Burden of proof in exclusion clauses in Insurance contracts.

This case involves a property damage claim made by Vedic Resorts and Hotels (Insured) under an insurance policy issued by National Insurance Company Ltd (Insurer).

Brief Facts:

This case involves a property damage claim made by Vedic Resorts and Hotels (Insured) under an insurance policy issued by National Insurance Company Ltd (Insurer). The case of the Insured was that 200 – 250 individuals entered the property of the Insured and caused physical damage to the property of the Insured. These individuals entered the property of the Insured as they were chasing some criminals who shot at the public.

Grounds on which the Insurer repudiated the cliam:

The Insurer repudiated the claim on the premise that the damage to property was caused due to the malicious acts of the Insured as they had harboured the criminals who were being chased by the public.The loss in respect of which the subject claim was made, was an outcome of the malicious act and therefore fell within the exclusions under Clause V(d) of the Subject policies.

Exclusion Clause relied upon by the Insurer while repudiating the claim.

“V. Riot, Strike and Malicious Damage:

Loss of or visible physical damage or destruction by external violent means directly caused to the

property insured but excluding those caused by:

(a) to (c)………………

(d) burglary, housebreaking, theft, larceny or any such attempt or any omission of any kind of any

person of any person (whether or not such act is committed in the course of a disturbance of public

peace) in any malicious act.

If the Company alleges that the loss/damage is not caused by any malicious act, the burden of

proving the contrary shall be upon the insured.”

Complaint filed before the National Consumer Redressal Forum (National Commission)

The Insured filed a complaint before the National Commission. The National Commission allowed the compliant. The Insurer challenged the decision of the National Commission before the Supreme Court of India.

Decision of the Supreme Court of India.

The Supreme Court of India confirmed the order of the National Commission and dismissed the appeal of the Insurer on the following grounds:

1. There is hardly any material to show that the entire incident and the resultant damage to the insured property was caused as a result of the malicious act of the Respondent-complainant. Even if, the allegations against the said Gaffar Molla and his associates are taken at their face value, it is difficult to accept the contention raised by the learned counsel for the appellant that the damage caused by the frenzied mob which had chased said Gaffar Molla and his associates, was caused due to the malicious act on the part of the respondent and therefore was excluded from the coverage in view of Clause V(d) of the subject Policy.
2. It is trite to say that wherever such an exclusionary clause is contained in a policy, it would be for the insurer to show that the case falls within the purview of such clause. In case of ambiguity, the contract of insurance has to be construed in favour of the insured.
3. Beneficial reference of the decision in National Insurance Company Limited vs. Ishar Das Madan Lal¹ be made in this regard, in which it has been held that: –
4. “8. However, there may be an express clause excluding the applicability of insurance cover. Wherever such exclusionary clause is contained in a policy, it would be for the insurer to show that the case falls within the purview thereof. In a case of ambiguity, it is trite, the contract of insurance shall be construed in favour of the insured”

Conclusion

The decision of the Supreme Court of India correctly reiterates the principles of interpreting exclusion clauses in insurance contracts. The burden of proof lies on the Insurer to demonstrate that the claim falls under the purview of the exclusion clauses.

Footnotes

* National Insurance Company LTD V. Vedic Resorts and Hotels Pvt Ltd – 2023 SCC ONLINE SC 648

1. (2007) 4 SCC 105

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