M/s Texco Marketing Pvt. Ltd. vs. Tata AIG General Insurance Company Ltd. & Ors.
Background
The appellant took a fire and special-perils insurance policy from Tata AIG for a shop situated in a building's basement, even though the policy's exclusion clause excluded basements from coverage; the insurer had inspected and was aware the shop was in the basement, and it also insured a similarly situated adjoining shop. After a fire damaged the shop, the insurer repudiated the claim citing the basement exclusion clause. The State Consumer Commission ruled in the appellant's favour, but the National Consumer Disputes Redressal Commission overturned that, applying the exclusion clause despite finding the insurer had itself been deficient in service.
Decision Breakdown
The Supreme Court held that an insurer cannot rely on an exclusion clause that it itself introduced into the contract when it knowingly entered into and executed that very contract with full knowledge of the excluded risk, inspected the premises, accepted premiums, and only invoked the clause after a claim arose: this amounts to unfair trade practice and a waiver of the clause. The Court extensively discussed the doctrines of adhesion contracts, uberrimae fidei (utmost good faith), and reading down exclusion clauses that conflict with the main purpose of an insurance contract. It set aside the National Commission's order (while declining the State Commission's separate award for harassment and mental agony) and allowed the appeal in part, also cautioning insurers generally about compliance with IRDA disclosure regulations.
Lesson Learnt
An insurer cannot accept premiums and inspect a risk with full knowledge of an excluded feature, and then invoke that same exclusion clause to deny a claim after a loss occurs: such conduct is an unfair trade practice under consumer law.