The complainant, appellant in First Appeal No. 857 of 2019, filed Consumer Complaint No.36 of 2012 before the Rajasthan State Consumer Disputes Redressal Commission (hereinafter referred to as the State Commission), contending that the Oriental Insurance Co. Ltd., with whom their plant and machinery was insured, erroneously repudiated their claim of a loss/damage caused to one of the equipments of its unit, namely, the Baking Oven installed in their Biscuit Factory.

          The State Commission has partly allowed the complaint by awarding a claim of Rs.10,82,166.67 p. towards the damage caused to the equipment, Rs.2,00,000/- as damages for mental agony and a sum of Rs.50,000/- as litigation costs.  The complainant has come up in appeal urging that there was no reason to reduce the claim of Rs.29,82,470/- which had been estimated by the Original Equipment Manufacturer and was placed on record.  The relief therefore prayed is that the impugned order be modified and the appeal by allowed by awarding the entire amount claimed in the claim petition.

          The Oriental Insurance Co. Ltd. has filed First Appeal No. 974 of 2019, contending that the entire claim was rightly repudiated invoking the exclusion clause under the policy which does not allow any indemnification for loss or damage caused due to explosion.  The Insurance Company contends that the State Commission erroneously treated the damage caused to be not caused by any explosion or amounting to explosion, which is erroneous and is clearly contrary to the contract of insurance which has to be construed strictly.  The Insurance Company therefore has come forward with a prayer to set aside the entire order passed by the State Commission impugned in the appeal.

          The appeals were heard on 19.03.2024 and the following facts were recorded:-

“Appeals

          Heard learned counsel for both sides.

          The challenge in these two appeals is to a common judgment delivered by the Rajasthan State Consumer Disputes Redressal Commission (hereinafter referred to as the State Commission) whereby the claim of M/s Ajmer Foods Products Pvt. Ltd. has been partly allowed, and, as such aggrieved by the partial denial of the claim, First Appeal No. 857 of 2019 has been filed by the claimant/complainant for enhancement.

          Aggrieved by the same judgment, Oriental Insurance Co. Ltd. in First Appeal No. 974 of 2019 has come up, contending that the claim was not at all admissible, inasmuch as under the terms of the policy any explosion and damage caused by it is clearly excluded under the terms of the policy.

          The chronology of the facts needs to be mentioned for a clarity on facts.  The claimant/complainant states that it is engaged in the business of manufacturing Parle-G Biscuits on a job work basis from the said company at Mumbai and, for the purpose of securing the plant and machinery of its unit, it has taken a Standard Fire & Special Perils Policy with an initial coverage of Rs.12.20 Crores as the sum assured that was later on enhanced on 17.06.2011 to Rs.16.20 Crores.  The enhanced policy was for the duration from 17.06.2011 to 09.10.2011.  The incident which has given rise to the claim is stated to have occurred on 23.07.2011 which is within the said coverage period. 

From the pleadings, it appears that the case of the complainant is that due to an increase of sudden pressure in the gas pipeline that supplies the fuel to the six chambers that are fed by it caused the incident, as a result whereof the LPG Oven burst causing damage.  The submission is that an intimation of this bursting of the Oven that occasioned the damage was given to the Insurance Company on 23.07.2011 itself.  The surveyor was appointed by the Insurance Company who is stated to have visited the premises on 28.07.2011 where-after he raised certain queries that were replied to on 03.08.2011.

It is the contention of the learned counsel for the complainant that the surveyor, instead of proceeding further with the investigation and survey, pre-meditated and pre-judged the issue and sent an intimation on 16.08.2011, stating therein that the incident was that of an explosion which stands excluded under the policy and therefore the claim was not admissible.  It is urged that this was outside the purview of the job of the surveyor who had only to survey the damage and assess the loss, yet he proceeded to virtually pronounce upon the claim itself.

It is then contended that certain more communications took place and the Original Equipment Manufacturer was also invited by the complainant to assess and estimate the loss.  The manufacturer estimated the loss at Rs.29.82 Lakhs approximately and accordingly the said documents were also furnished to the surveyor.

When reinstatement process of the equipment was on, the surveyor was again invited to visit the premises in order to observe the functioning of the unit but the surveyor did not turn up.  Similar requests were made on 24.09.2011 and ultimately the surveyor, according to the complainant, having not made the actual assessment of the damage, submitted his final survey report dated 11.01.2012. 

It is stated that on queries raised, the complainant sent all documents and details as were desired to the Insurance Company on 08.02.2012, followed by further information that was furnished through the letter dated 03.03.2012.

The Insurance Company, according to the complainant, without appreciating the facts in a correct perspective, proceeded to repudiate the claim on 16.03.2012, however, again inviting the complainant to submit any further explanation that it may have in respect of the same.  The same was also sent by the complainant but finally the Insurance Company, according to the complainant, repeated its earlier intimation of repudiating the claim.

