Summary of this article
Once loss due to fire is established, courts need not examine the “cause of the cause” of the fire.
Exclusion clauses in insurance policies must be interpreted strictly and narrowly.
Theft is not an automatic exclusion under a fire policy unless clearly and specifically stated.
The ruling protects both companies and individual policyholders from arbitrary claim repudiation.
Imagine a situation where some thieves, while attempting to steal from your home or a factory, inadvertently cause a fire that engulfs the premises. The question that arises is whether the resulting loss should be attributed to the act of theft that set the chain of events in motion, or to the fire as the proximate cause of the damage.
A similar controversy arose in the present case – Cement Corporation of India versus ICICI Lombard General Insurance Company Limited - whether such loss would be covered under a fire insurance policy, or whether it would fall within the policy’s exclusions on the ground that the damage ultimately originated from an act of theft. In other words, can an insurer deny a fire insurance claim by contending that the loss was caused solely by the act of theft, which triggered the chain of events leading to the fire, and would such a denial withstand judicial scrutiny?
Brief Facts
In this case, the Appellant/insured entered into a fire insurance with the Respondent via a contract dated 21.07.2006. On 01.11.2006, some thieves entered the insured premises with the intent to steal winding copper and transformer oil, using bolt cutters and a blow torch. They inadvertently triggered a fire in the transformer, which resulted in a huge loss to the insured.
“The Appellant sought an insurance claim from the Respondent; however, the Respondent rejected the claim of the Appellant on the grounds that the loss would not be covered under the terms of the policy as the policy states certain exclusionary clauses such as the sub-clause (d) of the Riot, Strike and Malicious Damage Clause (‘RSMD’ Clause) which excludes the liability of the insurer in case the loss is caused due to theft/burglary. The Respondent heavily relied upon the report of the surveyor, which highlighted theft to be the proximate cause of loss,” informs Mayank Arora, Partner, Chambers of Bharat Chugh.
Being aggrieved by the rejection of the claim, the Appellant filed a complaint with the National Consumer Disputes Redressal Commission (NCDRC), New Delhi. The NCDRC dismissed the complaint of the Appellant, stating that the proximate cause of the loss caused to the Appellant is theft/burglary, and the insurance policy in the present case did not cover the loss on account of theft/ burglary.
The Appellant Approached The Supreme Court In A Special Leave Petition
The Appellant contended that under a fire insurance policy, the cause of the fire is irrelevant unless expressly excluded under the terms of the policy. It was further argued that the loss suffered by the Appellant was caused by the fire itself, and not by theft or burglary. Since the policy did not contain any specific exclusion relating to the cause of the fire, the insurer could not repudiate the claim by attributing the loss to theft or burglary as the alleged proximate cause.
The Respondent argued that the proximate cause of fire was burglary/theft and that the policy is a fire policy and not a general all-risk policy. Therefore, it was justified in denying the Appellant’s claim. Further, the RSMD clause in the insurance contract expressly excludes loss caused by theft during or after the occurrence of the insured peril.
The SC Verdict
The Supreme Court laid down two imperative principles relating to the construction of the insurance policies:
Firstly, “the Court, on the basis of decisions laid down in the cases of Sri. Balaji Traders Vs. United India Insurance Co. Ltd. [2005(1)CTC267] and Orion Conmerx Pvt. Ltd. Vs. National Insurance Co. Ltd. [2025 SCC Online 2309] reiterated that “the law need not go into the cause of the causes in case of fire”. The court observed that once it is established that the loss has been caused due to fire, it is irrelevant what has been the cause of the fire unless it is proved that the fire was the result of the wilful act of foul play or fraud by the insured himself,” says Arora.
Secondly, the court observed that such cases warrant a strict interpretation of the ‘exclusion clauses’ in insurance contracts. The court further observed that since theft is not an express exclusion under the specified peril “Fire”, the same cannot be the ground for the insurance company to reject the Appellant’s claim.
“The court noted that the exclusion provided under the RSMD clause would not apply in the present case, as theft was prior to the incident and that merely the exclusion under the RSMD clause would not oust the liability of the insurer when the loss or damage is attributable to the peril of fire,” says Arora.
This judgment was pronounced by the bench of Hon’ble Justices J.K. Maheshwari and Vijay Bishnoi, and it ensures protection of the insured against the arbitrary rejection of claims by the insurers under the garb of hyper-technicalities and ambiguous exclusion clauses.
Although the verdict was delivered in a case involving a company, its principles apply equally to cases involving individuals.
