Case: BAJAJ ALLIANZ GENERAL INSURANCE CO. LTD. &amp; ANR Vs. THE STATE OF MADHYA PRADESH

3. The respondent purchased a Transit Marine Insurance Policy from the appellant on 21 July 2005, to cover the transportation of a Bell – 430 Helicopter from Langley, Canada to Bhopal, India. By an acceptance letter dated 1 July 2005, the appellant set out the transit route for the transportation of the helicopter by air, sea and road. By a letter dated 10 July 2005, the proposed route was altered as follows:Transit Details: Langley to Pithampur/Bhopal (by road/ by air)4. The policy schedule issued by the appellant indicated that the policy was issued from 22 July 2005 for transportation of the helicopter with standard packaging from Langley to Bhopal for a total sum insured of ? 20,00,00,000. The policy was to be governed by the accompanying clauses that included, inter alia, Institute Cargo Clauses (Air Cargo) (ICC) , Institute War Clauses (Air Cargo), Institute Strike Clauses (Air Cargo), and an Institute Theft Pilferage Non Delivery Clause that listed out the terms and conditions of all damages and loss covered under the policy. The duration of the policy was to be governed in terms of Clause 5 of the ICC. On 5 October 2005, the helicopter was transported in a knocked down state by air to New Delhi. On 13 October 2005, the helicopter was cleared by the customs and was shifted to a hangar at New Delhi. On 21 October 2005, the helicopter was inspected by a representative of the manufacturer during routine inspection and the window of the crew door was reported to be damaged. The respondent sought the permission of the Director General of Civil Aviation to fly the helicopter to Bhopal but was denied permission on account of the damage to the window of the crew door. By a letter dated 22 October 2005, the respondent informed the appellant of the damage and stated that the helicopter was being assembled at the Hangar of Indamer Co. located at Delhi so that the Helicopter can fly from Delhi to Bhopal . On 23 November 2005, the respondent informed the appellant that upon inspection, the tail boom of the helicopter was found to be damaged. A surveyor was appointed by the appellant to assess the alleged damage to the window of the crew door and the tail boom of the helicopter. By a report dated 14 March 2006, the surveyor concluded as follows:The damage to window glass of pilot seat and damage to tail boom of helicopter are two separate incidents not related to each otherThe replacement cost of damaged window glass of pilot seat is below Rs 10,00,000 and hence would fall under the excess prescribed under the policyThe damage to the tail boom had occurred at Hangar #3, Bay 15/33 IGI Airport Delhi after substantial assembly but prior to test flight and not during transit and hence would not fall under the purview of marine insurance policy as issued to the insured5. By a letter dated 10 April 2006, the appellant informed the respondent that the damage to the tail boom was not detected during transit or customs clearance and it was only detected in the third week of November 2005 before which multiple inspections had been carried out and no damage was reported earlier. The appellant further informed the respondent that the representatives of the manufacturer had also admitted that the loss to the tail boom was only noticed in the month of November. On 10 April 2006, the appellant informed the respondent that both the losses claimed were inadmissible for the following reasons:1. Claim for damage to Windscreen glass – The total cost of replacement for this loss is quoted to be Rs (amount of windscreen glass)/- This amount is within the policy deductible of 0.5% of sum insured of Rs 20 Crores. As such there is no liability attaching to the policy2. Claim for dent on Tail Boom of the aircrafta. This was discovered at Hanger-3 Bay 15/33 IGI Airport Delhi in the third week of Nove-2005. The dent was noticed by the representative of manufacturer during routine inspection. It is important to note that cargo had landed on (date)b. We deputed Surveyors, M/s Puri Anuj & Associates, to inspect and report on lossc. Surveyors have reported that the loss was not identified/ reported during Customs Clearance. As clean delivery has been acceptedd. Representatives of Canadian manufacturers, Mr Lorne Vowles and Mr Adrine Lawrence, have admitted that the loss was noticed only in November. There was no damage to the tail boom during their thorough inspection on landing of cargoe. The loss claimed is caused during the storage/movement/ handling of cargo and long after its delivery at desired destinationIn view of these facts, we regret to say that the loss falls beyond the scope of cover granted. Both the losses claimed are inadmissible6. By a letter dated 11 April 2006, the respondent responded to the above letter stating that even though the damage was noticed after a month of customs clearance, the policy of transit was up to Bhopal and therefore, damage to the helicopter in the month of November 2005 would also be covered under transit. The appellant repudiated the claim of the respondent by a letter dated 11 July 2006 on the ground that the loss that occurred to the helicopter was after the duration of the policy had ended as mentioned in Clause 5 of the ICC:In the present case, the destination of the consignment of air transit was New Delhi Airport. The cargo [aircraft] was to be assembled at this location and then aircraft was to fly to Bhopal. The flight would be out of the Marine Transit scope of insurance. The named destination Bhopal of issued policy has no relevance in this contextThus, insurance cover ended on delivery at the final warehouse, premises or place of storage7. The respondent filed a consumer complaint Consumer Complaint no 13 of 2006 before the SCDRC on 18 August 2006 seeking compensation from the appellant for wrongful repudiation of the claim and towards the loss sustained by the respondent. On 16 May 2009, the SCDRC found the appellant to be deficient in its service and directed the appellant to pay a compensation of ? 64,89,205 to the respondent. The SCDRC held that the present case was not a case of delivery before the final destination but the halt at New Delhi was only a transit halt and the assembly of the helicopter at New Delhi did not change the nature of the cargo. Being aggrieved by the judgment of the SCDRC, both the petitioner and the respondent preferred separate appeals before the NCDRC. The NCDRC by its judgment dated 10 August 2018, upheld the finding of the SCDRC that there was a deficiency of service on behalf of the appellant in repudiating the claim. In addition to the compensation which was granted by the SCDRC, the NCDRC awarded interest compensation by way of damages at the rate of six percent per annum from the date of repudiation till realisation. Assailing the decision of the NCDRC, the appellant has filed the present Special Leave Petition before this Court under Article 136 of the Constitution8. By an order of this Court dated 15 February 2019, a stay was granted on the operation of the judgment of the NCDRC. The issue before this Court is whether storage, unpacking and assembly of the helicopter at New Delhi would fall outside the scope of the expression ordinary course of transit, terminating coverage under the policy.

