Insurance Company Cannot Use Hidden Or Undisclosed Clauses To Deny Compensation: Himachal Pradesh High Court

The Himachal Pradesh High Court held that an insurance company cannot rely on clauses to deny compensation which was not revealed to the insured at the time of signing the agreement.

Emphasizing on the principle of good faith, the court remarked that it was the duty of the insurance company to inform the insured about all clauses.

Applying the Doctrine of Blue Pencil (which strikes off the offending clause being void ab initio) and relying on the Supreme Court's decision in Texco Marketing (P) Ltd. V/s Tata AIG General Insurance Co. Ltd, 2023 the Court held that the exception clause and the stamp later affixed to the policy schedule is invalid and has to be struck off.

Justice Vivek Singh Thakur remarked that:“… Exception Clause contained in Policy was not disclosed and, therefore, said condition contained in Main Policy cannot be made basis to relieve the Insurance Company from its liability. It was duty of the Insurance Company to disclose all Exception Clauses to the insured, who, in good faith and without notice of Exception Clause, had purchased the Insurance Policy.”

Kesar Singh was employed as a helper in M/s Fermenta Biotech Ltd since April, 2006. His monthly salary was ₹2,500 plus ₹500 as additional benefits. In 2007 he died when a vehicle hit him near the factory gate.

Thereafter his wife Jamna Devi, two children, and mother sought compensation under the Employees Compensation Act, 1923. The Commissioner, Employees' Compensation Court, Mandi, awarded them ₹3,14,880 along with 12% annual interest from one month after the date of the accident.

The insurance company contended that the deceased was an employee of a contractor, not the insured; and the policy had an exception clause excluding liability for employees of contractors.

The Court observed that the name of the deceased was in the 33 insured workers, and the exception clause was neither disclosed nor visible in the policy. The exclusion clause appears to be later on by affixing the stamp and was not part of the original policy.

Further the Court noted that even though the deceased was hired through a contractor, the Principal Employer was liable to pay the compensation in terms of Section 12 of Employees Compensation Act,1923.

Also read: Denial Of Medical Insurance Claim Amounts To Violation Of Right To Life Under Article 21 : Kerala High Court

Case Name: United India Insurance Company Ltd. V/s Jamna Devi & others

Case No.: FAO No. 4030 of 2013

Date of Decision: 22.09.2025

For the appellant: Mr. Ashwani K. Sharma, Senior Advocate

with Ms. Nisha Nalot, Advocate.

For the Respondents: Mr.Digvijay Singh, Advocate for respondents No.1 to 4. Mr. Rahul Mahajan, Adocate for respondent No.5.

Click Here To Read/Download Order