Page 30 - The Insurance Times November 2024

consistent with what one assumes to be the main purpose the basement. Due inspection of the shop was made which
of the contract.' was actually situated on the other side of the road from the
office of respondent No. 1. Not only this shop of the appel-
Apex Court held in Bharat Watch Company v. National In- lant, but yet another shop similarly situated, was also insured.
surance Co. Ltd. : The appellant continued to pay the premium promptly.
"The basic issue which has been canvassed on behalf of the
appellant before this Court is that the conditions of exclu- The appellant put up further construction, for which due
notice was given and due inspection was also made. The shop
sion under the policy document were not handed over to
met with a fire accident for which the appellant raised a
the appellant by the insurer and in the absence of the ap-
claim. The surveyor of insurer also made an inspection, on
pellant being made aware of the terms of the exclusion, it
the basis of which the appellant was instructed to refurnish
is not open to the insurer to rely upon the exclusionary
its shop for the purpose of due evaluation. While arriving at
clauses. Hence, it was urged that the decision in United
the sum payable, the surveyor did notice the fact that the
India Insurance Co. Ltd. v. Harchand Rai Chandan Lal will
have no application since there was no dispute in that case earlier inspections were made and that the fact that the
shop was in a basement was to the knowledge of the in-
that the policy document was issued to the insured."
surer. The claim made was repudiated by the insurer taking
umbrage under the exclusion clause.
Doctrine of Blue Pencil
The aforesaid principle evolved by the English and Ameri- An exclusion clause in a contract of insurance has to be in-
can Courts has been duly taken note of by this Court in Beed terpreted differently. Not only the onus but also the burden
District Central Coop. Bank Ltd. v. State of Maharashtra: lies with the insurer when reliance is made on such a clause.
It can never be understood to mean to be in conflict with

The "doctrine of blue pencil" was evolved by the English and the main purpose for which the contract is entered. Such a
clause has to be understood on the prism of the main con-
American courts. In Halsbury's Laws of England, (4th Edn.,
Vol. 9), p. 297, para 430, it is stated: tract. The main contract once signed would eclipse the of-
fending exclusion clause when it would otherwise be impos-
"Severance of illegal and void provisions - A contract will sible to execute it. It has got no ability to destroy its own
rarely be totally illegal or void and certain parts of it may creator, i.e. the main contract. When it is destructive to the
be entirely lawful in themselves. The question therefore main contract, right at its inception, it has to be severed.
arises whether the illegal or void parts may be separated Insurance business is plagued by misuse of the exclusion
or 'severed' from the contract and the rest of the contract clause for wrongful repudiation of claims. Lately, it has been
enforced without them. seen that the Insured are no longer accepting such arbitrary
repudiations as mute receptor and have started approach-
"Blue pencil doctrine (test) - A judicial standard for deciding ing the courts challenging such repudiations. The recent line
whether to invalidate the whole contract or only the offend- of judicial precedents by the Supreme Court are welcoming
ing words. Under this standard, only the offending words as they are coming down heavily on such insurers who are
are invalidated if it would be possible to delete them simply using the exclusion clause as a tool to repudiate claims with-
by running a blue pencil through them, as opposed to chang- out applying the same in the spirit of the policy.
ing, adding, or rearranging words. (Black, 7th Edn., 1999).
Supreme Court in M/s Texco Marketing, also sounded a word
In M/s Texco Marketing Pvt. Ltd. v. TATA AIG General In- of caution to all the insurance companies on the mandatory
surance Company Ltd. & Ors. (CIVIL APPEAL NO. 8249 OF compliance of Clause (3) and (4) of the IRDA Regulation,
2022 arising out of SLP (Civil) No. 25457 of 2019) 2002. Any non-compliance on the part of the insurance com-
panies would take away their right to plead repudiation of
The appellant secured a Standard Fire & Special Perils policy contract by placing reliance upon any of the terms and con-
from the respondent on 28.07.2012. The policy was effective ditions included thereunder.
from 28.07.2012 to 27.07.2013. It was meant to cover a shop
situated in the basement of the building. However, the ex- References:
clusion clause of the contract specifies that it does not cover Various Sources.

The Insurance Times November 2024 27