It is further submitted that the surveyor has also proceeded to indicate an under-valuation of the claim and further the assessment made was contrary to the total loss suffered by the complainant.

In the aforesaid background, aggrieved, the complainant approached the State Commission that has been partly allowed, accepting the amount of loss as suggested by the surveyor, which is Rs.10,82,166.67 ps.

Learned counsel for the complainant submits that the State Commission has committed an error in proceeding to accept the reduced amount on the strength of the surveyor’s report whereas it is established on the basis of evidence on record that there was a total loss of the entire equipment which has been replaced.

Learned counsel for the Insurance Company has vehemently opposed the appeal filed by the complainant and has also supported the contention raised in the appeal filed by the Insurance Company, by contending that the cause was spontaneous combustion which is explosion.  He has relied on the judgment of this Commission in the case of Adani Wilmar Ltd. Vs. Oriental Insurance Co. Ltd. (Consumer Complaint No. 1525 of 2015), decided on 20.02.2017 to buttress his submissions and support the repudiation due to explosion.

Prima facie, there is no case set up either by the surveyor or in the letter of repudiation of spontaneous combustion.  There is also no such pleading on behalf of the Insurance Company before the State Commission.  In this view of the matter, the aforesaid contention may not be tenable subject to any further arguments to be advanced by the learned counsel.

Learned counsel however submits that the bursting of the equipment would fall within the definition of the explosion used in the exclusion clause and, therefore, even otherwise the nature of the incident establishes that there was an explosion which is excluded under the terms of the policy.

The issue therefore which now needs to be examined further is as to whether the incident of the bursting of the equipment can be labelled as an explosion as urged by the learned counsel for the Insurance Company and further to understand the stand taken by the Insurance Company and the surveyor that the claim was under-valued.  Let the learned counsel for the parties assist the Bench with their submissions on the next date.

As agreed by the learned counsel for the parties, list the case for final hearing on 22.03.2024 at 9.30 a.m.”

          With the consent of the parties, the matter was again heard on 22.03.2024 and learned counsel for both the parties have cited their authorities to advance their submissions.

          Learned counsel for the complainant/appellant finally summarised his arguments contending that the surveyor has very casually carried out the survey incorrectly mentioning about the number of visits made by him and then proceeding to comment upon the nature of the incident as an explosion as if he was an eye-witness to the same.  It is urged that the surveyor had no right to conclude and recommend repudiation on the ground that the incident was an explosion, as he was neither an expert nor was there any material before him to repudiate the incident which solely fell within the jurisdiction of the Insurer. 

It was further submitted with the help of the calculation chart submitted by the complainant, assessing and estimating the loss, and the chart prepared by the surveyor, pointing out that the surveyor for no valid reason or basis has reduced the quantity of the loss by half.  The submission is that a comparison of both the charts, one at page 51 and the other at page 100 of the paper-book of First Appeal No. 857 of 2019, would demonstrate that the surveyor has diminished the quantity of the loss by almost 5% which is without foundation.  It is therefore submitted that the report of the surveyor reducing the loss to Rs.10,82,166/- is without any application of mind, rationale or justification at all.  It is on account of this incorrect approach of the surveyor that he has arrived at a totally wrong figure unconnected with the claim made by the complainant.

          Coming to the issue of the understanding of the word ‘explosion’, learned counsel submits there might by a perception of overlapping of the meaning of the word ‘explosion’ as compared to the word ‘bursting’ but in fact both the words connote entirely different meanings, for which he has relied on the meaning provided in The Shorter Oxford English Dictionary, Third Edition, Edited by C.T. Onions and published by Clarendon Press, Oxford.  He submits that the meaning of the word ‘burst’ as compared with the word ‘explosion’ in the said dictionary would indicate that the intensity and enormity of an explosion is greater where the extent of damage is wide and extensive. He submits that a bursting could also be a minor blast as in the present case where the sound of the explosion was like a cracking and not something like a bomb or any other explosive device.  The contention is that explosion is a cumulative effect of an incremental activity, physical or chemical, that has a huge intensity like that in a volcano or in an explosive bomb.  As compared to this, the bursting of fire cracker cannot be defined as explosions and therefore the meaning of the word has to be understood contextually in the present case where the bursting of the equipment took place on account of a cumulative pressure caused in the gas pipeline that connected the 7 chambers of the Biscuit Baking Oven.  It is submitted that 4 of the chambers were ripped off and 2 were damaged which indicates that the equipment did burst open with some shredded material but it was not an explosion at all.

