Massina Cold Storage Ltd vs NATIONAL INSURANCE CO LTD

THIS com -plaint has been filed by the complainant M/s. Massina Cold Storage, Smastipur, Bihar alleging deficiency in service on the part of opposite party, National Insurance Co. Ltd. by way of not settling the insurance claim and repudiating the claim after almost one year and eight months of the incident of deterioration of potatoes in the complainants cold storage.

THE facts of the case are that the complainant had obtained five insurance policies valid from 12.5.1999 to 11.11.1999 (six months), of which one policy for Rs. 1.05 crores was to cover loss by way of deterioration of stocks (potatoes). The details of policies are as under : Policy No. Type Sum insured Premium Paid 170605/5200036/99 For Machinery Break down Rs. 43,83,000/ - Rs. 74,612/ - 170605/3103766/99 Fire Policy ((THELAW)) extended to cover the Earth Quake, Flood, Inundation, Storm Tempest, Hurricane as per the provisions of the Fire Tariff Rs. 1,03,83,000/ - Rs. 51,924/ - 170605/503577/99 Burglary Rs. 43,83,000/ - Rs. 8,744/ - 170605/6000057/99 Deterioration of stock Rs. 1,05,00,000/ - Rs. 62,843/ - 170605/5400001/99 (Potatoes) Policy 3103941/99 Fire Policy of Deterioration of stock Rs. 1,05,00,000/ - Rs. 28,227/ - Total Rs. 91,070/ -

It is the case of the complainant that there was machinery break down and gas leakage in the cold storage on 23.9.1999, 26.9.1999 and 12.10.1999 as a result of which 21,127.34 quintals of potatoes out of total 30,005 quintals stored potatoes, deteriorated to the extent of becoming rotten, unfit for consumption causing a loss of Rs. 73,94,569/ - . The incident was reported to the opposite party, who appointed a spot Surveyor, who submitted an interim report on 22.10.1999 after a visit to the site on 14 and 15.10.1999. Another Surveyor was appointed who gave his report on 14.12.1999. The first Surveyor gave his full report on 15.4.2000 and then a joint survey report of both the Surveyors was submitted on 8.6.2000. When the claim was not getting settled, feeling aggrieved by the incident the complainant filed a complaint before this Commission on 16.8.2000. Before filing its written version upon notice having being issued to the opposite party, the claim was repudiated on 18.5.2001. The grounds for repudiation given out were as under : ''1. Your Claim No. 170605/52/99 -99/04 under M.B. Pol. No. 170605/52/00036/99 does not come within the purview of Machinery Breakdown Policy since our joint Surveyors Mr. P.K. Peeyush and Mr. Inder Chaddha have stated in their report that Insulation is a part of building and not considered as machinery. 2. Your Claim No. 170605/54/99/2000/01 under DOS (P) Policy No. 170605/540000/99 giving rise to deterioration of stock (potatoes) as a result of machinery breakdown also does not come within the purview of DOS (P) Policy. As per terms and conditions of DOS (P) Policy it is pre -requisite that the related machinery breakdown claim liability is accepted by the Company before disposing of the DOS (P) claim. DOS (P) Policy specifically states That the total liability of the company under this policy shall be limited to the sum insured provided always that the plant and machinery specified in Schedule -I of the DOS (P) Policy is insured under Machinery Breakdown Policy in force and payment shall have been made on liability admitted under such insurance.''

WRITTEN version was filed by the opposite party rebutting all the contentions of the complainant and justifying the repudiation on the ground that loss is not covered by the terms of the policy. Rejoinder to the written version was filed by the complainant. It appeared that what was involved was interpretation of the terms of the policy. In view of this factum, with the consent of the parties, we passed the following order on 11.7.2002 : ''It is agreed that the only issue involved will be the interpretation of the policy and the cover note issued. It is also agreed that if case is covered under the terms and conditions of the policy and the cover note, the complainant would be entitled to the amount as assessed by the Surveyor. In this view of the matter no evidence is required from either of the parties. In case it is held otherwise, complainant will have to go to Civil Court or any other appropriate Forum for reliefs claimed. To be listed on 22.10.2002 for arguments.''

