Supreme Court Sets Precedent in BMW Insurance Dispute: Owners Limited to Policy Coverage

In a groundbreaking decision on November 20, 2023, the Supreme Court emphatically declared that the scope of an insured individual’s claim cannot extend beyond the coverage specified in the insurance policy. The Court underscored the importance of interpreting insurance policy terms strictly to determine the extent of the insurance company’s liability.

Citing the recent judgment in National Insurance Company Ltd. v. Chief Electoral Officer, the Apex Court clarified that the contra proferentem rule, which interprets ambiguous clauses against the introducing party, does not apply to commercial contracts such as insurance. Justices Abhay S Oka and Rajesh Bindal maintained that insurance contracts, being bilateral agreements, do not fall under this rule, as they are mutually agreed upon like any other commercial contract.

The case at hand involved the owner of a BMW car who faced irreparable damage in an accident in Gurgaon. Holding both a motor insurance policy from Bajaj General Insurance Company Ltd. and a BMW Secure Advance Policy, the owner contended that a new car must be provided if the damage exceeded 75% of the Insured Declared Value (IDV), as per a conjoint reading of the two policies.

The State Consumer Disputes Redressal Commission, Delhi, initially ruled in favor of the car owner, directing the insurer and BMW to indemnify the total loss with a replacement of the same make/model. However, the Apex Court, upon interpreting the insurance policy clause (3), clarified that the insurer had the option to either repair or replace the vehicle in case of total loss. The Court concluded that the right to claim a replacement did not unconditionally belong to the insured; it was at the discretion of the insurer.

Regarding the BMW policy, the Court found no specific provision for the replacement of a vehicle in the event of a total loss or theft. BMW’s liability under the BMW Secure policy, the Court ruled, is established only when the motor insurance policy acknowledges a total or constructive total loss of the vehicle.

Examining the insurer’s repudiation grounds, the Court dismissed them, declaring the repudiation of the insurance policy invalid. The Court held that there was a deficiency in service, making the owner entitled to compensation under Section 2(g) of the Consumer Protection Act, 1986, from both the insurer and BMW.

The Court quantified the insurer’s liability based on the IDV of the vehicle, and additionally directed the insurer to pay the owner the difference in value between the accident-involved vehicle and a new car of the same make.

In summary, the Supreme Court’s decision partially allowed the appeals, substituting the State Commission’s directive to replace the car with a ruling for monetary compensation. This landmark judgment sets a precedent limiting insured individuals to the terms outlined in their insurance policies.

[CIVIL APPEAL NO.1544 OF 2023]