BEFORE THE A.P. STATE CONSUMER DISPUTES REDRESSAL COMMISSIONAT HYDERABAD.
C.C. No. 45/2006
Between:
Bharat Heavy Plate & Vessels Ltd.
(A Subsidiary of Bharat Yantra Nigam Ltd.
(A Govt. of India Enterprise)
Visakapatnam- 530 012,
Andhra Pradesh,
Rep. by its Manager (Legal) *** Complainant
And
M/s. National Insurance Company Ltd.
Direct Agent Branch
Seethamapeta Road
Dwarakanagar
Visakapatnam-530 016. *** Opposite Party
Counsel for the Complainant: M/s. C. Kodanda Ram
Counsel for the OPs: M/s. Katta Laxmi Prasad.
CORAM:
HON’BLE SRI JUSTICE D. APPA RAO, PRESIDENT
&
SRI R.L. NARASIMHA RAO , MEMBER
MONDAY, THIS THE TWENTY FIRST DAY OF DECEMBER THOUSAND NINE
Oral Order: (Per Hon’ble Justice D. Appa Rao, President)
***
1) This is a complaint filed against insurance company claiming Rs. 67,00,030/- together with compensation and costs.
2) The case of the complainant in brief is that it is a public sector engineering company a subsidiary unit of Bharat Yantra Nigam Ltd, owned by the Government of India specialized in erection of cryogenic plants, process plants, boilers and storage vessels. It secured the contract of lump sum turnkey project from IOCL for hydro treating facilities. The cost of the project being Rs. 91.85 crores. In pursuance to the said contract it has placed the purchase order on M/s. Ingersoll Rand, Ahmedabad for design, manufacture,
Supply, and supervision of erection, field testing and commission of two air
compressors. It had taken marine-cum-insurance policy from the opposite party by making IOCL as principal valid from 19.1.2001 to 18.1.2004 and further extended up to 18.4.2004. The policy commenced from the date of despatch of the first consignment and remain in force till the completion of above said period or till the completion of erection including test run whichever is earlier and the sum assured was Rs. 86,46,50,000/- The consignment was despatched and the same was reached at Digboi site on 16.5.2001 without any damage. However, due to heavy rains civil foundation was not laid immediately, and the consignment was stored for 70 days. On 26.7.2001 air compressors were taken out and were successfully erected on respective foundations under the same roof. Their engineers and that of IOCL EIL and S.K. Maitra, Engineer of supplier on joint inspection on 23.6.2002 found accumulation of rainwater and patches/pitting on 1st and 3rd stage in one of the air compressors. Immediately said fact was intimated to the insurance company on 24.6.2002 and requested to depute a surveyor for assessment of the damage. The insurance company in its turn appointed Mr. R.K. Agarwal a surveyor on 8.8.2002 to conduct survey, investigate, and assess the damage. The surveyor conducted the survey from 10.8.2002 to 26.11.2002 found damage to the equipment and directed the complainant to carry out repairs and replacement in order to assess the exact loss caused in the said damage. Accordingly it carried out repairs and replacements by incurring Rs. 67,00,330/- and successfully commissioned the equipment on 5.11.2003 which was inspected by the surveyor on 29.11.2003. It lodged a claim for Rs. 67,00,330/-. It had taken an advance from IOCL on interest @ 15.25% p.a. to release the payments to the supplier for the said repairs and replacements, and requested the insurance company to release the claim amount directly to the IOCL. The surveyor found that the loss was caused
due to accidental entry of rain water tinged with traces of acid in the oil tanks during the period of storage at site though the consignment was covered with
tarpaulin. However, it accepted the claim for Rs. 48,26,000/- instead of Rs. 67,00,330/- by mentioning some untenable deductions. When the insurance company failed to settle the claim and when it addressed letters after letters the insurance company again introduced Sri A. Chandra Mouli of M/s. Mehta & Padamsey another surveyor seeking his opinion in the matter without giving any reason. It is contrary to law. Finally by letter Dt. 13.9.2004 the insurance company repudiated the claim on the ground that the loss falls under expected peril and exclusion clause ( c ) of Section-I of part-II i.e., normal wear and tear gradual deterioration due to atmospheric conditions or otherwise rust scratching of painted or polished surfaces or breakage of glass. When the first surveyor had categorically stated that the losses do not fall under exclusion clauses of the policy , 2-1/2 years thereafter the second surveyor repudiated the claim on the ground that the risk falls under exclusions clause. It is unjust. Despite repeated requests and meetings with the higher ups the claim was not settled and therefore it filed the complaint alleging deficiency of service on the part of insurance company and claimed Rs. 67,00,330/- towards loss together with interest, compensation and costs in all Rs. 98,33,560/-.
