Gross Negligence a cause for repudiation of a claim.

Do not neglect warning signs and maintenance of machinery. IAR policy allows for repudiation on gross Negligence.

BEFORE THE HON'BLE STATE CONSUMER DISPUTES REDRESSAL COMMISSION, MAHARASHTRA, MUMBAI

Complaint Case No. CC/10/110 1. DCW LTD NIRMAL, 3 RD FLOOR, NARIMAN POINT, MUMBAI. ...........Complainant(s) Versus 1. THE UNITED INDIA INSURANCE CO. LTD. DIV. OFFICE NO. 8, UNION CO-OP. INST BLDG., 5TH FLOOR, 23, SIR P. M. ROAD, FORT, MUMBAI 2. UNITED INDIA INSURANCE CO LTD HEAD OFFICE UNITED INDIA, 24, WHITES ROAD, CHENNAI, TAMILNADU 600014. ............Opp.Party(s)

BEFORE: HON'BLE MR. S.R. Khanzode PRESIDING MEMBER HON'BLE MR. Dhanraj Khamatkar Member HON'BLE MR. Narendra Kawde MEMBER

PRESENT: Adv.uday Wavikar ......for the Complainant Adv.Sneha Dwivedi ......for the Opp. Party

ORDER (Per Shri Narendra Kawde, Hon’ble Member) (1)               Complainant is a manufacturing company engaged in business of caustic soda, synthetic rutile, PVC etc. based in Sahapuram, Tamilnadu.  This consumer complaint filed by the complainant company through Mr.T.Chandru, its Senior General Manager (Electrical) alleging deficiency in service on the part of The United India Insurance Co.Ltd. (hereinafter referred to as ‘opponent insurance company’) for repudiating the insurance claim payable under insurance policy on account of damage sustained to insured Diesel Generator Sets (hereinafter referred to as ‘DG sets’). (2)               Salient features giving rise to file this consumer complaint are that:-                    The complainant company purchased an Industrial All Risk Policy being Policy No.1202000/11/08/06/00000492 to cover insurance to Captive Power Plant comprising of Six DG sets of 6 MW capacity located at Shahpuram, Tamilnadu.  Validity period of the said policy was for the period of one year commencing from 17/08/2008 to 16/08/2009 with sum assured of `1,20,00,00,000/- and out of which plant and machinery comprised of `95,00,00,000/-.  On 02/11/2008, the dummy plug near B-5 crank pin became loose as a result of which the lube oil pressure in the DG set No.5 dropped.  At that point of time, the lube oil pressure dropped to 3.5 bar as a result of which the alarm was activated.  As per the Trouble Shooting Chart (Operating Manual), reasons for the alarm were tried to be ascertained by the Shift Operator.  However, at 1.40 p.m., the DG set No.5 was tripped.   As a result, insured DG set No.5 among other instruments was damaged.  Damage was notified to the opponent insurance company intimating the accidental physical loss within the terms of policy that occurred on 04/11/2008.  The complainant appointed M/s.Rastek Pvt.Ltd. expert in the field to analyse the reasons for the damage.  The said expert filed report with observations as below:- As per our record DG# 5 ESN-6007 Engine is not having any major break down record previously.  This is the first major breakdown occurred on 02/11/2008 at 13.40 hrs due to loosening of crankshaft plug. In view of the safety devices functioning property the DG#5 has engine tripped on low lube oil pressure and this was prevented from major damage to the engine.  All the safety devices were properly checked during routine overhauls and also on regular basis.  This is strictly followed to ensure the safety of the engines. (3)               Upon intimation of this incident, insurance company appointed S.Anantha Padmanaban as authorized surveyor.  The said surveyor visited factory site and prepared his report.  Though the surveyor agreed with the expert report with the M/s.Rastk Pvt.Ltd., but observed that alarm was activated as lube oil pressure at 3.5 bar, the complainant stopped the engine and allowed to trip automatically.  Authorized surveyor along with expert appointed by the insurance company observed that the complainant allowed DG set engine to operate for 10 days with drop in oil pressure amounting to gross negligence.  Lube oil pressure was progressively dropping effective from 24/10/2008 without getting stabilized and lube oil went down to 4.45 bar.  The complainant company submitted that the insurance claim payable under the insurance policy amounting to `54,34,858/- was inclusive of various invoices, work orders, payment to banks and other charges.  However, authorized surveyor slashed, the said claim to `35,53,868/- arbitrarily without providing any reason whatsoever.  Based on the report of the surveyor and the expert-Mr. K. Gopalkrishnan appointed for the purpose, claim of the complainant was repudiated stating that the claim was false under exclusion clause 2(a) of the insurance policy.  The said clause reads as under:- “Any willful act or willful negligence on the part of the insured or any person acting on his behalf.”  (4)               In spite of having taken all due care as per the operating manual of DG set and having made all sustainable efforts to reduce further damage, the engine claim payable under the policy has been rejected arbitrarily as stated by the complainant.  Aggrieved thereby, this consumer complaint has been filed claiming `54,34,858/- with ancillary claim of interest @18% p.a. and amount of  `5 lacs as exemplary charges. (5)               The insurance company appeared by filing written version.  The insurance company has denied the contentions of the complainant stating that the insured DG set even after activating alarm at lube oil pressure at 3.5 bar the insured did not discontinue the engine and allowed it to get tripped automatically at lube oil pressure of 2.8 bar when there was appreciable load on the engine.  As admitted by the complainant company, the alarm was activated when lube oil pressure dropped to 2.5 bar but the DG set was allowed to run thereafter which was tripped automatically.  The complainant ought to have put off the machine when alarm was activated at 3.5 bar of lube oil pressure.  It is further contended that as a prudent owner, it was for the complainant company to take immediate steps to minimize the further damages to the insured property.  On the contrary, the complainant company did not take steps to stop the engine when there was alarm signal the alarm was on and allowed the same to get tripped automatically.  The surveyor who visited along with the expert Mr.K.Gopalkrishnan observed following other important findings :- a.      