BEFORE THE A.P.STATE CONSUMER DISPUTES REDRESSAL COMMISSION:HYDERABAD.
C.C.No.41 OF 2010
Between:
M/s Aryam Steels Pvt. Ltd.,
Rep. by its Director, Avinash Kumar Gupta
S/o Sri Narendra Kumar Gupta
Aged about 35 years, # 5-9-1121, F-12/44
1st Floor, Agarwal Chambers, King Koti X Roads
Hyderabad Complainant
AND
1. M/s United India Insurance Company Ltd.,
Rep. by its Branch Manager, 2nd Floor,
Church Buildings, Posneet Bhavan, Tilak Road
Hyderabad
2. M/s United India Insurance Compnay Ltd.,
Rep. by its Reginoal Manager,
United Towers, 3-5-817, 818, Basheerbagh
Hyderabad-029
Opposite parties
Counsel for the complainant Sri K.Ram Reddy
Counsel for the opposite parties Sri K.N.Mallikarjuna Rao
QUORUM: SRI R.LAKSHMI NARASIMHA RAO, HON’BLE MEMBER
AND
SRI THOTA ASHOK KUMAR, HON’BLE MEMBER
MONDAY THE TWELVFTH DAY OF MARCH
TWO THOUSAND TWELVE
Oral Order:(Per Sri R.Lakshmi Narasimha Rao, Hon’ble Member.)
***
1. The complaint is filed seeking for the amount of `18,21,447/- with interest @18%p.a. from 30.11.2007, `2,00,000/- towards incidental expenses, `3,00,000/- towards compensation for mental agony and hardship , `5,00,000/- towards general damages and `25,000/- towards costs.
2. The averments of the complaint are that the complainant company obtained Machinery Breakdown Insurance Policy bearing number 050405/44/06/51/300000024 for the period from 24.2.2007 till 23.2.2008 for the insured sum of `94,29,636/-. As per the appended policy conditions furnished to the complainant company, there is no exclusion clause for the equipment covered under specific endorsement. The complainant company lodged claim with reference to an incident occurred on 30.11.2007 causing damage to 7.0 MT Induction Furnace Electro Therm 08/2004, for `18,21,447/-. The opposite party insurance company deputed the surveyor, D.A.Somayajulu who submitted his report on 15.02.2008. The first opposite party insurance company repudiated the claim on 7.03.2008 on the ground that the damage caused to crucible under the insurance policy is excluded by the terms of the insurance policy.
3. The complainant company preferred appeal before the second opposite party insurance company and second opposite party insurance company confirmed the opinion of first opposite party insurance company. The damage to the crucible does not fall under the exclusion clause. The repudiation of the claim is arbitrary and illegal.
4. Common written version is filed on behalf of the opposite parties no.1 and 2 resisting the claim on the premise that the any damage to crucibles and refractory linings due to any cause is excluded under the insurance policy. The surveyor has given cogent reasons as to how the claim for damage to crucibles is excluded under the terms and conditions of the insurance policy. The opposite parties have applied their mind and have come to the conclusion that the surveyor’s report is correct and thus repudiated the claim. There is no deficiency in service on the part of the opposite parties.
5. The Director of the complainant company has filed his affidavit and the documents, ExA1 to A14. On behalf of the opposite parties its Divisional Manager has filed his affidavit and the documents, ExB1 to B3.
6. The points for consideration are:
i) Whether the damage to crucibles is excluded from the coverage of risk in terms of the insurance policy?
ii) Whether there was any deficiency in service on the part of the opposite party insurance company?
iii) To what relief?
7. POINTS NO.1&2: The admitted facts are the complainant company had obtained insurance policy bearing number 050405/44/06/51/300000024 from the first opposite party insurance company commencing from 24.2.2007 and was in force till 23.2.2008. The director of the complainant company has stated that on 30.11.2007 damage occurred to the equipment in respect of which the insurance policy was obtained and on being put on notice of the incident, the first opposite party insurance company deputed surveyor to assess the damage caused to the equipment. The accident is not disputed by the opposite party insurance company. The surveyor in his report dealt with the particulars of the damage caused to the equipment as under:
Damage Particulars: The copper coil of the crucible was punctured and has come in contact with the molten metal. It gets the temp[erature from the electric furnace to heat the raw material. So when the process is going on its temperature is at around 1600 degrees centigrade. At this temperature if it is punctured then the whole coil will get damaged due to excess heat. This can be observed from the damaged coil. So the coil has to be replaced.
When the coil was punctured the insulation around it all got damaged and the yokes, which are in direct contact with the coil are damaged due to excess heat. Only five yokes were damaged due to the excess heat.
When the coil got punctured the molten metal was leaked from the crucible and fell on the hydraulic pipes, water cooled cables etc. and damaged them. But it is a consequential loss. Hence, they are not covered under the policy.
