Insurance is a contract and
every contract should be interpreted
strictly !
Underwriters evaluate the risk and the premium
is based on exposure, the probable chance of occurrence, frequency and
severity. Burglary insurance provides indemnity for loss or damage to
property insured from the premises insured directly resultant from acts of
burglary. From an Insurance angle, it is not the value of the goods that alone
that matters. Goods that can be sold easily in retail and grey markets
[eg. Cigarette packs / batteries] are bad risks as compared to those which
cannot be sold easily [eg. Special medicines]. Smaller items with high
value [eg.,diamond rings] are worser risk than bulky items like machinery.
Again those who have ready market in retail [eg mobile phones] are bad
risks as compared to those which cannot be sold so easily [say precision
machinery]. In contrast, exhibition items / objects with antique value
are higher risks unless proper security arrangements are in place.
Often the terms are used interchangeably and interpreted
loosely. People tend to claim all losses
as genuine, without looking into the terms of coverage. In a peril defined policy, occurrence being genuine
alone would not warrant consideration – loss or damage should be attributable
to an insured peril.
Section 378 of IPC defines theft and section
379 talks of the punishment for theft. Sec445 is House breaking.—A person is
said to commit “house-breaking” who commits house-trespass if he effects his
entrance into the house or any part of it in any of the six ways described; or
if, being in the house or any part of it for the purpose of committing an
offence, or, having committed an offence therein, he quits the house or any
part of it in any of such six ways !! .. .. however, Insurance Policies define ‘Burglary’. The policy interprets ‘burglary’ as to mean
actual theft or an attempt thereat:
a) accompanied by an actual forcible and violent
entry into or exit from any building at the premises or
b) following assault or violence to any
person or threat thereof.
Here is a recent deliverance of the Supreme Court of India,
that should bring cheers to Insurers. [Civil Appeal no. 1130 of 2007] : M/s. Industrial Promotion & Investment Corporation of Orissa
Ltd. Vs. New India Assurance Company Ltd. & ANR.
The appeal was made by Industrial Promotion & Investment
Corpn of Orissa, a wholly owned Public Sector Undertaking of the Government of
Orissa. They had extended a term loan of
Rs. 40,74,000/- to M/s. Josna Casting Centre Orissa Pvt. Ltd. As the party defaulted, the Industrial Corpn. took over the assets in 1992. They insured the assets against Fire and
Burglary policies. At the time of auctioning the seized assets in 1997 it was
observed that some parts of the plant and machinery were missing from the
factory premises. FIR was filed at Balasore and Insurance claim lodged for a
value of 34.40 lakhs under Burglary policy - the claim was repudiated by Insurers stating
loss was not within the purview of Policy.
The Appellant filed application before MRTP Commission, which too was
rejected. They preferred appeal in the
Apex Court.
The Counsel for appellant contended
that policy covers burglary and applying the
rule of ‘ contra proferentem ’ the words 'theft
following an actual forcible and violent entry/or exit from the premises' are
with reference only to house breaking and not burglary. He contended that forcible and
violent entry is not necessary for making a valid claim under the policy and
that it would be sufficient if there is
theft of certain goods from the factory premises, which fact has been proved by
the Appellant. Mr. Mehta stated that clauses in the case in United India Assurance Co. Ltd. v. Harchand
Rai Chandan Lal and urged that the
Commission committed an error in relying upon the said judgment to reject the
Claim Application for the Appellant.
Advocate representing the Insurer
submitted that there is no difference and urged that an insurance policy is
akin to a commercial contract and has to be construed strictly. He submitted that a forcible entry and/or exit is
compulsory for maintainability of a claim under the policy.
The Hon’ble Court held that there is no
error committed by the MRTP Commission in rejecting the Claim of the Appellant.
It is clear from the facts of the present case that the Appellant has made out
a case of theft without a forcible entry. The case of the Appellant is that
forcible entry is not required for a claim to be made under the policy. Following the well-accepted principle that a contract of
insurance which is like any other commercial contract should be interpreted
strictly, we are of the opinion that the policy covers loss or damage by
burglary or house breaking which have been explained as theft following an
actual, forcible and violent entry from the premises. A plain reading of the policy would show that a forcible
entry should precede the theft, and unless they are proved, the claim cannot be
accepted.
The Court added that a comparison of
the terms as defined in the policy in the case of United India Insurance Co. Ltd.
v. Harchand Rai Chandan Lal (supra) and the scope of cover in the proposal form
in the instant case are similar. In the
earlier case it was held that "The
policy is a contract between the parties and both parties are bound by the
terms of contract.
As per the definition of the word
"burglary", followed with violence, makes it clear that if any theft
is committed it should necessarily be preceded with violence i.e. entry into
the premises for committing theft should involve force or violence or threat to
insurer or to his employees or to the members of his family. Therefore, the
element of force and violence is a condition precedent for burglary and
housebreaking. The term 'burglary' as defined in the English Dictionary means
an illegal entry into the building with an intent to commit crime such as
theft. But in absence of violence or force the insurer cannot claim
indemnification against the insurance company.
The terms of the policy have to be
construed as it is and we cannot add or subtract something. Howsoever liberally
we may construe the policy but we cannot take liberalism to the extent of substituting
the words which are not intended. It is true that in common parlance the term
"burglary" would mean theft but it has to be preceded with force or
violence. If the element of force and violence is not present then the insurer
cannot claim compensation against theft from the insurance company.
The policy may be so framed as to apply
only to violent entry from the outside; or the violent entry into a room within
the insured premises may be sufficient. In any case, the violence must be
connected with the act of entry; if the entry is obtained without violence, the
subsequent use of violence to effect the theft, as for instance where a
show-case is broken open, does not bring the loss within the policy.
The Court further dealt with the submission made by counsel for the
Appellant regarding the rule of contra proferentem. The Common Law rule of
construction "verba chartarum fortius accipiuntur contra proferentem"
means that ambiguity in the wording of the policy is to be resolved against the
party who prepared it. MacGillivray on Insurance Law deals
with the rule of contra proferentem as follows:
"The contra proferentem rule of
construction arises only where there is a wording employed by those drafting
the clause which leaves the court unable to decide by ordinary principles of
interpretation which of two meanings is the right one. "One must not use
the rule to create the ambiguity - one must find the ambiguity first." The
words should receive their ordinary and natural meaning unless that is
displaced by a real ambiguity either appearing on the face of the policy or,
possibly, by extrinsic evidence of surrounding circumstances."
Court in a classical deliverance said –
the assured cannot put his own meaning
upon a policy, but, where it is ambiguous, it is to be construed in the sense
in which he might reasonably have understood it. If the insurers wish to escape
liability under given circumstances, they must use words admitting of no
possible doubt, expressed by the parties and it is not for the Court to make a
new contract, however reasonable.
The Court referring to another case :
United India Vs Orient Treasures (P)
Ltd. held that there is no ambiguity in the insurance policy and so the rule of
contra proferentem was not applicable. The Court upheld the order of the MRTP Commission and dismissed the
Appeal with no order as to costs.
With regards – S. Sampathkumar
30th Aug 2016.
Photo credit :
Independent.co.uk
The judgement of the Apex
Court is largely reproduced
