Supreme Court Directs ECGC to Honor Export Insurance Claim: A Landmark Ruling on Policy Interpretation

The Supreme Court of India, in the case of Haris Marine Products vs. Export Credit Guarantee Corporation (ECGC) Limited, ruled in favor of the appellant, an exporter, by directing the insurance company to pay the claim amount that was initially denied on technical grounds. This judgment highlights the principle of interpreting insurance contracts in favor of the insured when ambiguities arise.

The dispute revolved around whether the date of ‘despatch/shipment’ should be interpreted based on the insurer’s policy terms or external government guidelines. The Court ruled that an insurance contract must be interpreted on its own terms, and in cases of ambiguity, the rule of contra proferentem must apply.

Background of the Case

Haris Marine Products, an exporter of fish meat and fish oil, had obtained an export credit insurance policy from ECGC. The policy was meant to cover losses in case a foreign buyer defaulted on payment. The relevant coverage period of the policy was from December 14, 2012, to December 13, 2013.

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The appellant’s shipment was loaded onto a vessel on December 13, 2012, with the ship setting sail on December 15, 2012. When the foreign buyer failed to make payments, the appellant filed a claim with ECGC. However, ECGC rejected the claim on the grounds that the shipment date fell just before the policy’s effective start date. The National Consumer Disputes Redressal Commission (NCDRC) upheld ECGC’s decision, leading the appellant to challenge the ruling before the Supreme Court.

Petitioners’ Arguments

The appellant argued that:

• The policy did not clearly define the date of despatch/shipment.
• The loading process continued until December 14, 2012, and the ship sailed on December 15, 2012, which should be considered as the actual despatch date.
• The insurance contract should be interpreted in favor of the insured, following the rule of contra proferentem.
• ECGC wrongly relied on the Directorate General of Foreign Trade (DGFT) guidelines, which were not part of the insurance policy.
• The claim was denied based on a technicality that did not align with the intent of the insurance policy.

Respondents’ Arguments

ECGC defended its rejection of the claim by arguing that:

• The DGFT guidelines define the date of shipment for containerized cargo as the date on the “Onboard Bill of Lading.”
• The Bill of Lading date, December 13, 2012, was a day before the policy took effect, making the claim ineligible.
• Insurance policies must be interpreted strictly according to the defined terms.
• The insured should have been aware of the limitations before accepting the policy.

Supreme Court’s Judgment

The Supreme Court ruled in favor of the appellant, setting aside the NCDRC’s order. The key observations of the Court were:

• Interpretation of Insurance Contracts: The Court emphasized that an insurance policy must be interpreted as per its own terms. External guidelines, such as the DGFT guidelines, cannot be imposed on policyholders unless explicitly mentioned.
• Application of Contra Proferentem: The Court reiterated that in case of ambiguity in insurance contracts, the interpretation that favors the insured should prevail.
• Business Common Sense: The Court noted that the actual despatch date should be determined based on when the shipment was handed over for transit, rather than just the Bill of Lading date.
• ECGC’s Position as a Government-Backed Insurer: The Court observed that ECGC, being the only government-backed provider of export credit insurance, had an obligation to ensure fair and just interpretation of policies.
• Claim Settlement Ordered: ECGC was directed to pay the claim amount of ₹2.45 crores along with 9% annual interest.

Implications of the Judgment

This ruling has far-reaching consequences for insurance policy interpretation, especially in export credit insurance:

• Clarity in Policy Terms: The judgment underscores the need for insurers to clearly define all terms in the policy document.
• Consumer Protection in Insurance: Exporters and other policyholders now have stronger grounds to challenge ambiguous policy denials.
• Judicial Oversight on Insurance Disputes: The case highlights the role of the judiciary in ensuring fair contract interpretation.
• Guidelines vs. Policy Terms: External regulatory guidelines cannot override the explicit terms of an insurance policy unless incorporated into the contract.

Conclusion

The Supreme Court’s decision in Haris Marine Products vs. Export Credit Guarantee Corporation (ECGC) Limited sets an important precedent for the fair interpretation of insurance contracts. The ruling not only protects exporters but also reinforces the fundamental principles of contract law, ensuring that ambiguities in insurance policies are resolved in favor of policyholders.

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Petitioner Name: Haris Marine Products.
Respondent Name: Export Credit Guarantee Corporation (ECGC) Limited.
Judgment By: Justice Uday Umesh Lalit, Justice S. Ravindra Bhat, Justice Pamidighantam Sri Narasimha.
Place Of Incident: India.
Judgment Date: 25-04-2022.

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