Poly Mat India Private Limited vs NATIONAL INSURANCE COMPANY LIMITED

THIS Original Petition has been filed by the complainant as a consequence of its claim under 2 fire policies bearing Nos. 101600/ 3101669/0 in respect of building, machinery and accessories and furniture and other contents and No. 101600/3101670/0 regarding stocks and used/burnt lubricating oil and re -refined oil in its factory premises consequent upon a fire being repudiated by the Insurance Company, opposite party No. 1. opposite parties Nos. 2 to 4 are Chairman -cum -Managing Director, Senior Divisional Manager and Assistant General Manager respectively of opposite party No. 1.

THE total area of the factory measures 251'' x 150'' and is bounded by 7'' high brick wall on South and Chain -link fencing on the North, East and West sides. Inside the said factory premises the complainant had a shed measuring 101'' x 41'' constructed of brick wall with asbestos sheets louvers at upper and asbestos sheets roofing on tubular frame structure. Attached to the south side of the shed was a lean -to structure measuring about 85'' x 25'' and constructed of brick walls and roofing on tubular frame. This construction was divided into several rooms housing the office, quality control laboratory, workshop -cum -rest room and store room for tools and equipment. These rooms had their opening inside the shed. In the said factory a Dove -tail batch type acid and clay treatment process for refining the used/burnt lubricating oil was undertaken. The raw -material for the process was the burnt and used lubricating oil which was being received in barrels which was stored in the open yard. Apart from that oil was also brought in and unloaded into used oil pits. The finished product i.e. refined lubricating oil was either being loaded into oil tankers or being filled in drums. This eliminated the need for intermediate storage. In the part of the plant which was in open the centrifugation, settling and decantation, dehydration, condensation of lighter volatile impurities, acid treatment and condensation of volatile matters were being conducted : The part of the operation which was carried on inside the shed were the less hazardous processes like clay treatment and neutralisation, filtration and centrifugation, oil blending etc. In that shed two Thermic Fluid Heaters, one oil fired boiler and one water softening plant were also installed. At the material time, all these plants and machinery and materials were covered by the two fire insurance policies. In the said policies the Banker of the claimant was also one of the beneficiaries. The said two policies are dated 19th and 20th March, 1992. It is alleged that in 1992 the bankers were changed by the complainant from Grindlays Bank, Chowringhee Branch, Calcutta to Allahabad Bank, Camac Street Branch, Calcutta and all the fixed assets were mortgaged by the complainant in favour of the West Bengal Financial Corporation to secure the loans received by the complainant No. 1. All the fixed assets, stocks and stocks -in -process of the complainant remained insured with the New India Assurance Company upto 19th/ 20th March, 1992. But, after the change of the Bankers from the Grindlays Bank to Allahabad Bank the complainant also changed their insurer from the New India Assurance Company Limited to National Insurance Company Limited, Opposite Party No. 1. It is alleged that the Development Officer of the National Insurance Company Limited, opposite party No. 1, one Mr. Sandip Guha, brought two proposal forms for fire insurance on or about 17th March, 1992, and got those signed by the complainant No. 1 in blank. He also took with him photo -copies of the previous policies issued by New India Assurance Company Limited. It is further alleged that the premises of the complainant were inspected by the said Development Officer and after inspection, the rates of premium were fixed. The premium which was demanded by the opposite party No. 1 being Rs. 12,012/ - and Rs. 3,890/ - respectively was paid by the complainant. In the said policies the location of the property was mentioned as "factory -cum -godown and office premises". However, the fact that there was no godown in the factory premises was clarified by the insured immediately on receipt of the policies without any controversy or contradiction of this fact from the insurer. The name of the Allahabad Bank was also included in the policy as mortgage of the property. There was a fire on 13th January, 1993 in the said factory premises and the entire building, furniture, fixtures and fittings and stocks in process as also the other equipment got completely destroyed. The opposite parties appointed S.N.M. Consultants as the Surveyors. Along with the said Surveyors, officials of the opposite party No. 1 had also visited the premises with a view to conduct site inspection. The complainant supplied all information sought by the said gentleman. The Surveyors informed the complainant that they had been instructed by the opposite parties not to assess loss to the plant and machinery, furniture, fixtures and fittings and civil structure outside the covered shed and building and all that plant and machinery which were lying installed in the open part of the factory premises were not allowed to be covered by the insurance and, therefore, the Surveyors assessed the loss to the properties inside the covered area. The Surveyors further communicated that they were to assess the loss of stocks inside the godown only. Since, there was no godown in the factory premises which the complainant had already clarified the position and sought amendment to the policy immediately on receipt of the policy documents, the Surveyors were informed by the complainant that there was no godown within the precincts of the factory premises. The representations of the complainants did not yield any positive response. The Surveyors report was also not made available to the Complainant and despite repeated requests by the Complainants and its consultants requesting for