Insurance Claim Dispute Over Shop Collapse: Supreme Court Overrules NCDRC Decision

The case of Sangrur Sales Corporation vs. United India Insurance Company Limited & Anr revolves around an insurance dispute regarding the collapse of a shop due to excavation activities on an adjacent property. The Supreme Court’s ruling overturned the decision of the National Consumer Disputes Redressal Commission (NCDRC), reinstating the compensation granted by the District Consumer Disputes Redressal Forum.

The appellant, Sangrur Sales Corporation, had obtained a “Standard Fire and Special Perils Insurance Policy” covering their showroom at Gausala Road, Sangrur, for Rs. 18,00,000. On March 29, 2012, the showroom collapsed due to excavation work being conducted in an adjacent plot. Despite lodging a police complaint and informing the insurer, the claim was repudiated by the insurance company on May 11, 2012, leading to legal proceedings.

Petitioner’s Arguments

The appellant argued that the loss occurred due to excavation activities on a neighboring property, which was beyond their control. They contended that the insurance policy should cover such risks as the cause of damage was neither self-inflicted nor due to defects in their property. The appellant also pointed out that both the District Forum and the State Consumer Disputes Redressal Commission (SCDRC) had ruled in their favor.

Respondent’s Arguments

The insurance company, United India Insurance, defended its decision by citing Clause VIII(e) of the policy, which excluded losses caused by “demolition, construction, structural alterations, or repair of any property or groundworks or excavations.” The insurer maintained that the damage caused by the neighboring excavation fell within this exclusion, justifying the repudiation of the claim.

Supreme Court’s Analysis

Examining Clause VIII(e) of the policy, the Supreme Court noted that the exclusion applied to situations where the insured entity itself was conducting demolition, construction, or excavation work. Since the damage to the shop resulted from excavation in a neighboring plot, the exclusion clause could not be invoked against the appellant. The Court emphasized:

“In the absence of a specific qualification indicating that the exclusion will apply to an excavation being carried on by a third party, the reasonable construction of sub-clause (e) of Clause VIII is that it should apply only to a situation where the excavation is being carried on by the insured himself in his own property.”

The Supreme Court referred to the precedent set in United India Insurance Co Ltd v Pushpalaya Printers (2004) 3 SCC 694, reiterating that in cases of ambiguity, the construction favoring the insured should be adopted.

Final Judgment

The Supreme Court ruled in favor of the appellant, setting aside the NCDRC order and reinstating the District Forum’s decision, which had granted Rs. 18,00,000 as compensation along with interest. The Court held:

“The error of the NCDRC lies in reading the exclusion in regard to excavations as being applicable in a situation such as the present where the cause which resulted in the damage was a work of a third party which was carrying on an excavation in independent premises.”

This landmark ruling underscores the importance of fair interpretation of insurance contracts and protection of policyholders from unjust claim rejections.

Petitioner Name: Sangrur Sales Corporation.
Respondent Name: United India Insurance Company Limited & Anr.
Judgment By: Justice Dhananjaya Y Chandrachud, Justice Hrishikesh Roy.
Place Of Incident: Gausala Road, Sangrur.
Judgment Date: 17-01-2020.

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