CONSUMER PROTECTION COUNCIL vs G M Oriental Insurance Co Ltd

THE Complainant No. 1 is a Registered Voluntary Consumer Association and Complainant No. 2 is a Private Limited Company who had taken insurance policy coverage under Policy No. 14151/10/ 90/10439 for fire and flood. That separate premium appears to have been paid, one for the fire and other for flood of different amounts i.e. Rs. 8,600/ - for fire and Rs. 1,500/ - for flood. It appears that initially the policy was for Rs. 20 lakhs but subsequently the said policy was reduced to Rs. 10 lakhs only. The copy of the Policy is on record produced by the Opposite Party. The risk was commencing from 27.10.89 to 26.10.90. It is alleged that due to very heavy rainfall in the city on two different dates viz. on 25.7.90 and 24.8.90 the factory area was flooded all around and the water inside the factory premises as well as in the factory buildings was at the level of 3 ft. which has caused damage to the stock of the complainant. The stock consisted of both finished and unfinished goods which were alleged to be lying in the bounded godown of the complainant.

THE peculiar circumstance of the case is that the Opposite Party -the Insurance Company appears to have written two Registered A.D. letters i.e. one on 25.6.90 vide No. 14151/91/55. The material portion reads as under: ''Re: Cancellation of Flood Risk Policy No. 10/90/01439 With reference to the above we would like to inform you that your above insurance policy is with us and in this policy through oversight we have covered flood risk for the stock which is lying in open compound, but we cannot covered flood risk for stock lying in open compound. So we cancel flood risk from above policy after 7 days of this notice.'' It also appears that immediately thereafter on the same day a second letter was sent by the Insurance Company bearing No. 14151/91/56 which reads as under: ''Re: Policy No.: 10190101439 With reference to the above we would like to inform you that we have covered stock of paper lying in open compound in above policy and charged premium at a Rate of Rs. 4.30 per mile but the rate chargeable for open compound is Rs. 7.10 per mille. So please send us the cheque of Rs. 5,320/ - for difference of premium.'' The complainant has alleged that he was maintaining a sizeable stock and stock -in -process including raw material, finished and unfinished goods and/or semi -finished goods, packing materials etc. in their stores of their paper mill located at Nandej, Barejadi and the value of the stocks stated above at a time is around Rs. 16 to 20 lakhs depending upon the transactions in a month. Since the items lying in the stores viz, paper materials was prone to risk of fire and other accidental damages the complainant had decided to hire the services of the Opposite Parties by taking insurance Cover against the risk and proposal for issue of policy to cover the risk of Rs. 20 lakhs on stock and stock -in -process including raw material, finished goods, unfinished goods, packing materials etc. was taken.

THAT the Insurance Company had sent a letter dated 25.6.90 (first letter) informing that it cannot cover flood, risk for stock lying in open compound and, therefore, they were cancelling the flood risk from the above Policy after 7 days of the letter. The Policy continued for more than 8 months and when the monsoon was fast approaching they sent this communication arbitrarily withdrawing, without the written consent of the other party to a contract, the terms accepted for covering the risk for flood. This action of the Insurance Company was arbitrary and mala fide. Apart from the legal contention, the complainant has stated that the stock which was damaged due to flood was actually lying in the built -up godown only.

