When insurance policy conclusively defines acts of terrorism, insurer cannot rely upon penal statutes: Supreme Court

When the insurance  policy itself defines the acts of terrorism in the Exclusion Clause, the terms of the policy being a concluded contract will govern the right and liabilities of the parties and the parties cannot rely upon the definitions of 'terrorism' in various penal statutes since the Exclusion Clause contains an exhaustive definition of acts of terrorism, the Supreme Court has held.

A bench of Justices Ajay Rastogi and Abhay S Oka further said that the Insurance Company can repudiate the claim of a claimant only after bringing the case of the insured claimant within the four corners of the Exclusion Clause.

In the case before Court Narsingh Ispat Ltd. filed an appeal under Section 23 of the Consumer Protection Act, 1986 challenging the judgment and order of the National Consumer Disputes Redressal Commission (‘the Commission’) whereby it dismissed the Consumer Complaint filed by Narsingh.

Narsingh had taken Standard Fire and Special Perils Policy from Oriental Insurance Company Ltd. (insurance company) for the period from 28th June, 2009 to 27th June, 2010 in respect of Engineering Workshop and Plant at Village Khunti District Saraikela, Jharkhand.

A claim based on the incident of 23rd March 2010 was made stating that on midnight of 22nd March 2010, about 50­-60 anti-social people with arms and ammunition entered the factory premises, mob demanded money and jobs for local people. Substantial damage was caused to the factory, machinery and other equipment. It was stated that object of the incident was to terrorise the   management and workers in the factory by forcing them to pay a ransom to the miscreants.

Insurance company repudiated the claim by placing reliance on the Exclusion Clause in the policy regarding loss or damage caused by the acts of terrorism.

After a complaint was filed before NCDRC, the Commission held that because of the “Terrorism Damage Exclusion Warranty” (‘the Exclusion Clause’), the insurance company was justified in repudiating Narsingh’s claim based on the policy of insurance.

Referring to the Exclusion Clause, top court held that, those actions can be termed as acts of terrorism provided the same are committed for political, religious, ideological or similar purposes.

Also, noting that the repudiation of the policy was based on the Preliminary Survey Report, Investigation Report and the Final Survey Report, the court said,

“The Survey Reports cannot throw any light on the question whether there was an act of terrorism. The Survey Reports do not record any factual findings regarding the incidents which caused the loss.”

Supreme Court was thus of the opinion that the Commission committed an error by applying the Exclusion Clause.  Moreover, it held that the policy specifically covered the damage to the insured’s   property caused by violent means.

“The policy covers explicitly a liability arising out of the damage to the property of the insured due to riots or the use of violent means. Hence, the decision to repudiate the policy cannot be sustained”, remarked the court while directing Oriental Insurance to deposit Rs.89,00,000/­ with the NCDRC with liberty to Narsingh to make an application for withdrawal.

Case Title: Narsingh Ispat Ltd. vs Oriental Insurance Company Ltd. & Anr.