Supreme Court Upholds Insured's Claim in Motor Insurance Dispute Over Passenger Limit Breach. Exclusion Clause for Carrying Passengers in Goods Vehicle Read Down to Serve Main Purpose of Indemnity Under Insurance Policy.

Case Note & Summary

The appeal arose from a dispute over an insurance claim for damage to a goods vehicle. The appellant, B.V. Nagaraju, was the registered owner of a Tata Truck bearing registration number KA-13/438, insured with M/s. Oriental Insurance Co. Ltd., Divisional Office, Hassan, under a comprehensive policy dated 24.8.1990, valid until 23.8.1991, with a risk cover of Rs. 2,09,000. On 5.8.1991, during the subsistence of the policy, the vehicle met with an accident when a gas tanker collided with it head-on. The appellant's vehicle sustained major damage, necessitating repairs costing Rs. 87,170. The appellant submitted a claim to the insurer for reimbursement of repair charges along with bills. The insurer repudiated the claim on the ground that the goods vehicle was used for carrying passengers, specifically nine persons, whereas the policy permitted only six employees other than the driver under the Workmen's Compensation Act, 1923. The appellant then filed a complaint before the Karnataka State Consumer Redressal Forum under the Consumer Protection Act, 1986, claiming Rs. 2,13,500 including repair charges, loss of prospective income, interest, legal notice charges and miscellaneous expenses. The State Commission, by order dated 19.7.1993, allowed the claim to the extent of Rs. 75,700, the amount estimated by the insurer's official surveyor, with interest at 18% per annum from the date of accident and costs of Rs. 2,000. On appeal by the insurer, the National Consumer Disputes Redressal Commission, New Delhi, by order dated 30.11.1994, reversed the State Commission's order, relying on the terms of the insurance policy and holding that the policy did not cover use for carrying passengers except employees not exceeding six in number. The appellant then preferred an appeal by special leave before the Supreme Court. The primary legal issues were whether carrying more persons than permitted in a goods vehicle constituted such a fundamental breach as to absolve the insurer of liability altogether, and whether the terms of the insurance policy should be construed strictly or read down to advance the main purpose of the contract as held in Skandia Insurance Co. Ltd. v. Kokilaben Chandravadan. The appellant relied on the Skandia case and argued that the presence of nine persons, even if they were passengers, had not contributed to the occurrence of the accident, and the claim pertained only to damage to the vehicle, not to any liability to those persons. The respondent insurer denied liability contending that the vehicle was used for carrying passengers beyond the permissible limit. The Supreme Court observed that the terms of the policy allowed carrying six workmen excluding the driver, and if six workmen did not increase risk, the addition of a few more persons could not be said to have contributed to the accident. The Court noted that it was undisputed that the oncoming vehicle collided head-on, and the extra passengers were not responsible for the accident. The Court held that merely lifting a person or two or three by the driver or cleaner without the knowledge of the owner was not a fundamental breach justifying denial of indemnification. The misuse was irregular but not so fundamental as to terminate the contract unless some factor contributed to the accident, which was absent. The Court applied the main purpose rule as explained in Skandia and also referred to Glynn v. Margetson & Co. and Suissee Atlantique Societed' Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale, reading down the exclusion clause to serve the main purpose of indemnifying damage to the vehicle. The Supreme Court held that the National Commission had erred in adopting strict construction without considering that the extra passengers had not contributed to the accident. Accordingly, the appeal was allowed, the order of the National Consumer Disputes Redressal Commission was set aside, and the order of the State Commission was restored in its entirety, without any order as to costs.

Headnote

Issue of Consideration

Final Decision

Appeal allowed; judgment and order of the National Consumer Disputes Redressal Commission set aside; State Commission's order restored in its entirety, without any order as to costs.

Law Points