4) The insurance company resisted the case. It denied each and every allegation made in the complaint. However it admitted that it had issued marine-cum-erection policy subject to terms and conditions. The claim does not fall come under the purview of consumer fora. The complainant is not a consumer. No permission was obtained before initiating the legal proceedings which is mandatory as the Government of India is involved in the litigation. When the application is pending clearance the complaint was filed and therefore it was liable to be rejected. The marine portion of the policy no more survives as it was successfully transhipped. The other portion of the policy is erection and the equipment kept stored at site in open for 70 days before erection.
One year after commissioning of erection M/s. Ingersol Rand reportedly found water accumulation in 1st and 3rd stage and found pinions, bearings and bull gear teeth rusted and pitted and advised replacement before commissioning. Initially they lodged the claim against the carrier during conduction of survey. and later the claim against the carrier was withdrawn. In fact, the complainant could not able to understand exact cause of pitting to give opinion. The rusting of high grade steel parts could be explained by the suppliers only. In the joint inspection Dt. 5.9.2002 they observed that the rusting and pitting on all rotor assemblies were attributed to accumulation of water which might have entered accidentally in oil reservoir through one of the plugs meant for instruments while in transit or storage. Since the carrier was given a clean chit, no claim survives against them. The surveyor after taking into consideration assessed the net loss at Rs. 48,26,000/-. Rust observed on the internal parts is excluded as per the exclusion clause (c) of Schedule-I, Part-II of the erection all risk cover of the marine-cum-erection policy issued to the complainant. It is borne out from the technical opinion provided by M/s. Mehta & Padamsey Surveyors Pvt. Ltd., Chennai. Thus the claim was repudiated on 13.9.2004. There is no cause of action for the complainant to file the case. When the complainant admits that when two air compressors were successfully erected it was absolved from any liability under the policy coverage. They did not admit their liability to pay any amount. Therefore, it prayed for dismissal of the complaint with costs.
5) The complainant filed rejoinder to the written version filed by the opposite party insurance company alleging that the very surveyor who was appointed by the insurance company concluded that the loss does not fall under any of the exclusions of the policy. There was no breach of policy terms and conditions. The risk has been reinstated to the satisfaction of the insured and recommended the insurance company to reimburse the loss. Appointment of second surveyor after two years was bad under law and was made to get over the first surveyor report, and therefore prayed that the complaint be allowed.
6) The complainant in proof of its case filed the affidavit evidence of K. Abrham, Manager and filed Exs. A1 to A53 while the insurance company filed the affidavit evidence of D. C. Baheti its authorised signatory and filed Exs. B1 to B5.
7) The points that arise for consideration are:
i) Whether the complainant is a consumer?
ii) Whether the loss that occurred does not fall under any of the
exclusions of the policy?
iii) Whether there was any breach of policy terms and conditions?
iv) Whether the complainant is entitled to any amount covered
under the policy?
v) Whether the complainant is entitled to any damages?
vi) To what relief?
