Cause of Fire Is Immaterial If Fire Itself Is Insured Peril: Supreme Court Rebukes Insurer’s Repudiation

“Once it is not disputed that the loss is caused by fire, the cause igniting the fire becomes immaterial” — In latest judgement Supreme Court of India delivered a landmark ruling in which restoring a government company's insurance claim worth over ₹2.2 crores for fire damage. The Court held that the proximate cause of a fire is irrelevant where fire itself is a covered peril and the policy does not exclude the circumstance that led to ignition, setting an authoritative precedent on interpretation of exclusion clauses in insurance law.

Theft Preceded Fire, Claim Denied

The dispute originated from a fire incident on 01 November 2006 at the Mandhar Cement Factory of Cement Corporation of India, a public sector entity. A theft attempt involving gas cutters caused a transformer to ignite, resulting in a significant fire. The company lodged a claim of ₹2,20,14,190 under its “Standard Fire and Special Perils Policy,” issued by ICICI Lombard. However, the insurer repudiated the claim, citing that theft — a non-covered peril — was the proximate cause of the loss.

On that basis, the National Consumer Disputes Redressal Commission (NCDRC) had dismissed the Corporation’s complaint, accepting the insurer’s reliance on the exclusion clause related to “riot, strike, malicious damage” (RSMD), which excludes burglary and theft. Aggrieved, the Corporation approached the Supreme Court.

Can Theft Preceding Fire Invalidate a Claim for Fire Damage?

The key legal question before the Court was whether the insurance company can deny a fire damage claim on the ground that the fire was caused by an excluded peril like theft, especially when the peril of "fire" was covered and no exclusion applied specifically under that head.

The insurer had relied heavily on the doctrine of proximate cause as applied in New India Assurance v. Zuari Industries Ltd. (2009) 9 SCC 70, asserting that theft was the “active and efficient cause” which set off a chain of events resulting in fire, thereby disentitling the claim.

Cause of Fire Is Legally Immaterial When Fire Is Covered

Rejecting the insurer’s argument, the Supreme Court ruled that:

“Once it is not disputed that the loss is caused by fire, then the cause igniting the fire becomes immaterial... The insurer cannot refuse to indemnify the damage caused by fire, which is a specified peril, on the ground that the proximate cause of fire was burglary/theft.”

Quoting authoritative texts such as Avtar Singh’s Law of Insurance and drawing upon both domestic and international jurisprudence, the Court emphasized the settled principle that:

“When it is established that the loss is due to fire within the meaning of the contract, the cause of the fire is, as a general rule, immaterial.”

The Bench of Justices J.K. Maheshwari and Vijay Bishnoi also cited their own recent judgment in Orion Conmerx Pvt. Ltd. v. National Insurance Co. Ltd., 2025 SCC OnLine 2309, where the Court reiterated:

“If there was a fire and something was on fire which ought not to be on fire... and such fire was not caused by the wilful act of the insured... then any loss attributable to fire would be covered under the policy.”

Strict Interpretation of Exclusion Clauses

The Court was also categorical on how exclusion clauses in insurance policies must be construed:

“Exclusion clauses must be construed strictly and wherever there is any ambiguity... it must be interpreted in favour of the insured.”

Importantly, the Court clarified that while the RSMD clause excluded burglary-related damage under certain circumstances, it did not exclude theft that merely precedes a fire, especially under the standalone “fire” peril, which had its own, distinct exclusions — and theft was not among them.

Thus, the reasoning that theft caused the fire was held to be irrelevant, unless the theft itself was an excluded peril under the fire clause, which it wasn’t.

Insurer's Repudiation Set Aside, Case Remitted for Loss Assessment

Accordingly, the Supreme Court set aside both the repudiation letter dated 04.01.2008 and the NCDRC's judgment. The matter was remanded to the NCDRC to assess the quantum of loss suffered due to fire, with directions to conclude the process within six months.

“There is no justification for the Respondent to repudiate the claim of the Appellant and the NCDRC had erred in not rectifying the mistake and to reject the claim.”

The Court firmly rejected the insurer’s approach as contrary to the primary object of fire insurance, cautioning against interpretations that defeat the fundamental protection sought under such policies.

The Supreme Court’s ruling is a resounding affirmation of insured rights in fire policies, especially in cases where insurers try to avoid liability through hyper-technical or artificially stretched applications of exclusion clauses. It reinforces that the main purpose of the policy must prevail, and that insurers cannot escape liability merely by pointing to circumstances that led to the ignition unless those circumstances are explicitly excluded under the specific peril insured.

Date of Decision: 16 December 2025