The insured appears to have changed Lub oil on 23/10/2008 (10 days prior to breakdown) and re-started the Engine and the oil pressure recorded at that time was 5.6 bar.  b.      From the lub oil pressure readings forwarded by the insured, it is observed that the lub oil pressure was progressively dropping (though slowly) from 24/10/2008, without getting stabilized and went down to 4.45 bar at 1.01 p.m. on 02/11/2008 i.e. the date of loss and further was dropping rapidly.  c.      The insured’s contention, that the engine cannot be stopped abruptly, stands to no reasoning, since, on the date of loss, it has tripped and stopped at full speed only.  Hence, it cannot be construed as a rule, that in an emergency, the engine cannot be stopped.  It is possible to shift the load to the other Engines and take a shut down of this engine, much ahead of the failure, when lub oil pressure drop was observed and recorded by the insured.  (6)               Heard and perused record placed before us.  The insurance company relied on expert report concluded that the insured engine allowed to run 10 days i.e. from 23/10/2008 to 02/11/2008 i.e. till the date of break down though admittedly lube oil was progressively dropping and repudiated the claim of the complainant attributing to negligence as such contingency not covered under the insurance policy.  (7)               The complainant and opponent relied on the operating manual and the operation chart of the said insured DG set. However, it is not clear whether running of insured DG set was safe with lube oil pressure above 4.5 bar as no expert evidence led by the complainant compnay.  The expert report submitted on behalf of the insurance company is disputed.  However, there is no rebuttal documentary evidence filed by the complainant company to establish as to what corrective steps were initiated and actually steps taken from the date of changing lube oil on 23/10/2008 till the date of breakdown on 02/11/2008, when admittedly there was progressive and rapidly dropping of lube oil pressure effective from 24/10/2008 to stabilize the engine at 4.5 bar on the date of occurring of an incident on 02/11/2008.  It appears no steps were taken to prevent variation in operating parameters of machinery when it was identified before the reported break down.  Authorised surveyor assessed net loss to the tune of `31,25,288/- (-) salvage of `8,16,237/- which comes to`23,09,051/-, however the loss is attributed to negligence of the complainant company.  A useful reference can be made to relevant part of survey report :- “It is observed from the papers submitted by the insured that there was a progressive reduction in lub oil pressure from 5.6 bar on 23/11/2008 (the date on which the insured had changed the Lub oil) to 4.8 bar on 01/11/2008) date of loss and there is no documentary evidence to understand as to how, this has gone up – noticed by the insured, when the set being a critical power Generator with full monitoring.  In fact, on the date of loss on 01/11/2008, even after the alarm got activated at lub oil pressure at 3.5 bar, the insured did not stop the engine and allowed it to get tripped automatically at lub oil pressure at 2.8 bar, when there was appreciable load on the Engine.  Whether, this is to be construed as Negligence, is left to the discretion of insurers.” (8)               Record does not reveal prompt steps taken to prevent damage to DG set as observed by surveyor and the expert evidence. Survey report is supported by affidavit evidence of the surveyor and so also the expert report of Shri K. Gopalkrishanan.  There is no material/evidence to counter these findings.  Therefore, repudiation of claim cannot be constituted as arbitrary and no deficiency in service against the insurance company can be attributed. (9)               From the foregoing observations, we find that the complainant company failed to establish deficiency in service against the opponent insurance company as the repudiation of the insurance claim cannot be construed as arbitrary one.  Complaint is devoid of merit..  We hold accordingly and pass the following order. ORDER (1)     The complaint stands dismissed. (2)     Under the circumstances, parties to bear their own costs. Pronounced on 14th February, 2013.

[HON'BLE MR. S.R. Khanzode] PRESIDING MEMBER [HON'BLE MR. Dhanraj Khamatkar] Member [HON'BLE MR. Narendra Kawde] MEMBER

pgg

Do not over value assets to purchase a cheaper policy

IAR Claim repudiated due to over valuing of assets to avail of IAR policy.

BEFORE THE A.P STATE CONSUMER DISPUTES REDRESSAL COMMISSION: HYDERABAD

C.C.NO. 46 OF 2008

Between:
M/s Kasargod Power Corporation Ltd.,
6-3-1109/A/1, III Floor, Nava Bharat Chambers
Raj Bhavan Road, Somajiguda,
Hyderabad-82 rep. by its General Manager(Operations)

                                                                                                                            Complainant         

                                                A N D

M/s The Oriental Insurance Company Ltd.,
City Branch Office-VII, Jain Estate
Parklane, Secunderabad-500 003

Rep. by its Branch Manager

                                                                                                                            Opposite party

C.C.NO. 47 OF 2008

Between:
M/s Kasargod Power Corporation Ltd.,
6-3-1109/A/1, III Floor, Nava Bharat Chambers
Raj Bhavan Road, Somajiguda,
Hyderabad-82 rep. by its General Manager(Operations)

                                                                                                                            Complainant         

                                                A N D

M/s The Oriental Insurance Company Ltd.,
City Branch Office-VII, Jain Estate
Parklane, Secunderabad-500 003
rep. by its Branch Manager                                                                                                                                                                                                                                                                              Opposite party

Counsel for the Complainant                   Sri  V.Gourisankara Rao

Counsel for the Opposite party                Sri Bhaskar Poluri      

QUORUM: 

SRI SYED ABDULLAH, HON’BLE MEMBER,

AND

SRI R.LAXMINARASIMHA RAO, HON’BLE MEMBER

WEDNESDAY, THE TWELFTH DAY OF MAY,

TWO THOUSAND TEN.

