Supreme Court Directs Insurer To Pay Reinstatement Value Of Goods Damaged In Fire Instead Of Depreciated Value

On perusal of the insurance policy a Bench comprising Justice M.R. Shah and Justice C.T. Ravikumar decided that the insured was entitled to the reinstatement value and not the depreciated value. It held that the insured was entitled to INR 29,17,500/ being the reinstatement value with interest @ 7% from the date of order of the State Commission in 2014, till the actual payment.

Factual Background

M/s. Oswal Plastic Industries obtained Standard Fire And Special Perils Policy with effect from 02.07.2009. Fire broke out in the factory premises on 17.10.2009, i.e., at the time the policy was subsisting, resulting in loss of material, stock and machinery of the value of INR 76,64,000. The surveyor of the insurance company assessed the loss on reinstatement value at INR 29,17,500 and on depreciated value at 12,60,000. However, the insurance company repudiated the claim. A complaint was filed before the State Consumer Disputes Redressal Commission, Punjab with a claim of INR 76,64,000 along with interest. On the basis of the surveyor report, the State Commission awarded a sum of INR 29,17,500 with 9% interest from the date of repudiation, along with a compensation of INR 1 lakh and INR 11,000 as litigation expenses. The insurance company approached the National Consumer Disputes Redressal Commission (NCDRC) in appeal. The NCDRC allowed the appeal and modified the amount awarded to INR 12,60,000 with 7% interest. It also set aside the direction to pay compensation of INR 1 lakh.

Issue before the Supreme Court

Whether in the facts and circumstances of the case and on true interpretation of relevant clause of insurance policy, in case of damage of the plant and machinery due to fire, the complainant shall be entitled to the reinstatement value or the depreciated value?

Analysis by the Supreme Court

Upon reading the relevant clause, i.e. Section 2, Clause 9, the Court noted that an option is given to the insurance company to reinstate or replace property damaged or destroyed instead of paying the amount of loss or damage. It observed that as per the insurance policy, in case the insurance company is unable to reinstate or repair because of some municipal or other regulations, it shall be liable to pay such sum as would be requisite to reinstate or repair such property if the same could be lawfully reinstated to its former condition. In the case at hand, the insurance company was unable to reinstate or repair the property. The Court, thus, concluded that the insured is entitled to the reinstatement value and not the depreciated value.

Case details

M/s Oswal Plastic Industries v. Manager, Legal Deptt N.A.I.C.O Ltd.| 2023 LiveLaw (SC) 34  | CA 83 of 2023 | 13 Jan 2023 | Justice M.R. Shah and Justice C.T. Ravikumar

For Appellant(s) Mr. Abhishek Garg, Adv. Mr. Dhananjay Garg, AOR

For Respondent(s) Mr. Amit Kumar Singh, AOR Mrs. K Enatoli Sema, Adv. Ms. Chubalemla Chang, Adv. Mr. Prang Newmai, Adv.

Insurance Contract - Fire and Special Perils policy- Supreme Court directs insurer to pay reinstatement value of the goods damaged and not the depreciated value, because as per the policy, in case the insurance company is unable to reinstate or repair because of some municipal or other regulations, it shall be liable to pay such sum as would be requisite to reinstate or repair such property

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