Anand Comforts Pvt. Ltd. vs The New India Assurance Co. Ltd.

THE complainant -company obtained a standard fire and special perils policy from the opposite party -New India Assurance Company in respect of raw material, semi -finished goods and finished goods kept in its registered office as well as its factory at Industrial Estate, Bandihalli, Tiptur, District Tumkur of Karnataka, for a total sum of Rs. 1,00,00,000/ -, for the period from 22 -11 -2002 to 21 -11 -2003. The complainant also obtained another policy for the period from 16 -12 -2002 to 15 -12 -2003 in respect of the building, plant & machinery and accessories at its registered office as well as the above referred factory premises in Karnataka, for a sum of Rs. 84,00,000/ - for the building and Rs. 1,29,53,000/ - for the plant & machinery and accessories.

IN the night intervening 16/17 -08 -2003 a fire broke out in the factory premises of the complainant and according to the complainant extensive damage was caused to the raw material, semi -finished and finished goods lying in the factory premises as also to the factory building, plant & machinery and accessories installed therein. The incident of fire was reported to the police and recorded vide FIR No. 12/2003. Intimation was also given to the insurance company in the same night. On 17 -08 -2003 a local surveyor of the insurance company accompanied by the concerned Branch Manager visited the factory premises where the fire had broken out and prepared an inventory of the stock which was lying in good condition. On 18 -08 -2003 the officials of the J.B. Boda Surveyors Pvt. Ltd., Bangalore carried out a survey of the damage caused to the building, plant & machinery as well as the stock kept in the factory premises. Later on the insurance company appointed an investigator Mr. B. Ramakrishna who inspected the factory premises from 22 -08 -2003 onwards and also recorded the statements of several employees of the complainant -company. The burnt debris were weighed in the presence of the supervisor deputed by the surveyors and their weight was found to be 34,140 kg.. On 19 -09 -2003 the complainant -company submitted a claim form to the insurance company claiming for a total sum of Rs. 1,99,00,000/ - comprising Rs. 90,00,000/ - in respect of stock, semi -finished goods and raw material, Rs. 25,00,000/ - in respect of building and Rs. 84,00,000/ - in respect of plant & machinery and accessories. The complainant, vide letter dated 01 -10 -2003 forwarded the quotation received by it for carrying out repair, etc., of the plant & machinery damaged in the fire, to the surveyors. Subsequently, the complainant obtained two quotations from two other companies and submitted the same along with the letter dated 09 -10 -2003.

VIDE their final report dated 30 -08 -2004, J.B. Boda Surveyors Pvt. Ltd. after considering the cause of the fire disclosed to them by the workers of the complainant -company, inter alia observed that though the circumstances leading to the outbreak of the fire as stated by the insured were not very convincing especially in view of the facts that the records were removed from factory before the survey, during the course of their survey they had not found any clinching evidence and, therefore, they were of the opinion that the cause of loss could be attributed to the fire, the origin of which was unknown. The surveyor, assessed the entire losses of the complainant -company at Rs. 1,03,67,063/ - which comprised Rs. 4,79,065.60/ - in respect of damage to the building, Rs. 9,73,236.37/ - for repair of electrical installations, Rs. ,45,00,856.95/ - for repair of plant & machinery and Rs. 45,03,904/ - for damage to the stocks. Salvage value of Rs. 90,000/ - was deducted from the aforesaid amount along with deductible excess of Rs. 10,000/ -, thereby arriving at the figure of Rs. 1,03,67,063/ -.

VIDE letter dated 02 -12 -2004 the insurance company rejected the claim lodged by the complainant -company on the following grounds: "1. There was a very long delay on your part in making available to the preliminary surveyor and the final surveyor important records having a bearing on the quantum of the claim. These records related to the purchases of raw materials, production and sales. At the time of the visit of the surveyor on 18 -08 -2003, you had informed him that all the record had been removed from your factory and sent to Bangalore on the day of fire. The computer on which these records were maintained were also sent to Bangalore. You had thus acted with unseemly haste and not given an opportunity to our surveyors to inspect the relevant records to make an assessment of the loss. This lapse on your part is a direct violation of condition 6(i) of the standard fire and special perils policy issued to you. This condition states that you should make available to the company within 15 days of the loss, all such documents, information relating to the claim, its origin, cause of loss and any matter touching the liability or the amount of the liability of the company.

