PER MR SUBHASH CHANRA 1. This appeal under Section 19 of the Consumer Protection Act, 1986 (in short, the ‘Act’) challenges the order dated 30.07.2013 of the State Disputes Redressal Commission, Uttar Pradesh, Lucknow (in short, the ‘State Commission’) in Complaint No. 34 of 2007 allowing the complaint and directing the opposite parties (Appellant herein) to pay Rs 30,93,188/- with simple interest @ 12% p.a. from the date of the complaint till the date of payment along with Rs 25,000/- as litigation cost within three months of the order, failing which the applicable rate of interest would be 18%. This order is impugned before us seeking to quash the order and to pass any other order(s) as deemed fit. 2. The relevant facts of the case, in brief, are that the respondent obtained a Standard Fire & Special Perils Policy (in short, the ‘Policy’) for the period 10.04.2006 to 09.04.2007 to insure his stock of wheat, paddy, rice, rice bran, D-OH, cake, food grains, pulses, etc. at the Shiv Shakti Godown, Near Narayan Talkies, Shahjahanpur Road, Sitapur for Rs.50,00,000/- on payment of premium of Rs 9750/-. On 11.09.2006 the respondent reported a fire for which the fire brigade deputed a tender and thereafter again on 14.09.2006. An FIR was lodged on 11.09.2006. The fire continued for some time and was ascribed to spontaneous combustion as the godown was locked and did not have any electricity connection. A surveyor, SM Bhatia, SM Associates was deputed by the Appellant on 12.09.2006 who conducted a spot inspection and preliminary loss assessment and sought information and documents from the Respondent. A claim for Rs 48,87,308/- was lodged by the Respondent on 25.01.2007 on the basis of loss of 20,200 bags weighing 70 kgs each of de-oiled rice cake. Based upon the report of the surveyor, the Appellant turned down the claim as ‘No Claim’ on the grounds that the policy was obtained through misrepresentation that the flooring was of red bricks whereas it was a kuccha floor that allowed seepage of moisture, that the items stated to be stocked were not in the godown which were also stocked loosely and not in bags, the stocking was improper that did not allow access to the rear or permit removal of stocks to minimize damage, that the stocks appeared very old and the respondent obstructed fire fighting after 13.09.2006 according to the Fire Department’s report while making no efforts to remove the stocks. The claim was accordingly held untenable on grounds of breach of the insurance contract and insurance principles. The State Commission upheld the complaint of the Respondent which order is impugned before us. 3. We have heard the learned counsel for the parties and perused the material on record. 4. The Appellant’s case is that (i) the State Commission erred in failing to appreciate that the surveyor had pointed out four breaches of the godown/warehouse warranties that mandated as below: a. Warranted that there be a passage way inside the godown of at least 2 meters wide throughout the length of the godown; b. Warranted that a clear space of 2 mtrs be kept or maintained from all the doors inside the godown; c. Warranted that godown doors when closed shall so fix that the maximum clearance at any point shall not exceed 5 cms; and d. Warranted that no bags be stacked within 1 meter from any wall or within 0.5 mt of any load bearing columns. (ii) warranties being equal to conditions of insurance, the insurer Appellant was entitled to repudiate claims; (iii) reliance on New India Insurance Co. Ltd. Vs. Pradeep Kumar, IV (2009) CPJ 46 SC by the State Commission to disregard the surveyor’s report was erroneous and against settled law since the report constituted an important document which could not be rejected without cogent or sufficient cause since it had been held by the Hon’ble Supreme Court in United India Insurance Co. Ltd. Vs. Roshan Lal, (2000) 10 SCC 19 that non consideration of a joint surveyor’s report which was an important document resulted in serious miscarriage of justice and vitiated the judgment of the Commission; (iv) the State Commission failed to consider the facts highlighted by the surveyor that the rear wall of godown was not allowed to be demolished by the fire department by the Respondent despite request, the stocks seemed to be very old and probably damaged, unaffected stock was not removed and the fire brigade was not summoned timely; (v) the claim was filed to profit from the insurance through deliberately failing to protect the insured property or salvaging to minimize loss; (vi) no evidence to show that the report was malafide or unreasonable had been brought on record and that this Commission had held in Suryachem Industries Vs. Oriental Insurance Co. Ltd., I (2007) CPJ 278 (NC) and National Insurance Co. Ltd. Vs. Aleyamma Varghese & Ors. II (2006) CPJ 193 (NC) that the surveyor’s report should be agreed with unless rebutted and (vii) the