NEW INDIA ASSURANCE CO. LTD. vs Cosboard Industries Ltd.

THIS First Appeal under Section 19 of the Consumer Protection Act, 1986 (for short "the Act"), is by the Insurance Company, questioning the correctness of order dated 12.10.2007 passed by the State Consumer Disputes Redressal Commission, Orissa at Cuttack (for short "the State Commission") in CD Case No. 107 of 2004.

THE Respondent/Complainant, a Company incorporated under the Companies Act, 1956 set up an industrial unit at Jagatpur, in Orissa, for manufacturing craft paper, paper board, newsprint, etc. Waste paper is a raw material for production of the said products. The Respondent had obtained two Standard Fire & Special Perils Policies, with permitted "add -on cover". The validity period of the policies was from 08.09.2003 to 07.09.2004 and 12.03.2004 to 11.03.2005. A summary of the sums insured was as under: -

Thus, the total sum assured in respect of the stock of waste paper, under the two Policies, stored in the open and in the shed, was Rs. 1,75,00,000/ -. Unfortunately, on 28.08.2004 a fire took place in the premises of the Respondent due to electric short circuiting, as a result of which, the stock of waste paper stored in the shed, including electrical equipments, were damaged. On being informed about the incident, the Insurance Company appointed a preliminary surveyor -cum -loss assessor. In his report dated 05.09.2004, the Surveyor confirmed that the fire was due to short -circuiting, causing damage to the raw materials. Later on, the Insurance Company appointed one Sanjeeb Kumar & Associates, Chartered Accountants, as the surveyors/loss assessors. In their report, while endorsing the findings of the preliminary surveyor with regard to the cause of fire and taking into account the damage caused to the waste paper, building, electric fittings, due to fire, the Surveyors assessed the loss of raw material in fire at Rs. 91,07,390/ - and for building at Rs. 15,000/ -. Thus the total loss on account of fire was assessed at Rs. 91,22,390/ -. However, the surveyor recommended settlement on this account at Rs. 25,87,111/ -, assessed in the following manner:

Liability of Payment

The insured has taken 2 policies for the Stock of Raw Materials, Finished Products, Stores, etc. Out of the same, the raw materials are being categorized as kept in Shed and in open which is a fact in reality. The total Sum insured for the Raw Materials is Rs. 1,75,00,000/ - out of which insured for Shed is Rs. 50,00,000/ - only where the loss took place.

The insured does not maintain any separate records for the raw material stock kept in Open and Shed and it is also not possible to say as to how much of raw material was inside the Shed and in open while the Fire took place. Contrary to it, the shed is about 30000 Sqft of 30'' height and can accommodate enough stock of raw material.

It is also observed by the Preliminary Surveyor that, the Fire didn''t affect the whole stock inside the shed, some portion of it was unaffected.

Had there been separate record or any other device in our hand to find out the Stock -at -Risk, we would have preferred to apply the principle of under -insurance in this case, but, that, is also not possible.

Now, the question comes, what would be the liability of payment of the insurer, since the whole stock that has been affected and damaged due to the Fire was inside the shed and the sum insured in shed is less than the total loss.

Under such circumstances, we have only one yard stick in our hand to apportion the loss between the 2 sum insured figures for the same item insured to have been kept in shed or in open and that is the ratio of the sum insured for the raw material i.e. 125 (Open): 50 (Shed).

Considering the facts as above, we suggest below the liability pattern.

The Insurance Company offered to the Respondent a sum of Rs. 26,01,020/ - as full and final settlement against the claim but the same was declined as being inadequate.

HAVING failed to elicit further response, the Respondent filed a complaint in the State Commission against the Insurance Company, inter -alia, praying for a direction to them to pay a sum of Rs. 83,07,048/ -, in addition to a sum of Rs. 26,01,020/ -, which had already been agreed to be paid, together with refund of the extra premium charged as also compensation for breach of contract, etc.

ON consideration of the terms of the two Policies and the Surveyor''s report, the State Commission came to the conclusion that the Respondent was entitled to receive an amount of Rs. 91,22,390/ - for the loss suffered, as assessed by the surveyor. However, as a sum of Rs. 26,01,020/ -, had already been received by it under an interim order passed by it, the State Commission ordered that Respondent would be entitled to receive the balance amount of Rs. 65,21,370/ - along with interest. Finally, taking into consideration the facts and circumstances of the case, the State Commission directed the Insurance Company to pay to the Respondent a consolidated amount of Rs. 70,00,000/ - towards all the claims, by 30.11.2007, in addition to the amount already withdrawn. Hence the present Appeal. I have heard Mr. Kishore Rawat, Advocate for the Insurance Company and Mr. Sukumar Pattjoshi, Sr. Advocate for the Respondent.

LD . Counsel appearing for the Insurance Company submitted that the order is erroneous as the State Commission has failed to take into consideration two vital factors, viz., (i) since only the raw material lying in the shed was damaged, the Insurance Company was liable to indemnify the Respondent to the extent of the value of the stocks of raw material stored in the sheds, i.e. Rs. 50,00,000/ - and not in respect of the raw material lying in the open or elsewhere and (ii) the value of the waste paper available in the shed was over three times the sum assured and therefore, the "under insurance" principle was not applied. Strongly relying on Annexure I to the two policies, Ld. Counsel asserted that the value of the stocks of raw material lying in the open and in sheds covered under the policies having been bifurcated, the raw material lying in the open could not be taken into consideration for assessing the loss, more so when the damage on account of fire was to the raw material stored in the shed.

