PER S.K. NAIK, MEMBER

1.     M/s U.P. Cooperative Federation Limited, who runs a cold storage at Semri, Jamalpur, Tehsil Ghosi, District Mau, U.P., has filed this complaint alleging deficiency in service on part of the National Insurance Company Limited, claiming a compensation of Rs.53,26,869.60 ps.

2.     Facts culminating in the complaint stated briefly are that the complainant had purchased a Refrigeration Plant (Stock) Policy covering the period from 7^th of April, 1997 to 6^th of November, 1997 on payment of a premium of Rs.60,329/-.  The policy was to cover the risk to 40,000 quintals of potatoes at the average price of Rs.180/- per quintal.  Thus, the value of the insurance was 40,000 quintals x Rs.180 = Rs.72,00,000/-.  While the cover note was issued on the 7^th of April, 1997, the policy document laying down the terms and conditions was, however, received by the complainant only on the 13^th of June, 1997.  It so happened that because of fluctuation in the power supply and subsequent power failure, the compressor of the cold storage got damaged on the 24^th of August, 1997.  The opposite party-Insurance Company, though it is claimed by the complainant, was informed on the same very day on phone, however, were formally communicated in writing about the breakdown incident on the 27^th of August, 1997.  A surveyor on behalf of the opposite party-Insurance Company, however, visited the cold storage for the first time on the 9^th of September, 1997.  Meanwhile, the complainant had initiated various steps, including advertisement in the local Press, urging the potato growers, who had stored their crops, to remove their stock which was deteriorating very fast due to the breakdown.  Because of the vagaries of weather and in the absence of any alternative arrangement to restore the power supply, the temperature in the cold storage chambers started rising significantly severely damaging the stored potatoes.  All possible steps including segregation as advised by the surveyor in his report dated 10^th of September, 1997 to minimize the loss were also taken by the complainant but the damage/loss had already occasioned beyond redemption.  The surveyor made a second visit on 18^th of September, 1997 but made no assessment of the loss despite having noticed that during his visit on the 9^th of September, 1997, the stock in chamber no. 2 had deteriorated badly, apart from sprouting upto 8” in length.  The potatoes in this chamber were rotting and fowl smelling.  He had further taken note of the fact that approximately 1000 bags opened and damaged potatoes were dumped outside in the compound. 

3.     In his letter dated 22^nd of September, 1997 addressed to the complainant regarding the outcome of his second visit, the surveyor impressed upon the complainant that irrespective of whether his claim is tenable under the policy conditions or otherwise, there was great urgency of disposing of the potato stock held in chamber no.I, as, according to him, except for about 10% stock, the rest of the potatoes in chamber no. I were in good condition.  Additionally, he appears to have asked for some additional documents/papers perhaps to enable him to assess the correct quantum of damage/loss.  While the complainant claims that the desired papers were duly forwarded but there was no response from the opposite party-Insurance Company with regard to any further visit by the surveyor and, therefore, the complainant had no other option but to file his claim as per his own assessment, which was done on the 8^th of December, 1997.  The opposite party-Insurance Company, however, failed to respond to the claim forcing the complainant to make several requests which also did not evoke any response.  Distressed and disappointed with the conduct of the opposite party-Insurance Company, the complainant had no other option but to file this complaint on the 8^th of March, 2000.  During the pendency of the complaint, however, the opposite party-Insurance Company, have repudiated the claim of the complainant vide their letter dated 15^th of September, 2000. 

