THE NATIONAL LAW INSTITUTE UNIVERSITY, BHOPAL

PROJECT WORK ON INSURANCE LAW

IX SEMESTER

EXCLUSIONARY CLAUSES IN INSURANCE CONTRACTS:

A JURISPRUDENTIAL ANALYSIS

SUBMITTED TO – SUBMITTED BY
–

MR. MAHENDRA SONI DIKSHA

BHATT
PROFESSOR, INSURANCE LAW 2018
B.A.L.L.B 40

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 TABLE OF CONTENTS

Chapter 1: Introduction..............................................................................................................4
Statement Of Problem................................................................................................................6
Review Of Literature..................................................................................................................7
Hypothesis................................................................................................................................12
Research Questions..................................................................................................................13
Research Objectives.................................................................................................................13
Research Methodology.............................................................................................................13
Chapter 2: Exclusion Clauses – Types And Placement...........................................................14
Placement Of The Exclusion Clauses...................................................................................15
Reasons For Exclusion.........................................................................................................15
Chapter 3: Examples Of Exclusion Clauses.............................................................................17
1. Marine Insurance..............................................................................................................17
2. Health Insurance...............................................................................................................17
3. Workmen’s Compensation Act........................................................................................19
4. Motors Vehicle Act, 1988................................................................................................19
Exclusion Clauses Under The Indian Legal Framework.........................................................20
Evolving Jurisprudence Under The Insurance Law And The Indian Contract Act Against
Misuse Of Exclusion Clauses...............................................................................................21
Non-Fulfilment Of The ‘Notice Procedure’.....................................................................23
Remedies Through ‘Interpretative Mechanisms - Rule Of Contra Proferentem..............24
Main Object And Intent Test............................................................................................25
Non-Conformity With The ‘Statutory Requirements.......................................................26
Case Laws.............................................................................................................................27
Comparison With Other Countries.......................................................................................28
Conclusion & Suggestions: The Way Forward........................................................................30
Bibliography.............................................................................................................................31
Legal Resources....................................................................................................................31
Legal Instruments.................................................................................................................31
Books....................................................................................................................................31

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 Journal Articles, Reports And Other Sources.......................................................................32
List Of Cases........................................................................................................................33

ACKNOWLEDGEMENT

On completion of this Project, it is my privilege to acknowledge my profound gratitude and

indebtedness towards my teachers for their valuable suggestions and constructive criticism. I
gratefully acknowledge my deepest sense of gratitude to:

Prof. (Dr.) V.Vijayakumar, Director, National Law Institute University, Bhopal for providing
us with the infrastructure and the means to make this project;

I would like to express my special thanks of gratitude to my teacher of Insurance Law, Mr.
Mahendra Soni who gave me the opportunity to do this project work.

I am also thankful to the library and computer staff of the University for undertaking the
strenuous task of doing plagiarism checks for our projects and for printing them.

Finally, I’m thankful to my family members and friends for the affection and encouragement
because of which doing this project became a pleasure.

~Sincerely
Diksha Bhatt

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 CHAPTER 1: INTRODUCTION

“ An exclusion clause is a beneficial contractual arrangement made by either of the parties to a

contract in anticipation of future contingencies that might hinder or prevent performance,1
with a primary aim to accommodate consequences arising out of non-performance, part
performance or negligent performance of a contract. Such clauses are also known as
exemption, exception, exculpatory or limiting clauses. 2 Generally, they take various forms,
but mainly have an effect of immunising, restricting, or exempting a party from liability,
which it would have borne had it not been for the clause. In other forms, an exclusion clause
might contain specific procedures for making claims, allocating liabilities between the
parties, limiting the right to terminate the contract on breach, or restricting the amount and
time-period to claim damages on breach.3 Another beneficial employment of the exclusion
clauses is to limit the choice of fora4 a plaintiff might approach by excluding the jurisdiction
of one or more of the multiple fora that have the capacity to hear the matter. This is done in
order to reduce hardship while defending the claims, and such a clause is particularly known
as the jurisdiction clause. 5”

In the specific context of insurance law, exclusion clause in insurance policy serves purpose
of delimiting and restricting coverage. 6 A pre-existing conditional clause is a provision that
excludes coverage for certain defined conditions and is mentioned in the policy. The clause
has three principal components, first the clause defines pre-existing condition in terms of
circumstances for which the insured has sought protection. Second component has a “look
back” provision, which states the time prior to the effectiveness of the insurance during
which the condition must have existed in order for it to trigger the exclusion. The length of
the look back period varies from policy to policy and generally run between six months to
two years. Generally, it is present in the case of life and health insurance. The logic behind
providing the period is that the recent ailments have a higher probability of attracting
insurance terms and hence it will be a loss to the insurance companies. Third is the

1
JACK BEATSON et al., ANSON’S LAW OF CONTRACT 193 (Oxford University Press, 2010); J.W.
CARTER, CARTER’S BREACH OF CONTRACT 48 (Hart Publishing, 2018).
2
BLACK’S LAW DICTIONARY 653 (12th ed., 2009).
3
New Indian Assurance Company Limited v. Yallavva, 2020 Indlaw Kar 3902
4
New Moga Transport Co. v. United India Insurance Co. Ltd., (2004) 4 SCC 677.
5
InterGlobe Aviation Limited v. N. Satchidanand, (2011) 7 SCC 463.
6
Maimone v. Liberty Mut Ins Co., 695 A.2d 341; New India Assurance Company Limited v. Rajeshwar
Sharma, (2019) 2 SCC 671.
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“exclusion period” clause which provides the period of time for which the pre-existing clause
is eliminated.

In the case of Dupre v. Allstate 7, Justice Davidson presiding over the Colorado Court of
Appeals had opined as follows:

“An exclusion is an insurance policy provision that excepts certain events or conditions from
coverage.”

“The essential purpose of an exclusion is to limit the scope of coverage granted in the
coverage section of the policy.”

Furthermore, in Kansas-Nebraska Natural Gas Company v. Hawkeye-Security Insurance

Company8, wherein Justice White speaking for the Supreme Court of Nebraska held that:

“An exclusion is the act of expelling from a place or a position previously occupied.”

“In an insurance policy, an exclusion is a provision which eliminates coverage where, were it
not for the exclusion, coverage would have existed.”

7
No. 01CA0630.
8
240 N.W.2d 28 (1976).
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 STATEMENT OF PROBLEM

“ One of the most contentious issues, which is also the reason for the highest number of
grievances lodged by insurance policyholders, pertains to exclusions under an insurance
contract. As more comprehensive products are being introduced, the list of exclusions by
insurance companies (to avoid litigation and court awards) is also growing. Different
products carry different exclusions, and the same exclusion could mean different things,
creating distress and distrust. ”

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 REVIEW OF LITERATURE

BOOKS AND ARTICLES

 AVTAR SINGH, LAW OF INSURANCE, EASTERN BOOK COMPANY, 3RD EDITION

(2017).

“ This book begins with a statement of the general principles affecting all forms of
insurance. It then moves on to specific forms of insurance as life, fire, theft, marine,
motor accident, personal accident, medical, etc. Powers and duties of a regulatory
authority and the statutory framework of insurance have been discussed in detail. A
separate chapter deals with the business of insurance from the perspective of
consumer protection law. This edition thoroughly covers judicial contribution towards
explanations of statutory provisions. ”

 MP RAM MOHAN & ANMOL JAIN, EXCLUSION CLAUSES UNDER THE INDIAN
CONTRACT LAW: A NEED TO ACCOUNT FOR UNREASONABLENESS, 13 NUJS L.
REV. 4 (2020).

