K.C. Fibres Limited vs NEW INDIA ASSURANCE CO. LIMITED

THE complainant company obtained three insurance policies from the respondent, New India Assurance Co. Ltd., one for Rs. 1,50,00,000/ - in respect of raw material, stock in process, finished goods and packing material, the second for Rs.2,03,00,000/ - in respect of building etc. and the third for Rs.7,35,00,000/ - in respect of the plant and machinery installed in the factory. The case of the complainant is that in a massive fire which broke out on 17.8.2002, the entire section housing Open Ended Machines was destroyed, all the nine machines in the said section were totally damaged, the stock contained in and around the machine was burnt to ashes, the false ceiling was destroyed and roof was considerably damaged. The incident having been reported to the insurance company, one Ramesh Kumar Jain, surveyor was appointed to inspect the factory premises of the complainant. The said surveyor, inter -alia reported that all the 9 Open Ended machines make Elitex BD 200RN year 1994 -95 were heavily damaged and tentative value of technically hundred percent similar Indian version Open End Machine was around Rs.35,00,000/ -, excluding excise duty. He also reported that the machines which had got damaged were not in production line those days, though their highly improved models were available. The loss to the insured was estimated by him at Rs.4,10,00,000/ - under the following heads: (i) Plant and machinery including accessories Rs.3,60,00,000/ -

(ii) Electrical Installation Rs.10,00,000/ -

(iii) Stocks Rs.10,00,000/ -

(iv) Building including false ceiling and insulation Rs.20,00,000/ -

(v) Misc. Rs.10,00,000/ -

Total Rs.4,10,00,000/ -

THE complainant initially submitted claim of Rs.9,03,52,798.86, which included Rs.8,82,65,682/ - in respect of spinning machine including Canes and electrical installations. According to the complainant, after discussion with the surveyor and rationalization of the essential parts of the loss, the claim was finally lodged for Rs.3,19,70,814/ -. Vide interim survey report dated 28.10.2002, M/s. Bhatawadekar & Co., Marine and Engineering Surveyors assessed the loss at Rs.3,19,70,814/ - on reinstatement value basis and Rs.2,63,74,666/ - on market value basis.

THE insurance company thereafter, appointed Col. Chandra Prakash (Retd.) as an Investigator and the said investigator vide his report dated. 14.01.2003, inter -alia reported as under: "(2) Out of nine machines burnt, Machine No.21 bearing Production No.7278, Model BD 200 RN was purchased second hand in 1995 of vintage 1984 -86;

(4) All the machines, which were insured with New India Insurance Company, were obsolete for the last couple of years, at the time of their insurance. This fact was not revealed to the insurers nor the insurers got the proposal form completed from the insured. Insurance contract in respect of an obsolete machine insured at re -instatement value is impracticable to implement, as the production of same make, type and model of machine had been stopped long back. The replacement of damaged machine as envisaged by re -instatement value clause is, therefore, impossible. This insurance contract was impracticable ab initio and hence bad in law;

(5) The insured has been progressively increasing the sum insured for machines fitted in section ''B '' of his factory from year 2000 onwards, after two of the machines had got burnt in fire on 20.11.2000. Inspite of the fact that these machines had become obsolete long time back and were progressively getting worn out due to usage; the insured had been increasing the sum insured every year for the past three years. The machines which were insured for Rs.15.65 lacs each in the year 1999 -2000 stood insured for Rs. 35 lacs each in the year 2002 -03. It appears the insured was waiting for bonanza out of mishap like fire incident".

Vide letter dated 24.11.2004, the insurance company repudiated the entire claim in the following terms: "1. You confirmed that Nos. 8 Elitox machines were procured - Model BD -200 RN ex -factory Elitex Czech Republic vide invoice No. 84 -300 -0107 dt. 1.7.94 at USD 17600 each;

You confirmed that Nos. 16 Elitex machines BD -200RN were procured from ITC GMBH vide their invoice dt. 13.8.95. These machines were second hand manufactured in the year 1984 -86 (vintage is enfaced on the invoice). The cost per machine CIF, Bombay as USD, 17450 each;

It is observed that Elitex BD -200RN became obsolete in the country of origin sometime ago, in any case before 17.8.2002;

Despite the machineries becoming obsolete, you have been insuring the same by progressively enhancing the sum insured from Rs.15.65 lacs each in 1999/2000 Rs.35 lacs each during 2002 -2003;

As per the details submitted by you (enclosure to claim form) 9 machines were damaged, out of which 8 of them had the following numbers:

Sl. No. Mill Sr. No. Machine Production Year Make 1. 13 7798 1994 Elitex 2. 14 7799 1994 Elitex 3. 15 7800 1994 Elitex 4. 16 7801 1994 Elitex 5. 17 7802 1994 Elitex 6. 18 7803 1994 Elitex 7. 19 7804 1994 Elitex 8. 20 7805 1994 Elitex

It is noteworthy that the above 8 machines were imported ex -factory in 1994 as per details mentioned under (para 1).

