The court’s meticulous legal analysis in a recent case focused on interpreting ambiguous terms in insurance contracts. The case revolved around the denial of an appellant’s claim based on a one-day delay and the conflicting interpretations of significant dates. Stay tuned to understand how the court navigated through the complexities of insurance contract interpretation.
Facts
- The appellant paid premium for the Policy on 13.12.2012, a day before the effective date of the Policy.
- The overseas buyer defaulted on payment, leading to the appellant’s claim being denied.
- ECGC rejected the claim at multiple levels, with the final rejection by the Independent Review Committee on 28.03.2015.
- The vessel carrying the goods set sail on 15.12.2012 and delivered them on 22.01.2013.
- The appellant lodged a claim with ECGC on 14.02.2013 based on the Policy’s coverage from 14.12.2012 to 13.12.2013.
- The date of ‘Onboard Bill of Lading’ was specified as 13.12.2012, which was resisted by ECGC in relation to the claim.
Also Read: Balancing Power and Transparency: Electoral Bonds Struck Down, Disclosure Mandated
Arguments
- Ms Prakash argued that the date of ‘despatch/shipment’ should be considered as 15.12.2012 based on the Mate’s Receipt issued on that date when the cargo was loaded onto the vessel.
- She pointed out that the Policy did not specify the exact date of initiation of coverage, leading to ambiguity.
- Ms Prakash emphasized that insurance policies should be strictly interpreted based on their clauses to reflect the intentions of the parties involved.
- She criticized ECGC for relying on DGFT Guidelines which were not part of the contract between the parties.
- The rule of contra proferentem (interpretation against the drafter of the contract) should apply in case of ambiguous terms.
- Mr. Jha, representing ECGC, argued that the DGFT Guidelines were crucial for ECGC due to its role in providing export coverage
- He highlighted the statutory authority given to DGFT to formulate guidelines for foreign trade policies.
- Mr. Jha contended that the court should not alter the interpretation of policy terms by introducing new elements.
- The NCDRC’s reliance on DGFT Guidelines was deemed unjust by Ms. Prakash due to the lack of parties’ consent.
- The appeal was made against NCDRC’s decision upholding the IRC’s stance on the matter.
- The NCDRC relied on the DGFT Guidelines to interpret the date of ‘despatch / shipment’ in the Policy.
- Based on this interpretation, the NCDRC denied the appellant’s claim.
- The appellant challenges the NCDRC’s reliance on the DGFT Guidelines in denying their claim.
Also Read: Recall of Resolution Plan Approval: Legal Analysis
Analysis
- In interpreting insurance contracts, the risks sought to be covered must be kept in mind.
- The court must adopt a construction favorable to the insured in case of ambiguity in the contract.
- The rule of contra proferentem applies to insurance contracts, where ambiguous terms are to be construed harmoniously by considering the entire contract.
- The duty of the court is to interpret the words in which the contract is expressed by the parties, without making a new contract.
- Any ambiguity in insurance contracts should be resolved by adopting the construction favorable to the insured.
- The rule of contra proferentem protects the insured from unfavorable interpretations of ambiguous terms in insurance contracts.
- In cases of ambiguity, where words are free from ambiguity and admit of only one meaning, the rule of contra proferentem does not apply.
- The rule of contra proferentem assumes significance in standard form insurance policies due to the power differentials between insurers and insured parties.
- Consideration of business common sense is central to resolving ambiguity in commercial contracts, but the rule of contra proferentem does not apply to commercial contracts.
- The court is concerned with identifying the intention of the parties in interpreting a written contract by understanding the objective meaning of the language used.
- Provisions in detailed contracts lacking clarity may be interpreted considering the factual matrix and the purpose of similar provisions in similar contracts.
- The courts must consider the contract as a whole and give weight to the wider context in reaching a view on the objective meaning of disputed provisions.
- The insurer’s precise language in the policy must be clear, and any ambiguity will be resolved by adopting a construction favorable to the insured.
- The UK Supreme Court has provided guidance on resolving ambiguity in contracts while keeping business common sense central to interpretation.
- The date of loading goods onto the vessel, which commenced one day prior to the effective date of the policy, was not as significant as the date on which the foreign buyer failed to pay for the goods exported.
- The appellant’s claim was denied based on an incorrect interpretation of an ambiguous term, with only a one-day delay, despite previous transactions with the respondent.
- The rule of contra proferentem was not invoked as the terms of the policy were clear and unambiguous for correct interpretation.
- The date of ‘onboard’ Bill of Lading was not applicable as no letter of credit was executed providing for such date.
- Reliance on DGFT Guidelines to disallow the claim was deemed incorrect as the policy purpose was different and the claim-triggering event occurred within the coverage period.
- The DGFT Guidelines were part of the Foreign Trade Policy enforced through the Foreign Trade (Development and Regulation) Act, 1992.
- The ambiguity in insurance contracts is to be construed harmoniously by considering the entire contract.
- In case of ambiguity, the term should be interpreted in favor of the insured against the drafter of the policy.
- Consideration of the factual matrix and purpose of similar provisions in contracts of the same type can aid in interpreting unclear contract terms.
- The judgment set aside the NCDRC order, allowing the appellant’s complaint.
- Director General of Foreign Trade can notify Hand Book of Procedures, Appendices, and Aayat Niryat Forms through a Public Notice.
- The procedures laid down in the Hand Book of Procedures are to be followed by exporters, importers, Licensing/Regional Authorities, and other relevant authorities for implementing FT (D&R) Act, Rules, Orders, and provisions of the Foreign Trade Policy (FTP).
- Specific provisions in the Foreign Trade (Development and Regulation) Act, 1992, shall prevail over general provisions.
- The Central Government has the authority to formulate and announce foreign trade policy through notification in the Official Gazette.
- The impugned order of the NCDRC is set aside.
- The appellant’s complaint is allowed.
- Denying the appellant’s claim over an incorrect interpretation of an ambiguous term is unjust.
- The delay in the claim being one day should not have been a reason for denial.
- The appellant had prior transactions with the respondent.
Decision
- ECGC directed to pay claim amount of 1,96,38,400/- crores to the appellant
- Claim amount to be paid with interest at the rate of 9% p.a.
- No order on costs for this decision
- Appeal allowed and all pending applications are disposed off
Case Title: HARIS MARINE PRODUCTS Vs. EXPORT CREDIT GUARANTEE CORPORATION (ECGC) LIMITED (2022 INSC 471)
Case Number: C.A. No.-004139 / 2020