ON receipt of the information of damages the Insurance Company appears to have sent their Surveyor Mr. Upendra Shah who appears to have submitted a survey report dated 23.7.90 wherein the agreed damage of Rs. 2,13,000/ - has been reported. For the reasons best known to the Company, the Company has not produced this survey report but has produced the second report of Mr. Upendra Shah dated 10.11.90 in respect of the damages occurred by second rainfall and flood on 24.8.90. He has attended Barejadi on two occasions and has assessed and reported regarding loss and damages caused due to flood. The 2nd report dated 10.11.90 assessing the loss and damage caused to grey/kraft board belonging to the claimant Company whilst stored and/or lying in the finished/unfinished rooms of the factory premises situated at Village Nandej. In a note the Surveyor has stated that the insured had earlier submitted a claim for loss and damage due to the floods occurred on 25.7.90. In case liability is accepted the above amount of sum insured will stand reduced by Rs. 2,13,000/ -. In the column captioned occurrence, the Surveyor has reported that ''the stock and stock -inprocess of grey boards and grey/kraft boards were damaged due to flood which occurred on 24.8.90. The torrential rain -fall and flash floods in many rivers thereafter caused extensive damage in Ahmedabad, Kaira, Baroda, Broach and Bhavnagar Districts of Gujarat. The rainfall since evening of 23.8.90 was recorded to be about 15 inches at number of places.'' Under the caption ''The Insureds Premises, he has stated that the rainfall in some areas was about 5'' to 6'' on these two days. As a result there was water -logging in number of areas. Due to such rainfall water from the open land to the East side of the insureds factory flew towards land on west side, which was comparatively on a lower level, and in conclusion he has stated that ''thus water inside the factory was a level of almost 3 ft. and it remained therefor almost two days.'' Under the column cause, he has stated that ''the damage to the insureds property was caused due to floods/inundation as stated above.'' The Surveyor has valued 50 M.T. of unfinished grey board @ Rs. 5,500/ - per M.T. which worked out at Rs. 2,75,000/ - and value of 15.5 M.T. unfinished grey boards @ Rs. 61,280/ -. The Surveyor thereafter had sent an addendum dated 7.1.91 to the survey report of 10.11.90 to consider the fact of the endorsement on the Policy. The original sum insured of Rs. 20,00,000/ - was reduced to Rs. 10,00,000/ - by endorsement dated 16.11.89. According to the Surveyor, the loss occurred in the unfinished department only. If the liability of the claim of 25.7,90 is accepted, the sum insured of building No. 29 -C will stand reduced to Rs. 1,20,000/ - (i.e. to Rs. 1,55,345/ -.) As the market value of the stock at the time worked out to Rs. 2,75,000/ - there will be under insurance of Rs. 119,655/ - or about 43.51%. The net claim will now be worked out as under: Loss after deduction of value of salvage as per page No. 5 of the report Rs. 72,075.00 Less: Under insurance 43.51% Rs. 31,360.00 Rs. 40,715.00 Less: Excess at 2.5% on split sum insured of Rs. 1,55,345/ - Rs. 3,884.00 Rs. 36,831.00 The opposite party has not explained either in their written statement or on argument the Survey report produced by them how it arrived at the net loss admitted by their Surveyor. Now the following questions arise for our consideration, 1. Whether flood insurance included the Stock lying in the open compound as alleged by the Insurance Company? 2. What is the effect of the letters dated 25.6.90 on the policy and whether the Insurance Company is not liable for the damages admittedly suffered by the insured? 3. Mr. Panchal, the learned Advocate appearing on behalf of the Insurance Company has categorically made a statement that they had not taken the risk to cover the goods lying in the open compound of the complainant and the Company has repudiated the claim on the discovery of the mistake committed by the Insurance Company wherein the goods lying in the open compound of the complainant was inadvertently or by mistake insured. However, the written statement and the affidavit are not supporting the arguments of Mr. Panchal.