“ This paper comprehensively traces the development and understanding of exclusion

clauses as they have evolved under the Indian Contract law and through the adoption
of common law by the courts. This being a time series study, it examines all the
Indian Supreme Court and High Court decisions reported until early 2020 and find
that courts have attempted to instil just contracting by adopting ad-hoc mechanism
against the unfair use of the exclusion clauses. However, uncertainty continues to
prevail regarding the enforceability of unconscionable exclusion clauses. Therefore,
taking a comparative approach, the authors in this article are in favour of adopting
certain legislative reforms in the Indian contract law towards empowering the court to
adjudicate on claims based on substantive unconscionability. A first step in this
direction, specifically for consumer contracts, is the statutory recognition of ‘unfair
contract terms’ under the new Consumer Protection Act, 2019. “

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  M.N. MISHRA, INSURANCE: PRINCIPLES AND PRACTICE, 10TH EDN., S. CHAND &
COMPANY LTD., NEW DELHI (1994).

This book endows a meticulous analysis of the conception of Insurance and explicitly
deals with the nature, scope, advantages, principles and various types of insurance.
The author elucidates the legal angle of insurance, relevant parameters and the impact
of various legislations over insurance. It strives to draw a line between risk, perils and
hazards and also deliberates the methods through which risk could be maneuvered.
Additionally, this book encompasses different types of insurance viz., life insurance,
its products and documents; fire insurance; marine insurance; motor vehicle
insurance; miscellaneous insurance and the same have been meticulously discussed in
various chapters. In the end of the book, legal framework regarding insurance has also
been touched upon scrupulously.

 KSN MURTHY AND KVS SARMA, MODERN LAW OF INSURANCE IN INDIA, 4TH
EDN., BUTTERWORTHS, NEW DELHI (2002).

“ The above-mentioned work is in two volumes with statutes and regulations. With the
rapid growth of the insurance business, there has been an outpouring of decisions in
the field of fire, marine, motor medical, miscellaneous and re-insurance. With focused
chaptering, simple split synopsis’, sub headings, table of cases and sharp indexing for
ease of referencing, the book offers incredible insight into each topic, including the
current topic of this project work. “

 B.N. BANERJEE, LAW OF INSURANCE, VOLUME 1, LAW BOOK COMPANY,

ALLAHABAD (1994).

“ The book includes commentaries on The Insurance Act, 1938, The Life Insurance
Corporation Act, 1956, The General Insurance Business (Nationalisation) Act, 1972,
The marine Insurance Act, 1963. It also includes commentary on the relevant
provisions of the Motor Vehicles Act, 1988 pertaining to litigation before Motor
Accidents Claims Tribunals (MACTs). Keeping in view the pending court cases and
for academic interest of the readers, commentary on old provisions of the Insurance
Act, 1938, which have been repealed or omitted or amended by the Amendment Act,
2015 have also been retained. “

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 LIST OF CASES

SL.NO. TITLE
1. Peacock Plywood Pvt. Ltd v. The Oriental Insurance Co. Ltd. 2006 14 SCALE 300.
2. B.V Dhulaji v. Patel Shivbhai Kashibhai 1981 ACJ 107 Guj.
3. Anjana Devi v. Arumugham AIR 1983 Madras 282.
4. Poosathurai v Kannapan Chettair (1919) I.L.R 43 Mad. 546 (P.C).
5. Lily White v. R. Munuswamy AIR 1966 Mad 13.
6. H. Siddalingappa v. S. Natasia AIR 1970 Cal 154.
7. LIC of India and Anr. v. Consumer Research Centre and Ors AIR 1995 SC 1811.
8. Central Bank of India v. Hartford Insurance Co. Ltd AIR 1965 SC 1288.
9. Usha International Ltd. v. United India Assurance Co. Ltd. AIR 2005 Delhi 424.
10. Shaikh Mohd. Ravuther v. B.I.S.N. Co., ILR 32 Mad 95.
11. Dupre v. Allstate, No. 01CA0630.
12. Kansas-Nebraska Natural Gas Company v. Hawkeye-Security Insurance Company,
240 N.W.2d 28 (1976).
13. Bradley and Essex and Suffolk Accident Indemnity Society, Re, (1912) 1 KB 415:
81 LJKB 523: All ER Rep 444 (CA).
14. Indian Airlines Corporation v. Madhuri Chaudhary, AIR 1965 Cal 252.
15. Irrawadi Flotilla Co. v. Bagwan Dass, AIR 1981 Mad 121.
16. John Lee & Son v. Railway Executive (1949) 2 All Eng. Rep. 581.
17. Karsales v. Wallis (1956) 2 All E.R. 866.
18. Gibaud v. Great Eastern Railway (1921) 2 KB 426.
19. New Indian Assurance Company Limited v. Yallavva, 2020 Indlaw Kar 3902.
20. InterGlobe Aviation Limited v. N. Satchidanand, (2011) 7 SCC 463.
21. Maimone v. Liberty Mut Ins Co., 695 A.2d 341.
22. New India Assurance Company Limited v. Rajeshwar Sharma, (2019) 2 SCC 671.
23. New Moga Transport Co. v. United India Insurance Co. Ltd., (2004) 4 SCC 677
24. Lacey’s Footwear (Wholesale) Ltd. v. Bowler Insurance Ltd., [1997] 2 Lloyd’s Rep
369 (Court of Appeal, United Kingdom).
25. United India Insurance Co. Ltd. v. Manubhai Dharmasinhbhai Gajera and Ors.,
(2008) 10 SCC 404
26. Modern Insulators v. Oriental Insurance Co. Ltd., (2000) 2 SCC 734

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 27. National Insurance Company Limited. v. Savitri Devi and Others, (2013) 11 SCC
554.
28. National Insurance Co. Ltd. v Ishar Das Madan Lal, (2007) 4 SCC 105.
29. Sushilaben Indravadan Gandhi and Anr. v. New India Assurance Company Limited
and Ors., 2020 SCC OnLine SC 367.
30. Export Credit Guarantee Corporation of India Limited v. Garg Sons International,
(2014) 1 SCC 686.
31. United India Insurance Company Limited, Shimoga v. Belakerappa S/o Kariyappa
and Ors., 2020 Indlaw Kar 4503.
32. Mukund Dewangan v. Oriental Insurance Company Limited, (2017) 4 SCC 663
33. Sohan Lal Passi v. P. Sesh Reddy, (1996) 5 SCC 21.
34. Kashiram Yadav v. Oriental Fire and General Insurance Co., (1989) 4 SCC 128.
35. New India Assurance Co. v. Mandar Madhav Tambe and Ors., (1996) 2 SCC 328
36. Guru Govekar v. Filomena F. Lobo, (1988) 3 SCC 1.
37. Skandia Insurance Co. Ltd. v. Kokilaben Chandravadan and Others, (1987) 2 SCC
654
38. Canara Bank v. United Indian Insurance Company Limited and Others, (2020) 3
SCC 455.
39. General Assurancce Society Ltd. v. Chandu Mull Jain and Anr., (1966) 3 SCR 500.
40. Industrial Promotion and Investment Corporation of Orissa Limited v. New India
Assurace Company Limited and Anr., (2016) 15 SCC 315.
41. New India Assurance Co. Ltd. v. Paresh Mohanlal Parmar, Civil Appeal No.
10398/2011:04/02/2020.
42. M/s. Texco Marketing Pvt. Ltd. v. TATA AIG General Insurance Company Ltd.
And Ors. CA No. 8249 of 2022, 2022 LiveLaw (SC) 937.

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 LIST OF LEGAL INSTRUMENTS

SL.NO. TITLE
1. The Insurance Act, 1938.
2. The Indian Contract Act, 1908.
3. Marine Insurance Act, 1906.
4. Workmen’s Compensation Act, 1923.
5. Motor Vehicles Act, 1938.
6. The Unfair Contract Terms Act, 1977 (United Kingdom).
7. Restatement (Second) of Contracts (1981) (United States).
8. The Uniform Commercial Code (UCC), 1952 (United States).
9. The Israeli Standard Contracts Law, 1982.
10. Regulatory and Development Authority (Protection of Policy Holder's Interests,
Regulation 2002) Act (IRDA Regulation, 2002). 

