Insurer cannot repudiate Insurance claim citing subsequent discovery of damage or corrosion: Supreme Court

The appellant sugar factory insured its boiler (GT-23) with National Insurance for Rs. 1.60 crores for 01.02.2005–31.01.2006. On 12.05.2005, an explosion occurred, causing two tubes to slip off. Although the boiler held a valid fitness certificate under the Boilers Act, the insurer repudiated the claim citing corrosion, worn-out tubes (from 1986), and exclusion clause 5 of the Boiler & Pressure Plant (BPP) policy.

The State Commission partly allowed the consumer complaint and awarded compensation, but on appeal the NCDRC reversed the award, holding that slipping of tubes from corrosion was excluded. The appellant challenged this before the Supreme Court.

Issue Raised: Whether National Insurance could repudiate the claim by invoking exclusion clause 5 based on post-accident observations of corrosion and wear-and-tear, despite the boiler being certified fit and the accident described as an explosion.

SC Ruled: The Supreme Court held that the insurer was not correct in repudiating the claim. It found no denial of the appellant’s plea that an explosion occurred, and survey reports did not rule out an explosion. Corrosion discovered only after the blast could not retrospectively invalidate coverage, especially when the boiler had a valid statutory fitness certificate. No evidence showed misrepresentation, nondisclosure, or breach of policy terms by the insured, and the insurer had neither sought nor been denied inspection prior to issuing the policy. Exclusion clause 5 was held inapplicable.

The Court set aside the NCDRC order and restored the appeals before NCDRC solely for determining the quantum payable.

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