IT is an admitted position that the stock and stock -in -process of grey boards and grey/kraft boards were damaged due to flood which occurred on 24.8.90 on account of torrential rainfall on 23.8.90 and 24.8.90. This is clear from the survey report dated 10.11.90., The survey report further states that ''the stock of grey/kraft board belonging to M/s. Trilok Papers Pvt. Ltd. and whilst stored and/or lying in the finished/unfinished rooms of factory premises situated in their paper mill situate at Village Nandej, Tal. Daskroi.'' This leaves no doubt that the surveyor has assessed the damaged to the stored finished and unfinished goods in the rooms of the factory premises on account of flood as stated above. The report also mentioned that water inside the factory was at a level of almost 3 feet and it remained therefor almost two days., Now the Complainant has specifically stated that he was claiming the damages regarding the finished and unfinished goods which were lying within the constructed premises. Mr. Ashwin Trivedi has given an affidavit and has offered himself for cross -examination, who was the Manager in charge of the factory. In the cross -examination of Mr. Panchal he has stated that there are buildings and open land in the factory. He has specifically stated that his total goods finished and unfinished was not lying in the open place but the said goods were in the godowns of the factory. There were some waste papers which were kept in the open compound for which they have not made any claim. Therefore there was no question of paying any extra premium, as demanded by the Insurance Company. If we read the xerox copy of the cover note which has been produced by the complainant the column of situation reads as under: 2. Situation (i) xxxx (ii) Whilst stored and/or lying and/or installed and/or arranged and/or fitted in godown Factory Premises of I Class construction bearing Mon. Census No. (illegible) situate at Nandej Dist. (illegible) and otherwise used as (illegible). Clause (iii) of that cover note is with regard to the goods lying in the open compound which has been kept blank. According to our opinion, the cover note covers the risk of the goods lying in the factory godowns at Nandej. If we look to the policy which was not communicated to the complainant but was kept by the Company and produced for the first time in the written statement, the third item reads as under: ''The Property Insured : Rupees Twenty lacs Only. On stock, stock -in -trade, stock of waste paper pertaining to the Insureds trade whilst stored and/or lying in the premises owned by Trilok Papers Pvt. Ltd. on leasehold basis, which is situated at the above mentioned address.'' Now this Policy does not state any goods which were lying in the open premises because the Policy is with regard to fire as well as flood. It may also be noted that the Policy is not only for covering the flood but it also covers fire. This will assume importance when we read the notice of cancellation,