          The contention of the learned counsel for the complainant is that the surveyor did not invoke the services of any expert and he himself was no expert of the subject matter.  On the other hand, the damage was reported and the Original Equipment Manufacturer also in his estimate has referred to the incident as a bursting of the equipment.  He therefore submits that to construe the said incident as an explosion is incorrect and he has also tried to distinguish the meaning of the two words by downloading the meaning assigned to them on the Google.

          He then advanced his submissions by contending that since there is a clear ambiguity, arising out of the nature of the incident and its description as to whether it was a burst or an explosion, then in that event this forum should apply the rule of contra proferentem as interpreted by the Constitution Bench in the case of General Assurance Society Limited Vs. Chandumull Jain & Anr. (1996) 3 SCR 500, as followed by the Apex Court in the case of United India Insurance Co. Ltd. Vs. Pushpalaya Printers (2004) 3 SCC 694.  This was again followed in the case of Sushilaben Indravadan Gandhi Vs. New India Assurance Co. Ltd. (2021) 7 SCC 151 that relied on the definition of the contra proferentem rule as enunciated in Halsbury’s Laws of England. 

All these cases were again considered by the Apex Court in the case of Haris Marine Products Vs. Export Credit Guarantee Corporation (ECGC) Ltd. 2022 SCC OnLine SC 509.  This is a Three Judges pronouncement vis-à-vis the applicability of the contra proferentem rule on insurance contracts.  This decision of Three Judges of the Apex Court was rendered on 25.04.2022 after having noticed the Constitution Bench decision referred to hereinabove.  (A review was also filed but the same was dismissed on 30.08.2022.)

          Learned counsel however points out very fairly that subsequent thereto a Two Judges’ decision of the Apex Court in the case of National Insurance Co. Ltd. Vs. Chief Electoral Officer and Ors. (2023) 6 SCC 441 was delivered on 08.02.2023.  It is stated that the said judgment holds that the rule of contra proferentem does not apply in cases of commercial contract for the reason that a clause in commercial contract is bilateral and has been mutually agreed upon.  An insurance contract therefore must be read as a whole and attempt should be made to harmonize the same.  At the same time, the judgment holds that the terms of an insurance policy are to be strictly considered and therefore the Insured cannot claim more than what is covered by the insurance policy.  He then points out that again in a subsequent judgment delivered on 20.11.2023 another Two Judges’ decision in the case of Bajaj Allianz General Insurance Co. Ltd. Vs. Mukul Aggarwal and Ors. (2024) 2 SCC 344 held that the applicability of the rule of contra proferentem is ruled out for contracts of insurance.  It has been held that the reason is that an insurance contract is bilateral and mutually agreed upon like any other commercial contract.

          Learned counsel for the complainant however urges that the above mentioned two decisions in the cases of National Insurance Co. Ltd. Vs. Chief Electoral Officer and Ors. (Supra) and Bajaj Allianz General Insurance Co. Ltd. Vs. Mukul Aggarwal and Ors. (Supra) have proceeded to lay down the law of no applicability of the contra proferentem rule in insurance contracts on the ground that like any other commercial contract, the same is bilateral and is mutually agreed upon, whereas, the earlier Constitution Bench decision and as explained in the Three Judges’ decision of Haris Marine Products Vs. Export Credit Guarantee Corporation (ECGC) Ltd. (Supra) decided on 25.04.2022 do not seem to have been noticed and assessed where the ratio of those decisions clearly hold that the reconciliation of ambiguous terms in commercial contracts has been permitted and judicial pronouncements have invoked it in order to explain any ambiguity with special reference to insurance matters.  He therefore submits that the Constitution Bench decision and the Three Judges’ decision in the case of Haris Marine Products Vs. Export Credit Guarantee Corporation (ECGC) Ltd. (Supra) come to the aid of the argument advanced by him while drawing a distinction between the meaning of the words ‘burst’ and ‘explosion’. 

          Responding to the aforesaid submissions of the learned counsel for the complainant, learned counsel for the Insurance Company cited the meaning of the word ‘explosion’ as downloaded from “The Law Dictionary” where the meaning of the word ‘explosion’ is defined connecting it with the combustion of an explosive substance.  He has further attempted to borrow the definition of the word ‘explosive’ or ‘inflammable dust’ as used in the Factories Act, 1948 to contend that explosion is a word which is also applicable to the chemical activity related to a gas.  He submits that in the present case also it was the collection of gas and accumulated pressure created by it that the explosion took place, causing a substantial damage, which stands corroborated by the evidence on record.  He therefore submits that the word ‘explosion’ is all pervasive and the incident with a massive damage which took place is described in the evidence that was available before the State Commission.  There was no doubt that the incident was an explosion and was not a mere bursting of a fire cracker.