4.     In response to the notice issued by this Commission on the complaint, the opposite party-Insurance Company has filed its written version and have contested the claim.  In their written version, the opposite party-Insurance Company have raised preliminary objections that the complaint was not maintainable being barred by limitation and that the complaint is not maintainable as the claim stands already repudiated vide their communicated dated 15^th of September, 2000 and, therefore, there was no subsisting cause of action to the complainant.  It was pleaded that while the alleged damage to the compressor occurred on the 24^th of August, 1997, it was only on the 27^th of August, 1997 that intimation with regard to the breakdown was given to them.  Additionally and more importantly, they have also taken the plea that there has been gross violation of the terms and conditions of the policy, inasmuch as loading of potatoes started when the temperature was 38.5^OC as against the maximum of 34^OC in terms of warranty clause no.6.  Further, the temperature all through after the loading remained well above the prescribed temperature and further that as against the stipulated condition that no stock of potato should have been accepted for storage after 15^th of April, 1997 without their written permission, the complainant had continued loading of potatoes upto 27^th of April, 1997.  Thus, the thrust of the written version is on the breach/violation of the terms and conditions of the policy while some other grounds also have been taken that the complainant despite the advice from the surveyor did not take adequate action to minimize the loss specially when the surveyor had stated that only 10% of the stock in chamber no. I had been affected, the complainant took no step to sell or dispose of the stock of the balance stock of potatoes.  Based on the report of the surveyor, they have justified their stand to repudiate the claim.   

5.     In the rejoinder to the written version, the complainant has strongly controverted the pleas and objections of the opposite party-Insurance Company and has reiterated its stand in the complaint. 

6.     In order to substantiate their respective pleas, affidavits on behalf of the complainant have been filed by Shri Tarunesh Kumar, District Manager/In-charge of cold storage and Shri Jawahar Lal Vishwakarma, the operator in the cold storage, besides some documents relating to the details of electrical breakdown, press release issued directing the farmers to lift the potatoes from the cold storage to minimize loss, some letters issued to the client potato growers, copy of the insurance claim etc.  On behalf of the opposite party-Insurance Company, an affidavit by one Shri A.K. Gupta, Manager, National Insurance Company Limited, Delhi Regional Office has been filed.  An affidavit from their surveyor Lt. Col. D.P. Jairath, Chartered Accountant, has also been filed.  Parties have generally relied upon their respective documentary evidence in support of their case. 

7.     We have heard the learned counsel for the parties and perused the records of the case.  It is not in dispute that the complainant M/s U.P. Cooperative Federation Limited had purchased two insurance policies, one for a sum of Rs.72,00,000/- for Refrigeration Plant (Stock) Policy covering the period from 7^th of April, 1997 to 6^th of November, 1997 and another for the Plant & Machinery.  The dispute pertains only to the stock policy.  It is also not in dispute that the compressor of the cold storage was damaged due to fluctuation in the power supply and subsequent power failure since this has not been challenged by the opposite party-Insurance Company.  The claim of the complainant that information with regard to the incident was given on the same day on the telephone has not been denied or controverted by the opposite party-Insurance Company but they admit that a formal communication dated 27^th of August, 1997 with regard to the damage to the compressor was received by them.  Even though the opposite party-Insurance Company has tried to raise this as an issue of delay on part of the complainant, we are not inclined to accept their objection on this ground.

8.     As per their own showing, the opposite party-Insurance Company appointed a surveyor Lt. Col. D.P. Jairath, who for the first time visited the premises of the cold storage on the 9^th of September, 1997, a fortnight after the occurrence of the incident.  With regard to this first visit, his report being relevant is reproduced below :-

“The Manager                                            10.09.1997

P C F Cold Storage

Semri Jallalpur

Distt. Mau Nath Bhanjan (U.P.)

Ref. :        Your D.O.S. Claim – damage to Potatoes stock – Policy under Cover Note No. 252553 dated 07.04.1997.

