PER MR SUBHASH CHANDRA

1.     This appeal under section 18 of the Consumer Protection Act, 1986 (in short, ‘the Act’) challenges the order dated 28.11.2014 in Complaint no.27 of 2010 partly allowing the complaint filed by the respondent before the Gujarat State Consumer Disputes Redressal Commission, Ahmedabad (in short, ‘the State Commission’) and directing payment of Rs.23,40,000/- in settlement of the claim under the Contractor’s All Risk Policy along with Rs.1,50,000/- for the delay and Rs.50,000/- litigation cost along with interest @ 9% from 10.04.2008 till realisation.

2.     The facts, in brief, are that the appellant insurance company had issued a Contractor’s All Risk Policy to the respondent, which is a construction company, for risk of Rs.5,99,92,000/- comprising of Rs.1,99,99,92,000/- for material and Rs.4,00,00,000/- for labour. The respondent had undertaken the project for construction of Waste Weir and Earthen Dam of Hadlyyana in Jodia Taluka of Jamnagar. On account of unprecedented rainfall in Jamnagar District commencing from 09.08.2007 due to flood in Kankavati river, on 09.08.2007 and 10.08.2007, the construction site was damaged extensively due to flooding. On 13.09.2007, the respondent intimated the appellant and assessed the loss at Rs.85,00,000/-. M/s Krij Consultants were appointed as surveyor by the appellant who visited the site on 22.09.2007 and 25.11.2007. On 24.09.2007 the surveyor sought certain information/ documents and submitted his report on 01.09.2008. The surveyor concluded that it was not confirmed that the loss was prior to or after the inception of the policy, as the project had commenced in May 2007. However, the net loss was assessed at Rs.10,57,747/-. Vide letter dated 10.04.2008, the respondent voluntarily offered before the surveyor to accept the assessed loss at Rs.23,40,000/-, subject to the terms and conditions of the policy. On 15.09.2008, the appellant, based on the surveyor’s report, sought further details regarding the commencement of the work on 14.05.2007 since the work order was received on 31.03.2007 and the reasons for obtaining the policy in July 2007 instead of May 2007. After consideration of the information provided by the respondent, the appellant repudiated the claim vide letter dated 10.12.2008 on grounds of suppression of material facts that the complainant had commenced the construction work prior to the filing of the proposal form for the policy in question on 31.07.2007. The repudiation letter dated 10.12.2008 reads as below:

“According to papers submitted by you and repeated correspondence and after scrutinization carried by us with consultation with surveyor, it is not confirmed that loss was not prior to inception of the policy. For your kind information, we would like to state that in the 2^nd week of July 2007, Jamnagar district was severely affected by heavy rain fall and there was heavy flood in the 2^nd week of July 2007, there was many claims of flood during that period in Jamnagar District.  Your insured site is also located in Jamnagar district. Knowingly, you have taken insurance on 31.07.2007 during that period. We have taken the insurance in good faith. As it is not proved that there was no loss before 31.07.2007, so it is concluded that loss might have occurred before 31.07.2007 and it is prior to inception of policy, so we cannot entertain your claim.”

3.     On 11.03.2010, the respondent invoked the arbitration clause claiming Rs.23,40,000/- along with 18% interest from the date of assessment which was replied to by the appellant on 31.03.2010 denying the entire liability. The respondent then filed the Consumer Complaint no.27 of 2010 before the State Commission 26.04.2010 claiming Rs.23,40,000/- towards the loss assessed, Rs.1,50,000/- for mental torture and agony and Rs.50,000/- as cost of litigation with interest @ 18% from 10.04.2008 (the date of consent) till realisation. The State Commission vide its order dated 28.11.2014 held that the appellant was liable for unfair trade practice in “wrongly issuing the policy after recovering huge premium depriving the complainant for a long period of the payable amount of loss”, and has also held that no evidence had been produced regarding concealment of facts. It was held that the insurance company had given consent to compensation of Rs.23,40,000/- with 9% interest.  The State Commission has ordered as under:

“Complaint no.27 of 2010 is hereby partly accepted. Opponent insurance company is hereby ordered that as per the surveyor’s report, after obtaining consent from the complainant for accepting the loss amount of Rs.23,40,000/- have not paid to the complainant, therefore, to pay to the complainant said amount of Rs.23,40,000/- and Rs.1,50,000/- for the delay and Rs.50,000/- being the cost of complaint and thus total Rs.25,40,000/- by the opponent insurance company, as per the consent given by the complainant together with 9% interest recoverable from 10.04.2008 till its recovery, within a period of one month from the day of this order. Insurance Company to bear their own expense.”

