Facts

Export Credit Guarantee Corporation (‘ECGC’), a government company, provides a range of credit risk insurance cover to exporters. Haris Marine Products (‘Haris Marine’) is a fish and meat oil exporter. Haris Marine entered into a Single Buyer Exposure Policy (‘Policy’) with ECGC to cover for non-payment by overseas customers of exported commodities and paid a premium to ECGC on December 13, 2012 for the policy. This policy had an INR 2.45 crore coverage limit with effect from December 14, 2012 to December 13, 2013. On December 15, 2012, the vessel (Tiger Mango Voyage 62) set sail. The Bill of lading i.e. the day the vessel started loading the disputed cargo upon board, was prepared on December 19, 2012, mentioning that the date of on-board is December 13, 2012. On January 22, 2013, the products were delivered by the ship. The foreign customer failed to make the payment. Subsequently, on February 14, 2013, Haris Marine filed a claim with ECGC.

The claim of Haris Marine was rejected by the Independent Review Committee on the ground that the date of dispatch was ambiguous. They relied on Directorate General of Foreign Trade Guidelines (‘DGFT Guidelines’) which stated that the date of dispatch for containerized cargo is to be interpreted as date of ‘Onboard Bill of Lading’. In the present case, the same was December 13, 2012. It was one day before the policy became effective.

Haris Marine filed a case for deficiency of service against ECGC at National Consumer Dispute Redressal Forum and claimed compensation.

The forum upheld the decision of the Independent Review Committee, holding that since the policy did not have a clearly specified provision, it has to apply the rule of verba chartarum fortius accipiuntur contra proferentem (‘contra proferentum’) to interpret the date of dispatch. The rule of contra proferentum states that if the words of a contract are ambiguous, of two equally possible meanings, they should be interpreted against the drafter of the contract and not against the other party.

Haris Marine filed an appeal against the order of the National Consumer Dispute Redressal.

Issue

Whether the NCDRC was correct in placing reliance on DGFT guidelines to interpret the date of ‘despatch / shipment’ in the Policy?

Arguments Of The Appellant

• The Policy does not clearly specify the date of ‘dispatch’ or ‘shipment’ or the date of initiation of the policy. In the absence, the date of the vessel setting sail i.e. December 15, 2012, must be considered over December 13, 2012 (the date on the Bill of Lading).
• The date of ‘Onboard Bill of Lading’ was irrelevant to both the parties as:

• • (a) There was no Letter of Credit issued. As per the definition of the DGFT Guidelines, the ‘Onboard Bill of Lading’ date was to be taken from the Letter of Credit.
  • (b) Interpretation of an unspecified term in the Policy was contrary to consensus ad idem arrived at by the parties
  • (c) Since it was a standard contract, Haris Marine not in a position to negotiate the terms of the Policy. ECGC is unjust when it unilaterally relies on a definition not agreed to by both the parties.
• Insurance contracts are commercial contracts and have to be strictly interpreted from the clause it contains which shows the intention of the parties and secondary sources such as the DGFT guidelines cannot be relied. Applying the contra proferentum rule to interpret the date of dispatch, it has to be interpreted against the drafter of the policy i.e. the insurer and in the favour of the insured.

Arguments Of The Respondents

1. The DGFT Guidelines were prepared by the statutory body for regulation and promotion of foreign trade under Foreign Trade Policy 2009-2014. ECGC being a government company, specifically providing for exports has to follow DGFT guidelines.
2. In the absence of an express definition of a term, other relevant laws cannot be ignored. In addition, ECGC is a government company and therefore is bound to follow the principles laid down by the government i.e. DGFT guidelines.
3. Court could not alter the interpretation of terms of the policy by reading in something which did not exist and the ‘rule of contra proferentem’ does not apply in case of commercial contract, for the reason that a clause in a commercial contract is bilateral and has mutually been agreed upon.

