In a crucial ruling, the Supreme Court of India, comprising Justice J.B. Pardiwala and Justice R. Mahadevan, criticized an insurance policy condition that restricted claims only to accidents occurring within the insured premises, terming it “absurd.” The Court directed United India Insurance Company Limited to compensate M/s Tarapore and Co. with ₹40 lakh plus applicable taxes, not exceeding ₹45 lakh, for damages sustained by a crane in an accident.
Case Background
M/s Tarapore and Co. purchased a Tata Hitachi Heavy Duty Crane in 1999 for ₹3.01 crore and insured it with United India Insurance Company Limited. The policy was renewed periodically.
On June 14, 2007, while being used at the Tata Steel Complex, Jamshedpur, the crane suffered a boom collapse and was severely damaged. The company promptly reported the accident and requested a spot survey. The estimated repair cost was assessed at ₹70.15 lakh. However, despite multiple follow-ups, the insurance company delayed the claim processing.
Finally, on March 31, 2011, after nearly four years, the insurer rejected the claim, citing that the accident occurred outside the insured premises, which was recorded in the policy as Tarapore & Co., Patel Building, Main Road Bistupur, Jamshedpur. This led the appellant to file a commercial suit, which was dismissed by the Madras High Court in 2019. The dismissal was upheld in appeal in 2022, leading to the present appeal before the Supreme Court.
Important Legal Issues
The case raised key legal questions:
1. Validity of insurance policy terms restricting claims to accidents occurring only at the insured address.
2. Whether the insurer was justified in rejecting the claim on technical grounds despite no dispute regarding the accident or damages.
3. Interpretation of insurance contracts to ensure fairness and substantial justice.
Supreme Court’s Observations
The Supreme Court found the insurance company’s stance highly unreasonable and questioned the logic behind the condition:
– “Neither of the parties paid attention to such an absurd condition. The appellant, while insuring the crane, should have pointed out that a crane is meant for construction sites, not for office use. Similarly, the insurance company should have questioned how a crane could be operated inside the insured premises.”
– “There is no dispute regarding the accident, the damages, or the quantum of the claim. Yet, it took years for the insurance company to reject the claim on a mere technicality.”
The Court expressed its discontent over delayed justice, remarking that “substantial justice should not be sacrificed at the altar of technical interpretations.”
Decision of the Court
Acknowledging the peculiar circumstances, the Supreme Court encouraged the insurer to take a fair approach. Upon further deliberation, United India Insurance agreed to pay ₹40 lakh plus applicable taxes (capped at ₹45 lakh) to settle the dispute.
The Court disposed of the appeal with directions that the payment be made within six weeks, thereby ensuring that justice is served in a pragmatic manner.
This ruling sets a significant precedent for interpreting insurance policies in a manner that aligns with commercial practicality and fairness, rather than rigid technicalities.