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 HYPOTHESIS

“ The denial of a claim or unjustifiable deduction of expenses from the customer perspective
usually stems from exclusions. Hence, there is a need to rationalise the number of exclusions,
standardise wordings and scope of exclusions. Standards should be put in place to ensure that
exclusions mentioned are clear and define the conditions as accurately as possible. “

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 RESEARCH QUESTIONS

The Project aims to answer the following research questions:

 What are exclusionary clauses in an insurance contract and the reasons for their
inclusion?
 What are the various kinds of exclusionary clauses?
 On what footing does the Indian Legal framework stand with respect to the
exclusionary clauses?
 How has the Indian judiciary responded to various issues surrounding the concept of
exclusionary clauses and how is it different from the idea prevalent in other
jurisdictions?

RESEARCH OBJECTIVES

Exclusionary clauses are included in a contract to safeguard the insurer from certain
situations and in certain circumstances. This project work has the following research
objectives:

 To delve into a finer understanding of this concept of Exclusionary Clauses in

insurance contracts.
 To understand the reasons behind their inclusion in a contract and the various kinds of
exclusionary clauses.
 To analyse the Indian legal regime on exclusionary clauses and their regulation in
India, if at all, and to undertake a comparative study of the Indian regime with those
in the other jurisdictions.
 To appreciate the judgements of the Indian Courts on this issue.

RESEARCH METHODOLOGY

In this project, a doctrinal method of research has been applied. The research conducted is
both descriptive and analytical by nature. Secondary sources of data such as websites, books

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and articles have been referred to while making this project. Citations and relevant footnotes
have been added wherever necessary.

CHAPTER 2: EXCLUSION CLAUSES – TYPES AND PLACEMENT

Insurers undertake to indemnify the insured against losses caused by certain perils arising
under normal conditions whose affects are statistically estimated. During abnormal times
such perils may cause loss of great magnitude for which insurers do not wish to accept
liability e.g., Fire caused during riots or war. Exceptions are therefore inserted for the purpose
of excepting the liability of the insurer for which he would otherwise be liable.

These exceptions, sometimes also known as conditions, are inserted in two forms, namely
express or implied: -

Those conditions that are implied to be applicable to all contracts of insurance, regardless of
the absence of any specific inclusion or reference of such conditions or clauses in the
contract, are known to be Implied conditions. Some of the conditions are briefly listed below:

 That the parties must observe good faith towards each other at all stages of contract.
 That the subject matter of the insurance is in existence at the time the contract of
insurance comes into force.
 That the insured has an insurable interest in the property insured.
 That in case of loss, the property destroyed is the property intended to be insured.
 To facilitate identification at that stage, full description of the property insured is
included in the policy itself.

On the other hand, Express conditions are such conditions which are expressly stated or set
forth in the contract of insurance/insurance policy. These are generally of two kinds:

 General – Which are common to all policies of that class and which are therefore
printed on the policy.
 Special – Which are applicable to that particular policy and are therefore either
handwritten or rubber stamped.

All the conditions, notwithstanding of the fact they are express or implied, are in accordance
with the policy's operative clause, conditions precedent to the insured's right to recover under
the policy. Broadly, they are in the following forms:

 Condition precedent and subsequent to the validity of the policy

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  Conditions precedent to the liability of the owner.

In the case of Bradley and Essex and Suffolk Accident Indemnity Society, Re 9, Farewell LJ
“ ”

had observed, “… it is especially incumbent on insurance companies to make clear both in

their proposal forms and insurance policies the conditions which are precedent to their
liability and the terms which are specifically not covered. For such conditions have same
effect as forfeiture clauses and may inflict loss and injury on the insured or those claiming
under him out of all the proportion to the damage that could possibly accrue to the company
from non-observance or non-performance of the conditions.”

PLACEMENT OF THE EXCLUSION CLAUSES

An insurance policy contains exclusions that are generally present in the exclusion clauses.
But it is not necessary that will always be present in the exclusion clauses. Sometimes they
are present in different forms in the insurance policies. They may be provided either in the
definition part or the endorsement form etc.

REASONS FOR EXCLUSION

An exclusion provision is a condition which abolishes the coverage of insurance for some
type of risk. Exclusions basically reduce the scope of coverage which is provided by an
insurance agreement. Generally, in Insurance policies, the coverage is very broad and the
insurers utilise the exclusions clauses to carve away the coverage which they are unwilling to
insure. There are many reasons for following such practice but the most important one being
the profitability of the business. Generally, the companies remove the insurance cover for
those risks in which the insurance company is likely to suffer a loss. Reasons of Excluding
Risks:

1- Catastrophic Events: Insurance companies are less likely to ensure a risk which will
affect a large number of policyholders at once. Example – war.

2- Covered in other Policy: Some risks are excluded from the general policies as they are
covered by specific policies. For ex – Death due to unexpected factors, generally

9
(1912) 1 KB 415: 81 LJKB 523: All ER Rep 444 (CA).
15 | NATIONAL LAW INSTITUTE UNIVERSITY, BHOPAL
 exclude the death by motor vehicle clause since it is specifically covered by Motor
Vehicles insurance policy.

3- Insurance related to factors which are easy to avoid: Insurers generally exclude the
risks which can be easily avoided and non-avoidance will lead to damage. For
example – Damage to properties by keeping in open caused by rain, snow etc.

4- Not Accidental: Insurance companies exclude events which are not accidental in
nature and are caused intentionally.

5- Maintenance Issues: Insurers avoid some risks because they are bound to happen as
the causes are natural. Such risks cannot be avoided but can be reduced with proper
maintenance but generally the insured fails to take such actions. For example: Wear
and tear of commercial property. It can be reduced if the property I taken proper care
of regularly, but generally it is not done do.

6- Not profitable: Insurers generally avoid risks which will not yield profits as the risk
insured is very high. There is a very likely chance of that event to occur and in such
case the insurer will have to pay the insured amount.

7- Partially Insurable: Some risks are not completely insurable and hence the insurance
companies generally break the risks into different parts and offer protection which are
less likely to occur or the magnitude of loss in those risks is less.

8- Insurable for extra Premium: Insurers are willing to ensure some risks if insured is
ready to pay an extra amount of premium. In mobile insurance generally the insurance
excludes damage due to water or any liquid. But such damages can be brought within
the scope of insurance by paying an extra amount of money.

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 CHAPTER 3: EXAMPLES OF EXCLUSION CLAUSES

1. MARINE INSURANCE

A marine insurance policy is intended to cover the possible risks to the insurable property
from the Perils of sea, fire, and other such Maritime perils. Some of which are laid down in
Section 3 of Marine Insurance Act10 in the form of illustration. These perils are also
mentioned in the standard policy form given in the schedule to the act. In some of the
insurance policies some of these perils are expressly excluded so that the exact scope of
insurance provided by the contract may be known by both the insurer and the insured and the
liability of the insurer arises only in case when the loss is due to an insured peril.

In the case of Peacock Plywood Pvt. Ltd v. The Oriental Insurance Co. Ltd. 11, while
“ ”

interpreting the exclusion clause it was held that,

“The meaning of the expression 'peril insured against' would depend upon the terms of the
policy. Marine Insurance Act is subject to the terms of insurance policy and the term of the
policy must be given its effect. While construing a contract of insurance, the reason for
entering thereinto and the risks sought to be covered must be considered on its own terms.
The burden to prove the applicability of exclusionary clauses was on Respondent and It was
required to be specifically pleaded and proved by Respondent.”