8) It is an undisputed fact that the opposite party insurance company issued marine-cum-erection policy effective from 19.1.2001 to 18.4.2004. The claim towards marine portion of the policy does not survive as the consignment of air compressors was successfully transhipped from Gujarat to Assam. It is also not in dispute that when the machinery was tested at site on 16.5.2001 there was no damage. The dispute pertains to the other portion of the coverage of the policy viz., erection and commissioning of the equipment. When the equipment was checked while commissioning by Ingersol Rand, the service Engineer observed that water accumulation had taken place on 1st and 3rd stage. The pinions and bearings were found in rusted condition along with the bull gear teeth, and advised to replace the components before commissioning the compressor. The complainant thinking that the water in the compressor might have entered accidentally in transit lodged a complaint with the carrier. Later it came to learn that it was occurred at the site on a claim made by complainant, Sri R. K. Agarwal a surveyor was appointed by the insurance company. He observed that there was heavy rusting and pitting on all the impeller with shaft and pinion, plain bearings and thrust bearings etc., and the possible cause of damage was accumulation of water, which might have entered accidentally in the oil reserve through one of the plugs which was meant for instrument, in transit or storage. Sri R. K. Agarwal conducted survey, investigated and assessed the claim. In his report Dt. 27.1.2004 after conducting the survey traced out the antecedents of the consignment and found :
- The suppliers Ingersol Rand had sold the air compressor S.No. N00-1150 vide invoice No. 00138 for Rs. 1,00,11,205/-.
- The goods were shipped in 8 different boxes by the carriers Economic Transport Organization under C.N. No. 8482 Dt. 30.4.2001 by trailer truck No. HR-38-6451.
- The consignment reportedly reached Digboi on 16.5.2001.
- There was no apparent physical damage to the packages and the consignee gave a clean chit to the carrier. The consignment thereafter was kept at site and reported to have been covered by a tarpaulin.
- The packing was removed and erection/commissioning started on 26.7.2001. The packed goods remained in their packages from 16.5.2001 to 26.7.2001 i.e., for nearly 70 days covered by a tarpaulin at site.
- Third party inspection was carried out at the works of Ingersol Rand at Naroda by Lioyd’s Register Industrial Services (India) Pvt. Ltd. (LRIS) who had witnessed the tests of the compressor on 26.4.2001.
- Shipment preparation certificate after inspection of packages were also issued by the suppliers which have been witnessed by the representative of LRIS.
- The third party inspection at the works and the shipment clearance on LRIS eliminates any possibility of any water being trapped prior to shipment at the manufacturer’s work.
The surveyor has contacted the officials of IOCL, BHPV Ltd., Ingersol Rand India Ltd. He observed that “it was obvious that the rusting had occurred because of the trapped moisture. The consignment was kept at site covered by a tarpaulin for nearly 70 days at the site before the packages were removed and erection started. It is a high rainfall area where there is heavy rain. In our opinion water must have accidentally entered the oil chamber through one of the plugs meant for fixing instrument and during bright sunny day the trapped water had evaporated and passed through the oil lines and got condensed on the rotor assemblies and bull gear. This trapped water must have contained some acidic traces which is possible in the refinery area and the rusting of the internal components have taken place. Once the process of rusting and corrosion started it progressed and caused pitting. There was sufficient time for the process of corrosion to set in as these parts were in enclosed steel body and the damage was observed only during commissioning on 23.6.2002 i.e., almost after 13 months after the arrival of goods at the destination.” Finally he made the following remarks :
1) The loss do not fall under any of the exclusions of the policy.
2) There is no breach of policy terms and conditions in our opinion.
3) The risk has been reinstated to the satisfaction of the insured.
4) There is no under insurance.
5) The salvage value have been deducted.
Ultimately he assessed the net loss at Rs. 48,26,000/-.
9) Obviously the said report was not to the liking of the insurance company. It was thinking as to how it could be repudiated. Predictably it has appointed another surveyor M/s. Mehta and Padamsey Surveyors Pvt. Ltd., unilaterally after a lapse of two years from the date of loss and 6 months from the date of first surveyor’s report, in contravention of Section 64 UM of the Insurance Act.