Oral Order: (Per Sri R.Laxminarasimha Rao, Hon’ble Member)

        The complaints are filed u/s 17 of C.P. Act seeking direction to the opposite party, M/s oriental Insurance Company Limited Secunderabad to pay a sum of Rs.69,91,919/- and Rs.68,89,623/-  with interest @ 18% per annum, an amount of Rs.one lakh towards compensation and Rs.25,000/- towards costs.  As the facts and circumstances and the grounds of repudiation of the claims are similar in nature, both the complaints are being disposed of by a common order.  C.C.No.46 of 2008 is taken as the lead case for the sake of discussion.

        The averments of the complaint are that the complainant, a public limited company was incorporated under Indian Companies Act with the main objective to install power projects to generate electricity.  The complainant installed one of their projects at Bare Village, Kasargod District Kerala.  The complainant has got insured the plant and machinery accessories and electrical, furniture, fixtures and fittings etc with the opposite party vide industrial all risks insurance policy bearing No.431800/IAR/1001 for Rs.103,27,89,500/- for the period from 21.4.2004 to 20.4.2005.  The complainant has paid premium an amount of Rs.36,53,238/-.  The policy was renewed periodically for the said insurance amount.  The complainant entered into operation and maintenance agreement with M/s Caterpillar India Private Limited Chennai for the purpose of maintenance of the power project as plant operator.  M/s Caterpillar India Private Limited is the manufacturer of the plant and machinery.  The policy was renewed for the third year from 21.4.2006 to 20.4.2007 for a sum of Rs.100,51,29,500/-.  The complainant paid an amount of Rs.31,74,059/- towards premium for material damage and Rs.3,70,854/- towards business interruptions.  On 5.3.2007 there was a breakdown in the plant and machinery.  B2 cylinder head and B Bank Turbo Charger got damaged.  The complainant submitted claim which was registered as claim no.F/2007/08 under IAR policy no.IAR/2007/29.  The value of the parts damaged and the value of the spare parts required was estimated by the complainant at Rs.69,91,919/-. 

M/s Caterpillar Commercial Private Limited submitted a report stating that the damaged spares were required. On 26.4.2007 the complainant furnished all the necessary documents to the opposite party.  On 12.9.2007 the complainant submitted representation to the opposite party to settle the claim along with the earlier claim pertaining to breakdown dated 28.11.2006.  The IAR policy was renewed for a further period of 12 months from 21.4.2007 to 20.4.2008 for the amount of Rs.101,51,29,500/-.  The opposite party issued policy bearing No.431301/IAR/2008/40. Another breakdown of the plant occurred on 17.5.2007.  A-1 Cylinder and A Bank Turbo Charger got damaged for which a separate claim was lodged and registered by the opposite party as claim no.F/2008/02 under IAR policy No.IAR/2008/40.  The opposite party has not settled the claim.  On 24.10.2007 the complainant submitted another representation to settle the claim.  On 30.1.2007, 11.3.2008 and 22.4.2008 the complainant had sent reminders to the opposite party to settle the claim. 

The opposite party repudiated the claim no.F/2007/08 and claim no.F/2008/2002 on the ground that when the first incident happened on 5.3.2007 the O&M Operator M/s Caterpillar India Private Limited have not alerted themselves and not taken preventive steps for the incidental loss on 17 .5.2007 which was construed gross negligence on the part of O&M operator amounting to implied infringement of exclusion A excluded clauses 2(i)of the policy.  The opposite party held the O&M Operator M/s Caterpillar India Pvt. Ltd., responsible to make good the loss in view of the provision 10.2 u/s 10 of Operations and Maintenance Agreement.  The opposite party has assigned the reason that insurable assets were declared greatly in order to avail benefit of low premium and benefits of the IAR policy as also higher claim payments.  The complainant entered into operation and maintenance agreement with M/s Caterpillar IndiaPvt. Ltd., by paying huge consideration.  The operator was prompt and followed protocol and procedure as per the original equipment manufacturers manuals.  There was negligence on the part of the operator.  On 9.3.2007 the opposite party paid Rs.42,49,536/- towards the claim pertaining to breakdown date 28.11.2006.  The opposite party refused to pay the claim amount and furnish copy of the surveyor’s report and thereby committed deficiency in service. Hence, the complaint.

The opposite party has filed counter denying the averments of the complaint.  The opposite party being a state within the meaning of article 12 of the Constitution has the obligation protecting the public exchequer and the opposite party oblivious of its obligation has filed the ill drafted counter and was careless enough to adduce any evidence. 

