JUSTICE V.K.JAIN, PRESIDING MEMBER (ORAL)

          The complainant who is the appellant in FA No.2104 of 2017 and respondent in FA No.2409 of 2017, obtained a machinery break-down insurance policy from the Oriental Insurance Company Ltd., appellant in FA No.2409 of 2017 and respondent in FA No.2104 of 2017, in respect of RRB India Ltd., Type-V, 39-500 KW Wind Electric Generator for a sum assured of Rs.2,78,00,000/- and for a transformer at the sum assured of Rs.7,00,000/-.  The policy was valid from 20.10.2008 to 19.10.2009. 

2.      The machine started emitting abnormal sound and was therefore, stopped immediately on 29.09.2009.  The insurer was informed and the complainant started its dismantling.  Mr. P.S. Ramanathan who was appointed as a surveyor to assess the loss to the complainant, estimated the gross loss at Rs.34,95,635/-.  He recommended deduction of depreciation, salvage, under-insurance and policy excess from the aforesaid estimated gross loss.  The insurer thereafter, appointed a second surveyor who made deduction on account of depreciation, salvage, under-insurance and policy excess and recommended payment of Rs.16,37,836/-.  That amount not being acceptable to the complainant, he approached the concerned State Commission by way of a Consumer Complaint. 

3.      The complaint was resisted by the insurer which justified the compensation which it had offered to the complainant. 

4.      Vide impugned order dated 14.09.2017, the State Commission directed as under:

1. The O.P. will pay a sum of Rs.23,79,404/- (Rupees Twenty Three Lakhs Seventy Nine Thousand Four Hundred Four) to the Complainant within 45 days from the date of this order.

2. The O.P. will also pay interest @ 9% per annum on Rs.23,79,404/- from the date of filing of the complaint i.e. 02.01.2017 till realization.

3. The O.P. will also pay a sum of Rs.10,000/- (Rupees Ten Thousand) to the complainant towards cost of litigation.

5.      Since both the parties are aggrieved from the order of the State Commission, both of them are before this Commission by way of these two separate appeals. 

6.      As far as the salvage is concerned, admittedly, the amount was Rs.20,000/- which is liable to be deducted from the gross estimated loss.  As far as policy excess is concerned, as per the terms of the insurance policy, it was deductible at the rate of 0.017986% of the sum insured subject to a minimum of Rs.5,000/-.  The policy excess has to be calculated and deducted accordingly from the estimated gross estimate. The main dispute between the parties is as regards the depreciation and under-insurance. 

7.      There is no evidence to prove that the market value of the machinery in question on the date it was got insured for the period from 20.10.2008 to 19.10.2009, was more than Rs.2,78,00,000/-.  Though the second surveyor took the said value at Rs.3,31,99,778/-, that in my view, could not have been done in the absence of evidence to prove that the market value of the machine as on the date of commencement of the policy on 20.10.2008 was more than the value declared by the complainant and accepted by the insurer.  Therefore, I find no justification in making any deduction on account of the alleged under-insurance. 

8.      As far as depreciation is concerned, the surveyor has applied the same from the date the last insurance policy in respect of the said machinery was obtained for the period i.e. from 20.10.2008 to 19.10.2009.  The question as to how the depreciation is to be deducted in such matters came up for the consideration of the Hon’ble Supreme Court in a recent decision Civil Appeal No.1299 of 2019 Sumit Kumar Saha Vs. Reliance General Insurance Company Ltd. decided on 30.01.2019.  In Sumit Kumar Saha (supra), the appellant had purchased an excavator on 27.03.2007 for Rs.51,74,000/- and had accordingly, obtained an insurance cover in respect of the said excavator.  The insurance policy was thereafter, got renewed, the last policy being for the period from 22.07.2009 to 21.07.2010 for a sum insured of Rs.46,56,600/-. The excavator having got damaged in a fire, a claim was lodged and assessment of the loss was made by the surveyor at Rs.25,24,273/-.  Being aggrieved, the complainant/appellant approached the concerned State Commission by way of a Consumer Complaint.  The complaint was resisted by the insurer.  The State Commission allowed the claim to the extent of Rs.41,90,940/- with interest.  Being aggrieved from the order passed by the State Commission, the insurer approached this Commission by way of an appeal.  This Commission directed payment of a sum of Rs.34,17,500/- to the complainant.  Being aggrieved from the order passed by this Commission, the complainant approached the Hon’ble Supreme Court by way of a Special Leave Petition which was later converted into a Civil Appeal.  The damage being a case of total loss, the question which arose was as to what amount or value the complainant was entitled.  The excavator, as noted earlier, was purchased in 2007 at a price of Rs.51.47 lacs whereas it was last insured for Rs.46,56,600/-.  The Hon’ble Supreme Court rejected the case of under-insurance pleaded by the insurer, noticing that as against the sum of Rs.46,56,600/-, the depreciated value, according to the insurer was only Rs.34,42,500/- and observed that if at all it was a case of over-insurance.