quantum of interest of 12% and 18% awarded was excessive. Learned counsel for the Appellant argued that the Cover Note of the contract of insurance the risk was insured “subject to the usual terms and conditions of the Company’s Standard Policy” and that the decision of the Hon’ble Supreme Court in Modern Insulators Ltd. Vs. Oriental Insurance Co. Ltd., in CA No. 6895 of 1997, (2000) 2 SCC 734 dated 22.02.2000 pertaining to exclusion clauses did not apply to the instant case. It was also argued that the terms of a contract were to be strictly interpreted without reading down the terms of the contract as held by the Hon’ble Supreme Court in Sony Cherian Vs. Oriental Insurance Co. Ltd., 1999 (6) SCC 451. It was contended that the fire smoldered due to spontaneous combustion for nearly 56 days and that there was no inspection of the stock which was haphazardly stocked. Even though the loss was assessed for Rs 16,96,410/- by the surveyor, it had been categorically held that the claim was not tenable for breach of insurance contract and breach of insurance principles. 5. Per contra, the learned counsel for the Respondent contended that the Appellant failed to provide the terms and conditions of the Policy to it as only the Cover Note was provided. Appellants reliance on Policy terms and conditions was disputed by the Respondent in light of the Supreme Court’s judgment in Modern Insulators Ltd. (supra) which had laid down that exclusion principles that are not communicated cannot be relied upon by an insurance company to repudiate the claim of the insured. It was argued that the State Commission’s order had rightly relied upon this principle laid down since other than a Cover Note, no Policy documents had been communicated to the Respondent. Appellant had also not placed any evidence on record to prove that the Policy conditions stood communicated to the Respondent or were part of the Policy Schedule. It was argued that efforts to minimize the loss were made since 519 gunny bags were salvaged. The Fire Department had been informed on 11.09.2006, 12.09.2006 and 13.09.2006 as noted by the State Commission and there had been no dereliction in this regard. It was contended that the Cover Note of the Policy recorded that De-oiled Cake and rice bran was duly insured and therefore the Appellant’s argument that the other items insured were not held in stock is irrelevant. In view of the fact that the fire was extensive and took nearly 60 hours to extinguish, the rate of interest awarded by the State Commission was justified according to the Respondent. 6. The State Commission has held as follows: “In the light of aforesaid law, pleadings, evidence, contentions of both the parties and circumstances on record we found evident on record that surveyor along with Branch Manager and Development officer visited the insured premises and photographs were taken but the insurance company has not filed any affidavit of the said Branch Manager and Development Officer, neither such photographs are placed before us for perusal. Surveyor himself compared the samples and formed opinion that the stock held by the insured is inferior and old one, for which we find that the surveyor was having no technical specification to provide such opinion upon the nature and quality of the insured stock. We have further found that it is an admitted and fully proved position of facts that fire was so extensive that it took several days by the Fire Brigade to control the fire and therefore, the contrary attitude of the surveyor as well as the opposite party going to observe that the complainant colluded with the Fire Department is wholly wrong and is not acceptable nor is supported by any evidence. More so, the Fire Fighting Service has been created under the Uttar Pradesh Fire Service Act, 1944 and according to Section 15 of the said Act the Fire Personnel has been entrusted with enumerated powers to control and extinguish the fire. Thus, the complainant had no control on them. The Fire Department is a independent body and it is up to them to decide how to extinguish and control the fire and per contra the allegation of the insurance company that the complainant did not allow the fire department to break the rear wall is wrong. The loss occasioned by the fire is duly supported by the bills and is proved by the certificate issued by the fire brigade, even the surveyor has verified that the position of stock was tallying with the purchase bills and they are genuine. Even them surprisingly enough, the claim has been reduced to just Rs.16,96,410/- by the surveyor despite the fact that the stock of 18849 bags is confirmed amounting of Rs.42,41,205/- by the surveyor himself. Entire loss of stock occurred in the fire incident to the complainant is proved not only by the aforesaid evidence, facts and circumstances on record rather is assessed by the personals of the fire brigade too. Despite accepting