          On the issue of reduction of the quantity by the surveyor that has been argued by the learned counsel for the complainant, he submits that the same was done on an assessment but he has been unable to point out any analysis on record or in the pleadings of the Insurance Company to justify the same.  The calculations made by the surveyor have been pointed out but no explanation seems to be forthcoming for reasons of the variance in quantity as compared with the claim made by the complainant.  

It is urged that the State Commission erroneously construed the incident to be not an explosion and therefore the award made by it by concluding that the incident was not an explosion deserves to be set aside.  The submission is that there is no logic which can be applied so as to exclude the incident from the definition of the word ‘explosion’.  The repudiation therefore is justified and the State Commission order deserves to be set aside.  It is also urged that the plea of enhancement raised by the complainant through the other appeal deserves to be dismissed.

          Having heard learned counsel for the parties, there are certain undisputed facts which need to be mentioned.  The complainant runs a Biscuit manufacturing factory that produces Parle-G Biscuits on job work basis from the parent manufacturing company.  The plant and machinery was set up and initially a Standard Fire & Special Perils Policy for a total sum insured of Rs.12.20 Crores was taken.  There is no dispute that the policy duration extended from 10.10.2010 to 09.10.2011.  The limit of policy was extended and enhanced with an additional Rs.4.00 Crores coverage, including coverage for the LPG gas fired Oven for Biscuit manufacturing.  This request for enhancement of increasing the sum insured from Rs.12.20 Crores to Rs.16.20 Crores was accepted, and was existing on the date when the accident/incident took place on 23.07.2011.  The baking Oven is 145 feet long with 7 chambers in it to which gas is supplied from LPG cylinders from both sides.  The said equipment, according to the complainant, burst due to accumulation of pressure in the gas pipeline that caused the damage, resulting in the rupturing of 4 of the chambers and damage to 2 other chambers of the said equipment.  The intimation was promptly given on 23.07.2011 and the intimation sent only indicates that the Oven was damaged badly (totally).  A reminder was also sent requesting for an early survey of the damage caused.  The surveyor was Mr. Alind Kumar “Acharya”, who claims himself to be a qualified Engineer and the Chief Executive Officer of his firm M/s Apex Assessors Pvt. Ltd.  He visited the plant after five days on 28.07.2011.  He made certain queries from the complainant that were answered regarding the documents required and then submitted his report dated 11.01.2012.

          The complainant had also invited the attention of the Bench to the assessment of the Original Equipment Manufacturer M/s Azans Enterprises Pvt. Ltd. who estimated the loss indicating that the entire Oven was totally damaged and it possibly happened because of a sudden increase in the pressure of LPG gas in the pipeline connecting the gas bank.  An estimate was also submitted by them on 03.09.2011 which is on record.  This estimate was also before the surveyor. 

The surveyor while indicating his observations and circumstances of loss opined as follows:

          The report also records the estimated loss claimed by the complainant to the tune of Rs.29,82,470/- as per the estimate given by the Original Equipment Manufacturer.  The extent of damage and loss assessment was also reported and it was observed that it happened because of certain accumulation of LPG gas causing blowing of the internal fire brick lining, glass wool insulation, outer steel panelling and distorting inner support MS plate structure.  It was also stated that the exhaust discharge line was also displaced and bent.  The surveyor opined that the intensity of the explosion was so high that the ruptured material went upto ceiling height and hit it.  According to him, no fire took place and the entire damage was caused because of the explosion alone. The loss therefore was not due to fire.      He then concluded that since the insurance policy excludes any indemnification for such damage, the entire damage fell under the exclusion clause and no liability falls on the Insurer.

          While recording his opinion, he also referred to the report of the Original Equipment Manufacturer M/s Azans Enterprises Pvt. Ltd. that the loss took place because of bursting due to sudden increase in the pressure of gas pipeline supplied by the LPG bank.  He ultimately recommended that the claim fell out of the scope of insurance coverage policy issued and hence was not payable.   

          The surveyor also filed an affidavit dated 05.03.2014 in support of the survey report which is on record.  After having received the survey report dated 11.01.2012, the Insurance Company vide letter dated 16.03.2012 repudiated the claim on the ground that there was no fire and the loss and damage was caused solely due to explosion which stands excluded under the insurance coverage policy opted by the complainant.  The complainant again sought review of the said rejection but the Insurance Company reiterated its stand by the order dated 02.04.2012.

          There is no dispute that the incident occurred on 23.07.2011 when the policy was in force.  The main question which falls for consideration is as to whether the claim was rightly repudiated by invoking the exclusion clause or not.  For this, the terms of the exclusion clause of the policy needs to be perused.  The same is extracted hereunder:

“STANDARD FIRE AND SPECIAL PERILS POLICY

Excluding loss, destruction of or damage

1. To boilers (other than domestic boilers), economizers or other vessels, machinery or apparatus (in which steam is generated) or their contents resulting from their own explosion/implosion,
2. Caused by centrifugal forces.”