You have also confirmed that another Elitex machine bearing Mill Sr.No.21 of pre 1994 make was also damaged. Our Verification revealed that

(a)A total loss claim was lodged by you against Oriental Insurance onaccount of alleged fire accident dated 15.6.2000, for one of the 8 Elitex Machines referred to in para (1) supra.

(b)You have lodged a claim with us as mentioned above for all the 8 Elitex machines imported by you Ex -factory in 1994. All the 8 machines were claimed by you as totally damaged during the alleged fire accident dt. 17th August, 2002.

We therefore, believe that the total loss claim lodged with us (pertaining to the alleged fire dt. 17th August, 2002) on one of the 8 new Elitex machines imported in 1994 is false, as you have claimed that the same was totally damaged in the fire dt. 15.6.2000. In other words, by your own admission, one of the 8 Elitex machines imported in 1994 which was totally destroyed by alleged fire dated 15.6.2000 (for which you claimed against Oriental Insurance) was once again totally destroyed in the fire dt. 17.8.2002, as per your own averments. Obviously, there is a serious, material and deliberate contradiction in your claims, since a machine which was totally destroyed in June,2000 cannot be again totally destroyed in August, 2002. We therefore, are constrained to invoke condition No.8 of Standard Fire and Special Peril Policy issued to you, reading as under:

"If the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof or if any fraudulent means or devices are used by the insured or any one acting on his behalf to obtain any benefit under the policy or if the loss or damage be occasioned by the wilful act, or with the connivance of the insured, all benefits under this policy shall be forfeited".

Thus, there is no valid claim under the policy. Accordingly we hereby repudiate our liability under the policy".

BEING aggrieved from the repudiation of the claim, the insured company is before this Commission by way of this complaint.

IT is not in dispute that while lodging claim with the insurer, the complainant sought damages in respect of nine machines, out of which eight machines bearing Sl. No.13 to 20 were imported by it in the year 1994. It is also an admitted case that the complainant company had earlier submitted a claim with the Oriental Insurance Company in respect of one of the eight machines, which it had imported in the year 1994 on the ground that the said machine had got destroyed in a fire, which had taken place on 15.6.2000. Thus, the claim submitted by the complainant, to the extent it pertained to one of the eight machines imported in the year 1994, was false, as the machine, which had got destroyed in the fire of 15.6.2000 could not have again got destroyed in the fire which broke out on 17.8.2002.

IN para 16 of its rejoinder, the complainant company claimed that the total loss of one machine did not mean total destruction of the machine and the machine in respect of which claim was paid by Oriental Insurance Company was repaired with considerable cost and put to functioning. However, the aforesaid plea taken in the rejoinder is contrary to the stand taken by the insured in its letter dated 06.3.2006 whereby it responded to the letter of repudiation dated 24.11.2004. In the aforesaid letter, it was claimed that due to oversight and because of similarity in the serial number of old and new machines, the surveyor had mentioned the number of new machines in place of old machines and moreover, the old machine had been sold by them as scrap vide Bill No.1836 dated 26.3.2001, a photocopy of which was annexed to the said letter. If one of the machines imported by the complainant in the year 1994, in respect of which claim had been taken from Oriental Insurance Company, had been sold as scrap, there could be no question of getting it repaired and made functional. At no stage, the complainant claimed before the surveyor that the machine in respect of which claim had been taken from Oriental Insurance Company had been sold as scrap and the numbers of the machines had been wrongly noted by the surveyor. The stand taken by the complainant throughout was that eight machines, which it had purchased in the year 1994, and one machine, which it had purchased in the year 1995, had got burnt in the fire, which took place on 17.8.2002. In its letter dated 05.10.2002, addressed to the Bhatawadekar & Company, the complainant specifically stated that out of nine burnt machines, eight were purchased in the year 1994 and their serial numbers were 7798, 7799, 7800, 7801, 7802, 7803, 7804 and 7805, whereas the number of ninth machine was 7278. Not only that, the complainant company also gave serial numbers of 12 machines, which had remained undamaged during the fire. In fact, for almost 1 1/2 years, the complainant did not even respond to the letter of repudiation dated 24.11.2004. This is a clear indication that a false plea was taken in the letter dated 6.3.2006, which in any case is contradictory to the stand taken in the rejoinder to the reply of the insurance company.