IN the light of this order, arguments were heard on the above mentioned issue. It is argued by the learned Counsel for the complainant, Mr. Midhha that basic facts of the case are not disputed - that the complainant did indeed have the insurance policy for machinery breakdown and for deterioration of stock (DOS), premium had been paid and received. Interim receipts/cover notes were issued acknowledging the insurance coverage enclosing the details of machinery, building and stocks covered. Repudiation is based on a policy document - which for the first time spells out the terms of the Policy itself - is issued on 24.11.1999, thirteen days after the expiry of life of the Policy. Non -issuance of the Policy in time itself is a deficiency. It is his case that it is not disputed by the Surveyors appointed by the opposite party that indeed there was a motor failure on 23rd and 26th September, 1999 and gas leakage on 12.10.1999. This, was a case of machinery breakdown leading to deterioration of stocks which the opposite party is obliged to indemnify under the terms of the Policy as these items are covered under the Policy for Machinery Breakdown as well as Policy for Building Insurance. It is also the argument of the complainant that what they had was a cover note of DOS Policy which clearly covered Deterioration of Stocks. There were no terms spelled out in this document. These were given not only much after the loss had occurred but also after the expiry of life of the Insurance Policy. The repudiation made by the opposite party of its claim is clearly not maintainable on the ground that both motors and insulation - alleged by the Surveyors to be the main cause of loss, hence the claim being not maintainable - are covered by the terms of Policy read with the Schedule attached to it, thus making it clear that this was a clear case of machinery breakdown which led to the deterioration of stocks. Our attention was also drawn to the observations of the Surveyors made in their report where they are stated to have conceded that loss of potatoes indeed was on account of insulation and machinery breakdown. Opposite party cannot run away from these observations. He also met the point raised by the opposite party that as per Surveyors report insulation is part of building and not part of machinery. It is the case of the complainant that the whole claim need to be seen as a composite case. In the Schedules attached with Building Insurance Policy as well as Machinery Breakdown Policy - both of these have the same components -motors and insulation are mentioned as items covered by the Policy and for these items separate tariff has been charged, as part of the premium. The repudiation is devoid of merit as it is not supported by the terms of policy and material on record. In view of this the complaint be allowed within the terms of this Commissions order dated 11.7.2002.

ON the other hand, the case of the opposite party is that it is true that there indeed was breakdown of condenser motors and the coil - but on the date of visit to the complainants premises by the Surveyor, they were found to be functioning. When claim was preferred by the complainant on 23.9.1999 it was relating to machinery breakdown and there was no reference to deterioration of stocks. The critical element leading to deterioration of stocks was complete collapse of insulation. It is on account of the fact that while the breakdown of machinery was restored - yet the temperature went up to 45 0F. The claim is not tenable in view of the fact given out in the report of the Surveyor that insulation is part of the building and not of machinery and as such deterioration of stocks was caused by collapse of insulation. As the item is not covered forming part of the machinery, the claim is not maintainable as not being covered by the terms of the policy. Insulation is part of building and not machinery. In this connection our attention was drawn towards clause 4 of the General Exception given out in the terms of the Policy. ''The Company shall not be liable under this policy in respect of : (1) xxx xxx xxx (2) xxx xxx xxx (3) xxx xxx xxx (4) Gradually developing flaws, defects, cracks or partial fractures in any part not necessitating immediate stoppage although at some future time repair or renewal of the parts may be necessary.'' Since in the present case the claim under machinery breakdown has been repudiated as outside the terms of the policy, the claim under deterioration of stocks, which is linked to Machinery Breakdown Policy, is also clearly not maintainable and has rightly been repudiated. There is no merit in the complaint, hence need to be dismissed.

WE have seen the material on record and heard the arguments. The question before us is to examine whether the stocks of potatoes deteriorised on account of machinery breakdown and whether it was within the terms of the Policy or not ? Two policy documents are important - one is the Interim Protection Note issued on 12.5.1999 on Deterioration of Stock in which in the column - Subject matter of Insurance - following description appears : ''On stock of potatoes against Deterioration of Stock Risk for 6 months whilst contained in gunny bags and stored in the above named cold storage at Muktapur, Samastipur under loan to the aforesaid Bank Rs. 1,05,00,000/ - (One crore five lakhs only) subject to agreed Bank clause.''

THEN we have the Machinery Breakdown Policy cover note dated 31.3.1999 which has a Schedule listing 22 items covered by the Policy. We also have a separate Fire Policy C covering building which includes machinery also as per Schedule attached to it. It is the same Schedule as attached to Machinery Breakdown Policy.