The General Manager, Operations of the complainant company P.Satyanarayna Raju, has filed his affidavit and got marked Exs.A1 to A17.  A representation dated 5.6.2008 has been marked twice as Ex.A12 and A17.  Therefore, the number of exhibits is corrected as Exs.A1 to A17.

Ex.A1 is the Industrial All Risks Policy No.431301/IAR/2007/29 for the period 21.4.2006 to 20.4.2007.  Ex.A2 is the claim form relating to breakdown of the machinery on 5.3.2007.  Ex.A3 is the claim bill for Rs.69,91,919/-.  Exs. A4 and A5 are the Failure Report.  Ex.A6 is the letter dated 7.3.2007 issued by M/s Catarpillar Commercial Private Limited.    Ex.A7 is the Representation dated 12.9.2007 of the complainant company to the opposite party.  Ex.A8 is the Representation dated 24.10.2007 of the complainant company to the opposite party.  Ex.A9 is the Representation dated 30.1.2008 of the complainant company to the opposite party. Ex.10 is the Representation dated 11.3.2008 of the complainant company to the opposite party. Ex.11 is the Representation dated 22.4.2008 of the complainant company to the opposite party. Ex.A12 is the representation dated 5.6.2008.  Ex.A13 is the repudiation letter dated 12.5.2008 in respect of claim no.F/2007/08 and F/2008/02.  Ex.A14 is the representation dated 20.6.2008.  Ex.A15 is the representation dated 7.7.2008.   Ex.A16 is the repudiation letter dated 12.5.2008 in respect of claim no.F/2007/29.  Ex.A17 is the authorization issued in favour of the complainant.

The points for consideration are:

1)           Whether the complainant is entitled to file the complaint?

2)           Whether there was deficiency in service on the part of the opposite parties?

3)           To what relief?

POINTS NO.1 AND 2 In view of the interdependence of discussion on these two points, they have been taken together.  The opposite party has denied all the averments of the complaint. Hence, the onus of proof is on the complaint to prove the averments of the complaint. The complainant is a company.  Whose main object is to install power projects for generation of electricity.  The complainant had installed one such power project at their village Kasargod District in the state of Kerala.  The complainant has stated that it had entered into operation and maintenance agreement with M/s Caterpillar India Pvt. Ltd., Chennai.  The complainant has stated that it had been obtaining Industrial All Risks Insurance Policy from 21.4.2004.  The IAR bearing No. 431800/IAR/1001 was issued for the sum assured Rs.103,27,89,500/- for the period from 21.4.2004 to 20.4.2005.  The IAR policy bearing 431301/IAR/2007/29 was issued for the sum assured of Rs.100,51,29,500/- for the period from 21.4.2006 to 20.4.2007.  The IAR policy issued was the policy NO.431301/IAR/2008/40 for the sum assured Rs.101,51,29,500/- for the period from 21.4.2007 to 20.4.2008.  Thus though the complainant has stated the insurance policy has been renewed from time to time regularly, the different periods commencing from 2004 to 2008 with a break for the year 2005 does indicate that the insurance policy was not renewed from time to time. 

The complainant has lodged claim under Ex.A2 in respect of the break down of machinery on 5.3.2007.  Two separate claims were said to have been lodged in respect of breakdown in the plant and machinery wherein B2 cylinder Head and B Bank Turbo Charger got damaged on 5.3.2007 and A1 cylinder and A Bank Turbo charger got damaged on 17.5.2007, a claim form, Ex.A2 is placed on record.  The claim for Rs.69,91,919/- is relating to the claim No.F/2007/08 under IAR Policy No.IAR/2007/29 and the claim for Rs.68,89,623/- is in regard to the claim No. no.F/2008/02 under IAR policy No.431301/IAR/2008/40.  The opposite party has repudiated both the claims on 12.5.2008 by issuing Ex.A13, repudiation letter on the grounds that when the first incident happened on 5.3.2007, the O&M Operation M/s Caterpillar India Pvt. Ltd., had not taken any preventive steps for possible avoidance of identical loss that occurred on 17.5.2007 and as such it was so occurred on account of gross negligence on the part of the operation and maintenance operator.  The other grounds of the repudiation of the claim are that the same O&M Operation was involved in the spares procurement and effecting repairs as a result of which key information on the gross negligence was not brought out fully which amounts to implied infringement of the exclusionary clause of the insurance policy. 

The opposite party had assigned the reason that the O&M Operator is responsible to make good the loss vide provision 10.2 u/s 10 of Indemnity of Operation and Maintenance Agreement for the reason of gross negligence on their part.  Finally, it was concluded in the repudiation letter that the complainant had issued letter dated 19.4.2005 and similar other letters declaring the value of the insurable assets as above Rs.100 crores which is belied by the annual reports for the relevant period.  The complainant had declared the value of the assets excessively than the actual value in order to avail the benefits available under IAR policy which according to the opposite party are no.1 low premium for machinery break down cover, 2. higher claim payments.  As there was misrepresentation of the facts by the complainant in breach of condition no.1 of the policy, the two claims were held not tenable. 

