Gujarat State Commission Holds Oriental Insurance Co. Liable For Wrongful Settlement Of Claim

Brief Facts:

The Complainant ran a manufacturing unit (“factory”) for his livelihood. He purchased a 'Standard Fire & Special Perils Policy' from the Oriental Insurance Company Limited (“Insurance Company”). The policy had a sum insured of Rs. 46,00,000/- for which a premium of Rs. 8,967/- was paid. It included coverage for the factory's furniture, fixtures, plant machinery, wooden dyes, and stock, including fire and earthquake coverage.

During the subsistence of the policy, a fire broke out at the Complainant's factory, resulting in a loss of approximately Rs. 40,00,000/-. The fire mainly affected the stock of raw and finished materials, machinery, and wooden dyes. The Complainant promptly informed the Insurance Company, fire brigade, and local police.

The Complainant also engaged a Chartered Accountant, to assist in assessing the loss, which was reported as Rs. 29,01,687/- for stock, Rs. 10,88,691/- for machinery, and Rs. 1,06,260/- for wooden dyes. The total loss amounted to Rs. 41,13,638/-, but the Insurance Company had deducted ₹1,00,000 for salvage value and raised unnecessary disputes over CENVAT credit.

The Insurance Company deputed a surveyor to assess the damage. Despite submitting all required documentation, the surveyor delayed the assessment and final report. Eventually, the Complainant was informed that the loss was assessed at Rs. 17,00,000/-, much lower than the claim. Subsequently, only Rs. 17,67,448 was credited to his bank account. Dissatisfied with the deduction of Rs. 23,29,176 from the total claim of Rs. 40,00,000/-, the Complainant filed a consumer complaint before the State Consumer Disputes Redressal Commission, Gujarat (“State Commission”).

Observations of the Commission:

The State Commission noted that the fact that the Complainant had a policy and suffered a loss due to insured perils was undisputed. The Insurance Company had paid an amount of Rs. 1,771,125/- based on the surveyor's recommendation, which the Complainant accepted under protest. However, the Insurance Company argued that the protest was an afterthought and not genuine.

On the other hand, the Complainant contested the deduction of 75% of the stock value by the Insurance Company. He argued that the stock was not slow-moving, as the surveyor claimed, and that no evidence had been provided to support this assertion. The State Commission agreed with the Complainant's position and found that the surveyor had not provided sufficient data to justify the reduction in stock value. It was further held that the surveyor excessively delayed the settlement of the claim.

Conclusively, the State Commission held that the surveyor had acted arbitrarily by reducing the value of the stock and failed to produce relevant market data to support the claim that the stock was slow-moving. The State Commission held that the deduction of 75% was unjustified and suggested a more reasonable reduction of 35%, reflecting the gross profit margin.

Regarding the settlement voucher signed by the Complainant, the State Commission observed that he had been under financial duress and had protested the settlement soon after accepting it. The sequence of events, including the letter submitted by the Complainant to the surveyor, indicated that the acceptance of the settlement was not entirely voluntary. Therefore, the State Commission concluded that the complaint was maintainable, and the Complainant was entitled to further compensation.

Therefore, the complaint was partly allowed, and the Insurance Company was directed to pay Rs. 615000/- with 7% interest. The rest of the claim of the Complainant was dismissed. The Insurance Company was further directed to pay Rs. 10000/- towards the cost of the complaint.

Case Title: Mukesh Parikh and Anr. vs The Oriental Insurance Company Limited

Case No.: Complaint No. 67 of 2015

Advocate for the Complainant: Mr SA Thakor

Advocate for the Opposite Party: Mr GM Brahmbhatt

Date of Pronouncement: 10.09.2024