Our records that you had made available to the surveyors important records related to the assessment of loss only in the month of June 2004 i.e. nearly ten months after the date of loss.

After the records were made available to the surveyor, the same were verified by him through his Chartered Accountant and the following were the findings: - -

(a) The consumption coefficients of the raw material (curried coir ropes and rubber latex) were widely varying during the period 2001 -2003 and not in line with the prevailing norms of your industry.

(b) you have not produce documentary evidence for showing the recovery of 12419.67 kg from cut pieces in 2001 -02 while there is no recovery in the next two years.

(c) the consumption of rubber latex in 2002 -03 was abnormally high at 49.31% against 31.16% in 2001 -02 and 30.4% in 2003 -04. Considering the parameters like density of bare block, moisture in cir ropes and trimming wastage remaining the same, it is seen that only rubber consumption has increased disproportionately. This is not in line with the norms in the rubberized coir industry. You have not satisfactorily explained nor provided adequate documentary proof as to why there was a disproportionate increase in rubber latex consumption during 2002 -03 as compared to the previous years.

In spite of repeated requests, you had not made available to our surveyors or the investigator the video CD of the damaged premises that you had taken immediately after the fire. This lapse on your part has not given us adequate opportunity to assess the circumstances surrounding the fire and the quantum of the loss. Both the Tariff Advisory Committee and Loss Prevention Association of India Ltd. who inspected your premises after the loss, could not come to any definite conclusions on the cause of loss. The Loss Prevention Association of India had recommended that the cause of the spread of fire needed to be investigated further.

The above points show that there are discrepancies between the documents produced by you on your claim on loss of stocks. There was also a very long delay of nearly ten months in making available to us all the necessary documents as proof of loss. We are, hence, of the view that you have not been able to convincingly corroborate the circumstances surrounding the claim and the actual quantum of loss."

Being aggrieved from rejection of its claim the complainant -company is before us seeking payment of Rs. 5,92,98,521/ -, under the following heads:

THE complaint has been resisted by the insurance company primarily on the grounds that (a) complainant is not a consumer within the meaning of the Consumer Protection Act, 1986, (b) the complainant committed breach of the specific conditions contained in the insurance policy, (c) the complainant was engaged in manipulating the record to set up a highly exaggerated claim, (d) the video CD of the occurrence was not made available to the surveyor or the investigator, (e) the relevant records were not produced soon after the incident of fire and were produced after about 10 months of the incident of fire so as to cook up the account books during this period, (f) the record submitted by the complainant -company contained large discrepancies in consumption coefficients of raw material which are not in line with the norms of the rubber industry as well as the previous consumption pattern of the complainant.

THE damages claimed by the complainant can be broadly divided into four heads i.e. (i) damage to the building of the factory, (ii) damage to the plant & machinery and accessories installed in the factory, (iii) damage to the electrical installations and (iv) loss of and/or damage to the finished, semi -finished goods and raw material. On a perusal of the report of the surveyor we find that though he suspected the circumstances in which the fire had broken out in the factory premises of the complainant, no case of arson could be established during the course of the survey carried out by them. We also find from a perusal of the repudiation letter dated 02 -12 -2004 that this was not the case of the insurance company that the fire in the factory premises of the complainant was an act of arson or that the directors/employees of the complainant -company were involved in setting the factory on fire. Therefore, it cannot be said that the loss sustained by the complainant -company in the aforesaid incident of fire is not covered under the insurance policies taken by it.

