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Narsingh Ispat Ltd. vs Oriental Insurance Company Ltd. & Anr.

Civil Appeal · 2022 INSC 502Decided 2 May 2022
Civil Appeal No. 10671 of 2016
Ajay Rastogi · Abhay S. Oka

Background

Narsingh Ispat Ltd. had a fire and special-perils insurance policy covering its factory in Jharkhand. In March 2010, around 50-60 armed persons broke into the factory at night, damaged machinery and the blast furnace control system, and stole cash and equipment, allegedly demanding money and jobs for local people. The insurer's surveyor assessed the loss at about Rs. 89 lakh, but the insurance company repudiated the claim entirely, invoking a "Terrorism Damage Exclusion Warranty" in the policy. The National Consumer Disputes Redressal Commission upheld the repudiation, and the company appealed to the Supreme Court.

Decision Breakdown

The Supreme Court held that under the policy's own Exclusion Clause, an act only counts as "terrorism" if committed for a political, religious, ideological or similar purpose, and the burden was on the insurer to prove this. The insurer's own investigation report (produced only after the Court directed it) admitted it was not conclusively proved that Maoist or similar activists were involved, and the police closure report likewise did not establish a terrorism angle. Since the policy separately and explicitly covered damage caused by riots and violent means, and the insurer failed to bring the incident within the narrow contractual definition of terrorism, the repudiation could not stand. The Court set aside the Commission's order, restored the consumer complaint for fresh hearing on the quantum of compensation, and directed the insurer to deposit the surveyor-assessed Rs. 89 lakh with the Commission pending final adjudication.

Lesson Learnt

An insurer relying on an exclusion clause bears the burden of proving the excluded event actually occurred as defined in the policy; vague suspicion or an unproven allegation of "terrorism" cannot be used to deny a legitimate claim, and any ambiguity in an insurance contract is construed in favour of the insured.

Official source (sci.gov.in)View Judgment (PDF)

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