy itself defines the acts of terrorism in the Exclusion Clause, the terms of the policy being a concluded contract will govern the rights and liabilities of the parties. Therefore, the parties cannot rely upon the definitions of ‘terrorism' in various penal statutes since the Exclusion Clause contains an exhaustive definition of acts of terrorism,” it held.

It also said NCDRC “committed an error” by applying the Exclusion Clause and moreover, the policy specifically covers the damage to the insured's property caused by violent means.

According to the case records, Narsingh Ispat Ltd had purchased the Standard Fire and Special Perils Policy from the insurance firm for the period from June 28, 2009 to June 27, June 2010 for its plant at village Khunti in Saraikela, Jharkhand for a sum assured of Rs 26 crore by paying a premium of over Rs 2 lakh.

According to the insured firm, the policy covered the loss caused to the property of the appellant on account of fire, lightning, explosion, riots, strike, among others. Later, a claim was lodged on the basis of the policy based on the incident of March 23, 2010 in which about 5,0­60 anti-social armed people entered the factory premises and demanded money and jobs for local people.

The rioting mob then caused substantial damage to the factory, machinery and other equipment with an intention to terrorise the management and workers by forcing them to pay a ransom to the miscreants.

The claim was denied based on the exclusion clause by the insurer and this was upheld by the NCDRC.