The complainant, in all has lodged three claims for the three IAR policies obtained from the opposite party. Insofar as the first claim relating to the break down that occurred on 28.11.2006, this complaint is not filed claiming any amount thereunder.  The other two claims, as aforesaid were repudiated for the reasons assigned in Ex.A13.  The O&M Operator has assessed the loss and issued failure report Ex.A4, opining that the smoke was noticed from B2 cylinder and heavy load fluctuation and high exhaust gas temperature at all cylinder was observed.  M/s Caterpillar, KPCL Pvt. Ltd., has prepared the list of damaged parts.  The list was annexed to the failure report submitted by M/s Caterpillar Pvt., ltd.  The letter dated 7.3.2007 Ex.A6 issued by M/s Caterpillar Commercial Pvt. Ltd., Bangaloresupports the ground of repudiation that the complainant has replaced the parts drawn from their inventory.  It does support the ground of repudiation that the same O&M Operator was involved in the spare procurement and effecting repair because of which key information on gross negligence was not fully brought out.

The opposite party has relied upon the exclusionary clause of the insurance policy Ex.A1.  The exclusions in para 2 of the insurance policy read as under:

A  EXCLUDED CLAUSES

1.         This policy does not cover damage to the property insured caused by’

i)         Faulty or defective design materials are workmanship inherent  
                        vice, latent defect, gradual deterioration, deformation or
                        distortion or wear and tear

            ii.         Interruption of the water supply, gas, electricity or fuel  
                                    systems or failure of the affluent disposal systems to and
                                     from the premises

Unless damage by a cause not excluded in the policy ensues and then the insurer shall be liable only for such ensuing Damage.

i.                    Collapse or cracking of buildings

ii.                 Corrosion, rust, extremes or changes in temperature, dampness, dryness, wet or dry rot fungus, shrinkage, evaporation, loss of weight, pollution, contamination change in colour, flavour, texture or finish action of light vemrmin insects marring or scratching.

iii.               Unless such loss is caused directly by Damage to the property, insured or to premises containing such property by a cause not excluded in the policy

i.                    larceny

ii.                 acts of fraud dishonesty

iii.               disappearance unexplained or inventory shortage misfillling or misplacing of information shortage in supply or delivery of materials or shortage due to clerical of accounting error.

i.                    Coastal or over erosion

ii.                 Normal settlement or bedding down of new structures

2.                  Damage caused by or arising from the date of complaint

i.                    any willful act or willful negligence on the part of the insured or any person acting on his behalf

ii.                 cessation of work delay of loss of market or any other consequential or indirect loss of any kind or description whatsoever.

The opposite part has relied upon the General Conditions of the insurance policy in support of the repudiation of the claim. The general conditions material to the present case are extracted hereunder:

GENERAL CONDITIONS

1.                                          This policy shall be voidable in the event of misrepresentation, misdescription, non-disclosure of any material particular.

3.                     Under any of the following circumstances the insurance 
                        ceases  to attach as regards the property affected unless
                        the insured, before the occurrence of any loss or damages
                        obtains the sanction of the company signified by
                        endorsement upon the policy by or on behalf of the
                        company.

The complainant has not denied that the complainant had declared excess value in order to avail the benefits available under IAR policy.  The benefits available as stated by the opposite party are, low premium for machinery breakdown and higher claim payments.  The over declaration was stated to have been made by the complainant according to the opposite party in support of which the opposite party relies upon the gross block available in annual report wherein it was said to have been mentioned that Rs.10 crores for building and Rs.25 crores towards stocks. Basing on the entries of annual report the opposite party had repudiated the claim.  The complainant has not denied the fact of misrepresentation and mis-description as also non-disclosure of material particulars which the opposite party has made the basis of repudiation in its repudiation letter.  The complainant submitted that the official of the opposite party had inspected the plant and renewed the insurance policies.  We have already held that it is not the renewal of the insurance policy as there was a break in obtaining the policy for the year 2005-2006.  it is pertinent to note that the opposite party has not denied that it has stated the value of the building and machinery in excess of actual value.  In other words the opposite party has repudiated the claim on the ground that the complainant has misrepresented the value of the machinery and the building and stated excessive amount than what was mentioned in the annual report.  In the circumstances we do not find any arbitrary element in repudiation of the claim by the opposite party. 

The complainant has filed the complaint basing on the industrial all risks policy, Ex.A1 issued by the opposite party.  The complainant has issued letter dated 20.6.2008 requesting the opposite party to appoint an arbitrator.  The request for the appointment of arbitrator was made invoking the arbitration clause under the policy condition no.12. This arbitration clause was invoked by the complainant relating to the claim no.F/2007/29. 

The insurance policy contains a clause that in case of any difference of opinion between the parties as to the quantum to be paid under the policy, all the questions in the matter to be referred to the decision of an arbitrator. The complainant has invoked the arbitration proceedings.  Thereafter the complainant has filed this complaint without further proceeding with the arbitration proceedings.  There has been no satisfactory explanation forthcoming from the complainant in regard to approaching the different fora for the very same purpose of the amount claimed under the insurance policy.  Therefore, in regard to the claim No.F/2007/29, the arbitrator alone is entitled subject to the provisions of the Arbitration and Reconciliation Act, 1996 and also in accordance with law including the Limitation Act. It is also pertinent to note that the complainant has received the amount under the claim form F/2007/29 towards full and final satisfaction of the claim and as such it cannot re-agitate the matter before the arbitrator or this Commission.