THE affidavit of the opposite party is that ''when the policy became ready on 12.6.90 the officer concerned after going through the policy came to know that through oversight the risk for flood for the stock which is lying in the open compound has been covered by the opponent Insurance Company at which time the alleged incident had not taken place and, therefore, the opponent Insurance Company by regd. A.D. letter dated 25.8.90 informed the complainant as under: ''....With reference to the above we would like to inform you that your above insurance policy is with us and in this policy through oversight we had covered flood risk for the stock which is lying in open compound, but we cannot v over flood risk for stock lying in open compound. So we cancelled flood risk from above policy after 7 days of this notice.'' It may also be relevant to note that on 25.6.90 the Insurance Company appears to have sent two letters by Registered post. By 1st letter the Company informed that the Insurance Policy was with them and the policy through oversight have covered flood risk for the stock which is lying in the open compound but they cannot cover flood risk for the stock lying in the open compound and that they are cancelling the flood risk from the above policy after 7 days of the notice. (emphasis supplied). This notice in terms cancelled the flood risk but the question arises whether the same cancels the risk with regard to the stock lying in the open compound or all = the stocks. The Company has also written a second letter but it does not refer to the cancellation of flood risk but informs the complainant that they have covered stock of paper lying in open compound in above policy and charged premium at a Rate of Rs. 4.30 per mile but the rate chargeable for open compound is Rs. 7.10 per mile and to send the cheque for Rs. 5,320/ - for difference of premium. It is not disputed that this was a next letter written after the first letter having been posted wherein the extra premium has been demanded for the goods lying in the open compound. It is not possible to reconcile both these letters written on the same date one after the another. In the first letter on a pretext that they cannot cover the risk of the goods lying in the open regarding flood, the policy is cancelled while in the second letter they are asking for additional premium. Be it as it may, the question is whether there is any valid consideration of the policy for which a premium has been recovered by the Insurance Company. According to our opinion the defence of the Insurance Company appears to be not tenable on the following reasons. 1. It cannot be disputed that the Company has issued one policy covering fire and flood risk for the finished, unfinished and goods under process of the complainant and accepted the premium and has given a cover note which clearly shows that the risk is covered for the closed premises and column regarding -open premises is kept blank. 2. That the policy was not sent to the complainant but was in the possession of the Insurance Company and if they had made any mistake they could have easily amended the policy covering only the risk regarding closed premises. 3. That the policy is one and individual covering fire and flood risk regarding the same goods and the risk of fire and flood covers the goods which are admittedly lying in the closed premises and not in the open premises. 4. No doubt, the Insurance Company has a right to cancel the policy after giving 15 days notice in writing but in the instant case the policy has not been cancelled. Only the risk in respect of flood has been cancelled. 5. That the agreement is complete between the parties and if a party wants to revoke the agreement by notice such a notice requires to be construed strictly. The notice must be given before 15 days but in the instant case the notice is given giving time of 7 days only and, therefore, also the notice is bad in law. 6. That the reasons given in the notice that it has also covered the goods lying in the open compound does not appear to be correct. The cover note as well as the policy do not show that the goods lying in the open premises have been covered because the goods which have been covered are with regard to both fire and flood. They have not cancelled the fire risk with regard to the goods in the open compound nor they have cancelled the whole policy. Mr. Panchal has relied upon the proposal form and states that the policy was taken only with regard to the stock lying in the open premises. This argument is obviously incorrect. The Company has taken insurance for stock as appears from Clause 2(c) for stock, a stock -in -trade valued at Rs. 20 lakhs. There is a remark on the margin that stock of waste paper lying in the premises owned by Trilok Papers Pvt. Ltd. This form is a questionnaire form which states stock, stock -in -trade is valued at Rs. 20 lakhs. It is possible that part of the stock may be in the open compound. But in the instant case, according to the complainant they have reduced the insurance from Rs. 20 lakhs to Rs. 10 lakhs and have not claimed any compensation for stock lying in the open compound which is waste paper and nothing else. The surveyor has also not made any assessment of waste paper lying in the open compound. He has made assessment of the stock, stock -in -trade etc. lying in the rooms of the factory. In these circumstances we are of the opinion that the policy has not been cancelled by the aforesaid two notices. There was no mistake in taking the policy because the insured has a right to take the policy for a particular quantity of goods lying in the closed premises. He may not take risk for waste paper lying in the open premises to save high rate of insurance. The notice given by the Company is not in accordance with the conditions of the policy because they have not cancelled the whole policy and the reasons given for cancellation were also not correct and notice was only of 7 days.

8(a). We are of the opinion that the opposite party is liable under the policy to pay damages incurred by the complainant. The complainant appears to have written several letters right from Annexure 3 to Annexure 14 but with no result. They had also agreed for the assessment of claim at Rs. 2,13,000/ - and Rs. 61,280/ - vide their letter dated 6.11.90. We have no benefit of considering the survey report dated 23.7.90 which has been accepted by the complainant. Since the report is not produced, we have to make an adverse inference against the Insurance Corporation. Having regard to these two assessments we find that the reasonable damage is Rs. 2,13,000/ - plus Rs. 36,831/ - as surveyed by Mr. Upendra Shah in his addendum report. We therefore hold that the Insurance Company will be liable to pay Rs. 2,49,831/ - by way of damages with regard to the goods which have been damaged in the closed premises. The Company has taken a very long time in repudiating the claim thereby causing great hardship, pain and suffering to the complainant. The Insurance Company shall therefore pay Rs. 5,000/ - by way of hardship, pain and suffering. The Insurance Company is also liable to pay interest @ 18% from 1.1.91. ORDER The Insurance Company is directed to pay Rs. 2,49,831/ - with running interest @ 18% from 1.1.91 till the amount is paid. The Insurance Company will also pay Rs. 5,000/ - for the hardship, pain and suffering and also the cost to the complainant which is quantified at Rs. 2,000/ -. The aforesaid amounts shall be paid within 4 weeks from the dale of receipt of this Order. Complaint allowed with cost.