10) It is not a case where the insurance company approached the authorities and made allegation against the first surveyor on the ground that he had colluded or fraud was perpetrated and therefore necessitated appointing a second surveyor. The second surveyor can be termed as extra legal authority as opined by National Commission in New India Assurance Company Ltd. Vs. Shree Shyam Cotspin Ltd. reported in 1 (2009) CPJ 110 (NC). Be that as it may, the second surveyor without mentioning any details contradicted report of the first surveyor by giving specious reasons, repudiated the claim. He opined that the claim falls under exclusion clause vide Section-I Part-II of the policy. The surveyor noted omissions and discrepancies like in a Criminal case, and imported its own knowledge as to the process at Digbai refinery by IOCL. It could not substantiate by referring to any expert on the subject. It put a sort of queries for considering the exclusion clause. Para 17 of their report reads as follows :
“All the above information from suppliers contractors and the surveyors admit that the cause of damage was rusting and pitting due to contact with water at some stage before the testing commenced. The issue therefore now revolves around whether the damage due to rusting would constitute an exclusion under the policy or not. We shall now analyse the relevant section of the policy dealing with the exclusion.
Exclusion to Section-I – item ( c ) dealing with the relevant portion reads as follows :
( c ) normal wear and tear, gradual deterioration due to atmospheric conditions or otherwise, rust, scratching of painted or polished surfaces or breakage of glass.
11) One of the grounds they pointed out was that the damage was observed only during commissioning on 23.6.2002 i.e., almost 13 months after the arrival of the goods at destination. Therefore they reasoned that there was sufficient time for the process of corrosion to set in as these parts were enclosed steel body. Once the process of rusting and corrosion started it progresses and cause pitting. They further observed that “ The damage was not caused by mere accidental entry of water but because of not taking note of such entry of water or moisture in time, allowing the same affect the material gradually further progressing into corrosion and pitting over a period. It is confirmed that the unit was held covered by tarpaulin and if water found its way inside due to whatever cause, the same will have a green house effect on the atmosphere inside leading to high humidity, condensation, rusting and progress of the same when not detected and attended. The damage is clearly due to an exception under the policy and we see no reason for considering a claim under marine cum erection. Further too much of discussions are devoted to the source of entry of water in a location to cause rusting. There was no need for any separate water entry source at all in a situation where the insides are being looked into more than thirteen months after receipt at a location of high rainfall and substantial humidity.”
12) The second surveyor has referred to Section 413 of Halisbury’s Laws of England dealing with intention of parties as a test in insurance. It opined that the document will be construed in such a way as to give efficacy to the transaction in accordance with the maxim “ ut res magis valeat quam pereat” ( it is better for a thing to have effect than to be made void). Where two constructions are possible, the one which tends to defeat the intention or to make it practically illusory will be rejected. It thought that the rusting and damage of similar nature constitute an exclusion under the marine-cum-erection policy. The printed words specifying the exclusion cannot be circumvented to bring another construction. Therefore it opined that the damage due to rusting was excluded and therefore it comes under exclusion clause.
13) PW1 Manager of the complainant categorically stated that on 26.7.2001 both the air compressors were taken out and were successfully erected on its respective foundations under the same roof under the supervision of supplier’s service engineer Mr. S. K. Maitra and the complainant’s engineers, which actually was the beginning of the erection process. The erection of the air compressor would be completed only when levelling, alignments works, piping works, utilities were to be completed up to battery limits. Hence the erection of the air compressor was not completed on 26.7.2001. Having obtained a report from the first surveyor M/s. R. K. Agarwal appointed by it and having invited their adverse findings that the loss did not fall under any of the exclusion clauses, and there was no breach of policy terms and conditions, it does not lie in the mouth of the insurance company to appoint again another surveyor contrary to Section 64 UM of the Insurance Act. The appointment of second surveyor that too with a delay of six months cannot be lost sight off and the report of the second surveyor is non-est and void. The reasons all that prompted them to repudiate the claim was not inconsonance with the facts and circumstances of the case. The first surveyor estimated the loss at Rs. 50,80,000/- however deducted Rs. 2,54,000/- towards the excess for storage and erection risk as per the policy is 5% of the claim amount subject to a minimum excess of Rs. 1 lakh accordingly the excess applicable was 5% of Rs. 50,80,000/-. and therefore recommended the loss payable to the insured was Rs. 48,26,000/-. The insurance company could not show any fallacy in the report. Therefore, we accept the report of the first surveyor and of the opinion that the complainant is entitled to the said amount of Rs. 48,26,000/-.
