DOCTRINE OF CONTRA PROFERENTEM AND ITS APPLICABILITY IN INDIA

The Supreme Court in its recent judgement[1]reiterated the principle that exemption of liability clauses in insurance contracts are to be construed against the insurance company in case of any ambiguity. This is based on the doctrine of Contra Proferentem which refers to a situation where an “ambiguity is needed to be resolved” in order to find the correct intention of the contract, i.e. when a contract can be interpreted in more than one way.[2]In such a case, the Court will prefer the interpretation which is more favorable to the party which has not drafted the agreement.

Case Brief

The deceased was an honorary surgeon at the Rotary Eye Institute, Navsari. He succumbed to injuries from an accident while travelling in a vehicle which was owned by the Institute itself. This was allegedly caused due to the negligent driving of the driver of the said vehicle. The main issue that arose was whether the deceased should be treated as a regular employee of the Institute or as an independent professional providing services on contract.The deciphering of this was relevant as the liability of the insurer was dependent on this question. This is because as per the contract, the insurer was not liable for claims w.r.t. those under the employment of the Institute.

The Court finally concluded that the deceased was not a ‘regular’ employee of the Institute. Thus, the Court applied the doctrine of contra proferentem to state that the exclusion clause has to be construed against the insurer. Further, it held that, even otherwise, it is well-settled that exemption of liability clauses in insurance contracts are to be construed in the case of ambiguity.

Background

It can also be said that the doctrine Contra Proferentem favors the underdog as it gives the benefit of doubt to the party which has not made the contract in case of doubt/ambiguity.

Abstinence from the field of commercial contacts

In the case of Bank of India v. K Mohan Das[3], it was held that banks which drafted a voluntary retirement scheme would be liable for any ambiguity arising in it. The Respondent in the case argued that since it was the Petitioner Bank who had drafted the contract, it would be interpreted against the Petitioner. The Apex court, however, stated that the present case dealt with a commercial contract which is a bilateral document mutually agreed upon, hence, there is no scope for applying Contra Proferentem in the present matter.

Indian Scenario

The Supreme Court in the case of M/s. Industrial Promotion & Investment Corporation of Orissa Ltd. v. New India Assurance Company Ltd. & Anr.[4]held that ambiguity in the wording of the policy is to be resolved against the party who prepared it. Further, it stated that it is only when the court has exhausted ordinary means of interpretation that this doctrine must be replied upon, i.e. one must not use the rule to create the ambiguity and actually find it before employing this rule.[5]

In India, this rule has been applied extensively in the field of insurance contracts. This is because normally their policy is a contract of adhesion in which the other party is left with hardly any bargaining power as compared to the insurer. The Supreme Court has held that contracts of insurance are same as ordinary contracts except the fact that there is a requirement of good faith on the part of the insured. Because of this, the contract is highly likely to be interpreted against the company in case of doubt.[6]

The judiciary has strongly stressed on the fact that a court’s duty extends only so far as to interpret the terms used by the parties, and not replace those with its own contract. The court must not venture into extra liberalism that may result in rewriting the contract or substituting the terms which were not intended by the parties.[7]

Thus, the ultimate result of use of this doctrine will result in a precise and clear contract and will economically benefit the parties by reducing costs of obscurity and re-drafting.

[1]Sushilaben Indravadan Gandhi & Anr. v. The New India Assurance Company Ltd & Ors(Civil Appeal No. 2235 of 2020). [2]Nirmal Goel, Doctrine of Contra- Proferentem in Contracts Management, Central Vigilance Commission, available at http://cvc.nic.in/r_CTE22032011.pdf. [3](2009) 5 SCC 313. [4](2016 SCC ONLINE SC 842) [5]MacGillivray’s Insurance Law, 14thedn., Sweet & Maxwell UK 2019. [6]General Insurance Society ltd. v. Chandmull Jain and Anr.(1966) 3 SCR 500. [7]Vikram Greentech (I) Ltd. v. New India Assurance Co. Ltd. (2009) 5 SCC 599.