NCDRC Holds Oriental Insurance Co. Liable For Wrongful Repudiation Of Fire Claim Submitted By NALCO

The National Consumer Disputes Redressal Commission (NCDRC) bench of Justice A.P. Sahi (President) and Dr Inder Jit Singh (Member) held 'Oriental Insurance Co. Ltd.' liable for the wrongful repudiation of a valid insurance claim submitted by National Aluminium Company Ltd. (NALCO). The Insurance Company cited an exclusion clause for repudiating the fire claim based on unsubstantiated ambiguities w.r.t. the source of the fire.

Brief Facts:

National Aluminium Company Ltd. (NALCO), a public sector enterprise of the Government of India, availed the 'Standard Fire & Special Perils' policy from Oriental Insurance Co. Pvt. Ltd. (“Insurance Company”). During the subsistence of the policy, a turbo generator caught fire and caused damage to the exciter, generator stator, rotor, among other things (“Equipment”). NALCO promptly informed the Insurance Company and M/s S.K. Das and Associates was appointed to conduct a preliminary sport survey. Further, M/s Cunningham and Lindsey (“Surveyor”) were appointed as the final surveyor to issue a final report of the incident. The Surveyor termed the root cause as an electrical short circuit focused on the failure of insulation inside the TG Generator. The gross assessed loss was estimated to be Rs. 18,20,63,560/-. The Surveyor also cited the insurance policy's general exclusion clause no. 7, which excluded coverage for damage to specific electrical items due to causes like short-circuiting or excessive pressure. Since the fire originated and was contained within the Generator's Alternator, the Surveyor determined that this exclusion applies, releasing the Insurance Company from liability for the claim.

Based on the preliminary report and the final report, the Insurance Company repudiated the claim. NALCO requested a review of the said decision. However, the Insurance Company again repudiated the claim based on a general exclusion clause no. 7. It cited that the source of the fire was the TG Generator.

Feeling aggrieved, NALCO filed a consumer complaint in the National Consumer Disputes Redressal Commission (“NCDRC”), New Delhi.

Observations of the NCDRC:

The NCDRC perused the general clause no. 7 of the insurance policy, which is reproduced below:

“(7) Loss, destruction or damage to any electrical and/or electronic machine, apparatus, fixture or fitting (excluding fans and electrical wiring in dwellings) arising from or occasioned by overrunning, excessive pressure, short-circuiting, arcing, self-heating or leakage of electricity, from whatever cause (lighting included) provided that, this exclusion shall apply only to the particular electrical machine, apparatus, fixture or fitting so affected and not to other machines, apparatus, fixture or fittings which may be destroyed by fire so set up.”

The NCDRC examined the acquisition, assembly, and operational purpose of the TG Set, including its components (a turbine, generator, gearbox, and exciter), supplied by Bharat Heavy Electricals Limited (“BHEL”). It was reported that the fire originated from the exciter and subsequently spread to the generator. An Original Equipment Manufacturer (“OEM”) expert opined those vibrations, likely caused by the dislodged foundation of the exciter, caused friction and fire, which spread through oil splashing. However, the Surveyor's report attributed the fire solely to the generator without analyzing vibration as a contributing factor, which contradicted the OEM's technical findings.

Moreover, the NCDRC observed that the Surveyor's final report listed the exciter as damaged by fire, yet the Insurance Company ignored these findings. The Insurance Company focused solely on the generator as the alleged source of the fire. The NCDRC held that the general exclusion clause no.7 was not applicable since the damage was caused due to external vibrations and not internal sparks. Reliance was placed on Galada Power & Telecommunication Ltd. v. United India Insurance Co. Ltd. [(2016) 14 SCC 161], where it was held that insurers cannot introduce new grounds beyond those in the repudiation letter.

Therefore, the NCDRC accepted the OEM expert's analysis over the Surveyor's findings. It held that the fire was caused by external vibrations rather than an internal spark. The rule of 'Contra Proferentum' (against the offeror) was applied, which means that any ambiguity in the exclusion clause is interpreted against the insurer. As a result, The NCDRC allowed the complaint and directed the Insurance Company to pay Rs. 13,25,37,131/- with 6% interest.

Case Title: National Aluminium Company Ltd. vs Oriental Insurance Co. Ltd. and Anr.

Case No: Consumer Case No. 2159 of 2016

Advocates for the Complainant: Mr Abhishek Gupta and Mr Vaibhav Dayma

Advocates for the Opposite Party: Mr Pankaj Seth and Mr Khushi Sachdeva

Date of Pronouncement: 15th October 2024

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