early settlement of their claim, the Opposite Party No. 1 and its officers kept stalling the issue by saying that the matter is being looked into. In the meantime the complainant continued to incur interest on the outstanding of Allahabad Bank and the West Bengal Financial Corporation. Even the request of release of part -payment or some payment on account of payment of at least 75% of whatever had been assessed by the Surveyors did not yield any positive result. But the complainant was informed that there was no possibility of any settlement of the claim immediately or an early recommendation for an ''on account'' payment on any of the two fire policies. Ultimately, in July, 1994, the complainant received a letter dated 1st July, 1994 from opposite party No. 3 intimating that under the said two fire policies the complainant would be entitled only to receive a sum of Rs. 19,95,432.75 and Rs. 9,242.28 respectively i.e. Rs. 20,04,675/ - after deduction there from of the sum of Rs. 19,224/ - as "penal premium'' being the difference of premium between Class -I and Class -II construction for three years and two vouchers for signatures of the complainant were sent and the complainant was also directed to send a further cheque for a sum of Rs. 4,239/ - being the alleged difference in premium under both the policies. The said amount of Rs. 4,239/ - was also paid. The said two vouchers were signed by the complainant without prejudice to its claim for the balance and returned to the insurer -opposite parties. The complainant also demanded the details of deduction from its claim and accordingly received a statement of account wherein details of deductions made and reasons there for were not given. It may be noticed that the Surveyors had assessed the total loss at Rs. 48,73,095/ - only, but the reasons for reducing this amount to Rs. 20,23,899/ - which was not even 50% of the loss assessed by the Surveyors, being aggregate of the two policies were not furnished to the complainant. The complainant had originally claimed a sum of Rs. 58,20,161/ - under the said two policies and the Surveyors had assessed the loss at Rs. 48,73,095/ -. But, in spite of this, the opposite parties, even upto the date of filing of the complaint, had not paid even the reduced amount of Rs. 20,64,675/ - minus Rs. 19,224/ - which they had originally offered under the two policies and in respect whereof they had obtained duly discharged vouchers from the complainant apparently because the complainants signed the receipt without prejudice to its rights. The complainant vide its letters dated 24.9.1993 and 27.9.1993 requested for an "on account" payment of 75% of the loss assessed. But that did not yield any result. When the matter could not be sorted out the complainant filed the present complaint for the said deficiency in service. On the said complaint notices were issued to the respondents who filed their response wherein they stated that they had settled the claim at a little over Rs. 20 lakhs as a non -standard claim because under the policy the premises was described as of 1st class construction and this description was given in the proposal form also. The Insurance Company also refuted the allegation of their having not explained the basis for such settlement and have referred to letter wherein it was clarified that the case was being settled as a non -standard claim. They had disallowed the claim relating to plant and machinery outside the covered area installed outside the building and had also not considered the claim of the goods i.e. the drums of oil lying in the open within the factory precincts. The Insurance Company has referred to all the correspondence wherefrom it becomes clear that the complainants were not being kept in the dark about the basis of the settlement of the claim. The complainant, however, has challenged this basis also and have stated that after the Insurance Company had recovered the difference in the premium of 1st Class and 2nd Class constructions for the first three years as per the penalty. The discrepancy, if any, got fully cured and according to the terms of the tariff they were bound to settle the claim in toto. Evidence was led by parties and there appears to be no difference on basis on which the claim was said to be settled by the insurer. "Tariff Advisory Committee Sheet No. 2 Bombay 1.10.1994 PART I - GENERAL RULES AND REGULATIONS SECTION 3 - BUILDING REGULATIONS SUB -SECTION A Note 1 : Wood work permitted only for (i) Doors, windows, ventilators and sunshades. (ii) Internal partitions and framework of false ceiling for office enclosures. (iii) Wooden floor laid on a structure as in (a) or (b) above without intervening space. Note 2 : No combustible materials should be used in construction even in wall linings, artificial ceilings or air conditioning duct linings. Class of Construction Walls Roof Class -I (i) RCC, bricks, stone or concrete (a) Any type of hard roof consisting of blocks with or without framework roof tiles, cement sheets, metal sheets of unencased steel. or of ceramic fuses. (ii) Brickwork with an outside bracing (b)Wooden shingles or wooden boardings of timber filled in with brick (for superimposed with any of the earthquake protection) above. N.B. : (c)Soorkey, chunam or concrete laid on tiles or stone slabs. Cladding of gable ends with AC/CGI sheets permitted, provided (d)North light roofs with the sloping the base of the cladding is at least portion constructed as in (a) or (b) 2.5 m. above the surrounding above. ground level. (e)Roof as in superior construction super imposed with thin layer of grass, hay or reeds. N.B. : Use of Fibreglass Reinforced plastic (FRP) or similar sheets is permitted provided the superficial area for such sheets does not exceed 2% of the superficial area of the roof sheet does not exceed 3.7 sq. m. Class -II Any other construction Any other construction 2. Buildings shall be classified as under for the purpose of rating under Part -III, Section -I, Dwellings, Offices, Hotels and Shops, etc. of the Tariff."

