Directly Remitting Insurance Claim Amount Without Mutual Consent Is Unfair Trade Practice: NCDRC

Brief Facts of the Case

The complainant obtained a Standard Fire Special Peril Policy from New India Assurance for Rs.4.46 crores, covering the building, plant and machinery, and stocks in the insured factory premises. After a fire, the complainant filed a claim for Rs.32,75,028. The insurer sent a Surveyor and Loss Assessor who assessed the loss at Rs.1,70,712 and deposited this amount into the complainant's bank account. The surveyor's report was not initially provided to the complainant and was later obtained through the Right to Information Act (RTI). The complainant approached the State Commission seeking the full amount of Rs.43,46,157 and Rs.32,75,028 with 9% interest from the date of the fire, along with Rs.5 lakh for damages, Rs.1 lakh for mental agony and harassment, and Rs.1 lakh for litigation costs. The State Commission ruled in favor of the complainant, directing the insurer to pay Rs.27,76,208 with 9% interest per annum, Rs.25,000 as compensation for harassment and mental agony, and Rs.10,000 for litigation expenses. The insurer, dissatisfied with the State Commission's decision, appealed to the National Commission.

Contentions of the Insurer

The insurer argued that the State Commission erred in disregarding the surveyor's report mandated under section 64 UM of the Insurance Act 1938. The insurer contended that the report unless proven otherwise, should be accepted. The State Commission was claimed to have erred by assuming the surveyor aimed to reduce the insurance claim without evidence, by not considering the surveyor's justified deductions, and by incorrectly concluding on various deductions such as Rs.2,41,747 for taxes and duties, and 50% of the cost of PLC Control based on policy exclusions. Furthermore, the insurer argued that the complaint was not maintainable due to the policy value exceeding the pecuniary jurisdiction of the State Commission.

Observations by the National Commission

The National Commission observed that under section 64 UM of the Insurance Act, 1938, a mandatory requirement for claims exceeding Rs.20,000 is the submission of a surveyor's report, as established in various judgments, notably Sri Venkateswara Syndicate Vs. Oriental Insurance Company Ltd. & Anr. and New India Assurance Co. Ltd. Vs. Pradeep Kumar. The commission emphasized that the report, while essential, is not final and sacrosanct and should adhere to policy terms, including deductions for under insurance and excess clauses. In this case, the insurer's case for deductions was challenged due to the absence of the policy document detailing exclusions and deductions. The insurer's contention of the State Commission's lack of jurisdiction based on policy value was deemed unsustainable. Moreover, the commission highlighted that the failure to provide the surveyor's report to the complainant and direct remittance of the claimed amount to the complainant's bank account without mutual agreement indicated unfair trade practices. Additionally, the deductions made lacked justification, especially considering the uncertain cause of the fire, leading to the dismissal of the insurer's appeal and affirmation of the State Commission's order.

The National Commission modified the State Commission's order and directed the insurer to pay the claim amount of Rs. 27,76,208 with 9% interest and Rs. 50,000 as litigation costs but setting aside compensation for mental agony.

Case Title: New India Assurance Co. Ltd Vs. M/S Madhav Automotive Fasteners Pvt. Ltd.

Case Number: F.A. No. 1791/2018