Court's reasoning:
12. The dispute before this Court is with respect to the damage to the tail boom of the helicopter and not as regards the damage to the windscreen glass. By a letter dated 10 April 2006, the appellant informed the assured that the total cost of replacement of the windscreen glass was within the policy deductible of 0.5% of the sum insured and as such no liability arose under the policy. The assured has not challenged that before this Court13. The insurance policy issued by the insurer to the insured represents a contract between the parties. The insurer undertakes to compensate the insured for the losses covered under the insurance cover subject to the terms and conditions of the policy. The appellant issued a policy to the respondent on 22 July 2005. Under the policy schedule, the cargo was to be transported from Langley to Bhopal. The policy schedule prescribed that the appellant company agrees to insure against loss, damage, liability or expenses subject to the limit of indemnity and the clauses, endorsements, exclusions, conditions and warranties in the schedule to the policy. The extent of the policy cover was governed by and subject to various clauses mentioned in the policy schedule which included the ICC. The ICC, inter alia, prescribed the risks covered, exclusions, duration and duties of the insurer and the insured14. The dispute in the present case is on the interpretation of the termination clause of the ICCThe insurance cover in the present case is expressed in terms of the voyage itself. The above clause provides that the duration of the policy attached and commenced from the time the insured cargo left the warehouse, premises or place of storage at the place named in the policy and continued during the ordinary course of transit18. The expression in the ordinary course of transit mentioned in Clause 5 of the ICC cannot be divorced from the context and must be read along with the other conditions which appear in the policy document26. The appellant issued a policy cover to the respondent providing coverage for the transport of the helicopter from Langley to Bhopal. The helicopter was transported in a knocked down state by air through Cathay Pacific Airlines and reached New Delhi on 5 October 2005. It cleared customs on 13 October 2005 and on the same day, the respondent after taking possession of the cargo shifted it to the hangar at New Delhi. It is undisputed that at the time of customs clearance, no damage was reported. It was when the helicopter was inspected by the representative of the manufacturer during a routine inspection on 21 October 2005 that damage was reported to the window of the crew door of the helicopter. In a communication dated 21 October 2005 addressed by the representative of the manufacturer for placing an order for a crew door window, it was stated that further unpacking of the Fuselage Assembly was carried out and no other damage was evident27. The contents of the above letter negate the submission of the learned counsel for the respondent that the helicopter was shifted to the hangar for the purposes of assembling and preparing it for further transportation by road to Bhopal. It is evident from the above letter that the intention of the respondent was to assemble the helicopter at New Delhi and to fly it to Bhopal. The helicopter was transported from Langley in a knocked down state. The specific act of unpacking the cargo at New Delhi in furtherance of the purpose of assembling it for the flight to Bhopal indicated that the transportation of the cargo in a knocked down state had come to an end. The act of unpacking the helicopter for the purpose of assembling it for undertaking the flight to Bhopal was unrelated to the usual or ordinary method of pursuing the transportation of the cargo insured. The policy covered only those risks that were associated with the transportation of the helicopter and did not cover the risks associated with the flight or operation of the helicopter29. In the present case, the transit policy only covered such risks that may have arisen by the venture or operation being carried out in the usual or ordinary manner and did not include risks that were out of the scope of the policy. Change in the character of the helicopter from a knocked down state to a ready to fly state exposed the appellant to risks not contemplated by the parties under the policy. The effect of the alteration of the subject-matter insured is outside the scope of the agreed cover and brings an end to the policy. Once the nature of the subject- matter was altered, the cargo cannot be said to be in transit and the appellant is absolved from any liability arising out of any subsequent damage to the consignment. Exposure to risks associated with the flight substantially and unnecessarily added to the risks of the journey that were not covered by the policy. Accordingly, the submission of the learned counsel for the respondent that the cover against risks would be provided till the time the helicopter was not delivered at the final destination of Bhopal is unsustainable. Once the respondent intended to alter the subject-matter it becomes irrelevant to determine whether the hangar at New Delhi was a transit store or the final destination of deliveryClause 5.1.2 of the ICC provides that the policy may terminate upon the assured choosing to use an alternate place of delivery, prior to the destination named therein for one of two purposes, either for storage other than in the ordinary course of transit or for allocation or distribution of the cargo. The purpose of a transit policy is to cover the carriage of goods to the final destination. In the present case, storage of the helicopter in the hangar at New Delhi awaiting replacement of the spare window cannot be said to be incidental or in furtherance of the carriage of the goods to the ultimate destination. It would be unreasonable to suggest that the transit policy intended to cover indefinite storage of