2. HEALTH INSURANCE

“ The denial of a claim or unjustifiable deduction of expenses from the customer perspective
usually stems from exclusions relating to treatment involving investigation only; treatment
not requiring hospitalisation; unproven treatment or new treatment or specific treatment
involving advanced or expensive techniques; among others. But sometimes even customers
and doctors and hospitals fudge documents for circumventing exclusions. So, it’s important
to rationalise the number of exclusions, standardise wordings and scope of exclusions. “

10
Marine Insurance Act, 1906.
11
2006 14 SCALE 300.
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“ The exclusion list today uses too many medical as well as legal jargons that can make even a
discerning customer nervous, making her rely completely on the intermediary or not buying
health insurance at all. There is a need to put exclusions in simple common language that
consumers can understand. Health Insurance policies should catch up with advancement of
medical science and start including various modern surgeries that are currently excluded. “

“ When an individual buys health insurance, the objective is to cover all medical situations. A
significant aspect of health insurance that gives negative surprises to the policyholder at the
time of need is exclusions, a term used for listing out medical conditions that are not covered
under a particular policy. The wording of the exclusion clause is pretty open- ended leaving
room for individual interpretation. “

“ If one sees the language used to list exclusions, it is clear that depending on how the doctor
words the discharge summary and interpretation of that by the person adjudicating the claim,
the outcome can vary significantly. Standards should be put in place to ensure that exclusions
mentioned are clear and define the medical conditions as accurately as possible. ”

“ The first issue is when exclusions are included unilaterally at the time of renewal. Buyers
assume that the contract will remain unchanged when they renew but that is not the case.
Second, exclusion of specific treatment protocols. For example, certain cancer treatment
drugs are excluded by a few insurers. This influences treatment protocols which should be the
purview of doctors and not insurers. Third, exclusions should not be linked to the reason for
ill health. For example, illnesses related to drinking or because of hazardous activity should
be covered. A claim due to cirrhosis of the liver was initially denied because the insurer
assumed that alcohol was the cause. Finally, exclusions have to be considerate. Critical
illness plans require a survival period of 30 days after the disease is diagnosed for a claim to
be payable. This means that if someone has a heart attack and dies, their family will not get
the claim but if they live the claim will get paid. ”

3. WORKMEN’S COMPENSATION ACT

The insurer’s liability to make the payment is subject to the terms, conditions and exceptions
contained in the policy. The insured has to comply with the terms, conditions and the
exceptions provided in the policy. Generally, exclusions related to the following are
provided:

 Natural death or death arising out of

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  Intentional self-injury, suicide or attempted suicide
 Under the influence of intoxicating drugs or liquor
 Directly or indirectly caused by venereal disease or insanity.
 War, invasion or act of enemy.

4. MOTORS VEHICLE ACT, 1988

As stated in other insurance policies there are exceptions in motor vehicles as well, these are
normally of the following types12:

 Outside the geographical area of insurance

 On account of any contractual liability
 After any variation or modification in the vehicle
 When the vehicle is driven by any other person
 Whilst the insured or permitted driver is under the intoxication or influence of liquor
or drugs

In B.V Dhulaji v. Patel Shivbhai Kashibhai ,13 a policy covering a tractor which did not have
“ ”

a permit to ply for hire or reward contained a limitation as to its use for agricultural and
forestry purpose. An accident occurred when it was used to carry a marriage party for hire. It
was held that the insurer was not liable under the policy.

In Anjana Devi v. Arumugham ,14 a pillion rider was killed when a tourist taxi driven rashly
“ ”

dashed against the motor cycle. The driver of the taxi had driving licence but did not contain
the special endorsement to ride a tourist taxi required under section 3 (1) of the Motor
Vehicles Act, 1939. In such a scenario the insurer was not held liable.

12
M.N Sriniwasan, Principles of Insurance Law, 7th edn (Nagpur: Wadhwa & Company, 2002), 247.
13
1981 ACJ 107 Guj.
14
AIR 1983 Madras 282.
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 EXCLUSION CLAUSES UNDER THE INDIAN LEGAL FRAMEWORK

Insurance is a form of contract in which one party, the insurer, agrees to pay the other party,
the insured, an amount of money if a contingent event occurs that is detrimental to the
insured's interests in exchange for a consideration, the premium.

The objective of a contract of insurance is to restore the insured to its original position as it
was prior to his suffering the loss or compensate the quantum of loss in terms of money. In
order to compensate for that risk, the insurance companies charge a premium and offer
money in return when the loss occurs, but the exclusion clauses act as a hinderance in
fulfilling that objective. The insurance companies with the intent of earning more profits are
day by day increasing the ambit of exclusionary clauses. The reason for such an unchecked
approach of the insurance companies is the lack of any legislative guideline on the subject.
The general approach of the courts as already stated is to protect the interests of the insured
but the legal basis of such protection has always been vague. There is no specific provision
barring the exemption clauses or neither there is any framework provided for defining the
extent of the exclusions and the courts have only taken the grounds of public interest or good
for justifying their judgements. More interestingly, none of the courts have elaborated on
public interests nor the scope of the term has been expanded. The decisions in which relief
was provided to the customers were based on observations made in English Courts which are
in-turn based on the following grounds:

 Unconscionable nature of the exclusion clause.

 Unfairness.
 The clause not being in public interest.
 The clause being opposed to public policy.

In order to compensate in the contracts in which the bargaining power of one party is
undermined by that of the other party, several legislations such as the labour welfare laws,
money lending acts, rent acts etc have been brought into effect however, no such provision
has been provided in the specific acts such the Insurance Act or the Indian Contract Act. The
already existing framework of the “Indian Contract Act, 1908” do not have an ambit to
provide the necessary protection. The following provisions deal with the subject matter but
are not adequate.

20 | NATIONAL LAW INSTITUTE UNIVERSITY, BHOPAL

  Section 16(3) – It talks about situations in which a party has the power to influence
the will of other party. The instant section has undergone the scrutiny of Indian
Courts15 in a manner that both the components of a position of dominance and the
unconscionable nature of the contract are required to be proved simultaneously. In
exclusion clauses, it is difficult to prove unconscionable nature in each and every case
and hence this provision is not attracted in many cases. Although the judgement is
almost a century old, but the practice remains the same which has been established by
this case.

 Section 23- It provides that consideration for the contract must be legal until & unless
the court holds it to be “immoral or opposed to public policy”. As already stated
above courts have stated that except in certain cases, the pre-imposed condition
absolving one party from liabilities is not opposed to public policy.

 Section 28- It deals with the time period only and does not mention anything about
the nature of the right which cannot be enforced.

 Section 74- It deals with the Quantum of damage and comes into picture once the loss
is proved but is not of much help in proving the liability.

The evaluation of the above provisions provides that the Indian Contract Act is inadequate in
protecting the interests of consumers against the exclusion clauses in the Insurance policies.

EVOLVING JURISPRUDENCE UNDER THE INSURANCE LAW AND THE INDIAN CONTRACT
ACT AGAINST MISUSE OF EXCLUSION CLAUSES

“ As already stated, a statutory void still prevails in the Indian jurisdiction with regard to
exclusion clauses in the insurance contracts. The courts in India will need to continue to
decide, within the limited scope of interpretation, what constitutes a possible misuse of the
exclusion clauses. It is desirable that statutory safeguards, are structured to ensure that
unequal bargaining power is not misused and unreasonable exclusion terms do not defeat one
of the fundamental principles of the contract law: one must honour the promises made. “

It is the nature of the contracts between the parties i.e., one of the contracting parties holds a
stronger position and utilizes the same against the other party. In insurance contracts the

15
Poosathurai v. Kannapan Chettair (1919) I.L.R 43 Mad. 546 (P.C).
21 | NATIONAL LAW INSTITUTE UNIVERSITY, BHOPAL
insurers prepare the policies according to their own cost benefit analysis and risk
management policies and the same is being offered to the consumers without much choice.
Such contracts are called contract of Adhesion which has been defined in Black’s Law
Dictionary16 in the following terms:

“A standard-form contract prepared by one party, to be signed by the party in a weaker

position, usually a consumer, who has little choice about the terms. Also termed Contract of
adhesion; adhesory contract; adhesionary contract; take it or leave it contract; leonire
contract.”