Insofar as the claim No.F/2007/08 and F/2007/02 are concerned, we have already held that the opposite party has rightly repudiated the claim of the complainant.  The opposite party has misrepresented the fact relating to the value of the building and machinery, plant.  The contract of insurance is based on the principle of ubberima fide whereunder both parties to the contract have to disclose the material particulars which form the basis or the issuance of the insurance policy  The complainant  not only misrepresented but also gave a mis-description the value of the plant and the building in order to obtain the benefits mentioned in repudiation letter Ex.A13.  The non-disclosure or mis-description  of the facts particularly relating to the  subject matter of the insurance policy goes to root of the matter and consequently lead to the inference that the contract of insurance is rendered void.  In the circumstances the complainant company has not established any deficiency in service on the part of the opposite party.  Once no deficiency in service is established, the complainant cannot touch the jurisdiction of the Consumer Forum by invoking the provisions of the Consumer Protection Act.  As such the complaint is devoid of any substance and liable to be dismissed.

POINT NO.3        in the result the complaints C.C.No.46 of 2008 and C.C.No.47 of 2008  are dismissed.  There shall be no order as to costs. 

                                                                                                         Sd/-

                                                                                                        MEMBER

                                                                                                          Sd/-

                                                                                                        MEMBER

                                                                                                    Dt.12.05.2010

KMK*

APPENDIX OF EVIDENCE

     WITNESSES EXAMINED FOR

COMPLAINANTS                                                 OPPOSITE PARTIES

        None                                                                  None

                                        DOCUMENTS MARKED

For complainants in C.C.No.46 of 2008

Ex.A1        Industrial  All Risks Policy
Ex.A2        Claim form relating to breakdown of the
                machinery on 5.3.2007. 

 Ex.A3       Claim bill for Rs.69,91,919/-. 
Exs. A4
and A5       Failure Reports. 

Ex.A6        Letter dated 7.3.2007 issued by M/s Catarpillar Commercial
                Private Limited.   
Ex.A7        Representation dated 12.9.2007
 Ex.A8       Representation dated 24.10.2007

Ex.A9        Representation dated 30.1.2008  

Ex.10        Representation dated 11.3.2008

Ex.11        Representation dated 22.4.2008

Ex.A12       Representation dated 5.6.2008. 

Ex.A13       Repudiation letter dated 12.5.2008 

x.A14        Representation dated 20.6.2008. 

Ex.A15       Representation dated 7.7.2008.  

Ex.A16       Repudiation letter dated 12.5.2008 
Ex.A17       Authorization of the Board of Directors dt.15.7.2008

For opposite parties

NIL

For complainants in C.C.No.47 of 2008

Ex.A1        Industrial  All Risks Policy
Ex.A2        Claim form relating to breakdown of the
                machinery on 5.3.2007. 

 Ex.A3       Claim bill for Rs.69,91,919/-. 
Exs. A4
and A5       Failure Reports. 

Ex.A6        Letter dated 7.3.2007 issued by M/s Catarpillar Commercial
                Private Limited.   
Ex.A7        Representation dated 12.9.2007
 Ex.A8       Representation dated 24.10.2007

Ex.A9        Representation dated 30.1.2008  

Ex.10        Representation dated 11.3.2008

Ex.11        Representation dated 22.4.2008

Ex.A12       Representation dated 5.6.2008. 

Ex.A13       Repudiation letter dated 12.5.2008 

x.A14        Representation dated 20.6.2008. 

Ex.A15       Representation dated 7.7.2008.  

Ex.A16       Repudiation letter dated 12.5.2008 

Ex.A17       Representation dated 5.6.2008
Ex.A18       Authorization of the Board of Directors dt.15.7.2008

For opposite parties

NIL

                                                                MEMBER

                                                                MEMBER

Consumer Court case judgements on Insurance Claims

This is a site that has judgements on consumer court cases judgements. Great for a good read.

http://164.100.72.12/ncdrcrep/

Is Condition 8 of a Fire Policy Sacroscanct

Here is a case when the National Consumer Disputes Redresal Commission has found that the Condition 8 of a fire policy is not sacrosanct given the conditions of the case.

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NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION

NEW DELHI

          FIRST APPEAL NO. 279 OF 2008

(Against the order dated 30.04.2008 in Complaint No. 29/2006 of the

Punjab State Consumer Disputes Redressal Commission, Chandigarh)

New India Assurance Co. Ltd.

Bharat Nagar Chowk

Ferozepur Road

Ludhiana

Through

Manager

Regional Office-I

Jeevan Bharti Building

124, Connaught Circus

New Delhi-110001                                             …      Appellant

Versus

M/s Trimurti Tablewares Ltd.

Through its Managing Director

Village Bhagpur

Machhiwara Road

Kohara

District Ludhiana

Punjab                                                                   …   Respondent

BEFORE:

          HON'BLE MR. JUSTICE ASHOK BHAN, PRESIDENT

HON'BLE MRS. VINEETA RAI, MEMBER

For Appellant                     :   Mr. Kishore Rawat, Advocate

For Respondent                :   Mr. V.K. Sharma, Advocate with

                                                Mr. Suryakant Sharma, Advocate

                                                                                          

Pronounced on  18^th April, 2013

ORDER

PER VINEETA RAI, MEMBER

1.      This First Appeal has been filed by New India Assurance Company Ltd., Opposite Party before the Punjab State Consumer Disputes Redressal Commission, Chandigarh (hereinafter referred to as the State Commission) and Appellant herein being aggrieved by the order of the State Commission which had allowed the complaint of M/sTrimurti Tablewares Ltd., Original Complainant before the State Commission and Respondent herein.

