1996 AIR(SC) 2054 ; 1996 2 CPJ(SC) 18 ; 1996 3 CPR(SC) 222 ; 1996 6 JT 32 ; 1996 4 Scale 640 ; 1996 4 SCC 647 ; 1996 Supp3 SCR 22 ; 1996 4 Supreme 557
SUPREME COURT OF INDIA
M.M. Punchhi & K.S. Paripoornan, JJ.
B.V. NAGARAJU—Appellant
versus
M/S. ORIENTAL INSURANCE CO. LTD.
DIVISIONAL OFFICE, HASSAN—Respondent
Civil Appeal No. 6296 of 1995—Decided on 20.5.1996
(A) The case involves the interpretation of a comprehensive insurance policy for a goods vehicle, specifically examining the 'Limitations as to use' clause. The policy restricted the carriage of passengers to a maximum of six employees under the Workmen's Compensation Act, 1923, and mandated that the vehicle be used only for the carriage of goods within the meaning of the Motor Vehicles Act, 1988. The central legal conflict is whether a breach of these specific limitationscarrying more passengers than permittedconstitutes a fundamental breach of contract sufficient to void the insurer's liability for vehicle damage, or whether such clauses should be 'read down' to ensure the main purpose of the insurance contract is fulfilled.
(B) The court applied the 'main purpose rule,' asserting that exclusion clauses should not be interpreted so strictly that they defeat the primary objective of the contract. A breach is only fundamental if it contributes to the cause of the accident or significantly increases the risk. If the breach is irregular but not contributory to the loss, the insurer cannot eschew liability.
Facts of the case:
The registered owner of a goods vehicle insured under a comprehensive policy sought reimbursement for repair costs after the vehicle was damaged in a head-on collision with another vehicle. The insurer rejected the claim on the grounds that the vehicle was carrying nine passengers, exceeding the policy limit of six employees. The State Commission allowed the claim based on the surveyor's estimate, but the National Consumer Disputes Redressal Commission reversed this decision, relying on a strict interpretation of the policy's exclusion clause.
Findings of Court:
The court found that the presence of extra passengers did not contribute to the cause of the accident, as the collision was caused by an oncoming vehicle. It observed that allowing a few extra persons in a vehicle, potentially without the owner's knowledge, is an irregularity but not a fundamental breach. The court emphasized that since the claim was limited to vehicle damage and not passenger injuries, the risk to the insurer was not increased in a manner that justified repudiation of the claim.
Issues:
1. Whether carrying more passengers than permitted in a goods vehicle insurance policy constitutes a fundamental breach allowing the insurer to deny liability altogether.
2. Whether insurance policy terms should be construed strictly or read down to advance the main purpose of the contract.
Ratio Decidendi:
Following the precedent in Skandia Insurance Co. Ltd. v. Kokilaben Chandravadan, the court held that exclusion clauses must be harmonized with the main purpose of the contract. If the breach of a condition does not contribute to the accident or increase the risk associated with the specific claim (in this case, own-damage to the vehicle), the clause should be read down to prevent the insurer from avoiding its primary obligation to indemnify.
Result:
Appeal allowed; the order of the National Consumer Disputes Redressal Commission was set aside, and the State Commission's order awarding repair costs was restored.
(A) The case involves the interpretation of a comprehensive insurance policy for a goods vehicle, specifically examining the 'Limitations as to use' clause. The policy restricted the carriage of passengers to a maximum of six employees under the Workmen's Compensation Act, 1923, and mandated that the vehicle be used only for the carriage of goods within the meaning of the Motor Vehicles Act, 1988. The central legal conflict is whether a breach of these specific limitationscarrying more passengers than permittedconstitutes a fundamental breach of contract sufficient to void the insurer's liability for vehicle damage, or whether such clauses should be 'read down' to ensure the main purpose of the insurance contract is fulfilled.
(B) The court applied the 'main purpose rule,' asserting that exclusion clauses should not be interpreted so strictly that they defeat the primary objective of the contract. A breach is only fundamental if it contributes to the cause of the accident or significantly increases the risk. If the breach is irregular but not contributory to the loss, the insurer cannot eschew liability.
Facts of the case:
The registered owner of a goods vehicle insured under a comprehensive policy sought reimbursement for repair costs after the vehicle was damaged in a head-on collision with another vehicle. The insurer rejected the claim on the grounds that the vehicle was carrying nine passengers, exceeding the policy limit of six employees. The State Commission allowed the claim based on the surveyor's estimate, but the National Consumer Disputes Redressal Commission reversed this decision, relying on a strict interpretation of the policy's exclusion clause.