In the following decisions, it is evident that how the court has tried to protect the weaker
party without any legal basis.

In Lily White v. R. Munuswamy 17, the appellant provided the services of laundry and he lost
“ ”

a new saree of the respondent. He took the defence that in the laundry receipt the condition
was mentioned that in case of loss or damage to the article the claimant would be entitled for
only 50 percent of the value of the article. The court rejected this argument and upheld the
claim of the respondent and stated that such an exclusion would allow the appellant to
purchase new clothes at 50 percent of the original value and that would be against public
interest.

In a similar case of H. Siddalingappa v. S Natasia 18, the appellant won the money in raffle
“ ”

but could not encash the same for three months due to the negligence of the bankers. The
respondent stated that under the exclusion clause it was provided that if the money is not
collected within three months, the prize would lapse. The High court ruled that the terms of
the contract are without consideration to law and is against public policy.

“ The specific nature of the exclusion clauses, which operates in favour of one of the parties of
the contract, has led to a high number of litigations over the years, which made it imperative
for the courts to derive and adopt a variety of methods. These methods primarily focussed on
granting remedies to the plaintiffs by either undoing the effects of the unfairness attached
with the exclusion clauses or by deeming such clause devoid of any legal effect. Based on the
study of the case laws, the remedies can be classified under four broad heads: (A) remedies
against non-fulfilment of the notice procedure; (B) remedies through interpretative
mechanism; (C) and remedies against non-conformity with the statutory requirements. ”

16
BLACK’S LAW DICTIONARY 653 (12th ed., 2009).
17
AIR 1966 Mad 13.
18
AIR 1970 Cal 154.
22 | NATIONAL LAW INSTITUTE UNIVERSITY, BHOPAL
 Non-Fulfilment Of The ‘Notice Procedure’

“ To be effective and enforceable, the insurer must endeavour to sufficiently bring the
existence of exclusion clause to the notice of the insured.19 Once the knowledge is established
and freedom of contract ensured, it is imperative for the courts to enforce it. 20 If the insurer
fails to disclose the exclusion in the terms of the contract, then it is treated as foreign to the
contract and thus, non-enforceable. “

“ For instance, in Modern Insulators v. Oriental Insurance Co Ltd,21 the insurer failed to
communicate certain terms and conditions including the exclusion clause while forwarding
the schedule of insurance policy to the insured. The exclusion clause intended to cease the
liability of the insurer if the insured used second-hand property in a particular mechanical
test. When the structure collapsed due to the use of second-hand property, the Supreme Court
denied the benefits of the exclusion clause to the insurer because it was ‘neither a part of the
“

contract of insurance nor disclosed’ to the insured, and held the insurer bound to bear the
costs.

“ The notice of the exclusion clause must be communicated through a medium, which legally
binds and obligates the other party to take cognisance. It must be extended through a
contractual document so that it is obvious to a reasonable person that certain intentions are
tried to be communicated22 and the parties are restrained from making subsequent
exclusions.23 “

“ The test of whether reasonable notice was given to the other party is governed by the acts of
the party incorporating the clause,24 and thus, the burden of proof to establish the
applicability of the exclusion clause rests on the party which is claiming the benefit under
such clause. The law requires the incorporating party to merely show the reasonable steps
taken to bring the fact in the knowledge of the other party, 25 and it is independent of the other
party’s discovery of such a fact.26

19
Lacey’s Footwear (Wholesale) Ltd. v. Bowler Insurance Ltd., [1997] 2 Lloyd’s Rep 369 (Court of Appeal,
United Kingdom).
20
United India Insurance Co. Ltd. v. Manubhai Dharmasinhbhai Gajera and Ors., (2008) 10 SCC 404.
21
Modern Insulators v. Oriental Insurance Co. Ltd., (2000) 2 SCC 734.
22
Nunan v. Southern Rly., [1923] 2 KB 703.
23
B.N. BANERJEE, LAW OF INSURANCE, VOLUME 1, LAW BOOK COMPANY, ALLAHABAD (1994).
24
MP Ram Mohan & Anmol Jain, EXCLUSION CLAUSES UNDER THE INDIAN CONTRACT LAW: A NEED TO
ACCOUNT FOR UNREASONABLENESS, 13 NUJS L. Rev. 4 (2020).
25
National Insurance Company Limited. v. Savitri Devi and Others, (2013) 11 SCC 554.
26
Mukund Dewangan v. Oriental Insurance Company Limited, (2017) 4 SCC 663.
23 | NATIONAL LAW INSTITUTE UNIVERSITY, BHOPAL
 Remedies Through ‘Interpretative Mechanisms - Rule Of Contra Proferentem

“ In cases where the exclusion clause remains ambiguous, the courts have applied the rule of
verba fortius accipiuntur contra proferentem.27 This rule mandates the application of that
interpretation which is in favour of the party other than the one who drafted the contract, 28
which is generally done by construing the exclusion narrowly.29 For instance, when an insurer
contracts with the insured on its standard terms, then “in case of real doubt, the policy ought
“

to be construed most strongly against the insurers; [because] they frame the policy and insert
the exceptions”.30

In the case of General Assurance Society Ltd. Vs. Chandumull Jain, 1 it was held as under:
"…..there is no difference between a contract of insurance and any other contract except that
in the contract of insurance there is a requirement of uberrima fides i.e, good faith on the
part of the assured and the contract is likely to be construed contra proferentem that is
against the company in case of ambiguity or doubt."

In the case of Export Credit Guarantee Corporation of India Limited v. Garg Sons
International,31 In this case, the insured was contractually obligated to submit declarations
“

regarding overdue payments to the insurer within a given timeline, in the absence of which
the insurer was exonerated of any liability under the contract. When the insured failed to
comply with the requirements of the contract, the Supreme Court observed that : “

“[t]he clauses of an insurance policy have to be read as they are. Consequently, the
terms of the insurance policy, that fix the responsibility of the insurance company must
also be read strictly. The contract must be read as a whole and every attempt should be
made to harmonize the terms thereof, keeping in mind that the rule of contra proferentem
does not apply in case of commercial contract, for the reason that a clause in a
commercial contract is bilateral and has mutually been agreed upon.”