AS regards the complainant not making available the video CD of the damaged premises to the investigator and surveyor appointed by the insurance company, the case of the complainant -company has been that the original VCD was handed over by them to the fire department and in fact the said video recording was also telecast on certain television networks. There is no good reason for us to disbelieve the plea taken by the complainant in this regard. No attempt was made by the surveyors and/or investigator appointed by the insurance company to obtain a copy of the VCD from the fire department despite the complainant having informed them about having handed over the said CD to fire department. Had the surveyor and/or investigator appointed by the insurance company made an effort to collect the VCD from the fire department and been informed that the same has not been given to them by the complainant, the insurance company could have been justified in drawing an adverse inference against the complainant on account of the non -production of the said VCD, but such an inference cannot be drawn in the absence of such an attempt on the part of the investigator and the surveyor appointed by the insurance company. Moreover, as pointed out by the learned counsel for the complainant, there was no contractual or legal requirement to get the damage video recorded and the photographs of the burnt factory in any case were made available to the surveyors appointed by the insurance company.

AS far as the damage to the factory building is concerned, we find that the amount claimed by the complainant -company was based upon quotation obtained by it from the market. As noted earlier, initially only one quotation was obtained but later the complainant -company obtained two more quotations at the instance of the surveyor. The surveyor, however, reduced the rates claimed by the complainant -company without giving any plausible reason for the said reduction. For instance, for reconstruction of D walls and E walls, the claim of the complainant -company was for Rs. 2,200/ - per sq.mtr. but the surveyor allowed it at Rs. 1,200/ - per sq.mtr. without giving any justification for the said reduction. To take another example, for providing and fixing the steel glazed windows and ventilators the quotations obtained by the complainant -company was for Rs. 1,400/ - per sq.mtr but the surveyor allowed rate of Rs. 750/ - per sq.mtr.. Again no ground for the said reduction was given by the surveyor. The learned counsel for the insurance company submits that the surveyor being an experienced person is well conversant with the prevailing market rates and it was on the basis of his knowledge gathered from his experience that the rates were reduced by him. In our view, the surveyor was not justified in reducing the rates claimed by the complainant -company on the basis of the quotations received by it from the market, without calling for his own quotations or adopting the rate schedule of a government organization such as CPWD or PWD of the concerned state. There is no material on record to even indicate that the rates approved by the surveyor were based upon any such rate schedule or that he had invited his own quotations for repairing the damages caused to the factory building of the complainant. We also find that the surveyor has deducted depreciation from the rates allowed by him, in respect of several items of repair to the factory building. The learned counsel for the complainant -company submits that in order to avoid any controversy in this regard the complainant is ready to accept the depreciation at the rates stipulated in the Income Tax Act applicable at the relevant time wherever depreciation has been applied by the surveyor. Therefore, we are of the view that as far as the damage to the factory building is concerned the insurance company should pay to the complainant at the rates claimed by it after applying depreciation as per the rates specified in the Income Tax Act and Rules applicable at the relevant time. We also make it clear that the insurance company would be entitled to apply the condition of average, taking the cost of repair worked out by the insurance company in terms of this direction.

COMING to the repair of electrical installations, we find that though the surveyor by and large accepted the rates at which quotations were received by the complainant -company, he applied depreciation even in respect of the work which involved only application of labour and no electrical component/fitting was sought to be replaced. We also find that under many items the surveyor applied depreciation on the entire rate which comprised not only the replacement of any electrical component/fitting but also the cost of replacing the said fitting/component. For instance, though fabrication of distribution channel, erection of distribution board and assembly of switch gear, distribution wiring and cable termination involved labour component as well as replacement of certain electrical components, the depreciation was applied in respect of the whole of the rate instead of applying it only to the cost of the component used in the said fabrication/erection/wiring. In our opinion, the depreciation could have been applied only in respect of the cost of the component/electrical fitting which was sought to be replaced by the complainant -company and it could not have been applied to the labour component of the rate obtained by the complainant. We also find that depreciation has been applied even in respect of certain works which were purely labour work. For instance, depreciation has been applied to testing and commissioning, cleaning of trenches and earth work. The insurance company was not entitled to apply depreciation in respect of the work which involved only application of labour. In other words, the depreciation as per the rates specified in the Income Tax Act could be applied only to the components/fittings/fixtures which were sought to be replaced by the complainant -company. It would be for the complainant complaint to give the breakup of the component and labour of each item to the insurance company and after requisite verification the amount payable to the complainant in respect of repairs to the electrical installations shall be worked out applying depreciation only to the rates for the components/parts which were sought to be replaced or were actually replaced by the complainant.