the stock of Rs.42,41,205/- the surveyor assessing total loss for Rs.16,96,410/- seems per se wrong. Report of surveyor in this regard shows that total loss for stock destroyed in smoldering/ fire is assessed at an average of 15% to 20% i.e., 17.5% and partial loss by water damaged stock is assessed 30% approximately. In our view this assessment of surveyor is not acceptable since allegations of managed total loss is repeatedly stated on record by the OP. In the report of fire brigade too the assessment of total loss is shown, though amounting of Rs.40,00.00. Hence, total loss of stock cannot be ruled out. More so, in the aforesaid circumstances of this case wherein the opposite party himself admitted and estimated that smoke was being emitted for more than 60 hours and could not be controlled, the total loss is inevitable. Despite accepting this fact by surveyor in his affidavit that insured had informed him that all the stock kept in godown has no value at all for him, as can only be used as KHAD in the Agricultural field, even then how and on what basis the surveyor assessed the loss thereby reducing it to the percentage shown in his report, is not explained. The complainant is being accused repeatedly that he managed the total loss of stock in collusion with the fire brigades evidencing the total loss of stock, then how it could be said that it was partially damaged. Further,more, the commodity in question, i.e., rice brawn, d’oiled cake commonly known to be used in cattle fodder is not of such commodity which could be usable as such if destroyed in smoldering/ fire and water damaged. Thus we find it a fit case in which the total loss of stock be allowed for Rs.42,41,025/- which was the stock even confirmed by the surveyor too. Out of stock of 18849 bags, 519 bags are said to have been saved therefore, a sum of Rs.1,16,775 (519x225) is to be reduced out of the amount calculated by surveyor for the stock held by the complainant. We are further of this view that a sum of Rs.10,431,062/- shall be deducted in respect to salvage of damaged stock @ 25% of value as agreed by the insured in his claim bill. Therefore, we found a sum of Rs.30,93,188/- to be allowed to the complainant towards loss of stock. A sum of Rs.25,000/- as cost of the litigation we found in the circumstances of this case allowable towards the cost of complaint claimed by the complainant to the tune of Rs.50,000/- since the claim o the claimant has been wrongly repudiated by the opposite parties. In respect of interest claimed @ 18% per annum, we do find it expedient, looking into the stock in trade of the complainant that interest at the rate of 12% per annum may be allowed to meet out the ends of justice to the complainant from the date of this complaint up to the date of payment failing which it shall be calculated @ 18% per annum.” 7. Based on the foregoing, the issue that falls for consideration is whether the repudiation of the claim on grounds of breach of warranties of the Policy, as per the surveyor’s report, is justified. 8. The proposal for the policy was to cover the risk of stocking agricultural products/by-products. The Policy was issued after due inspection of the insured premises. It was for the Appellant Insurance Company to assess whether the godown having kuccha flooring was eligible to be considered for the purpose of insurance. Having approved the proposal it is now not open for it to contend that the premises being of kuccha flooring was liable for spontaneous combustion. It is noteworthy that despite that photographs of the godown/ site of five were taken during inspection to assess the loss, none has been brought on record to counter the assertion of the respondent that flooring was not of red bricks.It is also immaterial whether some or all of the materials that were undertaken to be stored were actually stored or not. What is material is whether the product stored was agricultural in nature or not. As this is not an issue in the instant case, the ground taken by the Appellant is not considered relevant. In so far as the argument that the Respondent did not summon the Fire Brigade or made half hearted efforts to salvage the loss and did not permit the demolition of the rear wall of the godown, it is apparent that these arguments are based upon oral enquiry with the Fire Brigade. Neither has any affidavit been produced as evidence nor is it stated by way of a formal letter by the Fire Brigade that the Respondent was lackadaisical in his efforts to control the fire due to the requirement of payment of commercial rates to the Fire Department or that the Fire Department was prevented from demolishing the rear wall of the godown. On the other hand, the Surveyor has noted that there were costs incurred towards salvage efforts. The State Commission has rightly noted that the Fire Brigade is empowered to take steps under the Uttar Pradesh Fire Services Act, 1944 to control and extinguish fires. The argument that the Respondent failed to take prudent steps to minimize loss on these grounds does not sustain. 