“ Therefore, if the parties have mutually agreed to the negotiated terms of their contract,
especially in a commercial contract where it can be presumed that the parties have equal
bargaining power, then the courts shall refrain from applying the rule of contra proferentem. “

27
Sushilaben Indravadan Gandhi and Anr. v. New India Assurance Company Limited and Ors., 2020 SCC
OnLine SC 367, ¶29; Industrial Promotion and Investment Corporation of Orissa Limited v. New India
Assurace Company Limited and Anr., (2016) 15 SCC 315.
28
General Assurancce Society Ltd. v. ChanduMull Jain and Anr., (1966) 3 SCR 500.
29
Canara Bank v. United Indian Insurance Company Limited and Others, (2020) 3 SCC 455.
30
New India Assurance Company Limited v. Rajeshwar Sharma and Others, (2019) 2 SCC 671.
31
Export Credit Guarantee Corporation of India Limited v. Garg Sons International, (2014) 1 SCC 686.
24 | NATIONAL LAW INSTITUTE UNIVERSITY, BHOPAL
 Main Object and Intent Test

“ In cases pertaining to insurance contracts, the courts have held that “the exclusion clause or
the defence of an insurer so as to avoid liability has [to be] read down to the extent to which it
is consistent to the main purpose of the contract.32 “

“ In insurance contracts, when the breach of conditions are on part of the insured, the courts
have limited the space available to the insurance companies to exclude their liability, again
by referring to the main object/purpose of the contract. For instance, in a decision handed by
a full bench of the Karnataka High Court in May 2020, it was observed that, “

“[e]ven after proving breach of a policy condition regarding a valid license by the
driver or his qualification to drive during the relevant period on the part of the
insured, the insurer would not be allowed to avoid his liability towards the insured
unless the said breach or breaches is/are so ‘fundamental’ as found to have
contributed to the cause of the accident. This is having regard to the rule of main
purpose.”33

“ According to the law as it stands today, it could be concluded that if an exclusion clause is
drafted in clear and unambiguous language, the courts can do nothing but enforce them
because there is no rule of law that disallows a party from excluding its liability to any extent.
The first step towards changing this line of thought, at least in the context of consumer
contracts, has been the recent enactment of Consumer Protection Act, 2019, which came into
force on July 2020, wherein there is a specific statutory inclusion of ‘unfair contract’.
“

“ However, unlike the UK, India still lacks a general statutory supervision over unreasonable
exclusion clauses and thus, the parties are virtually entitled to exclude their liability for
fundamental breach as well. The limited jurisdiction vested with the courts is to employ the
rule of strict interpretation in order to interpret an ambiguous clause in favour of the party
against whom the exclusion clause is drafted or limit the clause in accordance to the main
object and intent of the contract. “

32
New Indian Assuance Company Limited, by its Divisional Manager, Bijapur v. Yallavva W/o Yamanappa
Dharanakeri and Anr., 2020 Indlaw Kar 3902.
33
United India Insurance Company Limited, Shimoga v. Belakerappa S/o Kariyappa and Ors., 2020 Indlaw Kar
4503.
25 | NATIONAL LAW INSTITUTE UNIVERSITY, BHOPAL
 Non-Conformity with the ‘Statutory Requirements

“ Such freedom to exclude liability is restricted and parties cannot act in a manner to exclude
the application of any law which is applicable to the facts of a particular dispute. In the case
of Guru Govekar v. Filomena F. Lobo,34 the petitioner had given his vehicle for repairs and
while test driving, the mechanic had caused an accident. When an insurance claim was filed,
the insurance company denied payment based on an exclusion clause exempting it from the
liability arising out of an accident during the period when the vehicle was used for hire or
testing. The Court rejected such contention and ordered that the insurer would be liable to pay
the compensation by virtue of §94 and §95 of the Motor Vehicles Act, 1939, which mandates
that an insurance policy must insure against bodily injuries caused to third party out of the
use of the vehicle in a public place. “

“ Further, the courts have also employed contextual interpretation to give force to the true
purpose of the law. For instance, in Skandia,35 the insured gave the custody of the vehicle to
his license-holding driver, who handed control of the vehicle to the cleaner who did not
possess a license to drive the vehicle. The insurance policy specifically stated that the owner
of the motor vehicle shall be absolutely liable for the events resulting from the driving of
motor vehicle by an unlicensed driver. The Court studied §96 of the Motor Vehicles Act,
1939 which bars the insurer from excluding its liability except for the grounds mentioned
therein, the relevant of which, §96(2)(b)(ii), allows the insurer to absolve its liability when a
breach is committed of the condition excluding driving by any person who is not fully
licensed. The court provided a context to the provision and noted that it has been inserted to
protect the members of the community travelling in vehicles or using the roads from the risk
attendant upon the user of motor vehicles on the roads. It was held that ‘breach’ under this
“ “

provision shall be construed as a breach committed by the insured. 36 If the insured has
ensured that an unlicensed person does not drive the vehicle, the insurer can be held liable.37 “

“ Based on this interpretation, the Court limited the operating domain of the exclusion clause,
which absolved the liability of the insurer absolutely, in line with the main purpose of the
contract to harmonize the freedom of contract with the purpose of the law.38 “

34
Guru Govekar v. Filomena F. Lobo, (1988) 3 SCC 1.
35
Skandia Insurance Co. Ltd. v. Kokilaben Chandravadan and Others, (1987) 2 SCC 654.
36
New India Assurance Co. v. Mandar Madhav Tambe and Ors., (1996) 2 SCC 328 (a later judgment, when the
insured himself was holding an expired learner’s license, the insurer was allowed to enjoy the benefits of the
exclusion clause as the breach was committed by the insured himself).
37
Kashiram Yadav v. Oriental Fire and General Insurance Co., (1989) 4 SCC 128.
38
Sohan Lal Passi v. P. Sesh Reddy, (1996) 5 SCC 21.
26 | NATIONAL LAW INSTITUTE UNIVERSITY, BHOPAL
CASE LAWS

The general rule of interpretation followed while adjudicating a dispute, the policy is strictly
interpreted against the insurance companies and liberally against the insured since the
insurance laws are generally welfare legislations.39 The courts only exclude those part which
makes the meaning of the whole clause absurd or creates ambiguity.

In the case of LIC of India and Anr. v. Consumer Research Centre and Ors 40, it was held
that every insurer has a duty towards the public to develop the insurance policies in such a
manner that they contain just and fair terms and provide accessibility to all classes of people.
the insurance companies should not just work with profit motive and should also keep in
mind the welfare of the people. The court arrived at this conclusion after examining the
position in United states and UK which states that unreasonable terms or contracts which are
made by exploiting the bargaining power of the weaker parties will not be binding.

In Central Bank of India v. Hartford Insurance Co. Ltd.41, it was held by the Apex Court
that the insurance policy is prepared by experts hired by the Insurance Companies and is
offered in a standard format to the consumers without any options of negotiation or alteration
hence it should be given a liberal interpretation in favour of the insured. The court further
noted that the principle of contra proferentem will also be applicable in insurance contracts.

The Delhi High Court in the case of Usha International Ltd. v. United India Assurance Co.
Ltd.42 dealt in detail with the issue of contract of insurance being contract of Adhesion. The
Court noted that majority of policy buyers do not understand the contents of the policy and
rely on the information provided by the agents. This provides the insurance companies an
edge as the buyers loses the bargaining power. Therefore, the contract has to be construed in
favour of the buyers unless it can be proved that the terms have been negotiated between the
parties.

In the case of Shaikh Mohd. Ravuther v. B.I.S.N. Co.43, Justice Shankaran Nair in his
dissenting opinion noted that exemption or exclusionary clauses are hit by Section 23 of the
Indian Contract Act, 1872, but this view was rejected in the future decisions of Indian
Airlines Corporation v. Madhuri Chaudhary44 and Irrawadi Flotilla Co. v. Bagwan Dass.45
39
David S. Miller, Insurance as Contract: The Argument for Abandoning the Ambiguity Doctrine, Columbia
Law Review, Vol. 88, No. 8 (1988) at 1849.
40
AIR 1995 SC 1811.
41
AIR 1965 SC 1288.
42
AIR 2005 Delhi 424.
43
ILR 32 Mad 95.
44
AIR 1965 Cal 252.
45
AIR 1981 Mad 121.
27 | NATIONAL LAW INSTITUTE UNIVERSITY, BHOPAL
In the recent decision of New India Assurance Co. Ltd. v. Paresh Mohanlal Parmar,46 it is “

duty of the insured to reveal all terms, conditions or exclusions to the insured and if there is
any negligence on the part of insurer to explain such terms and conditions, then insurer
cannot repudiate the claim on that basis. In the above case the point of contention was that the
exclusion clauses were not explained to the insured. Thus, it is utmost important for insurance
company to explain and take a declaration from the insured that he /she has understand and
fully explained terms and conditions of the insurance policy to avoid further litigation. “

