Fire Insurance Claims: Supreme Court Says Cause of Fire Is Irrelevant Unless Insured Acted Deliberately

The Supreme Court has held that when damage is caused by fire, the reason for how the fire started is not relevant, as long as it was not caused by the insured deliberately. Any loss resulting from such a fire would be covered under a fire insurance policy, court said.

A bench of Justices J.K. Maheshwari and Vijay Bishnoi explained that a fire insurance policy is a contract under which the insurer agrees to compensate the insured for losses caused by fire. Once it is established that the damage was due to fire, the cause leading up to the fire does not matter, it said. 

Court also reiterated that exclusion clauses in insurance contracts must be interpreted strictly. If there is any ambiguity in the policy terms, the benefit must go to the insured.

The ruling came in an appeal filed by Cement Corporation of India challenging a July 16, 2015 order of the National Consumer Disputes Redressal Commission, which had rejected its claim against ICICI Lombard General Insurance Company Limited.

The case arose from an incident in the early hours of November 1, 2006, when thieves broke into the appellant’s factory. The intruders used a blow torch and gas cutter in an attempt to steal copper windings and transformer oil. During the process, a transformer caught fire, which then spread within the factory premises.

Following the incident, the company assessed its loss at Rs 2.20 crore and filed an insurance claim. However, the insurer rejected the claim, relying on a surveyor’s report which stated that the loss fell under an exclusion clause related to riots, strikes, malicious acts, and damage.

In 2008, the insurer formally repudiated the claim, arguing that the loss was not covered under the fire policy because it was triggered by theft and malicious activity. Cement Corporation of India then approached the NCDRC, which upheld the insurer’s stand, holding that burglary was the proximate cause of the damage and that theft was not covered under the policy.

The Supreme Court disagreed. While examining the case, the bench referred to its earlier ruling in Orion Conmerx Pvt Ltd vs National Insurance Co Ltd, where it was held that if something catches fire when it should not have, and the fire was not caused by the insured’s wilful act, the resulting loss must be covered under a fire insurance policy.

Applying that principle, court observed that the loss in the present case was clearly caused by fire. The theft only preceded the fire and did not change the nature of the damage.

The bench noted that theft or burglary was not excluded under the fire peril in the policy. It further pointed out that the general exclusion clauses also did not bar claims where theft merely preceded the insured peril of fire. Such exclusions were applicable only under the Riots, Strike, Malicious and Damage clause, and not under the fire cover.

Court emphasised that exclusion clauses must be read narrowly and cannot be used to deny liability when the damage is clearly attributable to a covered peril like fire.

Holding that there was no valid reason for the insurer to reject the claim, the Supreme Court found that the NCDRC had erred in dismissing the complaint.

The appeal was allowed, the repudiation letter issued by the insurer was set aside, and the matter was sent back to the NCDRC to assess the loss. The Commission has been directed to decide the claim expeditiously, and in any case within six months.

Case Title: Cement Corporation of India Vs ICICI Lombard General Insurance Company Limited

Bench: Justices J.K. Maheshwari and Vijay Bishnoi