the helicopter at the hangar in New Delhi not brought about by the requirements of transport but determined by commercial convenience of the respondent. The degree of deviation of storing the helicopter at the hangar awaiting replacement of the spare window is at variance with the ordinary course of transit. Ordinary course of transit is the period when the cargo is in the course of transportation, and not in the immediate control of the buyer or seller. After the goods cleared customs, the helicopter was in possession of the respondent and it took a voluntary decision of retaining the helicopter in New Delhi on the basis of commercial convenience. As found in the earlier part of the judgment, the intention of the respondent was not to prepare the helicopter for transportation by road to Bhopal but to assemble the helicopter in New Delhi and fly it to Bhopal. Once the respondent decided to leave the goods in the hangar at New Delhi for its commercial convenience not associated with or in furtherance of the requirements of their carriage to Bhopal, the transit insurance endedIn the present case, the insured voluntarily decided to store the helicopter in the hangar at New Delhi out of commercial convenience and not in furtherance of the transit. In addition, the insured by assembling the knocked down helicopter for the purposes of flying it to Bhopal changed the nature of the consignment and exposed the appellant to operational risks beyond the scope of the policyIn the present case, if the respondent decided to retain the helicopter in New Delhi awaiting the arrival of the replacement window from USA, it could have issued a notice to the underwriters to continue the cover of carriage till the time the repairs were carried out. However, the respondent did not issue any notice seeking extension of the insurance cover under Clause 636. For the respondent to prove its case, a mere assertion that the loss incurred during the course of transit is not sufficient. The burden of proof lies on the respondent to show that the loss incurred was covered within the terms of the policy and that on a balance of probabilities there existed a proximate cause between the loss incurred and the helicopter being in transit. The respondent has adduced no evidence to supports its case38. It is evident from the contents of the above letter written by the the Directorate of Aviation, Government of Madhya Pradesh that the respondent did not challenge the surveyors report. Instead it accepted the finding of the surveyor that the damage to the helicopter took place only in November 2005, after the helicopter had been cleared through customs on 13 October 2005. Accepting the report of the surveyor, the Directorate of Civil Aviation of the Government of Madhya Pradesh sought to contend that the ordinary course of transit extended until Bhopal. This admission is contrary to the stance taken by the respondent before this Court that the damage to the helicopter occurred during the course of transit before the cargo was cleared from customs at Delhi. The learned counsel for the respondent has in his written submissions before this Court argued that since the procurement and supply of the new window was taking considerable time, the helicopter was kept in storage in the meantime in the hangar was covered with a bubble sheet and packing material. The respondent has on the balance of probabilities failed discharge its burden that the damage to the helicopter incurred during the course of transit. No proximate cause has been shown between the damage to the helicopter and the helicopter being in a state of transit. Hence, it is difficult for this Court to come to the conclusion that the damage to the helicopter incurred during the course of transit39. The NCDRC has in the impugned judgment proceeded on the understanding that since customs clearance is essentially at New Delhi, it has to be construed and interpreted in the right spirit that the commencement of the transit is at Langley and ordinary course of transit includes the staying at Delhi for customs clearances and for assembling . The NCDRC has further noted that there existed no ambiguity regarding the commencement of the risk at Langley and ending at the final destination i.e. Bhopal. According to the NCDRC, the expiry of thirty days after completion of discharge at the final port of discharge should be essentially interpreted as thirty days after reaching Bhopal and not thirty days during the course of transit which included the halt at New Delhi. The line of approach adopted by the NCDRC is evidently incorrect. While construing a contract of insurance, it is not permissible for a court to substitute the terms of the contract. The court should always interpret the words used in a contract in a manner that will best express the intention of the parties. The NCDRC has incorrectly proceeded on the path that the ordinary course of transit would include assembling of the helicopter at New Delhi and the policy covered all risks till the time the helicopter did not reach Bhopal. The risks associated with the assembled helicopter were not covered within the purview of the policy, as the subject-matter which had been insured was a helicopter being transported in a packaged knocked down condition. The act of assembling the helicopter with a view to having it flown under its own power, instead of transporting the packaged knocked down helicopter further to Bhopal by road, would not constitute as storage in the ordinary course of transit. The interpretation adopted by the NCDRC strikes fundamentally at the purpose of the policy and is not in accordance with sound commercial principles. The interpretation altered the character of the risk insured beyond the scope of the policy as agreed between the parties.40. We are hence of the view that the interpretation placed on the terms of the insurance policy was manifestly incorrect and that the impugned orders of the NCDRC and SCDRC are unsustainable.