In Insurance contract contains insuring clause providing coverage, conditions setting out the responsibilities of the insured and exclusion clause which identify the circumstances that will absolve the insurer of its obligation. The common exclusion clauses are:-

• Motor vehicle insurance – exclusion when car is not maintained in a roadworthy condition or driver is intoxicated or not having driving license.
• Health insurance – exclusion where pre-existing illnesses known to the insured were not disclosed to the insurer at the time of entering into the policy.
• Travel insurance – exclusion for personal injury suffered on holiday caused by riding a motorcycle.
• Property damage – exclusions for flood and other natural disasters.

According to The Law Relating to Accidental Insurance by A W Baker Welford, insurers are exempted from any liability where the loss is attributable to an excepted cause which is inserted ex abundanti cautela to make it quite clear to the assured that the policy is not intended to cover such losses. The object of the exceptions is to define with greater precision the scope of the policy by making clear what is intended to be excluded and contrasting it with what is intended to be included. Since exceptions are inserted in the policy mainly for the purpose of exempting the insurers from liability for a loss which, but for the exception, would be covered by the policy, they are construed against the insurers with the utmost strictness and it is the duty of the insurers to except their liability in clear and unambiguous terms. The onus of proving that the loss falls within an exception lies upon the insurers, unless by proving the language of the exception the assured is expressly required to prove that, in the circumstances, the exception does not apply.

The UK Supreme Court while dealing with the construction of insurance exclusions, dealt with the interpretation of an ‘exclusion clause’ in a Solicitors’ Professional Indemnity Insurance Policy in Impact Funding Solutions Ltd Vs. Barrington Support Services Ltd. – (2016) UKSC 57. The Lord Toulson JSC in the aforesaid case observed as under:-

“35. The fact that a provision in a contract is expressed as an exception does not necessarily mean that it should be approached with a pre-disposition to construe it narrowly. Like any other provision in a contract, words of exception or exemption must be read in the context of the contract as a whole and with due regard for its purpose. As a matter of general principle, it is well established that if one party, otherwise liable, wishes to exclude or limit his liability to the other party, he must do so in clear words; and that the contract should be given the meaning it would convey to a reasonable person having all the background knowledge which is reasonably available to the person or class of persons to whom the document is addressed… This applies not only where the words of exception remove a remedy for breach, but where they seek to prevent a liability from arising by removing, through a subsidiary provision, part of the benefit which it appears to have been the purpose of the contract to provide. The vice of a clause of that kind is that it can have a propensity to mislead, unless its language is sufficiently plain. All that said, words of exception may be simply a way of delineating the scope of the primary obligation.”/p>

The aforesaid principles were relied upon by the England and Wales High Court (Commercial Court) in the case of Crowden and Crowden Vs. QBE Insurance (Europe) Ltd. – (2017) EWHC 2597. In the aforesaid the Hon’ble Judge Peter MacDonald Eggers QC observed as under:-

“65. … the Court must adopt an approach to the interpretation of insurance exclusions which is sensitive to their purpose and place in the insurance contract. The Court should not adopt principles of construction which are appropriate to exemption clauses – i.e. provisions which are designed to relieve a party otherwise liable for breach of contract or in tort of that liability – to the interpretation of insurance exclusions, because insurance exclusions are designed to define the scope of cover which the insurance policy is intended to afford. To this end, the Court should not automatically apply a contra proferentem approach to construction. That said, there may be occasions, where there is a genuine ambiguity in the meaning of the provision, and the effect of one of those constructions is to exclude all or most of the insurance cover which was intended to be provided. In that event, the Court would be entitled to opt for the narrower construction…”

However, if there is ambiguity in the interpretation of the exclusion clause, the Courts will interpret exclusion clause in favour of the insured. The Hon’ble Supreme Court of India in the case of B.V. Nagaraju Vs. Oriental Insurance Company Ltd. reported as (1996) 4 SCC 648 held that the exclusion terms of the insurance policy must be read down so as to serve the main purpose of the policy that is to indemnify the insurer. If the contract is vague, benefit should be given to the insured. The exclusion clauses may be void if in interpreting their ordinary and natural meaning, their liberal construction creates and absurd result or defeats the whole purpose of the insurance contract. The duty of the insurer to except their liability in clear and unambiguous terms, in a case of real doubt, the policy ought to be construed most strongly against the insurers; they frame the policy and insert the exceptions. But this principle ought only to be applied for the purpose of removing a doubt, not for the purpose of creating a doubt, or magnifying an ambiguity, when the circumstances of the case raise no real difficulty.