Dear Sirs,

At the request of R.O. Lucknow of your underwriters National Insurance Co. Ltd. Mau Nath Bhanjan, I have taken up the survey of your above loss/claim.  In this connection I visited your cold storage on 09.09.97 and carried out the survey with the assistance of Shri Hira Lal and Shri Kailash Rai.  Both the chambers were inspected and it was noted that chamber No. 1 had potatoes stock in much better health but the stock in chamber No.2 had deteriorated badly.  Apart from sprouting upto 8 in length, the potatoes in this chamber were rotting and badly smelling.  Approx 1000 B/s opened and damaged potatoes were dumped outside in the compound.  Shri Hira Lal stated that the actual damage may be much more than 4000 Bags reported earlier.  He also stated that already Two Notices have been published in the local Newspapers requesting the farmer owners to unload and remove their potatoes from the cold storage.

The undersigned had advised on the spot that immediate loss minimization steps be taken in consultation with your R.O. Azamgarh and local authorities to arrange unloading and removal of saleable potatoes.  Also the segregation of damaged and undamaged potatoes be taken up on warfooting so that further damage can be avoided and actual loss may be assessed reasonably accurately.  The above aspects were emphasized then and I take this opportunity to reiterate the same again.

Please take immediate action to unload and dispose of saleable stock and also to segregate the damaged and undamaged potatoes.  Also please inform me on telephone when can I come and verify the damaged potatoes.  Even if complete segregation may not be possible immediately I would like to visit you at the earliest again when sufficient segregation is over.  PLEASE INTIMATE WHEN CAN I VISIT YOU AGAIN for the above verification.

You books have already been signed by me.  The papers/information required from you will be intimated after my next visit.

Thank you,

Yours faithfully,

Sd/-

(D.P. JAIRATH)

Copy to :-

(emphasis added)

8A.    As can be seen from this letter addressed to the Manager of the complainant with a copy to the opposite party-Insurance Company, approximately 1000 bags of potatoes were already fully damaged and were dumped outside in the compound by the time the surveyor visited the cold storage.  He had also taken note of the complainant’s efforts to minimize the losses by inserting two notices in the local newspapers requesting the potato owners to take away their stocks from the cold storage.  Rather than assessing the loss in quantitative and financial terms, the surveyor thought it fit to only sign the books and go away with added sermons to take some more steps to minimize further loss.  Even when he returned to the cold storage after a week on the 18^th of September, 1997, he again did not undertake to assess the loss but advised the Manager of the complainant that irrespective of whether the claim is tenable under the policy conditions or otherwise, there was great urgency of disposing of the potato stock held in chamber no. I.  However, vide his letter dated 20^th of October, 1997 giving his final report to the opposite party-Insurance Company, the surveyor has made no mention of the damage of stock which he had personally seen and recorded earlier nor does he make any mention of the complainant having been asked/questioned with regard to the breach/violation of the terms and conditions of the policy.  A reading of the final report leaves no manner of doubt that the surveyor was under some kind of a pressure to forward his final report only on the basis of the breach of terms and conditions.  The stand taken by the complainant is that, while the cover note for the policy was issued on the 7^th of April, 1997, which did not mention any terms and condition, the policy document containing the terms and conditions was issued by the opposite party-Insurance Company on the 11^th of June, 1997, which was received by him on the 13^th of June, 1997.  This is a matter of fact which has not been denied by the opposite party-Insurance Company.  Obviously, therefore, the complainant until the receipt of the policy document could not be expected to know the stipulation and terms and conditions incorporated in the policy.  It is not the case of the opposite party-Insurance Company that it was a renewal of any earlier policy and, therefore, to say that there is a breach of terms and conditions which was not known to the complainant cannot be a ground for foisting the blame on the complainant.    

8B.    In this respect, we would respectfully rely on the judgment of the Supreme Court in the case of Modern Insulators Ltd. v. Oriental Insurance Co. Ltd. [(2000) 2 SCC 734], in which it has been held that :-

“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 (para 8).

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 (Paras 9 and 5).”

The principle enunciated in this judgment of the Hon’ble Apex Court is fully applicable to the facts of this case since the opposite party-Insurance Company had not informed/communicated the terms and conditions of the policy in time and the complainant oblivious of such terms and conditions had undertaken the loading operations.