2.      FACTS :

          Respondent-Complainant M/s Trimurti Tablewares Ltd., a limited company, contended that it was running the business of manufacturing glass tumblers, bottles and other gift items of glass in its factory premises at VillageBhagpur, Machhiwara Road, Kohara, District Ludhiana, for which he had taken a cash credit limit of Rs.75 Lakhs and a term loan of Rs.307.50 Lakhs from Indian Overseas Bank for its building, plant, machinery and stocks etc. Respondent-Complainant got the building, plant, machinery, accessories, raw material and finished goods/products insured with Appellant/Insurance Company on 15.09.2003 for Rs.430 Lakhs, i.e. Rs.130 Lakhs for building, Rs.250 Lakhs for plant and machinery and Rs.50 Lakhs for stocks of all kinds of powder, chemical sand, LDO, RFO, LPG, raw material, packing material and other finished and unfinished goods of similar nature stored in the insured premises. Respondent-Complainant surrendered the cash credit limit and the term loan of the Indian Overseas Bank and opened a new account with State Bank of Bikaner and Jaipur in December, 2003. 

3.      In the night intervening 6/7.6.2004 there were strong winds and storm accompanied with heavy rain which created a flood like situation in the area of the industrial unit of the Respondent-Complainant causing massive damage/loss to both the factory as also the raw and finished material making the entire unit inoperative. The matter was reported to the Appellant-Insurance Company as also State Bank of Bikaner and Jaipur.  On receipt of this information, senior officers of both the Appellant/Insurance Company and the Bank visited the factory premises on 07.06.2004 and the Surveyor appointed by the Appellant-Insurance Company took the necessary documents in possession and also signed the books of accounts, sale book, register, purchase book, production register and the packing material register etc. and noted the damage caused to the building, plant, machinery as also material/stocks.  A videographic film was also prepared. Respondent-Complainant on its own appointed a private technician-contractor M/s Nibhiulla Contractors & Technicians, who after inspecting the premises and machinery concluded that a sum of Rs.47,71,310/- was needed to repair the machinery. Two other Contractors/Fabricators appointed by the Respondent-Complainant to assess the loss caused to the building and on account of labour opined that it was to the tune of Rs.11,71,242/- and Rs.8,73,022/- respectively.  Apart from this, since stocks of Quartz Power, Soda Ash, Calcite Sand, Fedopar powder etc. as also finished glass were damaged/destroyed, the loss assessed was Rs.18,15,918/- and electric fittings of Rs.98,800/- were also destroyed.  The total loss in this way came to Rs.1,59,28,247/-.  The Surveyor appointed by the Appellant-Insurance Company had estimated the total loss as being Rs.78,75,995/- and Surveyor had also obtained the signature of the Managing Director of the Company on the consent letter dated 09.07.2004 and he never doubted any of the documents submitted by the Respondent-Complainant.  Although the Appellant-Insurance Company assured the Respondent-Complainant that the claim would be settled for the above amount within shortest possible time, they failed to do so and instead repudiated the claim vide letter dated 29.12.2004 on the plea that the Respondent-Complainant had made false and exaggerated claims by fabricating bills and thus violating the terms and conditions of the insurance policy because of which the entire claim was repudiated.  Being aggrieved by the wrong repudiation of their insurance claim, Respondent filed a complaint before the State Commission on grounds of deficiency in service and requested that the Appellant-Insurance Company be directed to settle the insurance claim and pay sum of Rs.78,75,995/- on account of loss suffered by it with 9% interest from 07.06.2004 till the date of actual payment and Rs.10,000/- as litigation costs.

4.      Appellant-Insurance Company on being served filed a written rejoinder and denied that the claim was wrongly repudiated.  It was also denied that the Surveyor had in his report assessed the loss at Rs.78,75,995/-.  In fact the total claim had been calculated at Rs.32,79,530/- vide the report dated 13.10.2004.  However, even this amount was not admissible since Respondent-Complainant had violated Policy Condition No.8 of the Standard Fire and Special Peril Policy which provided that if there is any false declaration made or used in support of a claim, then all benefits under this policy shall be forfeited.  In the instant case, admittedly a false and fraudulent claim was made since the samples drawn by the Surveyor of various raw materials were sent to Shriram Institute for Industrial Research for investigation and as per the report received from that Institute, the purity results were either less or nil in respect of Cobalt Oxide, Arsenic Trioxide, Selenium, Zirconium Oxide and Sodium Sulphate etc.  Thus, these were just waste materials which had been stored in the insured premises.  M/s Vardhman Soap (India), from whom these goods had been purportedly bought according to the Respondent-Complainant, declined that the goods were bought from them.  In view of the above facts, admittedly, a false and fraudulent claim was made and, therefore, the Insurance Company had rightly repudiated the same.  

5.      The State Commission after hearing the parties and on the basis of evidence produced before it, partly allowed the complaint by observing as follows :

 “21.  … It is not disputed in the present case that there was devastating storm and a flood like situation was created and the industrial unit of complainant was filled with water and there was heavy damage/loss.  The complainants cannot be deprived of some compensation when their industrial unit was insured with the respondents.  There may be Policy Condition No.8 of Standard Fire and Special Peril Policy but that does not mean that the respondents can take the shelter under this policy condition and repudiate the claim of the complainant, which is otherwise proved to be genuine.  If the repudiation in such like cases is permitted, the Insurance Companies can always exploit this clause in each and every case.  Some information given by the claimant would always be found to be false for one reason or the other.  The complainant alleges to have suffered the loss to the tune of Rs.1,59,28,247/-.  It may be exaggerated but after reducing the value of goods/bills which were found by the respondents to be false, the Surveyor has assessed the value to the tune of Rs.32,79,530/- and the respondents are not ready to grant even this much amount.