I am therefore, satisfied that part of the claim lodged by the complainant company was false since after the fire, which broke out on 15.6.2000, only seven machines imported in the year 1994 were left with the complainant company and hence, there could be no question of eight machines getting destroyed in the fire, which took place on 17.8.2002.

AS per Condition No.8 of the Standard Fire and Special Peril Policy, issued to the complainant, if the claim was found to be fraudulent in any respect or if any, false declaration is made or used in support thereof, all the benefits under the policy were to be forfeited. Since one of the machines imported in the year 1994 had got destroyed in the fire which broke out on15.6.2000 and claim for the said machine had already been taken by the complainant from the Oriental Insurance Company the claim, to the extent it pertained to the aforesaid machine was clearly fraudulent and a false declaration was made by the complainant to the extent the claim pertained to the said machine. The insurance company, therefore, was fully entitled to repudiate the entire claim, to the extent the claim arose out of Policy No. 354200/11/01/02973, in respect of the plant and machinery installed in the factory premises of the complainant.

IT is the complainant ''s own case that it had imported eight machines for USD 17,600 each vide invoice dated 01.7.1994 and 16 machines for USD 17,450 each vide invoice dated 13.8.1995. This is also the case of the complainant that 16 machines imported vide invoice dated 13.8.1995 were manufactured during the period 1984 -86. It is an admitted case that 23 machines, including machines in question, were insured with the Oriental Insurance Company for the period from 27.11.1999 to 28.11.2000 for Rs.360 lacs, with United India Insurance Company, Sonepat for the period from 29.11.2000 to 28.11.2001 for Rs. 700 lacs and for the period from 29.11.2001 for Rs.650 lacs, before they were got insured with New India Assurance Company at Rs.735 lacs for the period 26.3.2002 to 25.3.2003. The value of the machinery depreciates with the passage of time and this is more so when it has become obsolete on account of better and improved model becoming available in the market. Therefore, the machines which were worth Rs.360 lacs in the year 1999 could not have been worth Rs.735 lacs in the year 2002. Considering the depreciation between 1999 -2000 and 2002 -03, the value of the machines would be much less than Rs.360 lacs in the year 2002 -03 when they were got insured with the New India Assurance Company Ltd. , Sonepat. Thus, the complainant gave highly inflated value of the machine to the insurance company while getting them insured for the period from 26.3.2002 to 25.3.2003. Moreover, it was not disclosed to the New India Assurance Co. Ltd. that in the previous years same machines were got insured with Oriental Insurance Company, Sonepat and United India Insurance Company, Sonepat for a lesser sum. Had the complainant disclosed to the New India Assurance Company Ltd., while getting the machines insured with it for the period from 26.3.2002 to 25.3.2003, that for the period from 27.11.1999 to 28.11.2000 it had got 23 machines (two machines more than 21 machines got insured with New India Assurance Company), the insurer company in all probability would not have insured them for the sum of Rs.735 lacs. Moreover, atleast the machines which were purchased in the year 1995 had become wholly obsolete by the time they were got insured with New India Assurance Company in the year 2002, the same having been manufactured in the year 1982 -84. The complainant however, did not disclose to New India Assurance Company that the machines being got insured with it were old and obsolete machines, they having been manufactured in the year 1982 -84. In fact, according to the insurance company even the machines imported in the year 1994 had become obsolete by the time they were got insured with it in the year 2002, since their production had already been stopped. Thus, the complainant obtained insurance of the aforesaid machines by concealment of material facts that the machines, subject matter of the insurance policy, were old machines and were earlier got insured for Rs.360 lacs in the year 1999 -2000. The complainant also made a misrepresentation to the insurance company with respect to the value of the aforesaid machines by getting them insured for Rs.735 lacs, whereas their value in the year 2002 would be much less, considering that their value in the year 1999 -2000 was Rs.360 lacs.