In the very recent case of November 2022, the Supreme Court in M/s. Texco Marketing Pvt.
Ltd. v. TATA AIG General Insurance Company Ltd. And Ors. CA No. 8249 of 2022 47 held
that, since insurance contracts are premised on the notion of good faith, the burden lies on the
insurer when exclusion clause is relied upon. The Court noted that the party relying upon the
exclusion clause must not be the one committing fraud, coercion or misrepresentation. The
exclusion clause cannot destroy the main contract rights at its inception, if so, it needs to be
severed. The insurer is statutorily bound by Clause 3(ii) of the Insurance Regulatory and
“

Development Authority (Protection of Policy Holder's Interests, Regulation 2002) Act to

“ “

provide all material information with respect to the policy to the insured. This is a landmark
decision on rights of the insured where insurance companies illegally withhold claim
settlement. “

COMPARISON WITH OTHER COUNTRIES

In the United Kingdom, there is a well-established system of precedents and accordingly

various legal principles have been pronounced by the courts which must be followed while a
contract of insurance is made between the parties. These principles include:

1- There is a requirement of reasonable notice to be given by the party imposing

conditions to the other party.48
2- The notice should be concurrent with the contract document or policy.
3- That in any circumstance the condition should not hit at the fundamentals of the
contract.49
4- In case of a dispute the contract would work with a presumption against the Larger or
stronger party and to favour the weaker party.50
46
Civil Appeal No. 10398/2011:04/02/2020.
47
2022 LiveLaw (SC) 937.
48
John Lee & Son v. Railway Executive (1949) 2 All Eng. Rep. 581.
49
Karsales v. Wallis (1956) 2 All E.R. 866.
50
Gibaud v. Great Eastern Railway (1921) 2 KB 426.
28 | NATIONAL LAW INSTITUTE UNIVERSITY, BHOPAL
Even after these principles some cases arose in which the courts pronounced decisions
against the policy holders and in order to bring stability to the issue the British Parliament
passed the “Unfair Contract Terms Act, 1977.”51 All the above-mentioned principles along
with some additional protection measures were codified and added in the act. The act
specifically mentions that any clause excluding any loss, not being death or critical physical
injury shall be declared void if it doesn’t satisfy the reasonableness criterion.

In the United States, a specific provision has been enacted i.e., the Restatement of Law of
Contracts.52 This act specifically deals with the provisions of exclusions and have similar
provisions as that of United Kingdom’s Act. Section 575 specially mentions the situations in
which the conditional or exclusion clause will be declared void. Further Section 2.302 of the
“Uniform Commercial Code”53 provides that courts are at liberty to declare a exclusion void
if it appears to the court that the clause was unconscionable at the time it was made. In order
to do so, the courts can examine the bargaining powers of the contracting parties.

In Israel, the Government has the regulatory power to control such Standard forms of
contracts. It is provided under the Standard Contracts Act54 that there will be a administrative
board comprising of representatives from Industry and commerce and this board will decide
the validity of the exemption clauses which are to be inserted in the standard forms of
contract. In arriving at such conclusion, the board will take into account the prejudices
against the consumers and the unfair advantage available to the supplier due to its strong
bargaining power.

51
The Unfair Contract Terms Act, 1977.
52
Restatement (Second) of Contracts (1981).
53
The Uniform Commercial Code (UCC), 1952.
54
LOWRY, JOHN AND PHILIP RAWLINGS, INSURANCE LAW: DOCTRINES AND PRINCIPLES, OXFORD AND
PORTLAND, OREGON (1999).
29 | NATIONAL LAW INSTITUTE UNIVERSITY, BHOPAL
 CONCLUSION & SUGGESTIONS: THE WAY FORWARD

“ An insurance contract promises to pay the sum assured in return for a premium paid if an
insured event takes place during the term of the contract. But to limit losses, insurance
companies also make it clear that there will be some 'exclusions' to the cover offered.
“ “

Exclusions are thus conditions that are not covered by the insurance company. “

“ An exclusion clause in a contract of insurance has to be interpreted differently. Not only the
onus but also the burden lies with the insurer when reliance is made on such a clause. This is
for the reason that insurance contracts are special contracts premised on the notion of good
faith. It is not a leverage or a safeguard for the insurer, but is meant to be pressed into service
on a contingency, being a contract of speculation. An insurance contract by its very nature
mandates disclosure of all material facts by both parties. “

The Law commission in its 103rd Report55 has stated several recommendations in order to
improve the situation in our country by suggesting a framework to govern the exclusion
clauses, but only few of them have been accepted so far.

The Law Commission stated that in order to provide a remedy for the situation, the legislature
should enact a provision which will have elements from Unfair Contract Terms Act, 1977 of
the United Kingdom and the Uniform Commercial Code of the United States and insert the
same in the Indian Contract Act, 1872 in the form of a new section allowing the parties to
refuse to enforce an unconscionable term. A term can be deemed to be unconscionable if it
exempts any party from (a) – Liability for wilful breach of the contract, or (b) – The
consequences of negligence.

If this suggestion of the Law Commission is implemented and accordingly the changes are
brought in the Insurance Act as well then, a framework can be prepared for governing the
exclusion clauses.

Additionally, like the Guidelines on Standardization of Exclusions in Health Insurance

Contracts released in 2019, standards for exclusion clauses in other types of insurance should
also be brought into force.

In light of this, it is finally stated that the hypothesis of this project work stands true.

55
Law Commission of India, Report on Unfair Terms in Contract, Report No.103, 9 (May, 1984)
30 | NATIONAL LAW INSTITUTE UNIVERSITY, BHOPAL
 BIBLIOGRAPHY

LEGAL RESOURCES

 SCC Online
 Manupatra.
 Live Law
 JSTOR
 Hein Online
 SAGE Publications

LEGAL INSTRUMENTS

 The Insurance Act, 1938.

 The Indian Contract Act, 1908.
 Marine Insurance Act, 1906.
 Workmen’s Compensation Act, 1923.
 Motor Vehicles Act, 1938.
 The Unfair Contract Terms Act, 1977 (United Kingdom).
 Restatement (Second) of Contracts (1981) (United States).
 The Uniform Commercial Code (UCC), 1952 (United States).
 The Israeli Standard Contracts Law, 1982.
 Regulatory and Development Authority (Protection of Policy Holder's Interests,
Regulation 2002) Act (IRDA Regulation, 2002). 

BOOKS

 AVTAR SINGH, LAW OF INSURANCE, EASTERN BOOK COMPANY, 3RD EDITION

(2017).
 KSN MURTHY AND KVS SARMA, MODERN LAW OF INSURANCE IN INDIA, 4TH
EDN., BUTTERWORTHS, NEW DELHI (2002).
 M.N. MISHRA, INSURANCE: PRINCIPLES AND PRACTICE, 10TH EDN., S. CHAND &
COMPANY LTD., NEW DELHI (1994).

31 | NATIONAL LAW INSTITUTE UNIVERSITY, BHOPAL

  B.N. BANERJEE, LAW OF INSURANCE, VOLUME 1, LAW BOOK COMPANY,
ALLAHABAD (1994).
 ENRIGHT, W.I.B. AND DIGBY C. JESS, PROFESSIONAL INDEMNITY INSURANCE LAW,
2ND EDITION, SWEET & MAXWELL, LONDON (2007).
 IVAMY, E.R. HARDY, GENERAL PRINCIPLES OF INSURANCE LAW, 6TH EDITION,

BUTTERWORTHS, LONDON (1993).

 LOWRY, JOHN AND PHILIP RAWLINGS, INSURANCE LAW: DOCTRINES AND

PRINCIPLES, OXFORD AND PORTLAND, OREGON (1999).

