Chatak Cold Storage vs National Insurance Company Ltd

MR. Justice R.K. Batta, Member-The Complainant M/s. Chatak Cold Storage has a cold storage where potatoes belonging to farmers are stored. The complainant took D.O.S. (Deterioration of Stocks) Insurance Policy from 15.4.1996 to 14.11.1996 with insurance coverage to the extent of Rs. 69,00,000. According to the complainant, due to failure and break down of ceiling fans and other mechanical defects, the stock of potatoes kept in cool chamber No. 4 of the cold storage started deteriorating/rotting which was noticed during inspection on 1.6.1996. About 6,000 bags of potatoes were removed; but due to carbondioxide and other gases generated on account of failure of ceiling fans, the entire stock of potatoes stocked in Chamber No. 4 deteriorated beyond redemption by 18.6.1996. The complainant requested for a survey on 18.6.1996 by writing a letter to the OP. The complainant filed claim for Rs. 27,00,000. It has been submitted by the complainant that the break down of machinery i.e. compressor and ceiling fans was admitted by the OP and claim amounts of Rs. 9,050 and Rs. 9,742respectively were settled by the Insurance Company. The Insurance Company had appointed Surveyor-M/s. Mehta and Padamasee Surveyors Pvt. Ltd. According to the complainant, the OP kept on delaying the payment of compensation as a result of which, legal notice dated 14.6.1998 was given. According to the complainant, the temperature in the cooling Chamber No. 4 had been properly maintained throughout the loading and even after loading was completed. The case of the complainant further is that despite break down of compressor on 14.5.1996, which was repaired on 18.5.1996, the complainant managed to maintain normal temperature till 28.5.1996 when Compressor No. 2 had stopped. During the inspection on 1.6.1996, the temperature was found to be above normal due to major break down of 9" x 9" compressor. Subsequently, there was breakdown of 51 ceiling fans on 3.6.1996 on account of which, the stock of potatoes started deteriorating and in spite of all efforts made to minimize the loss, entire stock of potatoes deteriorated beyond redemption. The complainant claimed to have had a proper licence to run the cold storage vis-a-vis cooling Chamber No. 4.

THE case of the OP is that pre-acceptance inspection was carried out and risk for Chamber Nos. 1, 2 and 3 was recommended to be covered. The pre-inspection report specifically stated that Chamber No. 4 was under trial and, therefore, not recommended for risk insurance and the said Chamber No. 4 could be recommended only after re-inspection was carried out. According to the OP, the complainant informed of the matter only on 18.5.1996 and there was violation of Condition No. 4 attached to the policy, since neither immediate notice was given, nor reasonable precautions were taken to minimize the loss/damage. The OP has pointed out that there had been 2 instances of machinery breakdown. The first instance was break down of 9" x 9" compressor on 14.5.1996, which was repaired and put back in operation on 18.5.1996. However, on analyzing the temperature chart it was observed that temperature in Chamber No. 4 before breakdown was 41° F from 7.5.1996 and had remained 41° F upto 18.5.1996 i.e. restoration of compressor and thereafter continued at 41° F upto 20.5.1996.

THE second instance for machinery breakdown was reported on 3.6.1996 after the process of deterioration had already set in. In the second instance on 3.6.1996, 51 ceiling fans of Chamber No. 4 got burnt and in the temperature chart, the temperature in Chamber No. 4 had been rising since 28.5.1996. On 28.5.1996 itself the temperature had increased from 40° F to 45° F and thereafter, it had reached upto 471/2 and 47° F on 1st and 2nd June, 1996. On 3.6.1996, the temperature came down to 46° F and thereafter had remained around 46° F upto 7.6.1996. Therefore, it indicates that temperature rise was not caused by failure of ceiling fans as rising trend in the temperature started on 28.5.1996 i.e. much before breakdown in ceiling fans. According to the Surveyor, the records did not show immediate impact of machinery breakdown having affected the temperature of the chamber. It has been pointed out that there was no plaster on the outer side of the wall of the Chamber No. 4 which had direct effect on cooling system and non-maintenance of temperature levels. It is further pointed out that the cooling capacity of refrigeration plant was 84,000 qntls. in terms of potato storage which was sufficient only for Chamber Nos. 1, 2 and 3. The total stored quantity of potatoes, along with Chamber No. 4 was 1,16,266.40 qntls which was much beyond the cooling capacity of refrigeration plant.