IT is not disputed that on 23.9.1999 four motors of condenser were burnt which was repaired but on account of the motors remaining out of service for 43 hours as per Para 11.2 of the report of the Surveyor, P.K. Peeyush dated 15.4.2000. On 26.9.1999 and 12.10.1999 ''there was leakage from freeze coils. It is admitted by the Surveyor in item 7 of his report that the above serious accidents had occurred before his visit and they were all relating to machinery breakdown''. The report of the Surveyor, P.K. Peeyush dated 15.4.2000 in our view clinches the case. In Para 15(ii) he reproduces clause under exception to disclaim the claim of the insured. This clause reads as follows : ''Any damage to stock due to rise or fall in temperature caused by any section or sections of refrigeration for less than 24 hours following an accident to the refrigeration plant and machinery specified in Schedule -I.'' Motors are part of the Schedule. The case sought to be made out now is that breakdown was for less than 24 hours hence excluded from the terms of the Policy. Para 11.2 of the same report of the Surveyor dated 15.4.2000 belies him when he says that the breakdown lasted 43 hours, we see no merit in this contention. The term ''Accident'' has been defined in the terms of Deterioration of Stocks (Potatoes) Policy issued on 24.11.1995.

''Any sudden or unforeseen loss or damage to the Plant and Machinery described in Schedule -I of this Policy due to an accidental cause covered by the Machinery Insurance Policy specified in Schedule -I and not hereinafter excluded.''

''Escape of Refrigerant in the Chamber as a direct result of damage to the Plant and Machinery described in Schedule -I for which damage a claim is admissible under the Machinery Insurance Policy specified in the Schedule -I.''

It is only as a result of the prolonged breakdown that temperature went up affecting the insulation. Surveyors report itself states that the temperatures went up as high as 450F.

IF we see the Schedule -I of the Machinery Breakdown Policy, one does not have to work hard to notice that in the present case insulation is also described in the Schedule -I at two places as items 16 and 19. A hefty sum of Rs. 20,560/ - has been charged for the insulation material. Heading of the Schedule is Plant, Machinery, Tools and equipment. If the premium has been charged treating insulation in the Machinery Breakdown Policy, then with what face the Insurer can now turn around and say that as per their wise Surveyor, insulation is part of building and not machinery. It is too late in the day to say so. If it is insured under Machinery Breakdown Policy. Surveyors view or no Surveyors view, the insurer cannot get out of it. As we see, Insulation is covered under the Machinery Breakdown Policy - hence is part of the machinery. Admitted portion is that cooling could not be affected because of failure of the insulation to hold, then it is also to be seen as breakdown of machinery, hence very much within the terms of the Policy. Having admitted insulation as part of the machinery and having charged premium separately on such a term, Surveyors rebuttal at a much later stage is of no help to the opposite party. In this case the Insurers becoming wise after the event does not help them, keeping in view the facts of the case borne out on record.

IN the light of above discussions, we are left in no doubt that it was a case of machinery breakdown which led to deterioration of potatoes stocks kept in the cold storage of the complainant and covered for indemnification under the terms of the Policy. What is left for us is to determine the quantum of amount to be awarded to the complainant in the light of Surveyors reports. On record we have three figures. One given by the Surveyor Inder Chaddha & Associates who has recommended Rs. 60.66 lakhs as the amount payable as per terms of the Policy, then we have the report of P.K. Peeyush, Surveyor recommending Rs. 68.66 lakhs and again we have on record a joint report of these two Surveyors according to which amount payable is Rs. 54,04,079.00. We have perused these reports. We are unable to accept the report of Mr. Peeyush as it is based on the price of potatoes at over Rs. 4/ - per quintal whereas in the claim, the complainant himself has preferred claim valued at Rs. 3.50 per quintal. The joint report has no rational and has to be rejected outright. In our view the report of Mr. Inder Chaddha & Associates is as per the terms of Policy. It is based on agreed quantity of potatoes lost, valued at the price given out in the claim preferred by the complainant and deductions are as per terms of Policy. In the circumstances, we direct the opposite party to pay an amount of Rs. 66.66 lakhs to the complainant along with interest @ 10% from 1.1.2000 i.e. from two months after the receipt of first report of the Surveyor.

WE also see that as per records, the Insurance Policy and the Terms and Conditions attached with the Policy, were issued after the expiry of the life of the Policy - keeping the insured in dark all along about the terms of the contract which a policy is. This is a clear case of deficiency on the part of the opposite party for which a token compensation of Rs. 1 lakh is awarded to the complainant payable by the opposite party to the complainant which shall be recovered after due enquiry by the opposite party from the Officer(s) concerned for the grave lapse/deficiency in service. The complaint is allowed in above terms with costs of Rs. 5,000/ -. Complaint allowed.