          A perusal of the said terms and conditions and also the policy which has been brought on record as also discussed by the State Commission uses the word ‘explosion’ without assigning any meaning or explaining the width of the meaning of the said word.  The contextual meaning from the dictionary has been pressed into service by learned counsel for both the sides.    

The main contentious issue in these two policies on which the outcome would rest is the meaning of the word explosion  as used in the  policy.  The phraseology used excludes losses and destruction of damage “resulting from their own explosion/implosion”.  This, therefore, reflects a clarity that if the apparatus explodes on its own, the loss or destruction stands excluded and the insured cannot claim any indemnification.  It is this word  explosion which has been used by the insurance company as well as the Surveyor to deny the claim of the complainant.  The arguments advanced and the question which arises for consideration is as to whether the nature of the incident can be construed as constituting an explosion.  The Complainant contends that, effectively, the incident was the bursting of the equipment due to an accumulated pressure in the gas pipeline that supplied fuel to the Oven.   The incident according to the Complainant, therefore, is not an explosion, in as much as there was no collateral  or extensive damage caused on account of said bursting as it had no intensity  or enormity with any outward effect coupled with any loud noise so as to describe it as an explosion.  He submits that the Oxford English Dictionary that has been cited by him defines the word ‘burst’ to mean break suddenly  when in a State of extension or expansion or to snap or shatter suddenly.  On the other hand, the word “explosion” as defined in the said dictionary expresses the action as going off with a loud noise and is a burst under the influence of suddenly developed internal energy.  He submits that explosion is related to that of a volcano, a Bomb or any similar explosive incident which cannot be equated to a simple burst of an equipment. He has further substantiated his submissions with the meaning assigned to these words on the google to urge, that to burst means to split open in a violent way due to internal pressure, but explosion is an outcome which involves a chemical reaction with a sudden loud  and violent release of energy breaking apart that sends parts flying outwards.  The contention therefore is that the bursting of an equipment is not an explosion as these two words are not synonymous.

Learned counsel for the Insurance Company relying upon the Law Dictionary urges that an explosion may be described generally as a sudden rapid combustion causing violent expansion of the air.  The said meaning which has been handed over also states that an explosion is of another degree.  The same is extracted herein under :

 “A sudden rapid combustion, causing violent expansion of the air, and accompanied by a report.  The word ‘explosion’ is variously used in ordinary speech and is not one that admits of exact definition. Every combustion of an explosive substance, whereby other property is ignited and consumed, would not be an explosion within the ordinary meaning of the term. It is not used as a synonym of ‘combustion’. An explosion may b e described generally as a sudden and rapid combustion, causing violent expansion of the air, and accompanied by a report. But the rapidity of the combustion, the violence of the expansion, and the vehemence of the report vary in intensity as often as the occurrences multiply. Hence, an explosion is an idea degrees; and the true meaning of the word, in each particular (http://theawdictionary.org/particular/) case, must be settled, not by any fixed standard or accurate measurement, but by the common experience and notions of men in matters of that sort, Insurance Co. 16 App. D.C.270; Louisville Underwriters Vs. Durland, 123 Ind. 544 24 N.E. 221 7 L.R.A. 399.”

He has also tried to take help from the definition of the word explosive used in Section 37 of the Factory Act but in my opinion, the same does not reflect much on the issue regarding the exact meaning of the word explosion in the context of the incident presently involved.

In order to resolve this controversy what needs to be dealt with at the outset is the contest with regard to the content, the intent and the meaning of a term used in a contract of insurance, capable of being defined and interpreted differently. Then arises the question of any advantage to be taken by applying the contra proferentem rule that can be pressed into service or not.  This legal contest drew the attention of the Apex Court recently in the judgment of National Insurance Co.(supra) and Bajaj Allianz (supra), the Apex Court in the case of National Insurance Co.Ltd. in para 27 to 31 observed as under “

“27. We would first like to elucidate the principles on which a claim under any insurance policy is examined. It is trite to say that the terms of the insurance policy are to be strictly construed.

28. The insurance contracts are in the nature of special class of contracts having distinctive features such as utmost good faith, insurable interest, indemnity subrogation, contribution and proximate cause which are common to all types of insurances. Each class of insurance also has individual features of its own. The law governing insurance contracts is thus to be studied in three parts, namely, (1) general characteristics of insurance contracts, as contracts; (2) special characteristics of insurance contracts, as contracts of insurance, and (3) individual characteristics of each class of insurance.