8. As the accident is not disputed and the damage caused to the equipment is also not disputed, the next question falls for our consideration is whether the damage caused to the crucibles is covered by the terms and conditions of the insurance policy. The claim was repudiated based on surveyor’s report and the terms and conditions of the insurance policy. The repudiation letter dated 31.03.2008 reads as under:
We refer your letter 24.3.2008 in connection with the above. We would like to inform you that the claim was repudiated based on the Survey Report and policy conditions which form part of the policy. The policy conditions are already attached to the policy. We would like to clarify that we do not want to entertain any further correspondence in this regard.
9. After receiving the repudiation letter, the complainant company has tried to support its claim by attempting to categorize the furnace as Induction Furnace as against the surveyor’ categorizing it as Electrical Furnace. The third paragraph of the letter dated 4.06.2008 reads as under:
We have complied with the documents asked the surveyor. We have not received the copy of the surveyor report. During our meeting it was told to us that the surveyor has categorized our furnace as ELECTRICAL FURNACE. We would like to confirm that our furnace falls under the category of INDUCTION FURNACE. As per TAC the furnaces are clearly categorized as two different categories. It seems to us that the surveyor may not have understood this categorization. If our furnace is properly categorized than our loss does not fall under exclusion. We are confident that our claim is payable.
10. In the reply dated 03.11.2009 the first opposite party insurance company has referred to the conditions of the insurance policy in connection with the Electrical Furnaces and the clause is reproduced below:
We are giving below the necessary conditions apart from the clause for the basis of indemnity which are enclosed for your immediate reference.
a) Electrical Furnaces
i) it is hereby declared and agreed that nay damage to crucibles and refractory linings due to any cause is excluded under the policy.
Subject otherwise to the terms, conditions and exceptions fo the policy.
ii) it is hereby declared and agreed that any damage to induction coils/heating element of electric furnace will be subject to 25% depreciation per year or part thereof subject to a maximum depreciation of 75%.
Subject otherwise to the terms, condtions and exceptions of the policy.
Consequential Loss Exclusion
“Loss of use of the insured’s plant or property or any other consequential loss incurred by the insured”
We also draw your attention to the necessary provisions of Sum Insured and Basis of Indemnity which are enclosed herewith.
In view of the above, we opine that the decision of our Branch office, Fathemaidan, Hyderabad is in order and needs no revision at our end.
11. The basis of indemnity is dealt with by clause 2 of the insurance policy which reads as under:
2. BASIS OF INDEMNITY
a) In cases where damage to an insured item can be repaired, the Company will pay expense necessarily incurred to restore the damaged machine to its farmer state of serviceability plus the cost of dismantling and re-erection incurred for the purpose of effecting the repairs as well as ordinary freight to and from a repair shop, customs duties if any to the extent such expenses have been included in the Sum Insured. If the repairs are executed at a workshop owned by the Insured the Company will pay the cost of materials and wages incurred for the purpose of the repairs plus a reasonable percentage to cover overhead charges.
No deduction shall be, made for depreciation in respect of parts replaced except for (i) wear and tear parts and (ii) parts for which manufacturers have specified a fixed life for use and the like but the value of any salvage will be taken into account.
If the cost of repairs as detailed hereinabove or exceeds the actual value of the machinery insured immediately before the occurrence of the damage the settlement shall be made on the basis provided for in (b) below.
b) In cases where an insured item is destroyed, the Company will pay the actual value of the item immediately before the occurrence of the loss including costs for ordinary freight erection and customs duties if any provided such expenses have been included in the sum insured, such actual value to be calculated by deducting proper depreciation from the replacement value of the item. The Company will also pay any normal charges for the dismantling of the machinery destroyed but the salvage will be taken into account.
Any extra charges incurred for overtime, night-work, work on public holidays, express freight are covered by this insurance only if especially agreed to in writing.
In the event of the makers’ drawings, patterns and for boxes necessary for the execution of a repair not being available the Company shall not be liable for cost of making any such drawing patterns or core boxes.
The cost of any alterations, improvements or overhauls shall not be recoverable under this Policy.
The cost of any provisional repairs will be borne by the company if such repairs constitute part of the final repairs and do not increase the total repair expenses.
If the Sum Insured is less than the amount required to be insured as per Provision 1 hereinabove, the Company will pay only in such proportion as the Sum Insured bears to the amount required to be insured. Every item if more than one shall be subject to this condition separately.
