Supreme Court of India: Insurance Claim and the Survey Report of an Independent Surveyor who has not conducted an On-site Inspection?
In United India Insurance Co. Ltd. v. M/s Hyundai Engineering & Construction Co. Ltd. & Ors, Appeal (Civil), 1496 of 2023 decided on 16.05.2024, the Hon’ble Supreme Court of India inter alia decided the issue of whether the report of an independent surveyor who have not conducted an on-site inspection and has not been examined as a witness can overweigh the report of a surveyor who has assessed the claim based on an on-site inspection.
FACTUAL MATRIX
National Highway Authority of India (‘NHAI’) awarded a construction project contract to the joint venture (‘JV’) of M/s Hyundai Engineering Infrastructure Co. Ltd. (‘Hyundai’) and M/s Gammon India (‘Gammon’). NHAI purchased an All-risk insurance policy (‘Policy’) from United India Insurance Co. Ltd. (‘UII’) covering the interest of NHAI as principal, and Hyundai along with Gammon as JV Contractors.
The Policy contained an exclusion clause wherein loss by damage due to faulty design, cost of replacement, repair or rectification of defective material and/or workmanship and cost necessary for rectification or correction of any error during construction unless resulting in physical loss or damage were excluded from the coverage of the Policy.
While the project was under progress, the structure of bridge collapsed resulting in 48 causalities. Resultantly, the Ministry of Road Transport and Highways, Government of India constituted a Committee of Experts (‘Expert’s Committee’) to investigate and report the cause of the collapse.
Separately, a criminal investigation was lodged against Hyundai and Gammon who were charged under penal provisions for the loss of 48 lives due to several defects at the stage of design, construction and supervision.
Meanwhile NHAI notified its claim to UII and requested assessment of loss by Surveyor (‘Surveyor’). While the Surveyor was assessing the loss and its causes, Expert’s Committee submitted its report wherein the experts inter alia concluded that the primary responsibility for the collapse lies with the contractor Hyundai — Gammon (JV). In addition, Expert’s Committee also found other consultants responsible for the collapse.
Albeit NHAI issued a show cause notice to the Hyundai — Gammon (JV), being satisfied with their response, it later on allowed them to carry out the remaining part of the project. In the meantime, Surveyor submitted its final report wherein it inter alia concluded that NHAI’s claim should be rejected as Hyundai — Gammon (JV) had violated the conditions of the Policy. In view thereof, UII repudiated NHAI’s claim.
Hyundai — Gammon (JV) sought reconsideration of the claim from UII based on reports of independent surveyors. However, even after reconsideration, UII affirmed its original decision of repudiation as they did not find any justifiable reason for accepting the claim. Meanwhile Hyundai — Gammon (JV) completed the work and the new bridge was inaugurated.
After 02 years of repudiation, Hyundai — Gammon (JV) filed a consumer complaint before the National Consumer Disputes Redressal Commission (‘NCDRC’) on the ground of deficiency of service on the part of UII and unfair trade practice in repudiating the claim.
NCDRC inter alia held that report of Experts Committee was inconclusive as it could not identify the precise reasons for the collapse of the bridge. NCDRC relied on reports of independent surveyors and came to the conclusion that there is no defect in the design of the bridge and that Hyundai — Gammon (JV) are not at fault.
NCDRC also relied on NHAI’s decision of permitting Hyundai — Gammon (JV) to complete the balance work and held that if NHAI found Hyundai — Gammon (JV) to be competent enough to continue with the contract, it can safely be concluded that they were not at fault.
In view thereof, NCDRC directed UII to pay Hyundai — Gammon (JV) its claim and later by way of an addendum unilaterally awarded amounts far beyond what has been originally claimed by Hyundai — Gammon (JV).
The decision of NCDRC was challenged by UII before the Supreme Court in the present proceedings.
PARTIES CONTENTIONS
Hyundai — Gammon (JV) contended that the report by Surveyor and the Expert Committee report are not clinching, are open ended and does not hold them responsible for the negligence. They further argued that exclusionary clauses place extraordinary burden on the insurance company which according to them was not discharged by UII.
LEGAL POSITION
- Insurance is a contract of indemnification, being a contract for a specific purpose1, which is to cover defined losses.
- The courts have to read the insurance contract strictly.
- Essentially, the insurer cannot be asked to cover a loss that is not mentioned. Exclusion clauses in insurance contracts are interpreted strictly and against the insurer as they have the effect of completely exempting the insurer of its liabilities.
- The burden of proving the applicability of an exclusionary clause lies on the insurer.
- Exclusionary clause cannot be interpreted so that it conflicts with the main intention of the insurance. It is, therefore, the duty of the insurer to plead and lead cogent evidence to establish the application of such a clause.
- The evidence must unequivocally establish that the event sought to be excluded is specifically covered by the exclusionary clause.
- The surveyor’s report is a credible evidence and the court may rely on it until a more reliable evidence is brought on record.
HELD
Appreciating the above position of law, Hon’ble Supreme Court held as under:-
- The reports of the independent experts were not adduced in evidence as none of these experts were examined as witness. In view thereof, these reports cannot be relied upon and hence UII has discharged its burden of proving that the exclusion clause is applicable on the claim of the insured in the present case.
- Expert’s Committee comprised of experts in the field of civil engineering and its members were independent and well-qualified to examine and submit a report. Hence reliance on the Expert’s Committee report is justified.
- According to the Expert’s Committee report, shortfall in design and lack of quality workmanship have all contributed to the collapse. In this regard, the primary responsibility was of Hyundai — Gammon (JV). Accordingly, the Court held that this is sufficient evidence to justify repudiation of claim by UII.
- In respect of the reports submitted by the Independent Experts, the Court noted that the concerned experts were never examined before the NCDRC. Further, these reports were not based on on-site inspection. They are all theoretical in nature. On the other hand, the Surveyor appointed by UII has examined himself and adduced documents. Further, there is sufficient evidence to indicate that the surveyor has made site-visits and the proof of that was part of the pleadings filed before the Court.
- In respect of NHAI’s decision to continue with Hyundai — Gammon (JV), the Court held that even if the said decision is taken to be a valid economic decision, that by itself cannot be a reason for not applying the applicable clause of the contract if such applicability is otherwise proved by cogent evidence.
In view thereof, the Court concluded that NCDRC fell in error of law and fact in allowing the complaint filed by Hyundai — Gammon (JV) and hence court set aside the decision of NCDRC.
This judgment can pose some concerns for the insured’s who engage independent experts post occurrence of accident and in addition to the insurer’s appointed surveyor. Usually reports of such independent experts are used to buttress the claim being viable and at times, such experts are even examined in legal proceedings. However, in this case, the Hon’ble Supreme Court clearly observed that a report of a surveyor who has physically visited the site and assessed the loss may overweigh the reports of such independent experts who have not actually visited the site of accident.
Ananya Pratap Singh 