Holding

The excess carriage of passengers was not a fundamental breach; the exclusion clause must be read down, and the insurer is liable to indemnify the vehicle damage.

Summary

The appellant, owner of a Tata truck insured by Oriental Insurance, suffered vehicle damage in a collision while nine persons were aboard, exceeding the policy’s limit of six workmen (excluding the driver). The insurer denied the claim, citing the policy’s exclusion for carrying passengers beyond the permitted number. The State Consumer Commission allowed the claim for repair costs, but the National Consumer Disputes Redressal Commission reversed that order, holding the breach of the passenger limit to be a fundamental breach. The Supreme Court held that the excess passengers did not contribute to the accident and that the breach was not fundamental; consequently, the exclusion clause must be read down to serve the main purpose of indemnifying vehicle damage. The Court allowed the appeal, set aside the NCDRC order, and restored the State Commission’s decision, awarding the repair costs to the appellant.

Issues considered

Whether the breach of the insurance policy’s limit on the number of passengers constitutes a fundamental breach justifying total denial of indemnity.
Whether the exclusion clause limiting carriage of passengers should be strictly enforced or read down to further the main purpose of the insurance contract.

Legislation cited

Motor Vehicles Act, 1988s. 147, s. 149

Subjects

insuranceexclusion clausefundamental breachcontract interpretationmotor vehiclesconsumer disputesindemnityreading downpassenger limitworkmen's compensation

Judgment

A B.V. NAGARAJU
v.
M/S. ORIENTAL INSURANCE CO. LTD.,
DIVISIONAL OFFICE, HASSAN

MAY 20, 1996
B
[M.M. PUNCHHI AND K.S. PARIPOORNAN, JJ.]

Motor Vehicles Act, 1988: Sections 147 and 149.

C Insurance policyTenns of-Pe1111itted on!v celtain number of humans
in goods vehicle-Breach of carrying humans in goods vehicle more than the
number pennitted---Held: not such a fundamental breach so as to deny
inde111nification to the insurer unless sonte factors e.tisted ivhich conllibuted
to causing accident-Exclusion tenn of the policy nlust be read down to serve
the main pwpose of the policy.
D
The appellant was the owner of an insured. truck which was covered
by a comprehensive insurance policy issued by the respondent. The truck
sustained major damages in an accident with a gas tanker on account of
which repairs were necessitated. At the time of the accident the truck was
carrying 9 persons while the insurance cover was limited to cal'rying
E passengers in the vehicle except employees (other than the Drivel') not
exceeding 6 in numbers coming under the purview of Workmen's Compen-
sation Act, 1923. The appellant raised a claim with the respondent- Com-
pany for reimbursement of repair charges. However, the claim of the
appellant was spurned by the respondent-Company. Thereafter, the appel-
F lant moved the State Consumer Disputes Redressal Commission which
allowed his claim to the extent of the respondent's Ollicial Surveyor's
estimate of the repair charges. This order was upset by the National
Consun1er Disputes Redressal Conuuission relying upon the above terms
of the insurance policy. Being aggrieved, the appellant preferred the
'
G present appeal.

On behalf of the appellant it was contended that the terms of the
insurance policy should be read down to carry out the main purpose of the
policy as the presence of 9 persons (when upto 6 were permissible),
irrespective of their being employees or not, had not contributed in any
H manner to the occurring of the accident as also when the claim did not
22
B.V. NAGARATU v. ORIENTALINSURANCE CO. 1;m 23

relate to any injuries to those 9 persons (who were owners of the goods A
loaded) or any loss incurred by them; and that the claim pristinely relating
to the damage caused to the vehicle insured, which could not have been
denied in the facts and the circumstances.

Allowing the appeal, this Court
B
HELD : 1.1. It is plain from the terms of the insurance Policy that
the insured vehicle was entitled to carry 6 workmen, excluding the driver.
If those 6 workmen when travelling in the vehicle, are assumed not to have
increased any risk from the point of view of the Insurance Company on
_,;. occurring of an accident, how could those added persons he said to have C
contributed to the causing of it is the poser, keeping apart the load it was
carrying. In the present case the driver of the insured velticle was not
responsible for the accident. Merely by lifting a person or two, or even
three, by the driver or the cleaner of the vehicle, without the knowledge of
owner, cannot be said to be such a fundamental breach that the o\\'ller
should, in all events, be denied indemnification. The misuse of the vehicle D
was somew·hat irregular though but not so fundamental in nature so as to
put an end to the contract, unless some factors existed which, by themsel~
ves, had gone to contribute to the causing of the accident. [26· D-F]

Skandia Insurance Co. Ltd. v. Kokilaben Chandravadan & Ors., [1987] E
2 sec 654, relied on.

Glynn v. Marger.wn & Co., (1983) AC 351 and Suissee At/antique
Societe d' An11en1ent Ma1itbne SA. v. N. V. Rottcrdan1sche Kolen Centrale,
(1967) l AC 361, cited.
F
Carter: "Breach of Colltract", para 251, referred to.