Findings of Court:
The court found that the presence of extra passengers did not contribute to the cause of the accident, as the collision was caused by an oncoming vehicle. It observed that allowing a few extra persons in a vehicle, potentially without the owner's knowledge, is an irregularity but not a fundamental breach. The court emphasized that since the claim was limited to vehicle damage and not passenger injuries, the risk to the insurer was not increased in a manner that justified repudiation of the claim.
Issues:
1. Whether carrying more passengers than permitted in a goods vehicle insurance policy constitutes a fundamental breach allowing the insurer to deny liability altogether.
2. Whether insurance policy terms should be construed strictly or read down to advance the main purpose of the contract.
Ratio Decidendi:
Following the precedent in Skandia Insurance Co. Ltd. v. Kokilaben Chandravadan, the court held that exclusion clauses must be harmonized with the main purpose of the contract. If the breach of a condition does not contribute to the accident or increase the risk associated with the specific claim (in this case, own-damage to the vehicle), the clause should be read down to prevent the insurer from avoiding its primary obligation to indemnify.
Result:
Appeal allowed; the order of the National Consumer Disputes Redressal Commission was set aside, and the State Commission's order awarding repair costs was restored.
ORDER
M.M. Punchhi, J.—In this appeal by special leave, the question of importance arising therein is whether the alleged breach of carrying humans in a goods’ vehicle more than the number permitted in terms of the insurance policy, is so fundamental a breach so as to afford ground to the insurer to eschew liability altogether ? Ancillary to the question is the poser : whether the terms of the policy of insurance need be construed strictly or be read down to advance the main purpose of the contract as viewed by this Court in Skandia Insurance Co. Ltd. v.. Kokilaben Chandravadan & Ors., 1987 2 SCC 654?
2. The appellant herein was the registered owner of a ‘Tata’ Truck bearing No. KA-13/438, duly insured with the Oriental Insurance Co. Ltd., the respondent herein, vide Policy dated 24.8.90 covered for period uptil 23.8.91. The policy was comprehensive in nature, covering risk to the limit of Rs. 2,09,000/-. During the subsistence of the policy, the vehicle of the appellant met with an accident on 5.8.91 when, allegedly, a gas tanker came and dashed against the said vehicle. Apart from the other damage which occasioned due to the accident, the appellant’s vehicle sustained major damages on account of which repairs were necessitated. The appellant, therefore, incurred from his pocket repair charges/damages to the tune of Rs. 87,170/- in order to make the vehicle road-worthy. Pursuant to such expenditure, the appellant raised a claim with the respondent-Company inter alia for reimbursement of the repair charges/damages submitting therewith the claim-form and the bills for payment. The claim of the appellant was spurned. The appellant sent a legal notice calling upon the respondent-Company to make payment of the claim as per the contractual conditions of the policy but in vain. The appellant then moved the Karnataka State Consumer Redressal Forum under the Consumer Protection Act, 1986 raising a demand of Rs. 2,13,500/ -, diversifying the claim as repair charges, loss of prospective income, interest, legal notice charges and other miscellaneous expenses.
3. The respondent-Company denied their liability altogether stating that since the appellant’s goods vehicle was used for the purpose of carrying passengers, the appellant was disentitled to claim any compensation, and even otherwise those were nine in numbers. The amount of money spent by the appellant on repairs however was not seriously disputed as the respondent’s official Surveyor himself had estimated the repair possibility at Rs. 75,700/-.
4. The State Commission went into the matter thoroughly and by its order dated 19.7.93 allowed the claim of the appellant to the extent of Rs. 75,700/-, the figure at which the Official Surveyor of the respondent-Company had estimated the repair charges, alongwith interest at the rate of 18% per annum from the date of the accident i.e. 5.8.91 till the date of payment. A sum of Rs. 2,000/- also was awarded to the appellant as costs. This order, at the instance of the respondent-Company, was, however, upset on appeal on 30.11.94 by the National Consumer Disputes Redressal Commission, New Delhi, relying upon the terms of the insurance policy in taking the view that the policy did not cover use for carrying passengers in the vehicles except employees (other than the driver) not exceeding 6 in numbers, coming under the purview of the Workmen’s Compensation Act. This has culminated into this appeal.
5. The terms of the Insurance Policy, inter alia, provide as follows :
“Limitations as to use : Only for the carriage of goods within the meaning of the Motor Vehicles Act, 1988.
The policy does not cover—(1) Use for organised racing, pace-making reliability trial or speed testing. (2) Use whilst drawing a trailer except towing of any one disabled mechanically propelled vehicle. (3) Use for carrying passengers in the vehicle except employees (other than driver) not exceeding six in numbers coming under the purview of W.C. Act, 1923.”
