Insurance company cannot use concealed exclusion clause to defeat consumer claim: J&K High Court

The Jammu & Kashmir and Ladakh High Court recently observed that an insurer cannot rely on a concealed or inadequately disclosed exclusion clause to deny a consumer’s legitimate claim [National Insurance Company Limited V/s Mala Bashir]

A Division Bench of Justice Sanjeev Kumar and Justice Sanjay Parihar emphasized that insurance contracts are governed by the principle of full disclosure.

While the insured individual/ entity must disclose material facts relating to the risk, the insurer bears an equally onerous duty to clearly notify and explain any exclusion clause, the Court said.

It added that a contract clause that allows insurer to escape liability must be struck down, especially when it impacts a consumer.

“Having regard to the objectives of the Consumer Protection Act, once it is shown that the contract contains a clause which, if enforced, would allow the insurer to escape liability while benefiting from the consumer’s payment of premium, such a clause must be struck down as unfair. A clause that negates the essential purpose of the contract is void and cannot be enforced,“ the Court added.

The Court was considering an appeal challenging an order of Jammu & Kashmir Consumer Redressal Commission at Srinagar directing National Insurance Company Limited to pay an amount of ₹4.76 lakh as compensation to a house owner whose property was damaged during September 2014 floods in Kashmir.

The house was insured under a Standard Fire and Special Perils Policy. The insurer, however, repudiated the house owner's claim on the ground that the policy excluded STFI (Storm, Tempest, Flood and Inundation) perils.

The commission ruled that though policy contained an endorsement excluding STFI perils, the insurance company was not entirely free from negligence. The commission then reduced the assessed loss by 25 percent and ordered payment of compensation.

Considering the appeal moved by the insurance company, the High Court Court explained that such contracts are standard-form, drafted unilaterally by the insurer, leaving the consumer with no bargaining power and only a “take it or leave it” choice. 

“Courts have consistently treated such contracts as contracts of adhesion, inherently tilted in favour of insurers. It is also not in dispute that a Standard Fire and Special Perils Policy ordinarily cover a wide range of risks, including storm, cyclone, typhoon, tempest, hurricane, tornado, flood and inundation, as is evident from Clause VI of the appellants’ own policy document," the single judge said.

The Court observed that the policy in the present case was titled Standard Fire and Special Perils Policy which ordinarily conveys coverage of natural calamities.

"A consumer would legitimately infer that the policy covers all specified perils, including those now sought to be excluded. In the absence of the proposal form and any corroborative evidence, the appellants cannot assert that they discharged their burden of proving exclusion," it added.

The Court further said that when the policy is comprehensive and styled as covering special perils, the insurer cannot rely upon a concealed exclusion clause to defeat the consumer’s legitimate expectations.

Concluding that the policy in the present case described itself as a comprehensive Standard Fire and Special Perils Policy and even the acronym “STFI” was not spelt out, the Court ruled that the insured cannot be presumed to have understood the exclusion and dismissed the appeal.

"In view of the foregoing, we hold that the findings of the Commission suffer from no illegality. The appellants have failed to prove that the exclusion of STFI perils was ever fairly disclosed to the insured," the judge said in the ruling passed on December 04, 2025.

Advocate NA Dandru appeared for the petitioner.

Advocate Irfan Rasool appeared for the respondent.

[Read Judgment]