BEFORE:

HON’BLE MR. SUBHASH CHANDRA, PRESIDING MEMBER

HON’BLE DR. SADHNA SHANKER, MEMBER

For the Appellants              Ms Nanita Sharma, Advocate

For the Respondent             Mr K S Rama Rao, Advocate

ORDER

PER SUBHASH CHANDRA

1.      This first appeal under Section 19 of the Consumer Protection Act, 1986 (in short, ‘the Act’), challenges the order dated 03.03.2017 of the Telangana State Consumer Dispute Redressal Commission, Hyderabad in CC No. 39 of 2010, allowing the complaint and directing the opposite party (appellant herein), to pay the respondent a sum of Rs 29,07,000/-, together with interest @ 9% from the date of repudiation (19.11.2008) till realization, together with costs of Rs 3,000/- within 4 weeks.
2.      The delay of 179 days in the filing of this first appeal was considered in the light of IA 15483 of 2017, and for the reasons stated therein, the delay was condoned in the interest of justice.
3.      We have heard the learned counsel for both the parties and produced the records carefully.

4.      The relevant facts of this case, in brief, are that the appellant is engaged in the business of rolling steel making and for this purpose it has a plant to manufacture MS ingots. The respondent obtained a Standard Fire and Special Perils policy (in short, ‘the Policy’) for the period 16.05.2008 to 15.05.2009 to cover the building, plant and machinery in the insured premises of the plant, known as M/s Raghava Ispat, manufacturing the MS ingots. On 13.06.2008, new machinery was installed by way of induction of furnace, crucible, spout crucible barandhs, crucible and stand SS antenna along with other accessories acquired in April 2008. The furnace crucible after installation was fired up and the temperature slowly increased to 1600 degrees Celsius in the month of June 2008. On 12.06.2008 at around 8.30 am, while the furnace crucible was being heated, there was a blast and the molten metal flowed out into the furnace room. The incident was informed to the appellant insurance company by the respondent and a claim along with relevant documents for Rs 47 lakhs as loss on account of this incident was submitted to the appellant insurance company. The appellant appointed a surveyor, B Nageshwara Rao, to assess the loss. However, in view of non-cooperation of the respondent, the appellant insurance company appointed another surveyor, APC Reddy, who assessed the loss after inspection for Rs 14,80,940/- as per the terms and conditions of the policy, including deduction on account of salvage. Based on the report of this surveyor, the appellant repudiated the claim on the ground that the crucible had suffered a blast due to over-temperature which was not covered under the fire policy and therefore the cause of loss fell under the Exclusion Clause 1(A) (ii) of the policy under which destruction or damage caused to property by its undergoing any heating or drying process was excluded. It was also excluded, according to the complainant, under Condition No. 7 of the General Exclusions under the Policy, The appellant also based its repudiation on the service report and bill of M/s Megatherm (suppliers of the equipment) dated 21.06.2008 and its fax dated 23.06.2008 that there was an internal short circuit in the coil of the crucible due to which the blast occurred due to ‘over-temperature’. The repudiation of claim was challenged by the respondent before the State Commission in Consumer Complaint No. 39 of 2010 claiming Rs 29,07,000/- with interest @ 24% and compensation of Rs 5 lakhs with costs which was disposed of by way of order dated 27.06.2012, partly allowing the complaint. This order of the State Commission is impugned before us.
5.      According to the appellant, the order of the State Commission was erroneous since it was based upon conjectures and surmises instead of facts and evidence on record and had failed to appreciate that the claim had been repudiated correctly on the grounds of being untenable.