Regarding the queries of the complainant and letter dated 12th August, 1994, wherein details were supplied to the complainants it was brought on record that the said letter got posted on 17th August and according to the postal stamp, received at Alipore Post Office on 31st August, and was delivered into the office of the complainant only on 1st September, before which date the various representatives of the complainants had already left for Delhi to file the present complaint. The question that fell for consideration is whether the insurer was justified in settling the claim in the manner they did. We have perused the terms of the policy and also the clarification with regard to absence of any godown in the factory premises and we were also taken through relevant provisions of the tariff. It is not the case of the insurer that the nature of goods was not disclosed. It is also not the case of the insurer that they were not informed of the fact that a part of the plant and machinery was not covered and in the open at the time of the issuance of the insurance policies. It is also admitted that the difference in the premium as required under the tariff rules was recovered. Before proceeding further we would like to notice some of the provisions of the general rules and regulations contained in the recommendations and of the Tariff Advisory Committee and which are in operation. The class of construction is described as under : Thus, any building or premises which are not covered by Class -I will get covered under the category of Class -II because the precincts of the factory do have a wall and also chain -link fencing and are enclosed premises.

THE policy was issued after inspection of the premises and the expression used is ''factory premises'' and there is no distinction made between the part of the plant inside the shed and the part of the plant which is outside the shed and could not be covered. Further, similar insurance policies were being issued in the earlier years also by the Insurance Company as noticed above. It was also conceded that there could not be any partial insurance of a composite plant. The valuation of the assets outside the shed came to approximately 33.33% and no financial institution would have left such a large chunk of its securities uninsured. We have also perused the proposal form of opposite party No. 1, and there is no column wherein information is sought about what is installed in the open and which part of the plant is inside the shed or the building and there is no clause in the policy which would exclude the property kept inside the precincts of the factory premises if kept in the open. The plant and machinery installed is of such a nature that a part of it is in the open and the other part which is also connected with it, inside the building and there is no scope for separating the two as both parts constitute one compact unit. There is no separate definition provided in the policy for the term ''factory'' and for that reason one is to advert to the definition appearing in Factories Act which includes "any premises including the precincts thereof".

A reference be made to the "Guidelines for Settlement of Non -standard Claims" which provide as under : (1) Where a breach of warranty or policy condition (hereafter referred to as breach) arises and where such breach is of a technical nature or is evidently beyond the control or knowledge of the insured or is not material to the cause of occurrence of the loss - settlement is considered after rectifying the policy and collecting additional premium where due. In settling the claim, a deduction may be made from the assessed claim amount equivalent to the extra premium due for three years or three times the additional premium due for voyage which would have been charged had correct information been available originally.

(2) Where the breach is material to the loss or where an act of the insured or his agent has contributed to such a breach in such cases if the insured has acted with the best of intentions and has not consciously committed the breach or where the legal question of liability is in doubt, payment may be considered on merits of each case, upto a maximum of 75% of the assessed amount of loss.

(3) "Where the breach is material to the loss and the amount determined to be payable upto the maximum of. 75% of the assessed amount of loss is found to be higher than what would be payable had the claim been dealt with as one where the breach is of a technical nature, the compromise settlement should be made only for the lower amount". Procedure A. Additional premium for the unexpired period of the risk for rectifying the breach should be collected separately on pro -rata basis and credited to premium account."

The opposite party is governed by the said guidelines in settling the claims and these are binding on it. It has also recovered the additional premium and other dues payable as noticed above. In spite of that the amount offered was considerably lower than 75% of the assessed loss. No basis or reasons are given as to why the claim was not settled at 75% of the loss as determined by the Surveyor whose report is not disputed. The opposite parties were also not justified in not settling the claim of the complainants within a reasonable period and in accordance with the afore quoted guidelines as also the Tariff Rules. As already noticed above there was no reason as to why the opposite party No. 1 should not have settled the claim of the complainant to the extent of 75% of the loss assessed by the Surveyor even if the allegations of the insurer are assumed to be correct. Such settlement should have taken place within two months of the receipt of the Surveyor''s Report. The dilatory conduct of the insurer resulted in extreme hardship and inconvenience to the claimant who is being saddled with additional interest liability from time -to -time by the financial institutions i.e. the Allahabad Bank and the West Bengal Financial Corporation. Taking an overall view of the matter and by adjusting equities in this case we consider it appropriate to direct the opposite party No. 1, National Insurance Company Limited, to pay to the complainant No. 1 75% of the loss assessed by its Surveyors i.e. 75% of Rs. 48,73,095.75 which comes to Rs. 36,54,821.25 together with interest at the rate of 18% p.a. commencing from two months after the receipt of the Surveyor''s report till the date of payment. The opposite party No. 1 will also be liable for the costs of litigation which in the present case are assessed at Rs. 10,000/ -.