ON Monday, a Supreme Court bench of Justices Uday Umesh Lalit, Ravindra Bhat, and Pamidighantam Sri Narasimha, in the case of Haris Marine Products vs. Export Credit Guarantee Corporation, observed that in cases of insurance cover extended to exporters, the date on which the foreign buyer failed to pay for the goods exported stands to have more significance than the date of loading goods into the vessel, even though such date commenced one day prior to the effective date of the policy.
In the instant case, the appellant, an exporter of fish meat and fish oil paid a premium to Export Credit Guarantee Corporation [ECGC] Limited, a government company that provides credit risk insurance cover to exporters, for a Single Buyer Exposure Policy of Rs 2.45 crores. The policy was effective from December 14, 2012, to December 13, 2013. Notably, while the Bill of Lading was prepared or issued on December 19, 2012, the date of ‘onboard’ was mentioned to be December 13, 2012 (being a day prior to the effective date of the policy).
On the foreign buyers defaulting the payment, the appellants raised the insurance claim. While the respondents rejected the claim, the appellants approached the National Consumer Dispute Redressal Commission [NCDRC].
The appellant moved the Supreme Court against the NCDRC’s order that relied on the guidelines by the Directorate General of Foreign Trade in interpreting the date of ‘Onboard Bill of Lading’ (December 13, 2012) as the date of ‘dispatch’ or ‘shipment’, and thereby dismissed the claim of the appellant to not fall within the effective dates of the policy (starting from December 14, 2012). It refused the appellant’s contention to apply the rule of verba chartium fortius accipiuntur contra proferentum (that is, 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).
The appellant’s counsel, Senior Advocate Anjana Prakash, submitted that the policy did not clarify the date of ‘dispatch’ or ‘shipment’ or the exact date of the initiation of the coverage. Prakash submitted that the date of the issue of Mate’s Receipt that indicates the date of completion of loading of goods, being December 15, 2012, must be considered over December 13, 2012 (the date on the Bill of Lading). She further laid emphasis on the fact of Letter of Credit not being issued, and thus, on the non-applicability of the date of ‘Onboard Bill of Lading’. It was Prakash’s contention that in the case an ambiguous term was used in a contract, the rule of contra proferentum must be invoked and the contract must be interpreted to the benefit of the appellant.
Reflecting on the rule of contra proferentum, the court observed: “it is entrenched in our jurisprudence that an ambiguous term in an insurance contract is to be construed harmoniously by reading the contract in its entirety. If after that, no clarity emerges, then the term must be interpreted in the favour of the insured, i.e., against the drafter of the policy”.
The court relied on its judgment by a Constitution Bench in General Assurance Society Ltd vs. Chandumull Jain (1966) and a catena of other judgments to interpret ambiguities in a contract of insurance, in the light of the rule of contra proferentum. It opined that the rule was to be applied to protect the insured from the “unfavourable interpretation of an ambiguous term”.
Particularly, while interpreting the motive behind the policy in question, the court found that the policy was intended “to protect against the failure of foreign buyer in paying the Indian exporter for goods exported”, and not to cover in-transit insurance. On the question of the date of ‘despatch’ or ‘shipment’, the court held that the date on the Bill of Lading, that is, the legal document conferring title and possession of the goods to the carrier must be considered, and not the Mate’s Receipt. However, it was further observed that in absence of any execution of the Letter of Credit, the date of ‘onboard’ Bill of Lading was not applicable. It held that denying the appellant’s claim on account of upholding an unfavourable interpretation of an ambiguous term would entail the respondent not performing its duties as a government company.
Setting the order of the NCDRC, the Court directed the respondent to pay the claim amount of Rs. 2.45 crores to the appellant, with an interest rate of 9 per cent per annum.
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