Excelsior Correspondent
Srinagar, Jan 27: High Court has held that hidden exclusion clauses cannot be permitted by the Insurance Company to defeat the legitimate and reasonable expectations of an insured consumer for his or her claim under the insurance policy.
The Division Bench of Justice Sanjeev Kumar and Justice Sanjay Parihar while dismissing an appeal filed by National Insurance Company Limited against an order passed by the Jammu & Kashmir Consumer Redressal Commission directing the settlement of an insurance claim relating to damage caused to a residential house during the floods of September 2014 said, that an insurer cannot evade liability by relying on obscure or undisclosed exclusion clauses, particularly where the insurance policy is issued and marketed as a comprehensive cover for ‘Standard Fire and Special Perils’.
“Insurance contracts are governed by the principle of full disclosure. While the insured must disclose material facts relating to the risk, the insurer bears an equally onerous duty to clearly notify and explain any exclusion clause”, read the judgment.
The background of the controversy arose from the repudiation of an insurance claim lodged by the respondents (legal heirs of the original insured), whose residential house was insured under a policy expressly described as a “Standard Fire and Special Perils Policy”.
During the policy period, the insured property sustained extensive damage and ultimately collapsed due to the devastating floods of September 2014. Thereafter the claimants duly lodged a claim with the insurer-company and a surveyor was appointed, who assessed the loss at Rs. 6,08,462. However, despite the assessment, the insurer repudiated the liability, contending that the policy contained an endorsement excluding Storm, Tempest, and Flood and Inundation (STFI) perils.
The Commission directed the insurer to pay Rs. 4,76,347/- (after deducting 25% for contributory negligence). Following this order, the insurer filed the present appeal before the HC. The insurer further asserted that no separate premium had been paid for STFI coverage and that the renewal of the policy implied the insured’s knowledge of the exclusion.
Upon a detailed examination of the policy documents and the record, the bench observed that when a policy is comprehensive in nature and expressly styled to cover “special perils”, the insurer cannot subsequently rely on a concealed or undisclosed exclusion clause to defeat the consumer’s legitimate expectations.
The Bench emphasized that insurance contracts must be construed reasonably and fairly, particularly where the insured is a consumer who relies on the insurer’s representations and the apparent scope of coverage. The Court reiterated that insurers, being the drafters of standard-form contracts, bear a heightened responsibility to ensure clarity and transparency.
“The burden squarely lies on the insurer to establish that an exclusion clause was expressly disclosed and explained to the insured at the time of entering into the contract. In the absence of cogent and convincing evidence demonstrating such disclosure, an exclusion clause cannot be enforced to deny an otherwise valid claim”, the bench added.
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