9.     Since the entire case of the opposite party-Insurance Company is based on the premise that the complainant has not adhered to maintaining the temperature prescribed at the stage prior to the loading of the potato stock, during the loading and in the post-loading phase, as prescribed in the terms and conditions of the policy, which was not known to the complainant, and especially when the complainant has argued that the representatives of the Insurance Company/surveyor were present at the time of loading and nobody ever informed that loading of potato after 15^th of April, 1997 required their prior approval, we find substance in the said argument.  It is not that loading after 15^th of April, 1997 was totally prohibited but only it required the approval of the opposite party-Insurance Company, which in the present case can safely be inferred to be available to the complainant as their own representative was present at the premises when the loading was going on after the 15^th of April, 1997. 

10.    The opposite party-Insurance Company has come out with another defence that even prior to the breakdown/damage to the compressor, there has been negligence on part of the complainant to maintain the temperature as per the requirement despite there being one or two compressors in working condition, due to lack of proper planning and diligence which had already raised the temperature in the chambers considerably and according to them it was not a breakdown on the 24^th of August, 1997 that alone was the cause of rise in the temperature in the cold chambers and subsequent damage to the potatoes.  We are not inclined to buy this argument as the opposite party-Insurance Company has failed to promptly depute their surveyor to visit the cold storage and a delay of about two weeks is a rather long period for the potato stock to deteriorate especially during the month of August/September.  Thus, we are of the opinion that there has been negligence on part of the opposite party-Insurance Company and the deficiency in the service is apparent. 

11.    Now coming to the question of compensation, we find that despite an endorsement to the opposite party-Insurance Company in his letter dated 10^th of September, 1997 (Annexure R-4) that details all loss and liability will be sent after his next visit which was expected to be after about a week, the surveyor after the second visit in his letter dated 22^nd of September, 1997 has given no reason as to why he was not in a position to assess the loss.  He had not detailed any requirement of documents/letters required from the Manager of the cold storage if they were very necessary for him to assess the total losses.  Interestingly, within a month from this communication, he has sent his final report to the opposite party-Insurance Company without giving any intimation with regard to his mind to the complainant.  Thus, we are now faced with a situation where there is no estimate of the loss by the surveyor.  The complainant has, however, made a claim of Rs.53,26,869.60 ps. stating that 3523 bags of white potatoes and 30436 bags of red potatoes were totally damaged and has calculated the loss @ Rs.180/- per quintal.  Details with regard to the actual stock in the cold storage on the date of the incident, the quantity segregated and salvaged and disposed of and the quantity taken away by the stockists have not been furnished.  In the absence of any evidence with regard to the claim and for want of an assessment by the surveyor, we are in a somewhat piquant situation to award a compensation, which the complainant deserves.  The only basis which in our view would be to base the quantum of loss on the basis of the ‘on the spot observation’ of the surveyor in his first report dated 10^th of September, 1997, in which he has categorically mentioned that 1000 bags of potatoes were thoroughly damaged and were dumped outside in the compound.  No doubt, the Manager of the cold storage had pleaded with him that the actual damage was more than 4000 bags.  Be that as it may, however, in the claim it has been stated that 29593.72 quintals of potatoes were damaged, which cannot be believed, especially when one chamber was not affected and the surveyor had opined that even with respect to chamber no. I only 10% of the potatoes had been damaged.  Thus, to strike a balance we may at the most take a figure of 4000 bags of potatoes as the loss, which would come to 3480 quintals and calculated @ Rs.180/- per quintal the total loss would come to Rs.6,26,400/-.  This award of compensation to our mind would meet the ends of justice and we direct the opposite party-Insurance Company to pay this amount with interest @ 6% per annum from the date of filing of this complaint before this Commission within a period of six weeks, failing which it will attract interest of 9% per annum for the period of default.

12.    The complaint, accordingly, is partly allowed in the above terms.  However, there shall be no order as to cost.