According to the appellant, the furnace crucible had suffered a blast due to ‘over-temperature’ and not due to fire and therefore the mishap was not covered under the terms and conditions of the insurance Policy and fell within the Exclusion Clause No. 7 of the Policy itself.
It was also contended that the surveyor had not elucidated the proximate cause of loss to be covered under the purview of policy coverage.
As per the report of the surveyor, it was clearly stated that the damage was not caused due to outburst of fire or electrical short-circuit but due to machinery on account of over-temperature and therefore the proximate cause of loss was not under the purview of the policy coverage and therefore, not tenable. It was therefore agreed that the appeal be allowed since the terms of the policy have to be strictly construed as per settled law and that the State Commission’s order deserved to be set aside.
6.      Per contra, it was contended by the respondent that the policy covered the perils of explosion/ implosion, excluding destruction or damage to boilers other than domestic boilers, economical or other vessels, machinery or offering or their content resulting from their own explosion/ implosion caused by centrifugal force. It was stated that as per Clause 7 of the Policy, damage to electrical items by fire was covered. However, damage caused to the crucible was on account of bursting and not due to fire. It was contended that the insured incurred Rs.29,07,000/- as the cost of repair towards the damaged furnace whereas the surveyor had assessed the loss at Rs. 14,90,940/- after deducting salvage value from the assessed loss of Rs 17,90,940/-. It was contended that the Surveyor’s Report did not elucidate how the proximate cause of loss did not fall under the purview of the Policy and therefore, the report was devoid of merit. The respondent had estimated the loss at Rs. 52,58,080/- whereas the final claim was only Rs. 29,07,000/- based on the cost of repairs. It was admitted that the appellants did not consider the documents and other evidence submitted and relied upon the service report of M/s Megatherm Electronics Pvt Ltd. The appellants were alleged to have failed to take into consideration material facts on record while arriving at their assessment. It was also alleged that the surveyor was not a qualified engineer to assess the loss. He had also not taken any expert opinion nor examined any expert in this regard to assess the loss suffered by the respondent and the report did not set out any cogent reasons for arriving at its conclusion. It was, therefore, contended that the State Commission had passed a reasoned and reasonable order awarding a compensation of Rs. 29,07,000/- with interest @ 9% from the date of repudiation till realization with costs which should be allowed.
7.      From the foregoing, it is evident that the facts insofar as they relate to the incident of a blast in the premises of the respondent M/s Raghava Ispat on 21-06-2008, and the coverage of the plant and machinery on the insured premises under the Policy dated 16.05.2008 are not in dispute.
The dispute is that whether the claim preferred fell within the purview of the scheme of the terms of the Policy or whether they were excluded.
It is seen from the Policy that the risks covered included building and stocks and contents. The risk covered included engineering workshop, structural steel fabricators, sheet metal fabricators, hot/ cold rolling pipe, extruding, stamping, pressing, forging mills, metals melting, foundries, galvanizing works, metal extraction, ore processing other than aluminium, copper, zinc. The description of risk was on superstructure of buildings and civil constructions, compound wall and plant and machinery of MS Ingots manufacturing unit. The repudiation of claim reads as under.

