Court’s decision
The Supreme Court set aside the judgment of the National Consumer Disputes Redressal Commission, which had dismissed a compensation claim arising from a boiler-blast incident in a cooperative sugar factory. The Court held that the insurer was unjustified in repudiating the claim under exclusion clause 5 of the boiler insurance policy, especially when the boiler was duly registered, certified for safe use, and operating under a valid fitness certificate at the time of the accident. The Court restored the appeals before the national forum for determination of compensation, holding that liability stood established and only quantum remained to be adjudicated.
Facts
A cooperative industrial unit procured a boiler insurance policy covering loss or damage up to ₹1.60 crore for a specific boiler. During the policy period, a loud explosion occurred, causing two crucial boiler tubes to slip from their joints. The incident was reported immediately to the boiler inspector and the insurer. The inspector identified necessary repairs, while the insurer appointed a surveyor who later concluded that the failure arose from corrosion, wear and tear, and ageing of the tubes. Relying on this, the insurer repudiated the claim. A joint survey report from the State Insurance Fund reached similar conclusions. Aggrieved, the insured filed a consumer complaint claiming repair costs exceeding ₹87 lakh. The State Commission allowed the claim partly, but the national forum overturned this decision, holding the claim excluded under policy terms.
Issues
The primary question was whether the insurer was justified in repudiating the claim under exclusion clause 5 relating to corrosion, wear and tear, deterioration, or bulging unless resulting from an explosion or collapse. Connected issues involved whether survey reports conclusively established a non-covered event; whether defects detected after dismantling negated the explosion claim; and whether a valid boiler certificate and absence of misrepresentation placed liability squarely on the insurer.
Petitioner’s arguments
The petitioner argued that the boiler had been certified fit by statutory inspectors under the Boilers Act before the accident, and the insurance policy was issued after such certification. It was submitted that once the boiler had been inspected and certified, the insurer could not retrospectively rely on corrosion or tube ageing to repudiate the claim. The petitioner asserted that the explosion was the immediate cause of damage, and tube slippage could occur due to the force of explosion. The counsel stressed that the insurer’s failure to conduct any pre-policy inspection barred it from invoking exclusion after the incident and that the survey report was belatedly introduced at the appellate stage, warranting adverse inference.
Respondent’s arguments
The insurer contended that the national forum rightly relied on expert survey reports, which indicated that tube slippage occurred due to corrosion and long usage, not an explosion. It argued that exclusion clause 5 clearly barred claims arising from wear and tear, corrosion, or deterioration. The insurer further argued that surveyors’ expertise must be given precedence and that the appropriate remedy for the insured was through writ jurisdiction rather than invoking the Supreme Court’s special leave jurisdiction. It relied on previous decisions where survey reports were given strong evidentiary value.
Analysis of the law
The Court reiterated foundational principles governing insurance contracts: the doctrine of utmost good faith, the insurer’s duty to verify risks before issuing policies, and the strict scrutiny applied to repudiation of claims. It emphasised that exclusion clauses must be construed narrowly and should not defeat the main purpose of the policy, which is to indemnify genuine loss. The judgment extensively analysed duties under the Boilers Act, noting that a boiler registered and certified for safe use creates a presumption of fitness. Unless the insurer proves misrepresentation or concealment, liability cannot be evaded by pointing to latent defects that surfaced only after an explosion. Crucially, exclusion clause 5 itself contains an exception when defects arise as a consequence of explosion or collapse—an aspect overlooked by the national forum.
Precedent analysis
The Court relied on principles discussed in several key decisions:
1. Canara Bank v. United India Insurance Co.
Used to reinforce that insurers cannot benefit from their own failure to verify risk before issuing policies. The decision stresses that insurers must assess condition of insured goods or machinery beforehand.
2. Skandia Insurance Co. v. Kokilaben Chandravadan
Cited for the rule that exclusion clauses cannot be interpreted to defeat the main purpose of insurance contracts.
3. B.V. Nagaraju v. Oriental Insurance Co.
Relied upon to read down exclusion clauses when necessary to uphold the core indemnity objective.
4. Sri Venkateswara Syndicate v. Oriental Insurance Co. & Sikka Papers Ltd.
Discussed in relation to the evidentiary value of surveyor reports—but the Court clarified that survey reports are not binding and must be weighed against statutory certificates and primary evidence.
Court’s reasoning
The Court noted that the insurer had not denied the fact of explosion in its written statement, making the explosion an undisputed factual foundation. It held that defects detected only after dismantling could well be consequences of the explosion rather than its cause. The Court found no evidence of suppression, misrepresentation, or fraud by the insured. The presence of a valid statutory fitness certificate placed heavy burden on the insurer to prove unfitness, which it failed to discharge. The survey report lacked findings excluding explosion as the cause. Accordingly, exclusion clause 5 was inapplicable, and repudiation was unjustified. The national forum erred in reversing the well-reasoned order of the State Commission.
Conclusion
The Supreme Court allowed the appeal, set aside the national forum’s order, and restored the appeals before it for determination of the compensation quantum alone. It held that repudiation was invalid, and liability under the policy stood firmly established. All other issues stood concluded, with the matter remanded solely for assessment of payable compensation.
Implications
This judgment significantly reinforces consumer protection in insurance disputes and restricts insurers from invoking exclusion clauses based on post-event inspections. It underscores that statutory certification of boilers provides strong evidence of fitness, limiting insurers’ ability to shift blame to latent defects. The decision strengthens jurisprudence on reading down exclusion clauses and clarifies that survey reports, though relevant, cannot override statutory fitness assessments and uncontested evidence of an explosion. The ruling also signals that insurers must rigorously inspect high-risk installations before issuing policies, or else they cannot later disclaim liability.
FAQs
1. Can an insurer repudiate a claim based on defects discovered only after an explosion?
No. The Court held that latent defects revealed only after an explosion cannot justify repudiation unless there is clear evidence that such defects existed earlier and were concealed.
2. Does a statutory boiler fitness certificate affect insurance liability?
Yes. A valid certificate raises a strong presumption that the boiler was fit for use, placing a heavy burden on the insurer to prove otherwise.
3. Are surveyor reports binding on consumer forums?
No. Survey reports are relevant but not conclusive; they must be weighed against statutory records and the overall evidence.