14) Learned counsel for the opposite party insurance company contended that the Consumer Fora has no jurisdiction to entertain the dispute. He did not expatiate. However, it is settled law that the insurance is one of the services and therefore comes under the definition of Sec 2(O) of the Consumer Protection Act. The Supreme Court distinguished the contract of insurance with other contracts in United India Insurnace Company Ltd. Vs. Great Eastern Shipping Company Ltd. reported in III (2007) CPJ 3 (SC).
15) Learned counsel for the opposite party insurance company has taken yet another contention stating that without taking clearance from the Committee constituted by the Government the complainant cannot file a complaint. The complainant as well as the insurance company are public sector undertakings. It is necessary that all the disputes between the government departments or public sectors undertakings of Union of India have to be settled amicably after obtaining clearance from the committee set up by the Government of India. The said procedure is mandatory. In support of his contention he relied a decision of Supreme Court in
M/s. Oil & Natural Gas Commission Vs. Collector of Central Excise reported in JT 1991 (4) S.C. 158 wherein their Lordships opined that “ It shall be the obligation of every Court and every Tribunal where such a dispute is raised hereafter to demand a clearance from the committee in case it has not been so pleaded and in the absence of the clearance, the proceedings would not be proceeded with.”
The Committee on Disputes in its meeting held on 13.3.2008 in the presence of opposite party insurance company permitted the complainant to pursue it before the A.P. State Consumer Disputes Redressal Commission, Hyderabad. It may be stated herein that the representative of the complainant submitted before the Committee that the surveyor had submitted his report indicating that the claim does not fall under any exclusion clause of the insurance policy and recommending payment of Rs. 48.60 lakhs to BHPV. The company rejected the claim on the ground that it is not tenable under the MCE policy invoking the exclusion clause. Even the Supreme Court in the above decision directed the Court or Tribunal not to proceed till the clearance is obtained. It did not say till the clearance is made the parties cannot demand the amount covered under the dispute. At some times, the claims might be barred by limitation if one has to wait for clearance. Whatever be the reason, since Ex. A52 authorises the complainant to go ahead with the case filed and in the teeth of the Supreme Court judgement, we are of the opinion that the complaint is not barred and cannot be dismissed on that score.
16) In the result the complaint is allowed in part granting Rs. 48,26,000/- together with interest @ 9% p.a., from the date of repudiation viz., 13.9.2004 till the date of realization together with costs of Rs. 5,000/-. Time for compliance four weeks.
1) _______________________________
PRESIDENT
2) ________________________________
MEMBER
Dt. 21. 12. 2009.
*pnr
C.C.NO.45 OF 2006
APPENDIX OF EVIDENCE
Complainant: Opposite party
Affidavit evidence and Addl.Affiavit Affidavit evidence filed.
Evidence filed.
Reply to written version filed.
Exhibits marked for complainant
Ex.A-1 General Power of Attorney dt.8.2.2003.
Ex.A-2 Purchase orders dt.1.1.2001.
Ex.A-3 Marine-cum-Erection policy issued by the opposite party
dt.19.1.2001.
Ex.A-4 Letter from R.K.Agarwal, Surveyor and Loss Assessor to
Mr.V.R.K.Raju dated 14.8.2002
Ex.A-5 Letter addressed by the complainant to the opposite party
dt.2.7.2003.
Ex.A-6 Letter addressed by the opposite party to the complainant
dt.7.7.2003.
Ex.A-7 Letter addressed by the complainant to the opposite party
dt.8.6.2004.
Ex.A-8 to
A-10 Letters dt.16.7.2004, 18.8.2004 and 23.8.2004 respectively
addressed by the complainant to the opposite party requesting for
settlement of claim.
Ex.A-11 Repudiation letter dt.13.9.2004 issued by the opposite party.
