Quantification In Insurance Is Mandatory Even For Inadmissible Claims: NCDRC

Brief Facts of the Case

The Complainant, a Tissue Culture Nursery, entered into an indemnity agreement with National Insurance/insurer. The insurance policy, facilitated through the Bank of India, covered various aspects of the nursery's operations, amounting to Rs. 1.60 crores. During the policy's validity period, the complainant notified the insurer about a loss incident. The insurer promptly dispatched a surveyor, who visited the site the same day. Subsequently, the surveyor submitted a report indicating that the loss did not result from a fire but rather from the malfunction of a split air conditioner in the growth room. The surveyor further attributed the failure of the air conditioner's panel connector to variations in voltage caused by widespread and heavy rainfall in the region. The loss was estimated to affect 25,000 bottles of tissue culture due to the continued operation of 300 tube lights during the incident. However, upon receipt of the claim, the insurer repudiated it, contending that the cause of loss fell outside the coverage provided by Clauses 1 to 12 of the Policy's terms and exclusions. Dissatisfied with this decision, the complainant filed a complaint before the State Commission seeking compensation of Rs. 70 lakhs and other reliefs. The State Commission allowed the complaint and aggrieved by the order, the insurer filed an appeal before the National Commission.

Contentions of the Insurer

The insurer contended that the State Commission erred in its judgment for several reasons. They argued that the alleged loss did not arise from a fire and, therefore, fell outside the coverage provided by the Policy. This interpretation was supported by the precedent set in the case of New India Assurance Co. Ltd. Vs. Novelty Palace, where it was established that damage caused by excessive heat without actual ignition did not qualify for coverage under the policy. Additionally, the insurer pointed to the surveyor's report, which explicitly stated that there was no fire incident but rather damage to the fire panel due to voltage fluctuation. This aligned with Exclusion Clauses 6 and 7 of the policy, which pertained to losses caused by changes in temperature and damage to electrical equipment due to various factors, respectively. Furthermore, the insurer argued that the loss suffered was consequential from the temperature increase due to the AC equipment failure, which was not a risk covered by the policy.

Observations by the Commission

The Commission observed that an insurance policy is a contract, and parties are bound by its terms, as established in Bharathi Knitting Company vs DHL Worldwide Express Courier Division by the Supreme Court. In the present case, the damage to the banana tissue culture was due to temperature variation from air conditioner failure, not physical fire, which is not covered under the policy. The Commission disagreed with the State Commission's view that increased temperature causing tissue browning could be considered 'burning,' noting no ambiguity in the policy terms that would favor the insured. Citing the case of New India AssuranceCo. Ltd. Vs. Novelty Palace, the Commission argued that the State Commission shouldn't have gone beyond the contractual terms mentioned in the insurance contract. It also referenced Sri Venkateswara Syndicate Vs. Oriental Insurance Company Ltd. & Anr., which states that a Surveyor's Report under Section 64 UM of the Insurance Act, 1938, is crucial and should only be disregarded if proven perverse. Furthermore, the Commission rejected the idea that quantifying loss at Rs. 18,12,600 constituted a deficiency in service, as quantification is mandatory even for inadmissible claims. The logic behind this assumption by the State Commission was that the insurer (through its Surveyor) implicitly acknowledged the claim's validity by quantifying the loss. Therefore, not honoring this quantified claim was seen as a failure to provide proper service.

Consequently, the Commission allowed the insurer's appeal and set aside the State Commission's order.

Case Title: National Insurance Co. Ltd Vs. Meghana (Bio-Tech) Tissue Culture Nursery

Case Number: F.A. No. 39/2018