9.      Coming to the deduction of depreciation, the Hon’ble Supreme Court inter-alia observed and held as under:

16.    The relevant stipulation in the present case, namely clause (b) of Provision -Basis of Indemnity speaks of calculation of actual value by deducting “proper depreciation”. The Surveyor of the Insurance Company has worked the figure of depreciation by starting with the figure of Rs.51 lakhs as the cost of a new Excavator and then deducting 32.5% by way of depreciation assuming the life of Excavator to be 10 years. In his assessment, therefore, the stipulation of the figure of Rs.46,56,600/- on the day the contract was entered into, had no significance. Was he right and justified and how could he assume the life of the Excavator to be 10 years? If that was the understanding between the parties, the figure of sum insured could have been different. If the surveyor was calculating the depreciation from the day when the policy was entered into till the date when the accident occurred, such exercise could certainly be justified. But the exercise undertaken was in the nature of not only considering the depreciation post the policy but even including the period prior thereto. That exercise was already undertaken by the parties and in their assessment the real value of the Excavator as on the day when the policy was taken out was Rs.46,56,600/-. In the face of such agreement and understanding, the surveyor could not have calculated depreciation for a period prior to the date of policy or contract. The purport of aforesaid clause was to arrive at proper valuation as on the day when there was total destruction. He could have undertaken the exercise post the date of policy to assess the real value of the insured property as on the date when the fire actually took place. And for such purposes, the assessment must start with the amount described as “sum insured” on the day when the contract was entered into. It was not open to the Surveyor or to the Insurance Company to disregard the figure stipulated as ‘sum insured’. The loss had to be assessed in the present case, keeping said figure in mind.

17.    Having considered the entire matter, in our view, except in cases where the agreement on part of the Insurance Company is brought about by fraud, coercion or misrepresentation or cases where principle of uberrima fide is attracted, the parties are bound by stipulation of a particular figure as sum insured. Therefore, the surveyor and the Insurance Company were not justified in any way in questioning and disregarding the amount of “sum insured”. Further depreciation, if any, can always be computed keeping the figure of “sum insured” in mind. The starting figure, therefore, in this case had to be the figure which was stipulated as “sum insured”. Since Excavator, after the policy was taken out was used for eleven months, there must be some reasonable depreciation which ought to be deducted from the “sum insured”.

10.    In the present case, the insurer accepted the proposal for insuring the machine for a sum of Rs.2,78,00,000/- despite knowing fully well that the said machine had been purchased much earlier at the same price.  There was no fraud or misrepresentation on the part of the complainant in obtaining the insurance since, the purchase value of the machine was known to the insurer from the very beginning, when the first policy in respect of the said machine was issued.  If the actual value of the machine as on 20.10.2008 was less than Rs.2,78,00,000/-, the insurer ought not to have accepted the valuation disclosed by the complainant and ought to have insisted on insuring the machine at its depreciated value.  In view of the decision of the Hon’ble Supreme Court in Sumit Kumar Saha (supra), the insurer in such circumstances, is entitled to apply only with effect from 20.10.2008 till the date on which the machine got damaged. 

11.    For the reasons stated hereinabove, both the appeals are disposed of with the following directions:

          (i)      The insurer shall deduct the policy excess, salvage value and depreciation in terms of this order from the gross estimated loss of Rs.34,00,000/- and pay the balance amount to the complainant.  The depreciation shall be applied, for the period from 20.10.2008 to 29.09.2009 only on the parts which had got damaged and were required to be replaced. 

          (ii)      The insurer shall also pay interest to the complainant @ 9% per annum w.e.f. 6 months from the date of lodgment of the claim till the date of payment.

          (iii)     The payment in terms of this order shall be made within three months from today.