22.    The only question in this case was that certain claims were made by the claimants which were disbelieved by the respondents and the value of those items were already reduced by the Surveyor from the amount assessed.  The loss was originally assessed at Rs.78,75,995/- which was reduced to Rs.32,79,530/-.  The respondents should not squeeze the complainants still further.  However, the complainant is also not entitled to more as the claim made by them was found to be false on certain aspects.  Moreover, the complainant cannot claim Rs.78,75,995/- as they have already given consent letter for an amount which is very close to Rs.32,79,530/-.

23.    Accordingly, we partly allow this complaint costs of Rs.10,000/- and direct the respondents to pay an amount of Rs.32,79,530/- to the complainant with interest @ 9% from the date of repudiate i.e. 29.12.2004 till the date of payment.”

6.      Being aggrieved by the order of State Commission, the present first appeal has been filed.

7.      Learned Counsels for both parties made oral submissions.

8.      Learned Counsel for the Appellant-Insurance Company while reiterating the facts as stated before the State Commission contended that since an insurance policy is a contract between two parties and its terms and conditions have to be construed strictly in terms of what is written therein, the claim was rightly repudiated for violation of Policy Condition No.8 of the insurance policy taken by the Respondent-Complainant. The State Commission while acknowledging that the Surveyor had rightly concluded that the claim in the instant case was false and fraudulent, yet partly allowed the same without appreciating the sanctity of Condition No.8 in terms of contract between the two parties.  Counsel for the Appellant-Insurance Company also brought to our notice a judgment of this Commission inM/s R.S. Metals Pvt. Ltd. v. New India Assurance Co. Ltd. [I (1993) CPJ 1 (NC)], wherein this Commission had taken suo-moto cognizance of a similar provision and concluded that in view of the fraudulent claim made, the Insurance Company was fully justified in repudiating the entire claim.

9.      Counsel for the Respondent-Complainant on the other hand stated that the actual loss suffered by the Respondent-Complainant was much higher than the awarded amount.  However, despite this, it accepted the finding of the State Commission on the vastly reduced claim of Rs.32,79,530/-.  As pointed out by the State Commission, the Surveyor had reduced Respondent-Complainant’s genuine claim on the grounds that some documents could not be verified and other reasons as recorded by the State Commission and, therefore, Respondent-Complainant had already suffered a loss on account of deduction of these amounts from the genuine claim.  Under the circumstances, it would be unfair to repudiate the entire claim.  In view of the vastly reduced claim amount, there was, thus, no scope or reason for any further deduction. 

10.    We have carefully considered the submissions of learned Counsel for both parties and have also gone through the evidence on record.  The fact that Respondent-Complainant had taken insurance policies from the Appellant-Insurance Company in respect of his factory, machinery as also stocks lying therein is not in dispute.  It is further a fact that in the floods that occurred on 6/7.6.2004 substantial damage was caused to all three items as confirmed by the Surveyor in its report. We further note that the Surveyor had drastically reduced the originally assessed loss of Rs.78,75,995/- to Rs.32,79,530/- payable to the Respondent-Complainant on the grounds that some necessary documents were not supplied to it to verify the claim and further some raw materials which had been sent for analysis to Shriram Institute for Industrial Research clearly indicated that it had negligible purity value and, therefore, these were not saleable items and had little market value.  Counsel for the Appellant-Insurance Company has vehemently argued that in view of Policy Condition No.8 the entire claim was rightly repudiated and the State Commission erred in not appreciating this fact.  We are unable to accept this contention because in a large number of consumer cases pertaining to insurance claims that have come up before us, Insurance Companies based on the Surveyor’s report have reduced the claim amount when claims are not verifiable by documentary and other evidence and because theinsuree had not been able to produce evidence to controvert Surveyor’s findings.  We have accepted that in such cases the Surveyor rightly deducts these amounts from the insurance claim.  In the instant case, we also note that the Surveyor has deducted and drastically reduced the claim amount by not entertaining those claims which could not be verified or were found to be false.  Under these circumstances, it would not be fair or reasonable to reject even the genuine claims of the insuree which had been verified and found to be correct by the Surveyor.  We, therefore, agree with the finding of the State Commission that the Appellant-Insurance Company was liable to settle the reduced insurance claim of the Respondent-Complainant in respect of his genuine and proved loss amounting to Rs.32,79,530/- and uphold the same.   

11.    The present first appeal, therefore, stands dismissed.  Appellant-Insurance Company is directed to settle the claim and pay a sum of Rs.32,79,530/- to the Respondent-Complainant as per order of the State Commission. Counsel for the Appellant-Insurance Company informs that a sum of Rs.20 Lakhs had already been paid to the Respondent-Complainant.  If that be so, then Appellant-Insurance Company is directed to pay the Respondent-Complainant remaining amount of Rs.12,79,530/- with interest @ 9% per annum from the date of repudiation i.e. 29.12.2004 till the date of payment within a period of 8 weeks. 

Sd/-

(ASHOK BHAN, J.)

PRESIDENT

Sd/-

(VINEETA RAI)

MEMBER

Mukesh