COMING to the damage to the plant & machinery and the accessories installed in the factory of the complainant we find that the surveyor has accepted the amount claimed by the complainant in respect of most of the items. The learned counsel for the complainant submits that the objection of the complainant as far as the damage to the plant & machinery and accessories is concerned is confined to the amount of depreciation deducted by the surveyor. As held by us while dealing with the claim in respect of the electrical installation, the depreciation has to be deducted only in respect of parts and components which the complainant was seeking to replace and cannot be applied as far as the labour component of the replacement of such parts and components is concerned. The depreciation of course has to be applied at the rates stipulated in the Income Tax Act, 1961 and the Rules framed thereunder as applicable at the relevant time. We, however, find that the surveyor has applied depreciation even in respect of items which did not involve replacement of any part or component. For instance, the surveyor applied depreciation in respect of inspection of RHS, acid treatment for RHS, bend removing charges RHS, reat realing charges for RHS, transportation charges, primary coating, painting charges, inspection of LHS, acid treatment for LHS, bend removing charges for LHS, reat realing charges for LHS, primary coating for LHS, painting charges for LHS, analyzing charges for sprocket, hardening charges for sprocket, inspection charges for roller, acid treatment charges, sand blasting charges, hydraulic band removing charges, primary coating, hydraulic removing and fixing charges, etc., of knulling roller. There are several other such items where the surveyor applied depreciation though it could not have been applied. In our view, the insurance company should apply depreciation only to the extent any part/component/fitting was sought to be replaced. However, we are not disturbing the principal amount of Rs. 56,45,351.60/ - allowed by the surveyor as against the principal claimed amount of Rs. 56,69,887.60/ -, in respect of plant & machinery and accessories. The insurance company shall work out the amount payable to the complainant in terms of this direction after segregating, wherever required, the cost of the component/part and the labour component of such replacement of the part or component of the plant & machinery. Wherever the item relates only to labour work and use of some material such as paint, etc., coupled with labour but did not involve change of any part or component of the plant & machinery no depreciation would be applied by the insurance company. It would be for the complainant -company to give requisite break up wherever required and the insurance company would be entitled to verify the same before applying depreciation in respect of the cost of the part/component. Now we come to the claim in respect of the damage to the finished, semifinished and raw stocks alleged to have been destroyed or damaged in the fire. The complainant claimed a sum of Rs. 92,08,183/ -, for the alleged loss/damage to the raw material semi -finished and finished goods. The surveyor, however, allowed the claim only to the extent of Rs. 45,03,904/ -, before deducting Rs. 90,0000/ - in respect of salvage and Rs. 10,000/ - towards deductible excess. We find from a perusal of the record that the assessment made by the surveyor was based upon the report of the chartered accountant engaged by him. The chartered accountant scrutinized the record produced by the complainant -company and noted a number of discrepancies. As per the report of the chartered accountant accepted by the surveyor, the consumption coefficient of the raw material varied widely during 2001 -2003 and the same were not in line with the prevailing norms of the industry. The case of the complainant in this regard is that the said variation was duly explained by them to the surveyor and the contention of the learned counsel for the complainant is that the consumption of the raw material which primarily are latex and coir ropes would depend upon the type of mattresses which were to be manufactured using the said raw material. The proceedings before this Commission are rather summary in nature. It is not possible for us to give a reasoned finding on such an issue without recording voluminous evidence documentary as well as oral, besides lengthy cross -examination of witnesses. The evidence required for giving a reasoned finding on such an issue may not necessarily be available with the complainant -company or the insurance company alone and evidence of third parties may be necessary to find out, for instance, what ought to have been the consumption of the raw material in respect of the mattresses which the complainant -company manufactured at the relevant time. The forum deciding such an issue would also need evidence to find out, how much exactly was the quantity of the mattresses manufactured by the complainant and what were their size and specification. The forum adjudicating on this issue will also need third party evidence to find out the norms prevailing in the industry regarding consumption of raw material for manufacture of the mattresses, of the type the complainant -company was manufacturing at the relevant time. Therefore, in our opinion this Commission is not an appropriate forum to render a suitable finding on an issue of this nature.