The Company will make payments only after being satisfied, with the necessary bills and documents that the repairs have been effected ro replacements have taken place, as the case may be. The Company may, however, not insist for bills and documents in case of total loss where the Insured is unable to replace the damaged equipment for reasons beyond their control. In such cases claims can be settled on ‘Indemnity Basis’
12. The surveyor has elaborately referred to the details of the Furnace and its working pattern. The surveyor has dealt with the purchase of furnace crucibles and how they were operated, in the following words:
FURNACE DETAILS: 7 ton Induction Furnace Crucible
Make: megatherm
Capacity: 7 tons
Voltage: 2750 kw
Year of Make: 2004
Sr.No. ET/2005/01/1075
The induction furnace and the furnace crucibles were purchased in the month of January 2005 and were commissioned in February 2005. Each furnace will have the crucibles. From the date of inception the furnace was operated on under load not exceeding 90% of its full capacity. At the time of break down the furnace was out of manufacturer’s warrant.
The crucible consists yokes and the copper coil. The copper coil is the heating element and when it is heated the scrap inside it will get heated up and melted. Water cooled cables are provided to cool the copper coil. In between the scrap and the coil ramming mass is provided. This protects the coil from direct contact with the metal inside. The process of charging the scarp and taking out the final product takes 4-5 hrs. This is called a hit. After taking out the final product again the scarp is charged inside the crucible for next hit. The ramming mass lining is changed after 14 hits. When the ramming mass lining is being changed for the crucible the other crucible will be taken into the process. The process goes on.
13. The working pattern of the Furnace is described by the Surveyor in detail. He has opined that due to induction effect the scrap started heating and as the temperature increases, the scrap begins to melt. He has observed :
WORKING OF THE FURNACE: MS Scrap is charged into the induction furnace after checking up unwanted material through electro magnate. After this power is switched on. Due to the induction effect scrap started heating and when the temperature increases the crap melts. Charging of scrap is continued as the melting process goes on till the level of liquid metal reached certain height in the crucible. Sample of the liquid metal is taken and analyzed for carbon and other elements. During melting the slag is removed continuously from the top of the metal (slag is a waste material produced during melting).
Metal is tapped, after checking the temperature and chemical specification, into the tundish by lifting the furnace using hydraulic cylinder. From tundish metal is poured into the central column, which distributes the metal through bottom pouring refractory into C.I.moulds. Metal from furnace is totally poured into the tundish and taken back for next heat charging.
The metal in CI moulds solidify and forms ingots. Ingots are removed after stripping C.I. moulds and weighed.
Previous breakdowns If any: The undersigned has inspected the maintenance register of the insured and from that it was found that there were breakdowns on the furnace side on two occasions and no breakdowns on the crucible side.
Causes of Loss: - The undersigned after being duly deputed by the insurer visited insured’s factory premises on 01.12.07 and inspected the damaged crucible. By time I went for the survey it was observed that the liquid molten metal in the furnace molten metal penetrates and touches the coil there by damaging it and from that place the molten metal comes out of the crucible and damages the surrounding property.
So the proximate cause of break down can be attributed to puncture of copper coil when the hot motel metal has come in contact with the coil
13. The exclusionary clauses of the insurance policy relied upon by both the parties read as under:
GENERAL EXCEPTIONS
THE COMPANY SHALL NOT BE LIABLE UNDER THIS POLICY IN RESPECT OF-
1. Loss, damage and/or liability caused by or arising from or in consequence, directly or indirectly of the including extinguishments of a fire or clearance of debris and dismantling necessitated thereby, smoke, soot, aggressive substance, lighting, explosion of any kind (other than bursting or disruption of turbines, compressors, cylinders of steam engines, hydraulic cylinders or fly wheels or other apparatus subject to centrifugal force, internal pressure) theft, collapse of buildings subsidence, landslide, rockslide, water which escapes from water containing apparatus, flood, inundation, storm, tempest , earthquake, volcanic eruption or other Acts of God, impact of land borne or waterborne or airborne craft or other aerial devices and/or articles dropped therefrom
Any loss or damage by fire within the electrical and installation insured by this Policy arising from or occasioned by overrunning, excessive pressure, short circuiting, arcing, self-heating or leakage of electricity, from whatever cause (lighting included), is covered; provided that this extension shall apply only to the particular electrical machine; apparatus fixture fitting or portions of the electrical installation so affected and not to other machines, apparatus, fixtures fittings or portion of the electrical installation which may be destroyed or damaged by fire so set up.
2. Loss damage and/or liability caused by or arising from or in consequence, directly of –
a. War, invasion, invasion, Act of foreign Enemy, Hostilities or war like operations (Whether war be declared or not). Civil war, rebellion, revolution, Insurrection, Mutiny, Riot, Strike, Lockout and Malicious Damage, Civil Commotion, Military of Usurped Power, Martial Law, Conspiracy Confiscation, Commandeering by a group of malicious persons or persons acting on behalf of or in connection with any political Organization, Requisition or Destruction or damage by order of any Government de-jure or de factor or by any Public, Municipal or Local Authority.
b. Nuclear reaction, nuclear radiation or radioactive contamination.