29. Now turning to some of the judicial pronouncements, wherein it has been opined that the words used in a contract of insurance must be given paramount importance and it is not open for the court to add, delete or substitute any words [Suraj Mal Ram Niwas Oil Mills (P) Ltd. v. United India Insurance Co. Ltd.]. Insurance contracts are in the nature where exceptions cannot be made on ground of equity and the courts ought not to interfere with the terms of an insurance agreement [Export Credit Guarantee Corpn. (India) Ltd. v. Garg Sons International].

30. This Court in Vikram Greentech (I) Ltd. v. New India Assurance Co. Ltd. reiterated that the insured cannot claim anything more than what is covered by the insurance policy. The terms of the contract have to be construed strictly, without altering the nature of the contract as the same may affect the interests of the parties adversely. The clauses of an insurance policy have to be read as they are. Consequently, the terms of the insurance policy, that fix the responsibility of the Insurance Company must also be read strictly.

31. In several other judgments, this Court has held that the insurance contract must be read as a whole and every attempt should be made to harmonise the terms thereof, keeping in mind that the rule of contra proferentem does not apply in this case of commercial contract, for the reason that a clause in a commercial contract is bilateral and has mutually been agreed upon.”

Referring to the some judgement, the Apex Court in another case of Bajaj Allianz General Ins.Co. Ltd. Observed in para 17 as follows :

“17. As far as the interpretation of an insurance policy is concerned, in National Insurance Co.Ltd. Vs. Chief Electoral Officer, this Court reiterated that an insured cannot claim anything more than what is covered by the insurance policy. The terms of the contract have to be construed strictly without altering the nature of the contract. Moreover, the clauses of an insurance policy must be read as they are. The terms of the insurance policy, which determine the liability of the insurance company, must be read strictly. This Court also held like a contract of Insurance.  The rule of contra proferentem contemplates that if any clause in the contract is ambiguous, it must be interpreted against the party that introduced it. For the contract of insurance, the applicability of the said concept is ruled out. The reason is that the insurance contract is bilateral and mutually agreed upon, like any other commercial contract.”

A perusal of the ratio of said judgment would indicate that since an insurance contract is  bilateral  and mutually agreed upon like any other commercial contract, then the rule of contra proferentem would not apply.

The question is as in the present case, whether the incident of bursting as alleged by the complainant, amounts to an explosion as contested by the insurance Company can be attempted to be resolved by applying the contra proferentem rule.

It appears that this legal issue  had been considered by a Constitution Bench way back in 1996 in the case of General Assurance Society Ltd. Vs. Chandmull Jain 1966 Vol- III SCR pg.500  where in para 11, the Apex Court has held as under : -

“In other respects there is no difference between a contract of insurance and any other contract except that in a contract of insurance there is a requirement of uberrima fides i.e. good faith on the part of the assured and the contract is likely to be construed contra proferentem that is against the company in case of ambiguity of doubt… (I)  interpreting documents relating to a contract of insurance, the duty of the Court is to interpret the words in which the contract is expressed by the parties, because it is not for the court to make a new contract, however reasonable, if the parties have not make it themselves.”

 Relying on the said constitution Bench judgment, a three  Member Bench in the case of Haris Marine Products Vs. Export Credit Guarantee Corporation Ltd. Reported in 2022 SCC OnLine SC 509, after having noted the aforesaid ratio of the decision of the Constitution Bench quoted above, went on to consider other decisions holding that if there is any ambiguity about a term, and there is a possibility of two interpretations, then one beneficial to the insured should be applied as the rule of contra proferentem protects the insured from the vagaries of any unfavourable interpretation of an ambiguous term.   Consequently, it was held that the said rule can be pressed into service.  Para 27 to 29 of the said judgment is extracted hereinunder :

“27. While the court ultimately denied insurer's liability, it laid down the manner in which ambiguities were to be interpreted. Since then, a catena of judgments has upheld this approach. In United India Insurance Co. Ltd. v. Pushpalaya Printersia, a Division Bench of this Court was confronted with interpreting the term ‘impact’ in an insurance policy for protection against damage caused to the insured building. Interpreting the term to include damage caused by strong vibrations by heavy vehicles without 'direct' impact, this Court held:

"The only point that arises for consideration is whether the word "impact" contained in clause 5 of the insurance policy covers the damage caused to the building and machinery due to driving of the bulldozer on the road close to the building... (I)t is also settled position in law that if there is any ambiguity or a term is capable of two possible interpretations, one beneficial to the insured should be accepted consistent with the purpose for which the policy is taken, namely, to cover the risk on the happening of certain event.... Where the words of a document are ambiguous, they shall be construed against the party who prepared the document. This rule applies to contracts of insurance and clause 5 of the insurance policy even after reading the entire policy in the present case should be construed against the insurer".

(emphasis supplied).