Ex.A-12 Letter from opposite party to the complainant dated 27.9.2004
Ex.A13 & Letter from IOCL to the opposite party dated 1.10.2004 & 27.1.05
Ex.A14
Ex.A-15 Letter addressed by IOCL to the complainant dt.1.4.2005.
Ex.A-16 Report submitted by Mr.R.K.Agarwal, Surveyors &
Loss Assessors dated 27.1.2004
Ex.A-17 Letter dt.8.8.2002 addressed by the opposite party to the
Surveyor.
Ex.A-18 Copy of Marine-cum-erection policy issued by the opposite party
dated 19.1.2001.
Ex.A-19 Copy of the Letter addressed by Mr.V.R.K Raju to the Sr.Divisional
Manager of opposite party Insurance Company dt.24.6.2002.
Ex.A-20 Letter addressed by Mr.V.R.K.Raju to the opposite party Insurance
Company dt.25.7.2002.
Ex.A-21 Purchase indent issued by the IOC Ltd., Assam.
Ex.A-22 Letter addressed by Ingersoil Rand to the Complainant
dt.24.5.2004.
Ex.A-23 Invoice issued by Ingersoil Rand.
Ex.A-24 Copy of invoice.
Ex.A-25 Document transmittal sheet.
Ex.A-26 Schedule of Demurrage charges issued by Economic Transport
Organization.
Ex.A-27 Order acknowledgement dt, 26.3.2001.
Ex.A-28 Packing note issued by Ingersoll Rand (India) Ltd.,
Ex.A-29 Inspection release note
Ex.A-30 Shipment preparation certificate issued by Ingersoll Rand
dt.20.7.2000.
Ex.A-31 Guarantee certificate issued in Ingersoll Rand dt.30.4.2001.
Ex.A-32 Letter addressed by Mr.V.R.K.Raju, Project Incharge to
Mr.R.K.Agarwal dt.29.8.2002.
Ex.A-33 Report issued by Sri S.P.Maitra.
Ex.A-34 Letter addressed by Ingersoll Rand dt.1.7.2003 to the
complainant.
Ex.A-35 Minutes of the discussion held on 5.9.2002.
Ex.A-36 Joint Inspection report dt.21.1.2003.
Ex.A-37
and Letters addressed by Ingersoll Rand to the complainant
A-38
Ex.A-39 Amendment dt.8.5.2003 issued by the complainant.
Ex.A-40 Letter addressed by Ingersoll Rand dt.16.5.2003 to the
complainant.
Ex.A-41 Copy of D.D for Rs.48,33,679/-.
Ex.A-42 Receipt issued by Ingersol Rand.
Ex.A-43 Lorry receipt issued by IBC India Ltd.,
Ex.A-44 Inter office memo dt.11.9.2003 issued by the Project Director of the complainant.
Ex.A-45 Insurance claim for repair of Air compressor
Ex.A-46 Inter office memo issued by Sr.Manager of the complainant
dt.14.5.2003.
Ex.A-47 Letter dt.20.1.2004 issued by Chief Project Manager, IOC, Digboi.
Ex.A-48 Letter addressed by Ingersoll Rand to the complainant
dt.6.11.2003.
Ex.A49 Letters from IOC to the complainant dated 5.1.04 26.3.04& to Ex.51 11.9.2006
Ex.A52 COD Permission issued Govt. of India dt.13.3.2008
Ex.A53 Book containing Schedule of Air Compressor Erection
(129 Pages.)
Exhibits Marked for opposite party
Ex.B1 Letter from opposite party to first surveyor dt.24.3.2004
Ex.B2 Reply from first surveyor to opposite party dt.20.4.2004
Ex.B3 Reminder dated 22.4.2004 issued by the opposite party
to the first surveyor
Ex.B4 Letter from opposite party to the second surveyor dt.30.6.2004
Ex.B5 Report from Surveyor to the opposite party dt.27.7.2004
1) _______________________________
PRESIDENT
2) ________________________________
MEMBER
“UP LOAD – O.K.
