Theft without force isn't burglary

SC has observed that a clause in an insurance policy must be interpreted in a manner which benefits the insured only when the wording is ambiguous

Industrial Promotion & Investment Corporation of Odisha Ltd (IPCOL) finances medium- and large-scale industries within the state. It also sets up joint sector industries with private entrepreneurs.

IPCOL advanced a term loan of Rs 40.74 lakh to Josna Casting Centre Orissa, a private limited company. Since the loan amount was not repaid, IPCOL took over Josna's assets. These were later insured for Rs 46 lakh under a miscellaneous accident policy, Rs 60.4 lakh under a fire policy and Rs 46 lakh under a burglary and house breaking policy, all from New India Assurance.

The assets were put for auction on January 22, 1997, when it was detected that some parts of plant and machinery were missing from the factory premises. An FIR was lodged with the police on January 25, 1997, about the theft/burglary. On February 7, 1997, IPIC informed New India about the loss and made a claim of Rs 34.4 lakh under the burglary and house breaking policy. The claim was repudiated on March 31, 1998, stating that since there was no forcible entry or exit, it did not constitute burglary or house breaking, and hence, did not fall within the purview of the policy.

IPCOL filed a complaint before the erstwhile MRTP Commission (whose jurisdiction has now been transferred to consumer fora). The insurer argued the terms of a policy had to be strictly construed and the claim had to be rejected, as there was no forced entry or exit leading to the loss. The Commission upheld the insurance company's stand. IPCOL challenged this order.

The Supreme Court observed a clause in the policy must be interpreted in a manner which benefits the insured only when the wording is ambiguous or can be interpreted in different ways. Otherwise, it is a settled principle that a contract of insurance, like any other commercial contract, should be interpreted strictly, going by the terminology used in the policy or the ordinary meaning of the wordings.

The Court observed IPCOL had made out a case of theft without forcible entry or exit. In contrast, the policy covered loss or damage by burglary or house breaking, which meant theft involving entry to, or exit from, the premises by forcible and violent means or following assault or violence or threat to the insured or to his employees or to the members of his family. Thus, a claim would be maintainable under the policy only if forcible entry precedes a theft. The Supreme Court, in its order of August 8, 2016, concluded that in the absence of violence or force, the claim was not payable under the policy, and held the repudiation was justified.

A contract of insurance, unless ambiguous, must be interpreted strictly and harmoniously to give effect to the policy as it would be reasonably understood.

The author is a consumer activist