“On perusal of your claim documents, the following points have come to light.

As per survey report, the crucible was blasted due to over-temperature which is not covered under the fire policy issued to you. The cause of loss falls under exclusion number 1(A)(ii) of fire i.e. excluding destruction of damage caused to the property by its undergoing any heating or drying process and also general exclusion condition number 7 of fire policy i.e. “loss, destruction or damage to any electrical machine, apparatus, fixtures or fitting arising from or occasioned by overrunning, excessive pressure, short-circuiting, arcing, self-heating or leakage of electricity from whatever cause (lightening included) provided that this exclusion shall apply only to the particular electrical machine, apparatus, fixture or fitting so affected and not to other machines,  apparatus, fixture or fitting so affected and not to other machines,  apparatus, fixtures or fittings which may be destroyed or damaged by fire so set up”.

Further it is observed from their service report/bill of Megatherm dated 21.06.2008 that the crucible was blasted due to internal short-circuit in the coil.

From the fax message dated 23.06.2008 sent to Mr. Ashish Sen Gupta by Mr. G V B Kishore, it is noted that the crucible blasted due to over temperature.

From the above it is very clear that the crucible was blasted due to over temperature or internal short-circuit which is not covered as per the fire policy issued to you.

Therefore, we are unable to entertain your claim and the claim is repudiated for the above reasons.

[ Emphasis supplied ]

8.      Thus, while the claim of the respondent is based on the ground that the incident of the blast in the crucible was covered under an admissible policy condition, the appellant has repudiated the claim on the basis of its Surveyor’s Report on the ground that the crucible suffered a blast on account of excessively high temperature (‘over temperature’), the cause of which was not fire and was therefore excluded under the purview of the policy in question. The report of the surveyor is challenged by the respondent on the ground that the surveyor was not a qualified engineer and that he did not consider the contentions of the respondent with regard to the cause of the fire and did not set out specifically what according to it was the proximate cause of the fire itself.

9.      From the facts of this case it is evident that the repudiation of the claim has been done on the basis of the Surveyor’s Report. As per settled law, any claim of insurance under Section 64UM of the Insurance Act, 1938 is mandatorily required to be surveyed by an authorized surveyor of the IRDA to be appointed by the insurance company. Section 64 UM reads as under:

"64- UM(2) - No claim in respect of a loss which has occurred in India and requiring to be paid or settled in India equal to or exceeding twenty thousand rupees in value on any policy of insurance, arising or intimated to an insurer at any time after the expiry of a period of one year from the commencement of the Insurance (Amendment) Act, 1968, shall, unless otherwise directed by the Authority, be admitted for payment or settled by the insurer unless he has obtained a report, on the loss that has occurred, from a person who holds a licence issued under this section to act as a surveyor or loss assessor (hereafter referred to as "approved surveyor or loss assessors):

Provided that nothing in this sub-section shall be deemed to take away or abridge the right of the insurer to pay or settle any claim at any amount different from the amount assessed by the approved surveyor or loss assessor.

(3) The Authority may, at any time, in respect of any claim of the nature referred to in sub-section (2), call for an independent report from any other approved surveyor or loss assessor specified by him and such surveyor or loss assessor shall furnish such report to the Authority within such time as may be specified by the Authority or if no time limit has been specified by him within reasonable time and the cost of, or incidental to, such report shall be borne by the insurer.”

As laid down by the Hon’ble Supreme Court in Sri Venkateswara Syndicate vs Oriental Insurance Co. Ltd. & Anr., Civil Appeal No. 4487 of 2004 decided on 24 August, 2009, any claim in excess of Rs.20,000/- under Section 64 UM of the Insurance Act, 1938 is to be surveyed and reported by an authorised surveyor. While the report of a surveyor has to be given due consideration, it has been held by the Hon’ble Supreme Court as under:

22.   The assessment of loss, claim settlement and relevance of survey report depends on various factors. Whenever a loss is reported by the insured, a loss adjuster, popularly known as loss surveyor, is deputed who assess the loss and issues report known as surveyor report which forms the basis for consideration or otherwise of the claim. Surveyors are appointed under the statutory provisions and they are the link between the insurer and the insured when the question of settlement of loss or damage arises. The report of the surveyor could become the basis for settlement of a claim by the insurer in respect of the loss suffered by the insured. There is no disputing the fact that the Surveyor/Surveyors are appointed by the insurance company under the provisions of Insurance Act and their reports are to be given due importance and one should have sufficient grounds not to agree with the assessment made by them. We also add, that, under this Section the insurance company cannot go on appointing Surveyors one after another so as to get a tailor made report to the satisfaction of the concerned officer of the insurance company, if for any reason, the report of the Surveyors is not acceptable, the insurer has to give valid reason for not accepting the report. Scheme of Section 64-UM particularly, of sub-sections (2), (3) and (4) would show that the insurer cannot appoint a second surveyor just as a matter of course. If for any valid reason the report of the Surveyor is not acceptable to the insurer may be for the reason if there are inherent defects, if it is found to be arbitrary, excessive, exaggerated etc., it must specify cogent reasons, without which it is not free to appoint second Surveyor or Surveyors till it gets a report which would satisfy its interest. Alternatively, it can be stated that there must be sufficient ground to disagree with the findings of Surveyor/Surveyors. There is no prohibition in the Insurance Act for appointment of second Surveyor by the Insurance Company, but while doing so, the insurance company has to give satisfactory reasons for not accepting the report of the first Surveyor and the need to appoint second Surveyor.

