Is a “tsunami” an insurable risk under a marine hull insurance policy covering all risks related to perils of the sea? Whether such a policy will cover tsunami losses too?
These interesting questions have been raised by the Hyderabad-based Krishnapatnam Port Company (KPC) before the Supreme Court, which has decided to examine the issue in a claim for loss of a dredger in the unprecedented tsunami that hit the Tamil Nadu coast in 2004, killing over 3 lakh people and destroying property worth several thousands of crores. The KPC’s dredger insured by the United Insurance Company had got submerged in the sea. The dredger—an ocean-going vessel used for removal of material such as silt, rocks and debris in any excavation, cleaning or deepening of any port or harbour in any river or sea—was insured for R1.5 crore under an annual marine hull insurance policy covering all risks arising out of perils of the sea except earthquakes and volcanic eruptions.
While KPC wants the United Insurance Company to pay around R1.53 crore with 18% interest per annum and R25 lakh compensation for the delay in settling the claim, the insurer has repudiated it on the grounds that the insurance cover did not extend to earthquakes, thus would not cover a quake-induced tsunami as well. Even the National Consumer Disputes Redressal Commission has accepted the insurance firm’s stand that a quake was the proximate cause of a tsunami and hence not covered by the insurance. The consumer court further said that it was, in fact, a quake and not a tsunami which caused the loss, and since tsunami was not specifically included as an excluded peril, it created an additional exclusion by a deeming legal fiction, a stand against which KPC has approached the Supreme Court.
Objecting to the Commission’s findings, lawyers Vipin Nair and PB Suresh say that denial of the insurance claim was unreasonable and illegal, and amounted to deficiency of service.
In the case, Export Credit Guarantee Corporation of India Ltd vs Garg Sons International, the Supreme Court, while interpreting an exclusion clause, held that it is not permissible for the court to substitute the terms of the contract in the garb of construing terms incorporated in the agreement of insurance. The Supreme Court has repeatedly held that the courts cannot add, delete or substitute words in the contract of insurance and the terms have to be strictly construed, the firm argued, adding that that it went against all legal principles laid down by the top court that what was not specifically excluded in an insurance policy cannot be brought within the exclusion clause by a legal fiction.
According to the port company, the very nature of a marine hull insurance policy is that the insurance cover is provided for the entire ship or vessel against any risk and it contemplates precisely such an eventuality and, therefore, it is the responsibility of the insurer to honour the policy and the claim lodged by it. Nair says that it can never be contemplated for such a policy to involve a separate cover for earthquake. The insurer has resorted to take the help of this clause solely with the ulterior motive of not settling the genuine and bona fide insurance claims.
Despite its surveyors, JB Boda Surveyors Private Ltd, opining that it was a “constructive total loss” and the cause can be attributed to tsunami, the insurance company rejected the claim, saying the reason for the damage caused to the dredger was solely due to the extraordinary earthquake in the Indian Ocean floor. “Earthquake was the dominant and proximate cause of the entire event resulting in the loss. But for the earthquake there was no other provocation or cause for the waves referred to as ‘tsunami’ to occur. Since the specifically excepted peril, namely earthquake, has set off the entire occurrence causing the loss, the proximate cause of loss is, therefore, the excepted peril, thus the claim is not admissible as terms of the policy availed by you and hereby stands repudiated,” the United Insurance Company had stated, while denying that tsunami is nothing but the earthquake. Assuming that the tsunami was caused due to an earthquake, even then the risk is covered under the term “perils of the sea”. The exclusion clause has to be strictly interpreted and any risk which is not covered specifically under the excepted clause, cannot be included therein, the PSU insurer has contended before the Commission.