4.     We have heard the learned counsel for the parties and perused the material on record.

5.     It was argued on behalf of the appellant that as the construction of the project had been commenced on 14.05.2007 as evidenced by the first Running Account (RA) bill which was paid on 31.05.2007 and the second RA Bill which was paid on 30.06.2007 in pursuance to the Work Order dated 31.03.2007. The respondent had obtained the policy on the basis of its proposal form dated 31.07.2007 without disclosing the material fact of having commenced the project construction work on 14.05.2007. It was argued that the respondent had, therefore, violated the doctrine of ubberima fide or utmost good faith and therefore, the repudiation of the claim on the basis of suppression of material fact was justified. It was contended that as per Clause 1 of the General Conditions:

“The due observance and fulfilment of the terms of this policy in so far as they relate to anything to be done or complied with by the insured and the truth of the statements and answers in the questionnaire and proposal made by the insured shall be a condition precedent to any liability of the country”.

[ emphasis added ]

6.     The surveyor’s report dated 11.09.2008 had observed that it was not confirmed whether the loss for which the claim was filed was prior to or after the inception of the policy. The surveyor had also noted that the insurance had not filed any Pre-Inspection report confirming soundness of construction prior to inception of the policy despite the same being sought by the surveyor. It was contended that the State Commission had failed to appreciate these facts and therefore, the impugned order was liable to be set aside. It was also submitted that the State Commission had failed to appreciate that the respondent’s letter dated 10.04.2008 conveying their consent for the assessed loss of Rs.23,40,000/- did not imply that the appellants had accepted the assessed loss of that amount since it was only a letter provided to the surveyor suo motu by the respondent without being asked to execute such a letter. It was also submitted that the State Commission had failed to appreciate that the policy constituted a clear case of under insurance as by 33.39% the value of the tender was Rs.6,00,50,453/- as per the tender document and therefore, the deduction towards excess of Rs.5,00,000/- under the policy was justified. While assessing the net assessed loss at Rs.10,57,747/- it was contended in addition that the respondent was not a ‘consumer’ under the Act as it was undertaking large scale business activities with a profit motive and that the case involved complicated questions of fact which could not be adjudicated in summary proceedings and that a civil court was the appropriate forum to decide such issues. The appellant is before this Commission praying to:

1. Set aside judgment dated 27.11.2014 in Consumer Complaint no.27 of 2010 title as Vipul Construction vs United India Insurance Company Limited passed by the Consumer Disputes Redressal Commission, Gujarat State, Ahmedabad;
2. Pass such further and other orders as this Hon’ble Court may deem just, necessary, expedient and in the interest of justice in the facts and circumstances of the case.

