Insurance Company cannot evade liability based on undisclosed or hidden exception clauses
Himachal Pradesh High Court Upholds Compensation Liability of Insurance Company Under Employees' Compensation Act. Insurance Company Ordered to Pay Compensation Despite Hidden Exclusion Clauses in Policy
In a significant ruling, the Himachal Pradesh High Court has upheld the liability of United India Insurance Company Ltd. to pay compensation and interest under the Employees' Compensation Act, 1923, to the family of a deceased employee, despite undisclosed exception clauses in the insurance policy. The judgment, delivered by Justice Vivek Singh Thakur on September 22, 2025, dismissed the appeal filed by the Insurance Company against the order of the Commissioner, Employees' Compensation, which had directed the insurer to deposit Rs. 3,14,880/- along with 12% interest per annum.
The case involved the death of Kesar Singh, a helper employed by Fermenta Biotech Limited, who died in an accident near the factory premises. Singh was included among the insured employees under the Workers Compensation (General) Policy purchased by the Principal Employer, Fermenta Biotech Limited. The insurance company sought to evade liability based on a stamped exception clause, which purportedly excluded employees of contractors from coverage.
Justice Thakur, however, ruled that the exclusion clause, which was not disclosed at the time of issuing the policy, could not absolve the insurer from its obligation to indemnify the Principal Employer. The court applied the "Doctrine of Blue Pencil" to sever unreasonable or hidden clauses conflicting with the main purpose of the contract, emphasizing the duty of the insurance company to disclose all material terms at the time of policy issuance.
The court also addressed other substantial questions of law, including the determination of workman's wages and the insurer's liability to pay interest. It held that the wages of the deceased were correctly assessed at Rs. 3000/- per month, inclusive of benefits, despite contrary suggestions during cross-examination.
This judgment underscores the principle that exclusion clauses in insurance contracts must be strictly construed and highlights the importance of transparency and good faith in such agreements. The decision serves as a reminder to insurers of their obligations under the Employees' Compensation Act and reinforces the rights of employees and their dependents to fair compensation in case of workplace accidents.
Bottom Line:
Insurance Company cannot evade liability to pay compensation and interest under the Employees' Compensation Act, 1923, based on undisclosed or hidden exception clauses in the insurance policy.
Statutory provision(s): Employees' Compensation Act, 1923
United India Insurance Company Ltd. v. Jamna Devi, (Himachal Pradesh) : Law Finder Doc Id # 2782486