28. Similarly, in Sushilaben Indravadan Gandhi v. New India Assurance Company Ltd., this Court charted the evolution of the rule of contra proferentem, and relied inter alia on its explanation as provided under Halsbury's Laws of England:

"Contra proferentem rule. Where there is ambiguity in the policy the court will apply the contra proferentem rule. Where a policy is produced by the insurers, it is their business to see that precision and clarity are attained and, if they fail to do so, the ambiguity will be resolved by adopting the construction favourable to the insured. Similarly, as regards language which emanates from the insured, such as the language used in answer to questions in the proposal or in a slip, a construction favourable to the insurers will prevail if the insured has created any ambiguity. This rule, however, only becomes operative where the words are truly ambiguous; it is a rule for resolving ambiguity and it cannot be invoked with a view to creating a doubt. Therefore, where the words used are free from ambiguity in the sense that, fairly and reasonably construed, they admit of only one meaning, the rule has no application.

29. The rule of contra proferentem thus protects the insured from the vagaries of an unfavourable interpretation of an ambiguous term to which it did not agree. The rule assumes special significance in standard form insurance policies, called contract d’ adhesion or boilerplate contracts, in which the insured has little to no countervailing bargaining power.  This consideration is highlighted in the facts of this case, since the risks that ECGC is mandated to cover is its business, and other insurers rarely foray into the field.

30. A plain reading of the policy in question demonstrates that it was taken to protect against failure of the foreign buyer in paying the Indian exporter for goods exported. It was not a policy taken to cover in-transit insurance, and the cause of action triggering the claim arose much later, i.e., on 14.02.2013, well within the coverage of the policy. While interpreting insurance contracts, the risks sought to be covered must also be kept in mind. In Peacock Plywood (P) Ltd. v. Oriental Insurance Co. Ltd. while determining the validity of an insurance policy for a stranded ship, a Division Bench of this Court, noting that none of conditions in the termination clause were triggered, held:

"When the termination of the contract of insurance has actually taken place, is essentially a question of fact. An insurance policy is to be construed in its entirety. A marine insurance policy does not come to an end only because the ship became stranded at a port.”

This Commission finds itself bound by the ratio of aforesaid two judgments, one being a constitution bench and the other being a three Member decision rendered very recently in 2022. 

Consequently, in the light of the aforesaid observations made, the meaning of the word explosion as contested between the parties have to be considered.

For this, it would be apt to refer to the meaning of the word explosion as compared to with a meaning of word ‘burst’. According to Oxford English Dictionary, Second Edition, published by Clarendon Press Oxford, First Edited by James A.H. Murray, Henry Bradely, W.A. Craigie and C.T.Onions (20 Vols), the meaning of the word ‘burst’ is to break suddenly, defined as under :

1 – a. --- To break suddenly, snap, crack, under violent pressure, strain, or concussion. Chiefly said of things possessing considerable capacity for resistance and breaking with loud noise; often of cords etc., snapping under tension; also of spears, swords etc., shivered in battle.”

          It is also defined to break up explosively or fly open suddenly, it can be a break or a snap with shattering and also to disrupt, shatter, cause to fly to pieces (a surface or thing having extended surface). To rupture by internal force, or by pressure, a blow etc. when inflated or distended to cause its rupture by exertion.  The meaning assigned is also to force a passage or to break forcibly with overwhelming suddenness.  However, at placitum 3 the meaning assigned is an explosion, eruption, outbreak, referring to gunfire and automatic weapons.  The word Bursting has been defined as the process or action of breaking suddenly and violently as under tension. It also means explosion or an explosive noise.

The word ‘Explosion’ in the same Dictionary, in respect of gas or gun powder means the action of going off with a loud noise under the influence of suddenly developed internal energy.  The illustrations are a boiler, a bomb and a gun.  It also defines explosion to be an action of suddenly bursting or flying in pieces. It is described as a detonation.

 The question therefore is as to whether the incident in question can be construed as an explosion or the bursting of the Oven is not an explosion.

This is an admitted position that the equipment due to a pressure arising out of the accumulation of gas in the pipeline, that supplies fuel to the seven chambers of the biscuit Oven, experienced an accumulated pressure which burst open the equipment.  It is correct that the intimation was sent on 23^rd July only refers to the equipment being badly damaged. The original equipment manufacturer indicated that the 148 ft long Oven were totally damaged and destroyed.

