Needless Controversies on wider meaning for Building Insurance

Tariff mindsets refuse to leave insurers’ legacy approaches in claim settlement. All over the world courts hold as stated by the Supreme Court of California in the case Vandenberg v. Superior Court (Centennial Ins. Co.) (1999) that: “[10] Insurance policies are contracts construed in accordance with the parties' mutual intent at the time of contract formation, as inferred from the written provisions.” Further: “The "clear and explicit" meaning of the provisions, interpreted in their "ordinary and popular sense," controls judicial interpretation unless "used by the parties in a technical sense or a special meaning is given to them by usage."

The terms plinth and foundation, compound wall, roads, other constructions etc. are regularly found as excluded by insurers when such losses are claimed. In hilly areas retaining walls are most important as they support not only the walls but also the building itself from facing a landslide or collapse due to heavy penetration of water in hilly soil.

The Madras High Court(HC) in the case Hdfc Ergo General Insurance ... vs M/S. Shree Ganesh Fridging & Cold Storage Pvt. Ltd., (2019), quoted the Supreme Court case Nabha Power Ltd. (Npl) vs Punjab State Power Corporation (2017) stating that “Parties indulging in commerce act in a commercial sense.” Going on the HC stated: “The fact remains in this case, insurance contract is between the parties. The insurance contract is the contract of proferentem. It should be strictly viewed since the very object itself to give insurance cover to the parties of the contract. On perusal of the contract there is no exclusion of plinth and building. Though several clauses incorporated merely the plinth and foundation was not included in the contract, it cannot be said that the plinth and foundation of the building has been totally excluded from the contract.” The HC further quoted the Supreme Court case Jai Narain Parasrampuria (2006) to state: “The word "building" necessarily embraces the foundation on which it rests; and the cellar, if there be one, under the edifice, is also included in the term "house" or "building". If there be a cellar, the word "building" includes it, unaffected by the height above the foundation Benedict v. Ocean Ins. Co., 31 N.Y. 389, 394"" Based on these reasons the HC stated that plinth and foundations are covered in the Standard Fire &Special Perils policy.

The legal misinterpretation of building continues to this day as insurers are not able to leap over the conceptual difference between the old standalone fire policy and today’s multiperil SF&SP policy where flood and related natural calamities are covered and hence natural perils tend to create losses for foundations, walls, and allied structures. There are no specific exclusions and hence they are deemed to be covered. Hence insurers and intermediaries need to suitably advice the insured to add the value of all allied assets in the sum insured and not the building alone (to avoid underinsurance). In Hill Stations, buildings face additional risks of loss of the retaining wall in heavy or extended rains when seepage of water imperils foundations and retaining walls. Retaining walls are expensive and hence their coverage is essential for full protection.

The recent (01.08.2023) case United India Insurance Co. Ltd. Vs. M/s Negi Digital and Anr, handed down by the State Consumer Forum of Uttarakhand looked into the above issue. The insured’s side had referred a number of cases from the Supreme Court and other courts that compound walls were integral part of the building. These were:

1. Commissioner of Income Tax, Bombay v. Gwalior Rayon Silk Manufacturing Co. Ltd., AIR 1992 Supreme Court (1782)

2. The Municipal Corporation of Greater Bombay and others vs. The Indian Oil Corporation Ltd., AIR 1991 Supreme Court 686

3. First Appeal No. 270 of 2010, The National Insurance Co. Ltd. vs. M/s Dunera Hills decided on 10.04.2013 by the State Consumer Commission, Punjab, Chandigarh

4. Revision Petition No. 3784 of 2013, M/s Dunera Hills vs. National Insurance Company Limited decided on 09.12.2022 by the Hon’ble National Commission

5. Pandi Devi Oil Industries vs. Branch Manager, National…, III (2002) CPJ 71 (NC) dated 09.04.2002

The Bombay HC judgement in the Commissioner of Income Tax above which was challenged in the SC said that roads in the factory used for carrying raw material, finished products and workers must be regarded as building or buildings.

In the case The National Insurance Co. Ltd. vs. M/s Dunera Hills (supra), the State Commission, Punjab (Chandigarh) held that “The boundary wall and the retaining wall are separately two different things. The boundary wall is always a part of the building as it is constructed to secure the building itself. Retention wall is also a part of the building but once the building is further qualified by the words “begin above plinth level”, that excludes the retention walls. The retention walls are always below the plinth level and are never about the plinth level.”

In the Pandi Devi Oil Industries case the court stated that “It is not disputed that the policy cover was provided after a visit to the factory by the Respondents” …… “Protection to the factory / machinery is provided by the boundary wall. It is unimaginable that the Respondent would have issued the policy without proper protection to the machinery in normal circumstances by a building - in this case provided by boundary wall.”

Given these kinds of findings it would be beneficial to the insurance protection, that outmoded mental models are shed and that given the intent of package polices, wider and liberal interpretations are allowed at the time of claim so that insureds feel that they are protected at the time of loss.