IN respect of Chamber No. 4, it is pointed out that the construction work of the same was completed in February, 1996, but the said chamber did not have requisite licence for storing potatoes from the Department of Potato Development, Farukhabad as a result of which, there has been breach of warranty No. 2 attached to the policy. In this connection, it is pointed out that the Surveyors in its report dated 6.3.1997 have stated that the complainant had not provided copy of valid licence to operate Chamber No. 4 for the year 1996. It has been further pointed out that as per warranty attached to the policy, the temperature of the Chamber should not exceed 50° F during the entire period of loading, but after going through the records as submitted by the insured it has been pointed out that the temperature at 69° F is well above the permissible limits. Similarly, temperature during the subsequent period of storage should not exceed 400 F, but the same has not been maintained and the temperature for the storage period had reached 47.5° F to 72°F. There has been thus breach of warranty No. 6 of the policy. Therefore, according to the OP, it is not liable to make any payment to the complainant.

THE parties have filed affidavit evidence. On behalf of the complainant, affidavit evidence has been filed by Mr. Rajesh Kumar Arya, Managing Partner of the complainant. On behalf of the OP, affidavit evidence has been filed by Mr. A.K. Gupta, Manager of the OP as also by Mr. S.S. Krishnan, Director of Padamasee Surveyors Pvt. Ltd.

LEARNED Counsel appearing on both sides have filed written arguments and both of them were orally heard.

LEARNED Counsel for the complainant has submitted before us that there has been no breach of Warranty No. 6 of the policy and temperature at the time of loading was duly maintained; the log sheets show temperature of about 65° F but, in fact, the temperature was maintained and the defect was only in thermometer, which was replaced. It is also urged that from 6.4.1996 to 14.4.1996, the temperature was maintained at 42° F but the temperature around 69-70° F was due to defective meter though actual proper temperature was maintained. It has been further contended that the loading was complete and temperature was maintained at 40-41° F from 16.4.1996 till 27.5.1996, but there were 2 instances of breakdown of machinery. The losses on account of the same were settled on the respondents. It is also pointed out that all efforts were made to minimize the loss and the holes were made in the walls to ensure that CO2 gas passed out in order to reduce deterioration of potatoes. It is also pointed out that 6000 bags were taken out to minimize the loss. According to the learned Counsel for the complainant, the complainant had valid licence for cooling Chamber No. 4 and that the claim is fully covered under the policy as a result of which, the complaint be allowed.

LEARNED Counsel appearing on behalf of the Insurance Company has basically urged before us that the complainant did not inform Insurance Company in time and it is only on 18.6.1996 when the Insurance Company was informed of the incident; the complainant did not take any steps or precautions to minimize the loss/damage; the complainant did not maintain the temperature during the entire period of loading and the temperature during the period of loading at 69° F is above the permissible limit, namely, not to exceed 50° F; temperature during the subsequent period of storage should not have exceeded 40° F but the said temperature was not maintained and the temperature of the cold storage had reached 47.5° F to 72° F. Thus, there has been breach of warranty No. 6 of the policy. It has also been pointed out that the complainant did not have the licence for storage of the potatoes during the relevant period and there has been violation of warranty No. 2 of the policy. Our attention has also been drawn to the pre-inspection report stating that Chamber No. 4 was under trial and, therefore, not recommended for insurance risk and Chamber No. 4 could be recommended only after re-inspection was carried out when the said chamber would be in full operation.

WE have gone through the record.

THE Insurance Company had carried out pre-inspection report of the cold storage, which is dated 21.3.1996. In the said report it was recommended to cover all types of insurance cover for Chamber Nos. 1, 2 and 3, but in so far as Chamber No. 4 is concerned, the same was not recommended in insurance risk and it was categorically stated that it could be recommended only when it is in full operation. It appears that it could be recommended only when it is in full operation. It appears that no further inspection was carried out in relation to Chamber No. 4 and policy was issued on stocks of all kinds of potatoes and bags while stored in cool chambers of cold storage 1st Class construction situated at G.T. Road, Gursahai Ganj, Farrukhabad for 115000 Qntl @ 60 per qntl. for Rs. 69,00,000. The period of insurance was from 15.4.1996 to 14.11.1996. According to the Insurance Company, the claim put forward by the complainant is not payable on account of breach of warranty Nos. 2 and 6 of the Insurance policy. The said warranties read as under: "2. All the time of accident to any insured machinery specified in Schedule 1 the insured shall be in possession of an unqualified permission in writing of the competent Licensing Authority to operate the Cold Storage. 6. The insured shall take care to see that- (i) the temperatures inside the Cold Chamber are brought down to 34° F (1.1° C) in all the floors of all the chambers before the loading commences and, (ii) further ensure that the temperature in all the chambers does not exceed 50° F (10° C) during the entire period of loading and 40° F (4.4°C) during the subsequent period of storage". In addition, the Insurance Company has also relied upon Condition No. 4 of the policy, which reads as under: "4. In the event of any accident- (a) the insured shall give immediate notice thereof to the office of the Company which has issued this policy by telephone or telegram and by a letter confirming such intimation. Similar intimation may also be given to the nearest Branch office of the Company and should damage within the meaning of the policy occur to the goods stored then the insured shall within fourteen days after the occurrence of such damage or such further time as the Company may allow in writing at his own expense deliver to the Company a claim in writing containing as particular an account as may be reasonably practicable of the goods damaged and of the amount of damage thereto having regard to their value at the time of damage together with details of any other insurance of any goods hereby insured and, (b) shall take all reasonable precautions to minimize the loss and/or damage and to prevent any further loss and/or damage and the Company shall not be liable for any other loss and/or damage arising out of the continued use of any damaged or defective refrigeration machinery until such machinery is repaired to the satisfaction of the Company".

