The Doctrine of Blue Pencil

An insurance contract by its very nature mandates disclosure of all ‘material facts’ by both parties. Manmohan Nanda v. United Insurance, (2022) 4 SCC 582 summarizes same.

A contract meant to cover a shop situated in a basement had an exclusion clause which specified, the contract did not cover the basement. Tata AIG General Insurance Company Ltd. was conscious, contract was entered into for insuring a basement-situated shop. Tata AIG General Insurance Company Ltd. has indulged in unfair trade practice and cannot be allowed to take advantage of its own wrong.

Doctrine of Blue Pencil which strikes off an offending clause being void ab initio, has to be pressed into service. A clause found to be totally illegal and detrimental to execution of main objective, requires an effacement in form of declaration of its non-existence [Beed District Central Coop. Bank Ltd. v. State of Maharashtra, (2006) 8 SCC 514].

Before we part, we would like to extend a word of caution to all Insurance Companies on compliance of Insurance Regulatory and Development Authority (Protection of Policyholders’ Interests) Regulations, 2002.

– Hon’ble Justice M.M. Sundresh, M/s. Texco Marketing Pvt. Ltd. v. Tata AIG General Insurance Company Ltd., [Civil Appeal No. 8249 of 2022].