IT appears from the repudiation letter that the complainant -company had shown recovery of 124129.76 kg. from cut pieces in 2001 -02 while there was no recovery in next two years. The contention of the learned counsel for the complainant in this regard is that they had a lot of wastage prior to and in the year 2001 -02 and recovery was made from the said wastage in the subsequent years, for the purpose of manufacturing mattresses only. The learned counsel for the insurance company, however, submits that it is highly improbable that there was such a huge recovery from cut pieces in 2001 -02 whereas there was no such recovery in next two years. The learned counsel for the complainant submits that part of the wastage was of the years prior to 2001 -02 and part of the years prior to 2001 -02 though recovery of 124129.76 kg. was made in the year 2001 -02. The learned counsel for the complainant further submits that there was wastage and availability of cut pieces in subsequent years also but it was not shown because it was utilized in those very years. Again in our view, voluminous evidence would be required to render an appropriate finding on the aforesaid issue. The forum called upon to adjudicate the said issue would have to go into the question as to how much was the wastage in a particular year and whether that wastage was utilized at any time prior to 2001 -02 or not. The forum will also have to go into the question as to why no recovery from the said cut pieces was made prior to 2001 -02 and a huge recovery of 124129.76 kg. was made in the year 2001 -02. Neither the parties have led evidence nor is possible for this Commission to record the voluminous evidence which would be required to render a suitable finding on such an issue.

THE chartered accountant who examined the record of the complainant -company found that the consumption of rubber latex in the year 2002 -03 which was the financial year immediately preceding the year in which the fire broke out, was shown to be 49.31% as against 31.16% in 2001 -02 and 30.4% in 2003 -04. The surveyor wondered how there could be so much variation in the consumption of rubber latex when the parameters like density of bare block, moisture in ropes and trimming wastages remained the same. He was also of the opinion that the aforesaid consumption of rubber latex was not in line with the rubber coir industry. The learned counsel for the complainant submits that the variation in the consumption of the latex was explained by them to the surveyor as well as the chartered accountant. However, the surveyor reported that the said variation had not been specifically explained. He also noted that the complainant had not provided adequate documentary proof as to why there was a disproportionate increase in rubber latex consumption during 2002 -03 as compared to the previous years. In our view, it will not be possible to return an appropriate finding on the aforesaid issue without recording substantial documentary and oral evidence which would also involve oral cross -examination of the witnesses. The evidence of third parties would also be required to find out the norms prevailing in the rubberized coir industry regarding consumption of rubber latex in manufacturing of mattresses, at the relevant time. Since the proceedings before this Commission are rather summary in nature, it would not be possible for this Commission to record the voluminous evidence which is required for adjudicating the aforesaid contentious issue. For the reasons stated hereinabove, we are of the view that as far as the claim for loss of or damage to the finished products, semi -finished products and raw material is concerned the complainant should approach the appropriate civil court for establishing its claim in case it is not satisfied with the assessment made by the surveyor. It would be open to the complainant if it approaches a civil court, to claim benefit of Section 14 of the Limitation Act, if such a benefit is otherwise available to it in law.

THE insurance company is directed to work out the additional amount, if any, payable to the complainant in terms of this order within 12 weeks from today, after giving an opportunity of hearing as well as an opportunity to give bifurcation of the component cost and labour cost, wherever applicable. We find that in terms of interim orders of this Commission dated 21 -11 -2006 and 12 -03 -2007 out of principal amount of Rs. 1,03,57,063/ - assessed by the surveyor, Rs. 58,57,063/ - were paid to Karnataka State Financial Corporation and Rs. 45,00,000/ - were paid to Punjab National Bank. The interest on the aforesaid amount calculated at the rate of 12% per annum from the date of the survey was paid to the complainant. The balance amount payable to the complainant along with interest at the rate of 12% per annum from the date of the survey report i.e. 30 -08 -2004 shall be paid to Karnataka State Financial Corporation, since the dues of Punjab National Bank are stated to have been paid. The letter dated 23 -03 -2009 issued by Punjab National Bank to the complainant has been produced by the learned counsel for the complainant and is placed on record. The complaint stands disposed of accordingly.