Court’s decision
The Supreme Court allowed the appeal, set aside the order of the appellate consumer forum, and restored the matter to the national consumer forum to decide only the quantum of compensation. The Court held that the insurer was not justified in repudiating the insurance claim by invoking an exclusion clause when the boiler was certified as fit, the explosion occurred during the validity of the certificate, and no material disclosed suppression, misrepresentation, or breach by the insured. The Court ruled that exclusion clauses must be strictly construed and cannot defeat the main purpose of the insurance contract, especially when a boiler registered under statutory law explodes during its certified service period.
Facts
Supreme Court’s Role in Insurance Disputes
The insured entity obtained an insurance policy covering a boiler for a substantial sum, valid for a fixed period. During the policy’s currency, an explosion occurred inside the boiler, causing two tubes to slip from their joints. The incident was reported both to the statutory boiler inspector and to the insurer. After a surveyor visited the site, the insurer repudiated the claim, stating that the damage was due to corrosion and long-term wear. A joint surveyor later reported that the incident was not an explosion but a tube slippage caused by deterioration. The insured approached the state consumer forum, which partly allowed the complaint and awarded compensation. On appeal, the national consumer forum reversed the award, accepting the insurer’s survey reports and holding the damage excluded under the policy’s exclusion clause.
Issues
The Supreme Court considered whether the insurer was justified in repudiating the insurance claim under exclusion clause 5 on the basis of tube deterioration; whether the insured had failed to make proper disclosures or breached policy terms; whether survey reports could conclusively establish culpability; and whether the national forum erred in allowing the insurer’s appeal despite a valid fitness certificate under the statutory boiler law.
Petitioner’s arguments
The petitioner argued that the boiler was inspected and certified fit under statutory law before the accident, and the insurance policy was issued only after the insurer was satisfied with the boiler’s condition. It was contended that the insurer could not later rely on tube age or corrosion, when no disclosure about tube age was ever sought. The petitioner stressed that the survey report did not rule out an explosion, and tube slippage itself could be a consequence of the explosion. It was submitted that the insurer failed to discharge its burden of proving suppression or misrepresentation and, therefore, repudiation was unjustified. Reliance was placed on principles of utmost good faith and the insurer’s duty to inspect before issuing coverage.
Respondent’s arguments
The insurer argued that survey reports prepared by technical experts indicated deterioration, corrosion, and tube wear, which squarely fell within exclusion clause 5. It was submitted that expert reports cannot be ignored and must carry significant weight. The insurer argued that tube age and deterioration demonstrated lack of maintenance, which excluded liability. It was also contended that the dispute should not have been brought directly to the Supreme Court but should have been taken to the High Court under writ jurisdiction. The insurer relied on earlier judgments emphasising deference to expert surveyors and the binding effect of survey reports.
Analysis of the law
The Supreme Court reiterated key principles governing insurance claims: the contract is based on utmost good faith; the duty to disclose extends only to material facts known or reasonably knowable by the insured; and the insurer bears the burden to prove suppression or misrepresentation. Importantly, exclusion clauses must be interpreted in a manner that does not defeat the essential object of insurance. The Court stressed that a boiler certified under statutory machinery is prima facie fit for use, and any latent defects discovered after an explosion cannot form the basis for repudiation unless the insured knowingly concealed them. The Court noted absence of pleading that tube age disclosure was required or that any statutory breach occurred.
Precedent analysis
Canara Bank v. United India Insurance Co.
Cited by the petitioner, it held that insurers must verify risks before issuing policies and cannot later claim negligence to escape liability. The Court applied this principle to hold that tube age or corrosion could not justify repudiation absent evidence of misrepresentation.
Sikka Papers Ltd. v. National Insurance Co.
Relied on by the insurer for the proposition that survey reports require due weight. The Court acknowledged the principle but held that survey reports here were inconclusive about pre-existing defects.
Sri Venkateswara Syndicate v. Oriental Insurance Co.
Reiterated deference to expert surveyors, but the Court clarified that such deference does not extend to findings that are equivocal or fail to rule out causes covered by the policy.
Court’s reasoning
The Supreme Court found that the survey reports did not conclusively rule out an explosion, and the insurer never denied the explosion in its pleadings. Since the boiler exploded during the validity of its statutory certificate, latent defects could have surfaced only after dismantling the boiler. The Court held that exclusion clause 5 does not apply when defects arise due to an explosion. It noted that the insurer had not pleaded misrepresentation, suppression, or fraud, nor had it proved that the boiler or tubes had a prescribed life that had expired. Consequently, invoking an exclusion clause without clear evidence would defeat the primary purpose of the insurance contract.
Conclusion
The Supreme Court allowed the appeal, set aside the order of the appellate consumer forum, and restored the appeals before the forum solely for determination of the quantum of compensation. All other issues were finally decided in favour of the insured. The Court held that the insurer was unjustified in repudiating the claim and could not rely on exclusion clause 5 where the explosion was not seriously disputed and where statutory certification existed.
Implications
This judgment significantly strengthens consumer protection in insurance disputes. It clarifies that insurers cannot repudiate claims merely by citing wear-and-tear when an explosion reveals latent defects. Insurers must conduct proper inspections before issuing coverage and cannot rely on ambiguous survey reports to avoid liability. The decision also reinforces that exclusion clauses cannot nullify the core purpose of insurance—providing financial protection against unforeseen accidents. This ruling will influence future disputes involving technical machinery, boiler explosions, and insurance repudiation based on deterioration-related exclusions.
