Ordinary or extraordinary?

Recently, I came across a judgement delivered by Hon. Dr. Chandrachud in the Supreme Court of India in an appeal against the judgement of the National Consumers Disputes Redressal Commission ( NCDRC). The judgement was in favour of the appellant. Strangely enough, this matter was originally before the State Consumer Disputes Redressal Commission which ruled against the current appellant & when both plaintiff and appellant appealed to the NCRDC, the latter enhanced the award against the current appellant by adding interest as well. 

The matter should never have gone to Court in the first place, given the very fundamental nature of the dispute (or lack of it). Speaks volumes about the lack of understanding/ interpretation of policy terms & conditions, not only among the insureds but among the legal fraternity as well. Some misconceptions that had prevailed in this case and which the Supreme Court judgement set right are listed below:

• Coverage under a marine cargo insurance policy will be between the two places named in the policy as starting point and destination, irrespective of any storage, however long, even if intentional at any intermediate location.
• As a corollary to (1), any loss during the intentional storage period also stands covered, as it is deemed to be in the ordinary course of transit.
• Duration clause has little relevance
• Even if the subject-matter insured undergoes a change, cover under the policy continues
• Even if movement for part of the transit is without a contract of affreightment and under own power, cover should continue and terminate only as per (1).

Apart from the above, perhaps the insured/ intermediary ( if there was one) had not submitted complete details of the contemplated transit at the time of proposal to the insurer. You may be wondering what this so simple yet strange case was. This is Bajaj Allianz General Insurance Co Ltd vs The State of Madhya Pradesh, wherein the judgement was delivered on 24th April 2020. The facts of the case are as under:

• Transit insurance was taken by the State of Madhya Pradesh for transport of a Bell-430 helicopter in dismantled condition with standard packing from Langley in Canada to Pithampur/Bhopal by Road/Air. The sum insured was INR 200 million. Policy was subject to Institute cargo clauses ( Air Cargo), Institute War clauses ( Air Cargo) & Institute Strikes clauses ( Air cargo). Policy was issued by the insurer Bajaj Allianz on 22nd July 2005.
• On 5th October 2005, the helicopter in dismantled condition was transported by air to New Delhi, cleared by Customs on 13th October 2005 and moved to a hangar at New Delhi.
• An inspection by the OEM representative was carried out on 21st October 2005,when it was noticed that the window of the crew door was broken. No other damages.
• The very next day, 22nd October 2005, the insured informed Bajaj Allianz 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”.(here it is not clear what the response from the insurer was and whether they stated that if helicopter was to fly on its own power, it cannot be covered under a marine transit policy & New Delhi will be treated as the final destination under the policy). However, permission to fly was denied by the DGCA on account of the damaged crew window.
• On 23rd November 2005, insured informed the insurer that during an inspection it was found that the tail boom of the helicopter was damaged. Survey was arranged and the surveyor commented that damages to the crew door window and the tail boom were two separate incidents and both claims were not payable. The first claim, though happened in transit fell below the policy deductible while the second damage had occurred during storage and out scope of the transit policy.
• On 11th July 2006, insurer declined the second claim citing the following reason — “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 context.’ ( again not clear why insurer did not invoke 5.1.3 of the ICC cargo clauses ( Air Cargo)-1982 to state that cover under the policy would anyway have expired 30 days after discharge from the aircraft i.e. by 4th November 2005).
• Insured contested this before the SCDRC which ruled in their favour stating that ‘ 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.’ The NCDRC, on appeal upheld the decision of the SCDRC and also awarded interest compensation by way of damages to the insured.
• The insurer obtained a ‘stay’ on the NCDRC order and appealed to the Supreme Court. The issue before the Supreme Court was — ‘The issue before the Supreme Court was 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.’  The Court judged that Yes, these would fall outside the scope of ‘ordinary course of transit’ and cover would terminate at New Delhi.

In arriving at his judgement, Hon.Dr. Chandrachud has made certain very pertinent observations which can form the basis for guidance in future cases too.

1. The ordinary meaning of “transit” essentially connotes that goods are in motion between two points, but the period of transit may continue during intervals or periods when they may be loaded or unloaded and temporarily housed provided that this is reasonably referable to the furtherance of the carriage of goods to the final destination. 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.
2. 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. 
3. 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.
4. During the ordinary course of transit, the consignment might frequently come to rest or be temporarily stored in the dock awaiting loading or customs clearance. However, unduly protracted steps in the cargo‟s transportation are not within, and may terminate, the “ordinary course of transit.”The Hon. Judge quoted Justice MacFarlan of the New South Wales Supreme Court too –‘“… the purpose of a warehouse-to-warehouse clause is to insure during a limited land movement, but, as far as I am aware, it has never been suggested it is intended to cover indefinite storage at some place not brought about by the requirements of transport, but determined by the voluntary decision of the consignee.’
5. 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.

Simple terms, well explained….. this can set at rest the doubts of many … clients, intermediaries, loss assessors, lawyers and of course, insurers.