The Supreme Court ruled that exclusion clauses in insurance policies must be interpreted strictly and any ambiguity must benefit the insured. The Court held that when loss is caused by fire, the reason behind the fire becomes irrelevant for insurance liability.
New Delhi: The Supreme Court of India has clearly ruled that exclusion clauses in insurance policies must always be read strictly and any doubt or ambiguity in the terms of an insurance contract must be interpreted in favour of the insured person or company.
The Court made this important observation while deciding a Civil Appeal filed by Cement Corporation of India against the judgment passed by the National Consumer Disputes Redressal Commission (NCDRC), New Delhi.
The case was heard by a two-Judge Bench consisting of Justice J.K. Maheshwari and Justice Vijay Bishnoi. The Bench strongly emphasised the settled legal principle governing insurance contracts and observed,
“Additionally, in case of insurance contracts, the exclusion clause must be construed strictly and wherever there is any ambiguity between two or more clauses in the contract, it must be interpreted in favour of the insured. … In the case at hand, in terms of the policy, the burglary/theft is not an exclusion under the specified peril ‘Fire’.”
The Supreme Court further reiterated that once damage is caused by fire, the reason or chain of events that led to the fire does not matter for deciding insurance liability. According to the Court, the cause behind the fire becomes irrelevant if the policy covers fire as an insured peril.
In this case, Advocate-on-Record Arvind Kumar Gupta appeared for the Appellant, Cement Corporation of India, while Senior Advocate Narender Hooda represented the Respondent, ICICI Lombard General Insurance Company Limited.
The facts of the case show that Cement Corporation of India, a Government company, had invited tenders in June 2005 for insurance coverage of its various units, dumps, and offices. ICICI Lombard General Insurance Company Limited submitted its bid for providing a centralised insurance policy.
After being selected as the successful bidder, the insurance company was awarded the contract and issued a Standard Fire and Special Perils Policy (Material Damage) covering the Appellant’s units.
In November 2006, a serious incident occurred at one of the factories of Cement Corporation of India. During the night, some petty thieves entered the factory premises using a blow torch and a portable gas cutter-type device.
Their intention was to steal winding copper and transformer oil. However, while using bolt cutters and a blow torch, they accidentally triggered a fire in the transformer. This fire quickly spread within the factory premises and caused massive damage.
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After the incident, the Appellant immediately informed the insurance company and also lodged a First Information Report (FIR). The Appellant assessed the loss at Rs 2,20,14,190 and submitted a formal insurance claim for the same amount.
Although the insurance company acknowledged the claim, its surveyor later stated that the insurer would not be liable because the incident allegedly fell under the exclusion clause, specifically exclusion sub-clause (d) of Clause V of the policy.
Based on this opinion, ICICI Lombard rejected the claim, stating that the loss was not covered since it arose due to theft and malicious damage, which according to them fell under the Riots, Strike, Malicious and Damage (RSMD) exclusion clause.
Aggrieved by this rejection, Cement Corporation of India approached the NCDRC, but the Commission dismissed the complaint. This led the Appellant to approach the Supreme Court.
While examining the matter, the Supreme Court carefully analysed the nature of fire insurance contracts and referred to authoritative legal literature.
The Court observed,
“In Avtar Singh’s Law of Insurance, 2nd Edition 2010, pp. 89, it was observed that the law need not go into the cause of the causes in case of fire as it may result in an infinite process.”
The Bench explained that a fire insurance policy is a contract meant to compensate the insured for losses caused by fire. It clarified the legal position further by stating,
“… if there was a fire and something was on fire which ought not to be on fire and such a fire was not caused by the wilful act of the insured, then any loss attributable to fire would be covered under the policy”.
The Court also took note of the undisputed facts on record. It observed that the fire occurred inside the Appellant’s factory, caused extensive damage, and continued for nearly six hours before it could be brought under control.
Importantly, the Court pointed out that the FIR clearly mentioned that flames were coming out of the transformer and there was no allegation at any stage that the insured company had deliberately caused the fire.
Referring to these facts, the Court observed,
“It is also an admitted position that, on the intervening night of 01.11.2006, some miscreants entered the factory and committed burglary. It was reported in the FIR that flames were coming out of the transformer and at no stage any defense was taken that the insured caused the fire. Thus, it is now established that the loss caused to the Appellant was due to fire only and the incident of theft/ burglary merely preceded the incident of fire”.
The Supreme Court further clarified that even the general exclusion clauses in the insurance policy did not exclude theft that merely preceded the insured peril of fire. It noted that theft was excluded only under the RSMD clause and not under the fire peril clause.
Emphasising strict interpretation of exclusion clauses, the Court held,
“It is a trite law that the exclusions in the contract for insurance must be read strictly and, therefore, the exclusion provided under the RSMD clause would not oust the liability of the insurer when the loss or damage is attributable to the peril of fire which has its independent exclusions. … there is no justification for the Respondent to repudiate the claim of the Appellant and the NCDRC had erred in not rectifying the mistake and to reject the claim”.
In conclusion, the Supreme Court allowed the appeal filed by Cement Corporation of India, set aside the judgment of the NCDRC, and remitted the matter back to the Commission for fresh assessment of the loss in accordance with law.
The Appellant was represented by AOR Arvind Kumar Gupta along with Advocates Abhiesumat Gupta and Rishi Bhardwaj, while the Respondent was represented by Senior Advocate Narender Hooda, AOR Gautam Jha, and Advocates Siddhartha Jha, Shweta Jha, Kartik Jha, Anupama Jha, Yuvraj, and Tannu.
Case Title:
Cement Corporation of India v. ICICI Lombard General Insurance Company Limited
2025 INSC 1444
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