6. Learned Counsel for the appellant, in support of this appeal, strongly relied on Skandia’s case (supra), making a fervent appeal that the terms of the policy afore referred to, should be read down to carry out the main purposes of the policy as the presence of 9 persons (when upto 6 were permissible), irrespective of their being employees or not, had not contributed in any manner to the occurring of the accident as also when the claim did not relate to any injuries to those 9 persons (who were owners of the goods loaded) or any loss incurred by them; the claim pristinely relating to the damage caused to the vehicle insured, which could not have been denied in the facts and the circumstances. Strong reliance, in support, was sought from the reasoning of the State Commission which had in so many words said :
“.... Even for the sake of argument, that 9 persons travelling in the vehicle were passengers, it cannot be a ground for Insurance Company to repudiate the contract as the fact of their being passengers or coolies does not make any difference to the risk involved. These persons were in no way concerned with the cause of the accident nor have they contributed to the risk in respect of the loss caused to the vehicle. The complainant has not claimed any compensation in respect of his liability to the persons travelling in the vehicle.”
7. It is plain from the terms of the Insurance Policy that the insured vehicle was entitled to carry 6 workmen, excluding the driver. If those 6 workmen when travelling in the vehicle, are assumed not to have increased any risk from the point of view of the Insurance Company on occurring of an accident, how could those added persons be said to have contributed to the causing of it is the poser, keeping apart the load it was carrying. Here, it is nobody’s case that the driver of the insured vehicle was responsible for the accident. In fact, it was not disputed that the oncoming vehicle had collided head-on against the insured vehicle, which resulted in the damage. Merely by lifting a person or two, or even three, by the driver or the cleaner of the vehicle, without the knowledge of owner, cannot be said to be such a fundamental breach that the owner should, in all events, be denied indemnification. The misuse of the vehicle was somewhat irregular though, but not so fundamental in nature so as to put an end to the contract, unless some factors existed which, by themselves, had gone to contribute to the causing of the accident. In the instant case, however, we find no such contributory factor. In Sikand’s case this Court paved the way towards reading down the contractual Clause by observing as follows :
“……..When the option is between opting for a view which will relieve the distress and misery of the victims of accidents or their dependents on the one hand and the equally plausible view which will reduce the profitability of the insurer in regard to the occupational hazard undertaken by him, by way of business activity, there is hardly any choice. The Court cannot but opt for the former view. Even if one were to make a strictly doctrinaire approach, the very same conclusion would emerge in obeisance to the doctrine of reading down’ the exclusion clause in the light of the “main purpose’ of the provision so that the “exclusion clause’ highlighted earlier. The effort must be to harmonize the two instead of allowing the exclusion clause to snipe successfully at the main purpose. The theory which needs no support is supported by Carter’s Breach of Contract” vide paragraph 251. To quote:
Notwithstanding the general ability of contacting parties to agree to exclusion clauses which operate to define obligations there exists a rule, usually referred to as the “main purpose rule”, which may limit the application of wide exclusion clauses defining a promisor’s contractual obligations. For example, in Glynnn v. Margetson & Co., 1893 AC 351, 357, Lord Halsbury, L.C. stated: It seems to me that in construing this document, which is a contract of carriage between the parties, one must in the first instance look at the whole instrument and not at one part of it only. Looking at the whole instrument, and seeing what one must regard .... as its main purpose, one must reject words, indeed whole provisions, if they are inconsistent with what one assumes to be the main purpose of the contract.
Although this rule played a role in the development of the doctrine of fundamental breach, the continued validity of the rule was acknowledged when the doctrine was rejected by the House of Lords in Suissee Atlantique Societe d’ Armement Maritime S.A. v. N.V. Rotterdamsche Kolett Central, 1967 (1) AC 361. Accordingly, wide exclusion clauses will be read down to the extent to which they are inconsistent with the main purpose, or object of the contract.”
8. The National Commission went for the strict construction of the exclusion clause. The reasoning that the extra passengers being carried in the goods vehicle could not have contributed, in any manner, to the occurring of the accident, was barely noticed and rejected sans any plausible account; even when the claim confining the damage to the vehicle only was limited in nature. We, thus, are of the view that in accord with the Skandia’s case, the aforesaid exclusion term of the insurance policy must be read down so as to serve the main purpose of the policy that is indemnify the damage caused to the vehicle, which we hereby do.
9. For the view above taken, this appeal is allowed, the judgment and order of the National Consumer Disputed Redressal Commission, New Delhi is set aside and that of the State Commission is restored in its entirety, but without any order as to costs.
Appeal allowed.
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