7.     From the facts on record, it is manifest that the respondent had applied for a Contractor’s All Risk Policy to the appellant vide proposal form dated 31.07.2007. This form has not disclosed that the work on the project had already commenced. The respondent has not disputed the contention of the appellant that two Running Account Bills dated 31.05.2007 and 30.06.2007 had already been raised in respect of the work on the site on which the alleged flood related damage occurred. It is also not denied by the respondent that pursuant to the work order dated 31.03.2007, work on the site had commenced on 14.05.2007. It is, therefore, admitted that the work on the project had commenced much prior to the application for the policy and its sanction. Non-disclosure of this fact in the proposal form cannot be denied by the respondent to be a suppression of a material fact it was bound to disclose to the appellant at the time of applying for the policy in question. The report of the surveyor appointed by the appellant has also indicated that the work had commenced on the project site prior to obtaining of the policy. The repudiation of the claim of the respondent by the appellant is on the ground that there was suppression of material evidence since the work had commenced prior to the submission of the proposal form for the policy. These facts have not been controverted by the respondent.  It has also not controverted the findings of the surveyor which is mandatorily required to be obtained by the appellant in order to settle any claim of insurance under section 64 UM of the Insurance Act, 1938. The letter of the surveyor dated 10.12.2008 which the respondent relies upon, is not material since, it is a one sided offer by the respondent and is not based on any understanding between the appellant and the respondent. That fact that even after this purported letter, the surveyor sought further details from the respondent indicates that the letter had no significance. The estimate of loss prepared by the surveyor is itself for Rs. 10,57,747/-, after applying the applicable deduction. The respondent has not brought on record any basis to justify the calculation of Rs.23,40,000/- and therefore, its reliance on this letter cannot be accepted.

8.      In Sri Venkateswara Syndicate Vs. Oriental Insurance Company Limited & Anr, in Civil Appeal No. 4487 of 2004 decided on 24.08.2009, (2009) 8 SCC 507  the Hon’ble Supreme Court has held that:

“35.   In our considered view, the Insurance Act only mandates that while settling a claim, assistance of surveyor should be taken but it does not go further and say that the insurer would be bound whatever the surveyor has assessed or quantified, if for any reason, the insurer is of the view that certain material facts ought to have been taken into consideration while framing a report by the surveyor and if it is not done, it can certainly depute another surveyor for the purpose of conducting a fresh survey to  estimate the loss suffered by the insured.

36.     xxxxxxxxxxxxxxxxx

37.     The option to accept or not to accept the report is with the insurer. However, if the rejection of the report is arbitrary and based on no acceptable reasons, the courts or other forums can definitely step in and correct the error committed by the insurer while repudiating the claim of the insured. We hasten to add, if the reports are prepared in good faith, due application of mind and in the absence of any error or ill motive, the insurance company is not expected to reject the report of the Surveyors.“

[ Emphasis supplied ]

The Apex Court also held in New India Insurance Co. Ltd. Vs. Pradeep Kumar, (2009) 7 SCC 787 decided on 09.04.2009 that the report of a surveyor although an essential ingredient in the settlement of a claim is not so sacrosanct that it cannot be disregarded or deviated from on the grounds of arbitrariness or perversity as below:

15.     The object of the aforesaid provision is that where the claim in respect of loss required to be paid by the insurer is Rs.20,000/- or more, the loss must first be assessed by an approved surveyor ( or loss assessor) before it is admitted for payment or settlement by the insurer. Proviso appended thereto, however, makes it clear that insurer may settle the claim for the loss suffered by insured at any amount or pay to the insured any amount different from the amount assessed by the approved surveyor (or loss assessor). In other words 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.

9.     In the instant case, respondent not challenged the report of the surveyor to be arbitrary or perverse, therefore, as held by the Hon’ble Supreme Court in its judgment in Sri Venkateswara Syndicate (supra), the appellant cannot be faulted for having repudiated the claim vide its letter dated 10.12.2008. The respondent has not brought out any evidence based defence in support of its contention that the claim be settled for a sum of Rs.23,40,000/- especially since the surveyor himself has assessed the loss at a lower figure of Rs. 10.57,747/-. The order of the State Commission holding that the claim be allowed since the policy had been issued and premium collected is liable to be set aside on the grounds that it failed to consider that there was no arbitrariness or perversity in the surveyor’s report in concluding that the work on the project site had commenced prior to the obtaining of the policy in question. It has also failed to appreciate the fact that the principle of ubberima fide stood clearly violated by the respondent in suppression of material facts in its proposal form that had already commenced the work and had paid 2 RA Bills and in not disclosing the actual status in order to enable the appellant to examine the insurance cover under the policy applied for.

10.   In view of the foregoing discussion and in the facts and circumstances of the case, the appeal is found to have merit and is accordingly allowed. The order of the State Commission is set aside. There shall be no order as to costs.

11.   All pending IAs, if any, stand disposed of with this order.