M/s Texco Marketing Pvt ltd Vs Tata AIG General Insurance Company Ltd & Ors (Supreme Court)
Date-9th November, 2022
Sub-Whether an exclusion clause destroying the very contract knowingly entered, can be permitted to be used by a party who introduced it, becomes a beneficiary and then to avoid its liability?

The Supreme Court of India in a classic judgement on 9th November, 2022 deciding against the insurance company in a claim relating to fire accident in a shop located in the basement opposite to the office of TATA AIG which fact was known to the Insurer. However, the insurer denied liability to pay in view of exclusion clause covered in the policy as per which there was no liability to pay if the subject was located in basement. The State consumer forum decided in favour of the party where the NCRDC decided in favour of insurance company. The court interpreting Adhesion Contracts which are standard form contracts where the insurance company dominates the contract with very little option on the party but to sign on the dotted lines, are one sided contracts grossly in favour of the insurer.Such contracts therefore demand very high level of fairness. The court thereafter discussed the importance of exclusion clause, principles of Uberrimae fidei and doctrine of Blue pencil held that the insurance company knowingly entered into a contract, notwithstanding the exclusion clause, the consequence would flow out of it. Further the court also cautioned all insurance companies that they should strictly follow Clause 3 and 4 of the IRDA Regulations which dealt with explaining the insurance clauses to the insured and furnish a copy of the proposal form within 30 days.

This is a landmark decision on rights of the insured where insurance companies illegally withhold claim settlement. Moreover, this judgement will also be useful in dealing with Adhesion contracts in cases like Real estate companies entering into contract for sale of properties.

Ramesh Patodia
10-11-2022