 ROBERT MERKIN (ED.), INSURANCE LAW- AN INTRODUCTION, INFORMA LAW,
LONDON (2007).
 M.N. SRINIVASAN, PRINCIPLES OF INSURANCE LAW, 7TH EDITION, WADHWA & CO.,
NAGPUR (2002).
 RICHARD LAWSON, EXCLUSION CLAUSES AND UNFAIR CONTRACT TERMS 1
(SWEET & MAXWELL, 2010).
 A.W. BAKER WELFORD, THE LAW RELATING TO ACCIDENTAL INSURANCE 126
(BUTTERWORTHS, 1923).

JOURNAL ARTICLES, REPORTS AND OTHER SOURCES

 Justice K.K. Mathew, Law Commission of India, 103rd Report on Unfair Terms in
Contract, May 1984.
 Eike Von Hippel, The Control of Exemption Clauses – A Comparative Study, Vol.
16(3) INT’L & COMP. L. Q. 591 (1967).
 Friedrich Kessler, Contracts of Adhesion–Some Thoughts about Freedom of
Contract, Columbia Law Review, Vol. 43, No. 5 (1943) at 636.
 David S. Miller, Insurance as Contract: The Argument for Abandoning the
Ambiguity Doctrine, Columbia Law Review, Vol. 88, No. 8 (1988) at 1849.
 Gillian Bristow, Exclusion Clauses - Drawing The Line, 2 Macarthur Law Review
(1998).
 Deepti Bhaskaran, Can standardisation of exclusions in health insurance policies
help customers?, mint, 31 July 2018.
 Ben Sigler, Contractual damages and exclusion clauses: you get what you
bargained for (CIS v IBM), Stephenson Harwood LLP, 01 Jun 2021

32 | NATIONAL LAW INSTITUTE UNIVERSITY, BHOPAL

  Carsten Jensen KC, Fciarb, The Interpretation Of Exclusion Clauses In Insurance
Contracts, Jensen Shawa Solomon Duguid Hawkes LLP, Canada, June 14, 2022.
 Peter Sharp and Paul Mesquitta, Supreme Court Provides Further Example Of
Narrow Construction Of Exclusion Clauses In Insurance Policies, Morgan, Lewis
& Bockius LLP, June 21, 2021.
 MP Ram Mohan & Anmol Jain, Exclusion Clauses Under The Indian Contract
Law: A Need To Account For Unreasonableness, 13 NUJS L. Rev. 4 (2020).
 Leslie Kelleher, Exclusion Clauses in Contract, Vol. 14(1) MANITOBA L. J. 135
(1984)
 Nihit Nagpal and Nishtha Das, Exemption Clause In Insurance Contracts To Be
Construed Against Insurer In Case Of Ambiguity: SC, Mondaq, 28 May 2020
 Exclusions clause in insurance policies, The Economic Times, July 20, 2011.
 NIRAJ Singh, Exclusion Clause In The Insurance Policy And Rule Of Contra
Proferentem, Live Law, 22 April, 2020.
 Sohini Chowdhury, Insurers Can't Repudiate Contract If Exclusion Clauses Are
Not Disclosed To Insured As Per IRDA Regulations: Supreme Court, Live Law, 10
Nov 2022.

LIST OF CASES

SL.NO. TITLE
1. Peacock Plywood Pvt. Ltd v. The Oriental Insurance Co. Ltd. 2006 14 SCALE 300.
2. B.V Dhulaji v. Patel Shivbhai Kashibhai 1981 ACJ 107 Guj.
3. Anjana Devi v. Arumugham AIR 1983 Madras 282.
4. Poosathurai v Kannapan Chettair (1919) I.L.R 43 Mad. 546 (P.C).
5. Lily White v. R. Munuswamy AIR 1966 Mad 13.
6. H. Siddalingappa v. S. Natasia AIR 1970 Cal 154.
7. LIC of India and Anr. v. Consumer Research Centre and Ors AIR 1995 SC 1811.
8. Central Bank of India v. Hartford Insurance Co. Ltd AIR 1965 SC 1288.
9. Usha International Ltd. v. United India Assurance Co. Ltd. AIR 2005 Delhi 424.
10. Shaikh Mohd. Ravuther v. B.I.S.N. Co., ILR 32 Mad 95.
11. Dupre v. Allstate, No. 01CA0630.
12. Kansas-Nebraska Natural Gas Company v. Hawkeye-Security Insurance Company,

33 | NATIONAL LAW INSTITUTE UNIVERSITY, BHOPAL

 240 N.W.2d 28 (1976).
13. Bradley and Essex and Suffolk Accident Indemnity Society, Re, (1912) 1 KB 415:
81 LJKB 523: All ER Rep 444 (CA).
14. Indian Airlines Corporation v. Madhuri Chaudhary, AIR 1965 Cal 252.
15. Irrawadi Flotilla Co. v. Bagwan Dass, AIR 1981 Mad 121.
16. John Lee & Son v. Railway Executive (1949) 2 All Eng. Rep. 581.
17. Karsales v. Wallis (1956) 2 All E.R. 866.
18. Gibaud v. Great Eastern Railway (1921) 2 KB 426.
19. New Indian Assurance Company Limited v. Yallavva, 2020 Indlaw Kar 3902.
20. InterGlobe Aviation Limited v. N. Satchidanand, (2011) 7 SCC 463.
21. Maimone v. Liberty Mut Ins Co., 695 A.2d 341.
22. New India Assurance Company Limited v. Rajeshwar Sharma, (2019) 2 SCC 671.
23. New Moga Transport Co. v. United India Insurance Co. Ltd., (2004) 4 SCC 677
24. Lacey’s Footwear (Wholesale) Ltd. v. Bowler Insurance Ltd., [1997] 2 Lloyd’s Rep
369 (Court of Appeal, United Kingdom).
25. United India Insurance Co. Ltd. v. Manubhai Dharmasinhbhai Gajera and Ors.,
(2008) 10 SCC 404
26. Modern Insulators v. Oriental Insurance Co. Ltd., (2000) 2 SCC 734
27. National Insurance Company Limited. v. Savitri Devi and Others, (2013) 11 SCC
554.
28. National Insurance Co. Ltd. v Ishar Das Madan Lal, (2007) 4 SCC 105.
29. Sushilaben Indravadan Gandhi and Anr. v. New India Assurance Company Limited
and Ors., 2020 SCC OnLine SC 367.
30. Export Credit Guarantee Corporation of India Limited v. Garg Sons International,
(2014) 1 SCC 686.
31. New Indian Assuance Company Limited, by its Divisional Manager, Bijapur v.
Yallavva W/o Yamanappa Dharanakeri and Anr., 2020 Indlaw Kar 3902.
32. United India Insurance Company Limited, Shimoga v. Belakerappa S/o Kariyappa
and Ors., 2020 Indlaw Kar 4503.
33. Mukund Dewangan v. Oriental Insurance Company Limited, (2017) 4 SCC 663
34. Sohan Lal Passi v. P. Sesh Reddy, (1996) 5 SCC 21.
35. Kashiram Yadav v. Oriental Fire and General Insurance Co., (1989) 4 SCC 128.
36. New India Assurance Co. v. Mandar Madhav Tambe and Ors., (1996) 2 SCC 328
37. Guru Govekar v. Filomena F. Lobo, (1988) 3 SCC 1.

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 38. Skandia Insurance Co. Ltd. v. Kokilaben Chandravadan and Others, (1987) 2 SCC
654
39. Canara Bank v. United Indian Insurance Company Limited and Others, (2020) 3
SCC 455.
40. General Assurancce Society Ltd. v. ChanduMull Jain and Anr., (1966) 3 SCR 500.
41. Industrial Promotion and Investment Corporation of Orissa Limited v. New India
Assurace Company Limited and Anr., (2016) 15 SCC 315.

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