PER contra, Mr. Pattjoshi, Ld. Senior Counsel, appearing for the Respondent, strenuously urged that no doubt Annexure I to the policies, placed on record by the Insurance Company, indicate the bifurcation of the value of the stocks in open and in shed, but it is evident from the proposal form that the Respondent had applied for special coverage policy for the stocks on "Floater Basis" covering the entire stock of raw material, which may be lying at different places in the premises of the Respondent, under "single sum insured." It was also pleaded that the Insurance Company had charged premium at a rate applicable for storage of hazardous goods in the open, which was much higher as compared to the other raw materials stored in the sheds. In support of the proposition that the terms and conditions in the proposal form are sacrosanct and binding on the parties, Ld. Counsel placed reliance on the decisions of the Supreme Court in Vikram Greentech (I) Ltd. and Anr. Vs. New India Assurance Co. Ltd. : 2009 5 SCC 599. Reference was also made to the decisions in United India Insurance Co. Ltd. Vs. Pushpalaya Printers : (2004) 3 SCC 694 and Modern Insulators Ltd. Vs. Oriental Insurance Co. Ltd. : (2000) 2 SCC 734 to contend that in the absence of any terms in the Policy regarding "under insurance", the Insurance Company was estopped from raising such a technical plea at a later stage to repudiate a legitimate claim by the Insured. The short question falling for consideration is whether under the two policies, loss on account of fire in respect of the stocks of raw material, had to be assessed on the basis of its location, because as per Annexure -I to the policies, the sum assured in relation to waste paper was split into two categories, viz. "waste paper in open" and "waste paper in shed" or the total assured value of the raw material was to be taken into consideration?

IN order to appreciate the rival stands in the right perspective, it would be necessary to refer to the relevant terms of the policies and the proposal form. For the sake of ready reference Annexure -I of one of the policies (both being identical except for the quantum), on which strong emphasis was laid by Ld. Counsel for the Insurance Company, is extracted below: -

COLUMN 23 of the proposal form for Standard Fire & Special Perils Policy reads as follows:

It is not disputed by the Insurance Company that the Respondent had ticked box ''A'', i.e. "On Floater Basis". On a bare reading of the proposal form it is evident that the Respondent had opted for Special Coverage for stocks on Floater Policy, which specifically covered "stores at various locations, identified in the Box at Phase II, New Industrial Estate, Jagatpur, the premises where the fire took place. It is clear that had the Respondent chosen any other option, like option ''D'', which contemplated a situation where the stocks were stored in open, "located outside the factory compound", perhaps the stand of the Insurance Company could hold some water, which is not the case here. Admittedly, the stocks of raw material, whether in the open or in the sheds, were lying within the factory compound. In my opinion, therefore, in the absence of any stipulation to the contrary in the body of the policy, a further splitting of the category of stocks, in open or in shed is of no consequence, in so far as the facts at hand are concerned. It needs little emphasis that under the caption "description of the property", the entire stock of the paper, valued at Rs. 1,00,000/ - and at Rs. 75,000/ - in the other, was covered under the two policies, for the sum assured.

IN Vikram Greentech (I) Ltd. (supra), the Hon''ble Supreme Court has held that a document like proposal form is a commercial document and being an integral part of a policy, reference to proposal form may not only be appropriate but rather essential. Further, the surveyors'' report cannot be taken aid of nor can it furnish the basis for construction of a policy. Such outside aid is impermissible. Explaining the meaning and scope of an insurance contract, the court observed thus: - An insurance contract, is a species of commercial transactions and must be construed like any other contract to its own terms and by itself. In a contract of insurance, there is requirement of uberrima fides i.e. good faith on the part of the insured. Except that, in other respects, there is no difference between a contract of insurance and any other contract. The four essentials of a contract of insurance are, (i) the definition of the risk, (ii) the duration of the risk, (iii) the premium and (iv) the amount of insurance. Since upon issuance of insurance policy, the insurer undertakes to indemnify the loss suffered by the insured on account of risks covered by the insurance policy, its terms have to be strictly construed to determine the extent of liability of the insurer. The endeavour of the court must always be to interpret the words in which the contract is expressed by the parties. The court while construing the terms of policy is not expected to venture into extra liberalism that may result in re -writing the contract or substituting the terms which were not intended by the parties. The insured cannot claim anything more than what is covered by the insurance policy.

THE proposal form, extracted above, leaves little scope for doubt that, subject to the overall cap for the amount assured, the entire stock of the waste paper was insured, irrespective of the fact whether it was lying in the open or stored in a shed, and therefore, had to be taken into consideration for assessment of loss. In so far as the question whether the claim preferred by the Respondent was within the limit of sum assured, it has been clearly found by the Surveyor that the same was well within the limit of sum assured.

HAVING regard to the documentary evidence on record, I am of the opinion that the stand of the Insurance Company is wholly unjustified. The Appeal is devoid of any merit and is dismissed accordingly, with no order as to costs.

THE amounts, deposited by the Appellant in terms of orders dated 28.11.2007 and 04.03.2008, are stated to have been withdrawn by the Respondent on furnishing personal bond. Since the appeal has been dismissed, the bond shall stand discharged. Balance amount, if any, due in terms of the impugned order shall be paid to the Respondent within six weeks from the date of receipt of a copy of this order. However, the statutory deposit of Rs. 35,000/ - by the Appellant shall be transferred to the Consumer Welfare Fund.