Judgment And Analysis

Business Common Sense

The Supreme Court referred to Rainy Sky SA v Kookmin Bank, a UK Supreme Court judgement where the court when faced with the interpretation of an ambiguous term laid down that: “If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other.”

Applying the aforementioned principle to the Policy Supreme Court ruled that the date on which the foreign buyer failed to make payment for the exported goods, which occurred well within the policy’s coverage period, is more important than the date on which goods were loaded onto the vessel, which began one day before the policy’s effective date. Due to the fact that the date the commodities were loaded onto the vessel was irrelevant to the reason, Haris Marine obtained the Policy; the claim could not be rejected on this basis alone.

Rule of Contra Proferentum

The court relied on the case of General Assurance Society Ltd. v. Chandumull Jain where the court differentiating between insurance contract and other contracts, stated that the insurance contracts have an additional “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 or doubt.” The court’s role is only to assist and not rewrite the contract.

Even in the absence of application of contra proferentum rule: The Policy could not be interpreted in the ECGC’s favour because, according to a simple reading of clause, the date on the Bill of Lading must be taken into account as the date of despatch or shipment. As no letter of credit was obtained, much less one that provided for the application of such date, the date of the Onboard Bill of Lading is not applicable to the current facts. Thus, even taking into account the DGFT Guidelines, ECGC could not have refused Haris Marine claim.

Purpose Of The Policy

In Peacock Plywood (P) Ltd. v. Oriental, the Supreme Court stated that that while interpreting an insurance contract, the risk sought to be covered must be kept in mind.  A straightforward reading of the Policy in question shows that it was implemented to guard against the failure of the foreign buyer to make payment to the Indian exporter for the items sold. It was not a policy that was taken to cover in-transit insurance, and the event that led to the claim occurred considerably later, on February 14, 2013, well within the Policy’s coverage.

Duties Of The Insurer

The ECGC holds a considerable share of the Indian market for export credit insurance; in F.Y. 2012–2013, the total premium income received by the company exceeded Rs. 1,000 crores, and the numbers have continued to rise since then. It is the only government-owned business providing these specialised services, and is exempt from adhering to the Trade Credit Insurance Guidelines, which are routinely updated by the Insurance Regulatory and Development Authority of India. Denying Haris Marine, claiming misinterpretation of an ambiguous term with only a one-day delay is in violation of these obligations, especially in light of the Haris Marine previous business dealings with ECGC.

Held: Setting the order of the NCDRC, the Court directed ECGC to pay the claim amount of Rs. 2.45 crores to Haris Marine, with an interest rate of 9 per cent per annum.

Conclusion

The Supreme Court’s ruling in this case is commendable. The court used the crucial principles of interpretation of contract in addition to the principle of insurance law of uberrima fides. This case gave the court an interesting opportunity to lay down the precedent that principles of interpretation of contracts are valid on insurance contracts as well.

The court also furthered on the role of insurance companies and especially government insurance company’s obligation of uberrima fides and to discharge their obligations to fulfil the purpose of the policy. Being a government-backed business, ECGC is obligated to act to safeguard the interests of its clients.

A legitimate claim cannot be rejected by an insurance company based on shaky evidence or claims. The time period coverage should have a material relation to the object and purpose of the policy. As in the case, when there is a default in payment by foreign customer, it is material for this incident to happen during the course of the policy.

It is widely accepted that interpretation must favour the insured (the rule of contra proferentum) if any ambiguity is discovered while deciding any terms and conditions of an insurance policy. This rule was furthered in this case. It is a fair principle as insurance contracts are more in the nature of standard contracts leaving the insurer not in a capacity to negotiate the terms of the contract.

Looking at all the nuances the court established, the case goes a long way in establishing precedence for interpretation of insurance contracts.

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• [2011] UKSC 50
•  1966 AIR 1644, 1966 SCR (3) 500
•  (2021) 7 SCC 151, paras 37-42
•  AIR 2022 SC 3036