9. It is also manifest from the record that the Appellant had only issued a Cover Note of the Policy to the Respondent. No terms and conditions or policy conditions or acts constituting breaches of warranties or policy conditions were provided or delivered to the Respondent. While a contract of insurance is admittedly based on uberrimae fides, the principles of utmost good faith must necessarily apply to both the insurer and the insured. The argument of the Appellant that the State Commission should have upheld the repudiation of the claim since it was based upon a report of a surveyor as held in Roshan Lal (supra) is of no avail to the appellant as the ratio in that case pertains to a joint survey report and is therefore distinguishable from the instant case. In the present case, the Appellant’s case that the insured stock was not covered by the insurance policy cannot be sustained since the Appellant himself is liable for non-disclosure of exclusion clauses/ warranty breaches. In Modern Insulators Ltd. (supra) the Hon’ble Supreme Court has explicitly laid down that: 8. It is the fundamental principle of insurance law that utmost good faith must be observed by the contracting parties and good faith forbids either party from non-disclosure of the facts which the parties know. The insured has a duty to disclose and similarly it is the duty of the insurance company and its agents to disclose all material facts in their knowledge since the obligation of good faith applies to both equally. 9 & 5. Since the terms and conditions of the standard policy wherein the exclusion clause postulating cesser of the insurance in case of second-hand used property was included were neither a part of the contract of insurance nor disclosed to the insured, the insurer could not claim the benefit of the said exclusion clause. 10. It is a settled position of law that in an appeal the parties cannot urge new facts. The pleadings of the respondent before the State Commission show that the respondent insurer pleaded that the property damaged was not covered under the insurance policy. This plea was given a go by before the National Commission and a new plea was taken up in the grounds of appeal that the terms and conditions of the insurance policy were violated by the appellant by using used kiln furniture the National Commission accepted this new ground and allowed the appeal which is not sustainable in law. 10. In the absence of any Policy conditions or warranties having been conveyed to the Respondent, the surveyor’s recommendation to disallow the claim on the basis of violation of breach of warranties is not sustainable and the reliance of the Appellant Insurance Company to repudiate the claim on this basis is perverse. In light of the foregoing, the State Commission’s reliance on Pradeep Kumar (supra) to disagree with the report of the surveyor cannot be held to be incorrect. 11. As per the impugned order, the State Commission has directed payment of Rs 30,93,188/- with interest @ 12% within 3 months or with interest @ 18% if paid thereafter. Regarding the quantification of the loss, it is apposite to note that insurance is an indemnification of loss against identified perils. We find that the surveyor’s report is based upon verified stock details and purchase bills provided by the Respondent which have been found to tally. Loss of stock of rice bran cakes as assessed is of Rs 42,41,025/- comprising 18,849 bags @ Rs 225/- per bag. Factoring in total loss of 17.5% (Rs 7,42,179/-) and partial loss of 30% (Rs 12,72,308/-), the total stock loss has been assessed by the surveyor as Rs 16,96,410/-. Allowing deduction for Excess Clause of Rs 10,000/- as provided for in the Policy, the loss works out to Rs 16,86,410/-. It would therefore be appropriate to consider this amount as the value of loss. However, compensation by way of interest @ 12% p.a. is considered excessive in view of the fact that commercial transactions do not warrant such rates of interest. Compensation by way of interest has to be restitutionary and based on equity. Accordingly, compensation @ 6% on the loss quantified payable within two months with penal interest @ 9% for default in payment is considered fair. 12. For the aforesaid reasons, the appeal is allowed in part and disposed of with the following directions: (i) Appellant shall pay the Respondent a sum of Rs.16,86,410/- towards loss of stock insured with compensation in the form of interest @ 6% p.a. from the date of the filing of this complaint till payment; (ii) This order shall be complied with within two months failing which the amount shall be paid with interest @ 9% p.a.; (iii) Appellant shall also pay the Respondent Rs 25,000/- as litigation costs Pending IAs, if any, stand disposed of with this order. |