1.2. The exclusion term of the insurance policy must be read do\\n
so as to serve the main purpose of the policy that is to indemnify the
damage caused to the vehicle. [28-A]
G
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 6296 of
1995.

From the Judgment and Order dated 30.11.94 of the National Con-
sumer Disputes Redressal Commission, New Delhi in F.A. No. 439 of 1993. H
24 SUPREME COURT REPORTS (1996] SUPP. 3 S.C.R.

A S.N. Bhat for the Appellant.

Vishnu Mehra and K.M.K. Nair for the Respondent.

The Judgment of the Court wa, delivered by

B PUNCHHI, J. In this appeal by special leave, the question of impor-
tance arising therein is whether the alleged breach of carrying humans in
a goods' vehicle more than the number permitted in terms of the insurance
policy, is so fundamental a breach so as to afford ground to the insurer to
eschew liability altogether? Ancillary to the question is the poser: whether
the terms of the policy of insurance need be construed strictly or be read
c down to advance the main purpose of the contract as viewed by this Court
in Skandia Insurance Co. Ltd. v. Koki/aben Cltandravadan & On«, (1987] 2
sec 654.
The appellant herein was the registered owner of a 'Tata' Truck
D bearing No. KA-13/438, duly insured with the Oriental Insurance Co. Ltd.
the respondent herein, vide Policy dated 24.8.1990 covered for period uptil
23.8.1991. The policy was comprehensive in nature, covering risk to the
limit of Rs. 2,09,000. During the subsistence of the policy, the vehicle of
the appellant met with an accident on 5.8.1991 when, allegedly, a gas tanker
came and dashed against the said vehicle. Apart from the other damage
E which occasioned due to the accident, the appellant's vehicle smtained
major damages on account of which repairs were necessitated. The appel-
lant, therefore, incurred from his pocket repair charges/damages to the
tune of Rs. 87, 170 in order to make the vehicle road-worthy. Pursuant to
such expenditure, the appellant raised a claim with the respondent-Com-
F pany inter-alia for rein1bursement of the repair charges/damages submit-
ting therewith the claim-form and the bills for payment. The claim of the
appellant was spurned. The appellant sent a legal notice calling upon the
respondent-Company to make payment of the claim as per the contractual •
conditions of the policy but in vain, The appellant then moved the Kar-
G nataka State Consumer redressal Forum under the Consumer Protection
Act, 1986 raising a demand of Rs. 2,13,500, diversifying the claim as repair
charges, loss of prospective income, interest. legal notice charges and other
miscellaneous expenses.

The respondent-Company denied their liability altogether stating
H that since the appellant's goods vehicle was used for the purpose of
. '·
B.V. NAGAIWU v. ORIENTALINSURANCE CO. DD. [PUNCI-II-IJ, J.] 25

carrying passengers, the appellant was disentit1ed to claim any cornpensa- A
tion, and even other\vise those were nine in numbers. The amount of money
spent by the Appellant on repairs however was not seriously disputed as
the respondent's Official Surveyor himself had estimated the repair pos-
sibility at Rs. 75,700.

The State Conunission went into the matter thoroughly and by its B
order dated 19.7.1993 allowed the claim of the appellant to the extent of
Rs. 75,700, the figure at which the Official Surveyor of the respondent
Company had estimated the repair charges, along with interest at the rate
of 18% per annum from the date of the accident i.e. 5.8.91 till the date of
payment. A sum of Rs. 2,000 also was awarded to the appellant as costs. c
This order, at the instance of the respondent company, was, however, upset
on appeal on 30.11.994 by the National Consumer Disputes Redressal
Commission, New Delhi, relying upon the terms of the insurance policy in
taking the view that the policy did not cover use for carrying passengers in·
the vehicles except employees (other than the Driver) not exceeding 6 in D
numbers, coming under the purview of the Workmen's Compensation Act.
This has culminated into this appeal.

The terms of the Insurance Policy, inter alia, provide as follows :

"Limitations as to use: Only for the carriage of goods within the E
meaning of the Motor Vehicles Act, 1988.

The policy does not cover -1) Use for organised racing, pace-
making reliability trial or speed testing. 2) Use whilst drawing a
trailer except towing of any one disabled mechanically propelled
vehicle. 3) Use for carrying passengers in the vehicle except F
employees (other than driver) not exceeding six in numbers coming
under the purview of W.C. Act. 1923."

Learned counsel for the appellant, in support of this appeal, strongly
relied on Skandia's case (supra), making a fervent appeal that the terms of G
the policy afore referred to, should be read down to carry out the main
purposes of the policy as the presence of 9 persons (when upto 6 were
permissible), irrespective of their being employees or not, had not con-
tributed in any manner to the occurring of the accident as also when the
claim did not relate to any injuries to those 9 persons (who were owners
of the goods loaded) or any loss incurred by them; the. claim pristinely H
26 SUPREME COURT REPORTS [1996] SUPP. 3 S.C.R.

