Export insurance claim dismissed over delayed declarations, premium

Advance premium had to be deposited to secure coverage under Section 64VB of the Insurance Act. Failure to fulfil this obligation meant the risk was not covered

Krishna Agrotech obtained a Shipment Comprehensive Risk (SCR) Policy from the Export Council Guarantee Corporation of India (ECGC) to safeguard against risks associated with short-term credit-based exports. 

The company entered into a contract with Shyam Overseas in the Republic of Guinea to supply biscuits, salt, and rice. Two shipments of Swarna (non-Basmati) rice were dispatched on March 25, 2013, and April 14, 2013, with payments scheduled for May 28, 2013, and June 14, 2013, respectively. While declarations about the shipments were submitted to ECGC on April 16, 2013, and May 16, 2013, the premium payment was delayed until July 22, 2013. 

When the overseas buyer defaulted on payment, Krishna Agrotech reported the default on October 28, 2013, and subsequently lodged a claim for Rs 41,46,552 on January 8, 2014. ECGC repudiated the claim on May 28, 2014, citing non-compliance with policy terms, including non-timely declarations and failure to deposit the advance premium. 

Unwilling to accept the repudiation, Krishna Agrotech filed a complaint with the West Bengal State Commission. ECGC contested the complaint, arguing that the policy was purchased for commercial purposes and was therefore beyond the jurisdiction of consumer protection laws. Furthermore, ECGC maintained that the insured had failed to adhere to the policy’s stipulations regarding timely declarations and premium deposits, so the risk was not covered. 

The State Commission ruled in favour of Krishna Agrotech, relying on the precedent established in Harsolia Motors v. National Insurance. That judgement had clarified that insurance is procured not for commercial profit but to indemnify against contingent losses. The State Commission also noted that ECGC had failed to provide details of premium deposited and adjusted against goods exports so that further amounts towards advance premium could be deposited when required. The Commission allowed the complaint and directed ECGC to settle the claim. 

Dissatisfied with the ruling, ECGC appealed to the National Commission, reiterating its stance that the claim had been rightfully repudiated. The National Commission emphasised that insurance contracts must be construed strictly, and a liberal interpretation which would alter the nature of the contract is not permissible. It also observed that a commercial contract must be read as a whole and every attempt should be made to harmonise its terms so that it does not adversely affect the interests of either party. 

The National Commission concurred with the view that the insured was a consumer and was entitled to file a complaint under the provisions of the Consumer Protection Act. However, on merits, it found that the insured had breached critical policy terms. The policy required declarations for shipments made during the previous month to be submitted in the prescribed form by the 15th of each calendar month. Even when no shipments were made, a “Nil” declaration was mandatory. 

Additionally, the insured had to intimate the details of overdue payments when default exceeded 30 days. Also, advance premium had to be deposited to secure coverage under Section 64VB of the Insurance Act. Failure to fulfil these obligations meant the risk was not covered, absolving ECGC of any liability to settle the claim. 

On November 25, 2024, Subhash Chandra delivered the National Commission’s verdict. The Commission upheld ECGC’s appeal and dismissed the complaints, ruling that the claim had been validly repudiated.

 

The writer is a consumer activist