COMING to alleged breach of warranty No. 2, admittedly the complainant had not produced any licence before the Surveyor who had submitted report dated 6.3.1997. The complainant has produced Xerox copy of licence in which the initial entry is for the period 1.1.1996 to 31.12.1996 and the total capacity in cublic meters of the cold storage is stated to be 24,688. There is another entry which speaks of extended capacity for the period 1.1.1996 to 31.12.1996 for which the fee was paid on 28.2.1996, but the licence was issued only on 2.1.1997 in relation to the extended capacity of 19340 cubic meters. However, it is crystal clear that this licence was issued only on 2.1.1997 for the period 1.1.1996 to 31.12.1996. Warranty No. 2 of the policy provides that at the time of accident to any insured machinery specified in Schedule 1 the insured shall be in possession of an unqualified permission in writing of the competent Licensing Authority to operate the cold storage. Thus, even though the complainant had applied for extended coverage in relation to colling Chamber No. 4, yet, the complainant did not have any valid licence at the time when the damage occurred to the potatoes. Therefore, there is, prima facie, violation of Warranty No. 2.

AFTER going through the survey report, which is based upon the temperature charts, maintained by the complainant during the relevant period, we find that there has been breach of Warranty No. 6 as well. The loading with reference to cooling Chamber No. 4 had started on 19.3.1996 and it was completed on 12.4.1996. Thus, in fact, the loading had been completed by the complainant even before the commencement of the insurance policy. As per warranty attached to the policy the temperature should not exceed 50° F during the entire period of loading. However, the Surveyor after going through the records submitted by the complainant found that the temperature at 69° F was well above the permissible limit and temperature during the subsequent period should not have exceeded 40° F and this was also not maintained and the temperature during the storage period had reached 47.5° F to 72° F. The contention of the Counsel for the complainant that there was defect in the thermometer only and in fact the required temperature was maintained is without any merit whatsoever. No such plea has been taken by the complainant in the complaint and this argument is nothing but an afterthought. The Surveyor had explained this aspect in greater details in his report as also in the affidavit evidence and the breach of warranty No. 6 is duly proved and established.

COMING to the violation of Condition No. 4 of the policy, we would like to point out that according to the complainant, there were 2 incidents of machinery breakdown of 9" x 9" compressor on 14.5.1996, which was repaired on 18.5.1996. It appears that the said breakdown was not immediately reported to the insurance company. The second incidence of breakdown was on 3.6.1996., when ceiling fans of Chamber No. 4 got burnt: The Surveyor on the basis of temperature charge furnished by the complainant found the temperature in Chamber No. 4 had been rising since 28.5.1996 and on 28.5.1996 the temperature had increased from 40° to 45° F and thereafter it had reached 471/2° F on 1st and 2nd June, 1996. According to the Surveyor, the temperature was not caused by failure of ceiling fans as the rising trend in the temperature started on 28.5.1996 that is much before the breakdown of ceiling fans. The Surveyor also found that the records do not show immediate impact of machinery breakdown having affected the temperature of the Chamber. It has also been pointed out that non-plastering of Chamber No. 4 had a direct effect on cooling capacity and non-maintenance of proper temperature levels. It is further pointed out that the cooling capacity of refrigeration plant was 84,000 qntls. in terms of potatoes storage, which was sufficient only for Chamber Nos. 1, 2 and 3, but the total stored quantity of potatoes including Chamber No. 4 had 16,266.40 qntls., which was much beyond cooling capacity of plant. Besides this, it is clear from the material on record that the complainant had also not taken immediate steps for minimizing the loss.

FOR the aforesaid reasons, we are of the opinion that the insurance is not liable to pay the claim put forward by the complainant. The complaint is accordingly dismissed with no order as to costs. Complaint dismissed.