The surveyor in his report has indicated that it was on account of accumulation of LPG gas which caused the damage to the internal fire brick lining, glass wool insulation, outer steel panelling and the destructing of inner support of MS plate structure, the exhaust discharge line was also displayed and bend.  According to the surveyor, the intensity was such that the ruptured material from the Oven went up to ceiling hight and according to him, no fire took place, and it was only this explosion that was caused due to the pressure created in the pipeline resulting in the incident.  In his affidavit, filed in support of his report, he has also stated in para 8 that he had arranged photographs and in para 9, he has also mentioned that he consulted many other experts and took their opinion.  No such evidence seems to have been filed in the shape of photographs before the State Commission nor there is any reference of such filing by the insurance company in this appeal.  There is also no indication or even the reference of who were the experts consulted by the surveyor. There is no reference of any such expert report in the final survey report.  The Surveyor has described himself to be a mechanical engineer and has formed his opinion that the incident was an explosion and not a simple burst.

The State Commission has arrived at the conclusion that a burst of the nature involved in the present controversy in ordinary course, may be described even as an explosion but given the connotation, the incident was the bursting of the equipment and the Surveyor had travelled beyond his Authority by virtually repudiating the claim.

         The description of the incident is that a 148 feet long steel equipment was ripped open on account of the accumulation in the gas pipeline of the oven when it was working.  The consequence was the bursting of the oven that damaged its brick lining, glass insulation, exhaust and the internal structure to such an extent that the original equipment manufacturer has also indicated in his estimate that it is almost beyond repair. Thus the entire equipment was destroyed in the eruption that took place. The manager in his statement did use the word “Explosion” while referring to the incident. It is correct that no collateral damage either to the building or to anybody working inside has been caused. The fact, however, remains that there is no denial of the incident that it was of such an intensity that after the oven burst, and ripped open, its parts went flying high up to the ceiling level. In all probability this type of a burst cannot be equated with either a simple burst or an incident of low intensity. It is possible that in the explosion, no other collateral damage may have been caused but at the same time the equipment was completely destroyed. The impact was not a simple puncture or a minor deformity on account of the accumulation of the gas in the pipeline. The intensity of the breakage that shattered the equipment cannot be minimized or subsidized to equate it with a simple burst.

         There is one more indication in the policy, namely that the word “Explosion” is coupled with the word “implosion”.  The word implosion means an inward bursting activity whereas an explosion has an outward manifestation. The range therefore as intended in the policy is either way and therefore even if the oven had not ripped open and damaged externally, it would have been an implosion. Thus in either case the exclusion clause is attracted. Consequently, given the nature of the incident and also the expression used in the policy as explained above, any damage or loss to the equipment by a burst would amount to an explosion.

         The contextual meaning as can be gathered also from the dictionary meanings referred to by either side and also the meaning explained above, it is evident that the present incident which is the bursting of an oven may not be comparable with the bursting of a bomb or a gun fire but it certainly was a very intense burst amounting to an explosion. An explosion is a bursting accompanied by a loud noise usually connected with the blowing of gun powder. This also happens with gases which tend to expand very quickly exerting enormous pressure on anything which obstructs their expansion, thus causing an explosion. The violent expansion instantaneously results in such consequence. The accumulation of the gas inside the pipeline did create a huge pressure resulting in the blast of the oven.

         It is correct that the insurance company did not lead any evidence of an expert, but at the same time from the description of the incident as detailed in the surveyor’s report and discussed hereinabove, the incident cannot be construed to be a mild burst or a simple ripping of an equipment. No expert evidence has been led by the complainant as well. The very size of the equipment, which is 148 feet long and the manifestation of the accumulated gas pressure with the magnitude of destruction cannot be said to be synonymous with a simple burst.

         The State Commission has nowhere discussed this description with the aid of the evidence to construe the meaning to be assigned to the said incident. The State Commission has assumed that ordinarily the word “burst” cannot be equated with explosion as understood in the routine manner. In view of what has been explained above, the finding of the State Commission cannot be sustained as the incident clearly amounted to an explosion as defined under the exclusion clause.

         Learned Counsel for the Complainant seems to have correctly argued that the discrepancy in the calculation as projected by the surveyor while assessing loss is to an extent incorrect, inasmuch as, the surveyor has not given any reason for having reduced the quantity of loss by almost half as against that was claimed by the Complainant. To that extent, the argument of the learned Counsel for the Complainant seems to be justified but in view of what has been stated above the contention does not require any further adjudication.

         The question of applying the Contra Proferentum Rule in the light of the discussions above therefore is not required to be pressed into service as there is no ambiguity that can be traced into the meaning of the word for the purpose of construing the incident to be an incident of explosion.

         In view of the aforesaid discussions and conclusion, the  appeal filed by the Insurance Company namely FA/974/2019 deserves to be allowed and the impugned order of the State Commission deserves to be set aside for all the recorded stated above. Consequently, FA/974/2019 is allowed and the impugned order of the State Commission is set aside.

         Since the appeal filed by the Insurance Company has been allowed and the impugned order has been set aside, it is not necessary for this Commission to go into the dispute of quantum or the reduction of the claim by the surveyor Accordingly FA/857/2019 is dismissed.