A relating to the damage caused to the vehicle insured, which could not have
been denied in the facts and the circumstances. Strong reliance, in support,
was sought from the reasoning of the State Commission which had in so
many words said:

"......... Even for the sake of argument, that 9 persons travelling in
B the vehicle were passengers, it cannot be a ground for insurance
Company lo repudiate the contract as the fact of their being
passengers or coolies does not make any difference to the risk
involved. These persons were in no way concerned with the cause
of the accident nor have they contributed to the risk in respect of
c the loss caused to the vehicle. The complainant has not claimed
any compensation in respect of his liability to the persons travelling
in the vehicle."

It is plain from the terms of the Insurance Policy that the insured
D vehicle was entitled to carry 6 workmen, excluding the driver. If those 6
workmen when travelling in the vehicle, are assumed not to have increased
any risk from the point of view of the Insurance Company on occurring of
an accident, how could those added persons be said to have contributed
to the causing of it is the poser, keeping apart the load it was carrying.
Here, it is nobody's case that the driver of the insured vehicle was respon-
E sible for the accident. In fact, it was not disputed that the oncoming vehicle •
had collided head-on against the insured vehicle, which resulted in the
damage. Merely by lifting a person or two, or even three, by the driver or
the cleaner of the vehicle, without the knowledge of owner, cannot be said
to be such a fundamental breach that the owner should , in all eve:nts, be
F denied indemnification. The misuse of the vehicle was somewhat irregular
though, but not so fundamental in nature so as to put an end to the
contract, unless some factors existed which, by themselves, had gone to
contribute lo the causing of the accident. In the instant case, however, we
find no such contri~utory factor. In Sikand's case this Court paved the way
towards reading down the contractual Clause by observing as follows :
-
G
"......... When the option is between opting for a view which will
relieve the distress and misery of the victims of accidents or their
dependents on the one hand and the equally plausible view which
will reduce the profitability of the insurer in regard to the occupa-
H tional hazard undertaken by him by way of business activity, there
B.V. NAGARATU v. ORIENTALINSURANCE CO. LTD. fPUNCHHl, J.] 27

.-r is hardly any choice. The Court cannot but opt for the former view. A
Even .if one were to make a strictly doctrinnaire approach, the very
same conclusion \Votil<l cmeric in obeisance to the doctrine of
'reading down' the exclusion clause in the light of the 'main
purpose' of the provision so that the 'exclusion clause' highlighted
earlier. The effort must be to harmonize the two instead of allowing
B
the exclusion clause to snipe successfully at the n1ain purpose. The
theory which needs no support is supported by Carter's "Breach
of Contract" vide paragraph 251. To quote :

Notwithstanding the general ability of contracting parties to
agree to exclusion clauses which operate to define obligations there c
exists a rule, usually referred to as the ITmain purpose rule 11 , \vhich
may limit the application of wide exclusion clauses defining a
promisor's contractual obligations. For example, in Glynnn v. Mar-
getson & Co., [1893] AC 351, 357, Lord Halsbury, L.C. stated : It
seems to me that in construing this document, which is a contract D
of carriage between the parties, one must in the first instance look
at the whole instrun1ent and not at one part of it only. Looking at
the whole instrument, and seeing what one must regard ....... as its
main purpose, one must reject words, indeed whole provisions, if
they a>e inconsistent with what one assumes to be the main purpose
of the contract. E

Although this rule played a role in the development of the
doctrine of fundamental breach, the continued validity of the rule
was acknowledged when the doctrine was rejected by the House
of Lords in Suissee At/antique Societe d' Annement Maritime SA. F •
v. NV. Rotterdamsche Kolen Centrale, [1967] 1 AC 361. Accord-

.. ingly, wide exclusion clauses will be read down to the extent to
which th~y are inconsistent with the main purpose, or object of the
contract. 11

The National C~mmission went for the strict construction of the G
exclusion clause. The reasoning that the extra passengers bring carried in
the good' vehicle could not have contributed, in any manner, to the
occurring of lhe accident, \Vas barely noticed and rejected sans any

. ., plausible account; even when the claim confining the damage to the vehicle
only was limited in nature. We, thus, are of the view that in accord with H
28 SUPREME COURT REPORTS [1996] SUPP. 3 S.C.R.

A the Skandia's case, the aforesaid exclusion term of the insurance policy i-;
must be read down so as to serve the main purpose of the policy that is to
indemnify the damage caused to the vehicle, which we hereby do.

For the view above taken, this appeal is allowed, the judgment and
order of the National Consumer Disputes Redressal Commission. New
B Delhi is set aside and that of the State Commission in restored in its
entirety, but without any order as to costs.

v.s.s. Appeal allowed.

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