IT was contended by the learned counsel for the complainant that since the policy was taken on reinstatement basis and not on market value basis, the complainant was justified in getting the machines insured at Rs.735 lacs. A reinstatement policy, in my view, envisages replacement of the insured machine by another machine of the same brand, specifications and configurations and if the insured machine is an old machine, in the event of its loss or destruction, the insurance company is required to replace it by an old machine of the same vintage and nor by a new machine. In other words, a person taking insurance in respect of say ten years '' old machine cannot, in the event of the loss or destruction of the machine, seek its replacement by a new machine. In fact, according to the learned counsel for the insurance company, had the true vintage of the machine been disclosed to the insurer, by the insured, they would not have insured the same on reinstatement basis. No evidence has been led by the complainant to prove that the machines having value of Rs.360 lacs in the year 1999 -2000, had the value of Rs.735 lacs in the year 2002, and that too when their number also had gone down from 23 to 21.

CONSIDERIN G that the machines had already become obsolete and outdated by the time they were got insured with New India Assurance Co. in the year 2002, their reinstatement value could not have been Rs.735 lacs when the reinstatement value of 23 machines in the year 1999 -2000, at the time they were got insured with Oriental Insurance Co. Ltd. was only Rs.360 lacs. Therefore, I am satisfied that the complainant made a misrepresentation to the insurance company with respect to the reinstatement value of these machines while getting them insured for the period from 26.3.2002 to 25.3.2003. Had the insurance company known that the correct reinstatement value of the machines was much less, it would not have insured them for Rs.735 lacs. Thus, the insurance policy was obtained by playing fraud upon the insurance company with respect to their value and consequently the said policy, which is nothing but a contract between the insurer and the insured was voidable at the option of the insurer.

FOR the reasons stated hereinabove, I hold that the complainant is not entitled to any reimbursement from the opposite party for the loss of the machines which are alleged to have been destroyed in the fire that broke out on 17.8.2002.

THE learned counsel for the complainant has submitted copies of National Insurance Co. Ltd. & Anr. Vs. Sanjay Kumar 2009 NCJ 582 (NC), New India Assurance Company Ltd. & Anr. Vs. Shree ShyamCotspinLimited, 2009 NCJ 335 (NC), National Insurance Co. Ltd. and Ors. Vs. Pacific Packers, 2009 NCJ 941 (NC), United India Insurance Co. Ltd. Vs. M/s. Sona Spices Pvt. Ltd., 2010 NCJ 896 (NC), M/s. Hanil Era Textiles Ltd. Vs. Oriental Insurance Co. Ltd. & Ors., 2001 NCJ 131 (SC), decision of this Commission dated 01.8.2014 in OP/182 of 2002 titled as M/s. Luxra Enterprises Pvt. Ltd. Vs. M/s. New India Assurance Co. Ltd. & Anr., and the decision of this Commission dated 02.09.2014 in OP/151/2000 titled as Ramdev Industries Vs. The New India Assurance Co. Ltd. & Ors. However, none of these decisions would apply to the factual situation prevailing in this case and therefore; none of them helps the complainant.

HOWEVER , the fraud played by the complainant upon the insurance company while getting the machines in question insured as well as while submitting the claim for the alleged loss of those machines would not impact its claim in respect of the remaining two policies. Admittedly, the complainant had obtained three separate policies, one for the stocks, one for the building and the third for the plant and machinery. No fraud in respect of these two policies is alleged. The fraud played qua the policy for the insurance of plant and machinery does not affect the claim in respect of the damage to the stocks and building which were covered by two different polices.

THE surveyor had recommended the claim for Rs.9,30,021/ - in respect of damage to building and Rs.6,09,438/ - in respect of loss on stocks, on reinstatement value basis. He also allowed Rs.50,000/ - for removal of debris and Rs.25,000/ - for fire -fighting expenses. However, a deduction of Rs.10,000/ - was made, which is excess, to reduce the loss. The amount payable to the complainant therefore, comes to Rs.16,04,459/ -.

FOR the reasons stated hereinabove, the opposite party is directed to pay a sum of Rs.16,04,459/ - to the complainant, along with interest on the aforesaid amount @ 10% per annum w.e.f. 17.02.2003 (i.e. six months from the date of the loss and intimation to the insurance company), till the date of payment. The Consumer Complaint is disposed of accordingly.