Alleged Delays By Surveyor/Insurer Not Grounds To Reject Repudiation: NCDRC

Brief Facts of the Case

The complainant owned a factory manufacturing oil and oil cakes from cotton seeds. They had obtained a Standard Fire and Special Perils Policy covering the building from United India Insurance/insurer for Rs.95 lakhs, plant and machinery for Rs.40 lakhs, and stock for Rs.2 crores. A fire broke out in the factory, which was controlled with the help of the Fire Brigade. An FIR was lodged, and the insurer was informed, with an officer visiting the site the same day. Despite reports from the Fire Brigade and the Electrical Inspector, the complainant filed a claim for Rs.37,28,168, resulting in a net claim of Rs.29,56,823 after deducting salvage value. The insurer requested additional documents and, facing delays, the complainant issued a legal notice for early settlement. The insurer eventually repudiated the claim, stating that the cause of the fire, as determined by the surveyor, was not covered under the policy. The complainant took the matter to the State Commission, which dismissed the complaint, citing that the fire was caused by 'spontaneous combustion' despite reports from the Fire Department, Electrical Inspector, and Police authorities indicating a short circuit. The complainant appealed to the National Commission against the State Commission's order.

Contentions of the Insurer

The insurer argued that the surveyor had thoroughly inspected the fire site and found no evidence of heat, fire, flame, or smoke from the affected cotton seeds, and the roof and wall color remained unchanged. The electrical wiring above the heat was also intact. The surveyor observed that the Fire Brigade had used water to douse the fire and reported no visible smoke or fumes. Consequently, the insurer repudiated the claim, stating that the self-combustion of the stock, an inherent vice, was excluded under the policy.

Observations by the Commission

The commission observed that the State Commission's order had noted that the policy in question was a Standard Fire Peril Policy, and no additional coverage for self-combustion had been obtained. The surveyor's report was based on the evidence at the site regarding the fire, which, if caused by short-circuiting, would have resulted in smoke and fumes, but there was no such evidence. The commission cited the Supreme Court's ruling in Sri Venkateswara Syndicate Vs. Oriental Insurance Company Limited & Anr, wherein it was held that a surveyor's report is mandatory under section 64UM of the Insurance Act, 1938, in case a claim exceeds Rs.20,000/- and such a report has to be necessarily given due weightage. However, in New India Assurance Co. Ltd. Vs. Pradeep Kumar (2009) 7 SCC 787, it was held that a surveyor's report is not the final word or so sacrosanct that it cannot be departed from. The commission further observed that it was apparent the complainant failed to provide categorical evidence to establish that the proximate cause of the fire was not spontaneous combustion but due to external reasons like an electrical short circuit. In light of no evidence to contradict the statements of the Fire Department, Electrical Inspector, and police, the repudiation of the claim by the insurer could not be faulted. The commission additionally observed that alleged lapses by the surveyor/insurer regarding delay in finalizing the report and repudiation cannot be the basis to reject the same. Given the evidence on record, the conclusion that the proximate cause was not an external source but spontaneous combustion or self-heating as an inherent vice cannot be disregarded. Admittedly, the complainant could not indicate the cause was a fire caused by flames. The commission noted that as held in Oriental Insurance Co. vs. Sony Cheriyan, since the policy represented a contract between parties whose terms cannot be altered, the State Commission's order did not warrant interference.

Therefore, the commission did not see any reason to interfere with the State Commission's order. The appeal was found to be without merit and was dismissed.

Case Title: Sanjay Foods India Pvt. Ltd. Vs. United India Insurance Company Limited

Case Number: F.A. No. 834/2015