[Emphasis supplied]

10.    The Hon’ble Supreme Court has also laid down in Suraj Mal Ram Niwas Oil Mills (P) Ltd., vs United India Insurance Co. Ltd., (2010) 10 SCC 567 that the terms of a contract have to be read as agreed upon between the parties and that an insurance policy represents a contract of insurance between the signing parties.  It has been held that:

Thus, it needs little emphasis that in construing the terms of a contract of insurance, the words used therein must be given paramount importance, and it is not open for the court to add, delete or substitute any words. It is also well settled that since upon issuance of an insurance policy, the insurer undertakes to indemnify the loss suffered by the insured on account of risks covered by the policy, its terms have to be strictly construed to determine the extent of liability of the insurer.  Therefore, the endeavour of the court should always be to interpret the words in which the contract is expressed by the parties”.

[ Emphasis added ]

11.    However, it has also been laid down by the Hon’ble Supreme Court in New India Assurance Co. Ltd. Vs. Pradeep Kumar, (2009) 7 SCC 787, that a report of a surveyor is not the last and final word or so sacrosanct that it cannot be departed from provided the report is established to be arbitrary or perverse. The Apex court had held as under:

15.     ………………although the assessment of loss by the approved surveyor is a pre-requisite for payment or settlement of claim of twenty thousand rupees or more by insurer, but surveyor's report is not the last and final word. It is not that sacrosanct that it cannot be departed from; it is not conclusive. The approved surveyor's report may be basis or foundation for settlement of a claim by the insurer in respect of the loss suffered by the insured but surely such report is neither binding upon the insurer nor insured.

12.    In the instant case, it is the case of the respondent that the report of the surveyor who was not a qualified engineer was arbitrary in that it did not take into consideration all the facts which led to the cause of the mishap resulting in loss to the respondent. However, it has not been able to bring on record any cogent evidence to establish that the report of the surveyor was arbitrary or biased by way of any technical report to support his case. On the contrary, the appellant has repudiated the claim on the grounds of the report of the surveyor as per which it has been concluded that the cause of the blast in the crucible was not due to a fire which was a covered risk under the Policy and was due to “over temperature” due to a blast which was not a covered risk. It has also relied upon the letter and fax of the manufacturer of the equipment (M/s Megatherm) which has, vide its letter dated 21.06.2008 and fax dated 23.06.2008, informed the respondent that the cause of the incident was on account of an internal short circuit in the coil of the crucible. These communications are not disputed by the respondent. There is, therefore, no reason to believe that the report of the surveyor was biased or perverse in any way or arbitrary.

13.    In view of the foregoing, the order of the State Commission in holding that the claim of the respondent be allowed to the extent of Rs 29,07,000/- on the ground that it was covered under the Policy’s conditions cannot be accepted The State Commission has clearly fallen into error in reaching its conclusion which is not based on any cogent evidence to establish that the report of the surveyor was arbitrary or perverse as held in Pradeep Kumar (supra). No basis has been provided for estimating the quantum of loss of Rs.29,07,000/-. Merely because the cost of repairs was projected by the respondent to be Rs 29,07,000/-, the same cannot be accepted to be the compensation.

14.    In view of the discussion above, the appeal is liable to succeed. It is accordingly ordered. The appeal is allowed and the order of the State Commission is set aside.

15.    In the circumstances of the case, there shall be no order as to costs. Pending IAs, if any, stand disposed of with this order.