3. Accident, Loss, damage/and/or liability resulting from over load experiments or tests requiring the imposition of abnormal conditions.
4. Gradually developing flaws, defects, cracks or partial fractures in any part not necessitating immediate stopping although at some future time repair or renewal of the parts affected may be necessary.
5. Deterioration of or wearing away or wearing out any part of any machine caused by or naturally resulting from normal use of exposure.
6. Loss, damage and/or liability caused by or arising out of the willful act to willful neglect or gross negligence of the insurer or his responsible representatives.
7. Liability assumed by the insured by agreement unless such liability would have attached to the insured notwithstanding such agreement.
8. Loss, damage and/or liability due to faults or defects existing at the time of commencement of this insurance and known to the insured or his responsible representative but not disclosed to the Company.
9. Loss of use of the Insured’s plant or property of any other consequential loss incurred by the Insured.
10. Loss damage/and/or liability due to explosions in Chemical Recovery Boilers, other than pressure explosions for e.g., smelt Chemical, Ignition, and Explosions etc.
SPECIAL EXCLUSIONS:
The Company shall not be liable for –
1. The Excess, as stated in the Schedule, to the first borne by the Insured out of each and every claim where more than one item is damaged in one and same occurrence, the insured shall not, however, be called upon to bear more than the highest Excess applicable to any one such item;
2. Loss of or damage to belts, ropes, chains, rubber tyres, dies, moulds, blades, cutters, knives or exchangeable tools, engraved or impression cylinders of rolls; objects made of glass porcelain, ceramics, all operating media (e.g. lubricating oil, fuel, catalyst, refrigerant, dowtherm) felts, endless conveyor belts or wires; sieves, fabrics, heat resisting and anti-corrosive lining and parts of similar nature, packing material, parts not made of metal (except insulating material) and non-metallic lining of coating of metal parts.
3. Loss or damage for which the manufacturer or supplier or repairer of the property is responsible either by law or contract.
In any action, suit or other proceeding where the Company alleges that by reason of the provisions of the exceptions or exclusions, any loss, destruction, damage or liability is not covered by this insurance, the burden of proving that such loss, destruction damage or liability is covered shall be upon the Insured.
14. The opposite party insurance company has invoked the policy conditions and endorsement for furnaces which read as under:
a) ELECTRICAL FURNACES –
i) It is hereby declared and agreed that any damage to crucibles and refractory linings due to any cause is excluded udner the policy
Subject otherwise to the terms, conditions and exceptions of the policy.
ii) It is hereby declared and agreed that any damage to induction coils/heating element of electric furnace will be subject to 25% depreciation per year or part thereof subject to a maximum depreciation of 75%.
Subject otherwise to the terms, conditions and exceptions of the policy.
As per the above endorsement the crucible damage is not covered under the policy. In the present claim the crucible was damaged. Hence the claim is not admissible as per the policy.
15. On application of the conditions and endorsement of the insurance policy to the claim arising out of the damage caused to electrical furnace as also by application of the condition relating to policy excess in regard to the claim pertaining to the other parts of the machinery, the Insurance Company has repudiated the claim. The opposite party insurance company has not arbitrarily repudiated the claim. It has relied upon the surveyor’s report which was prepared on inspection of the property, in presence of the insured. In the circumstances, we do not see any deficiency in service on the part of the insurance company.
16. In the result, the complaint is dismissed. The parties shall bear their own costs.
MEMBER
MEMBER
Dt.12.03.2012
KMK*
APPENDIX OF EVIDENCE
WITNESSES EXAMINED
NIL
EXHIBITS MARKED
For the complainants
Ex.A1 Machine Break Down Insurance policy dt.28.12.2007
Ex.A2 Service Report dated 01.12.2007
Ex.A3 Form for notification of loss on damage dt.28.12.2007
Ex.a4 Letter to Surveryor dated 28.12.2007
Ex.A5 Letter to OP no.1 dated 27.02.2008
Ex.A6 Letter to complainant dt.7.3.2008
Ex.A7 Letter to O.P.No.1 dt.24.03.2008
Ex.A8 Letter to complainant dt.31.03.2008
Ex.A9 Letter to OP No.1 dt.4.6.2008
Ex.A10 Letter to OP NO.1 dt.18.8.2008
Ex.A11 Letter to OP NO.1 dt.17.8.2009
Ex.A12 Letter to complainant dt.3.11.2009
Ex.A13 Letter to complainant dt.11.11.2009
Ex.,A14 Legal notice dt.4.1.2010
For opposite parties
Ex.B1 Copy of Policy
Ex.B2 Surveyor Report
Ex.B3 Repudiation letter
MEMBER
MEMBER
