RAWAT BROTHERS vs Oriental Insurance Co. Ltd.

THE complainant, Rawat Brothers, a partnership firm, registered with the Registrar of Firms. THE firm runs a hotel at Joshiyara in Uttarkashi. THE hotel business was set up in the year 1985 by obtaining financial assistance from Uttar Pradesh Financial Corporation, the respondent No. 2, to the tune of Rs. 15 lakhs. This financial assistance was given by respondent pursuant to the direction given by the State of U.P. for the development of the backward areas. THE hotel known as Hotel Baghirathi Palace is a large building having about 30 rooms and other facilities. THE entire building and other articles are mortgaged/hypothecated in favour of the U.P. Financial Corporation.

THE complainant, Rawat Brothers, had the hotel building insured under the policy known as Fire Policy-A from the Oriental Insurance Company Ltd. the respondent No. 1. THE policy was effective from 21.9.1991 to 20.9.1992. THE total insured value of the building and other fixtures came to Rs. 25,75,000/- out of which the value of the building of the hotel was Rs. 22,00,000/-, fixtures, fittings and electrical installations were insured at Rs. 3,25,000/-, furniture, etc. was insured for Rs. 50,000/-. Before the insurance proposal was finalised the representative of the Oriental Insurance Company visited the hotel site and satisfied himself about the value of the building and other articles which were yet to be insured. On the night between October 19-20, 1991, a severe earthquake took place as a result of which large-scale devastation took place in the entire Uttarkashi District. Thousands of people were left homeless and almost all of the permanent constructions in the area were either razed to the ground or suffered severe damages. The hotel Baghirathi Palace also suffered extensive damages. It developed cracks and it became unfit for human occupation. It has been alleged that as a result of the earthquake not only the building was damaged but also the land in front of the building subsided. The subsistence is continuing and causing great danger to all the inmates of the hotel. The complainant reported the damage caused to its hotel to the Insurance Company. The Insurance Company deputed a Surveyor to go to the spot and make his survey of the building set up by the complainant.

The case of the complainant is that the building was heavily damaged and that a portion of the building which was in occupation of the Indo-Tibetan Police was vacated by them. The Sub-Divisional Officer of Uttarkashi also came and inspected the region in which the hotel was situated and certified that the hotel damage was caused by earthquake on 20.10.1991.

THE Insurance Company deputed one Mr. Deepak Anand, who was a qualified Engineer, to make a survey and estimate the loss suffered by the building. THE complainant in its turn engaged one Mr. Devendra Prasad, Consulting Engineer, to carry out a detailed inspection of the said building and made a report on the extent of the loss. A report was submitted by Devendra Prasad on February 9, 1992, estimating the loss at Rs. 20,81,550/-. As the Insurance Company did not take any steps for settlement and payment of the claim made by the complainant in spite of several reminders and visits to the office of the Insurance Company, the complainant ultimately sent a letter dated July 20, 1992, to the Insurance Company asking to pay at least 75% of the estimated loss assessed by the Surveyor. The money could be utilised by the complainant to mitigate the loss suffered by it. On July 26, 1992, the Surveyor appointed by the Insurance Company visited the hotel set up by the complainant and met Shri Bachan Singh Rawat, one of the partners, and gave him a claim form to be filled in by the complainant. However, Shri Bachan Singh Rawat declined to sign the claim form then and there. Following this, the Surveyor sent a claim form to Shri Rawat on 26.7.1992 at 6.30 p.m. Shri Rawat was also formally asked to lodge a claim in the said claim form.

ON 17.8.1992 the claim form alongwith letter dated 14.8.1992 was submitted by Shri Rawat to the Insurance Company. ON 18.8.1992, exactly one day after the submission of the claim form a letter came from the Insurance Company informing the complainants that the claim was being considered by the appropriate authority for finalisation. The case of the Insurance Company is that apart from forwarding the report of Devendra Prasad the complainant was not very cooperative when the Surveyor appointed by the Insurance Company wanted to finalise its report. It was pointed out that spot inspection and assessment of loss was completed as soon as information was received by the Insurance Company, but the report could not be finalised for lack of material documents, claim form, etc. from the insured. In spite of several reminders the insured did not provide the claim form, building plan, valuation of the building, hotel registration certificate, ownership of hotel and also valuation of the land. The Surveyor on the advise from Mr. Bachan Singh Rawat visited Dehradun to meet Mr. Devender Prasad, but when the Surveyor arrived at the site Devender Prasad was not available. The insured also expressed his inability to provide the necessary documents. On 14.2.1992 the Surveyor once again visited Uttarkashi after arranging a meeting with the insured. He was only supplied the copy of the claim bill. He once again requested the insured to provide the various documents and in particular the photographs taken by the insured and also the details of the land purchased on which the hotel building was erected. Ultimately, the Surveyor submitted its report dated 27.7.1992 finally assessing the loss at Rs. 2,86,000/-. It has also been stated by the Insurance Company that having regard to the magnitude of the claim and since the matter was highly technical Senior Surveyors, M/s. K.D. Kohli and Co. (Pvt.) Ltd. were appointed, who also took the help of Shri Yogesh Kumar, Structural and Civil Engineer to go into the matter afresh and to make the report of the extent of the loss. The structural Engineer assessed the loss at Rs. 2,09,475.43 paise. The report submitted by M/s. Deepak and Anand Associates the Surveyors appointed by the Insurance Company was examined and adversely commented upon by the K.D. Kohli and Company in the following manner : "As a matter of fact, the assessment worked out by the Surveyor is very much on the high side and requires substantial curtailment. Our technical comments and suggestions for adjustment of loss are based upon the facts available in the file as also a study of Deepak Anand Associates Report. To make sure that a fair assessment could be arrived at, we confirm having taken the assistance of an Expert Civil and Structural Engineer, namely, Mr. Yogesh Kumar Nandwani, Consulting Civil Engineer, E-26, Preet Vihar, New Delhi. Unofficially, we confirm having consulted a highly reputed and expert Civil Engineer, Mr. C.C. Nandwani who is presently working with Delhi Municipal Corporation and is thoroughly conversant with structures, buildings of medium and extra height. He has an experience of over 30 years and in other words, before offering our comments we have carefully examined the whole case and are quite confident that our suggestions about the adjustment of loss would be found acceptable. We offer our comments as under :

The earthquake took place on 21.10.1991 at 0255 hrs. with epicenter in Kumaon Hills. Though the damage caused to human lives and residential houses and other properties in Kumaon Hills was not very serious, it was much more pronounced and serious in District Tehri of Uttar Pradesh. Area in and around Uttarkashi was seriously affected.

As per seismological studies, waves caused by the earthquake tremors are far more disastrous than the primary waves. The convulsions in the earth crust travel at great speed. While displacement of earth crust in a straight line may not cause much damage, its oscillation due to tremors following initial earthquake cause further damage. According to studies made at University of Roorkie, in alluvial soil the earth holding the foundations of a building becomes liquefied and suddenly a building which was firmly embedded in strong and stable ground appears to float in liquefied earth. It is this liquefaction of soil which caused collapse of buildings and structures and consequential loss of human lives in the Gangetic planes, during the great and disastrous earthquake in Bihar and Nepal Trai areas. Similar type of liquefaction, however, does not occur as seriously as in solid rock which may develop cracks if the earthquake tremors are of higher magnitude and continue for a longer period. Otherwise, the damage may be caused only along the already existing fault lines where the rock slip may occur and cause displacement of foundation resulting in damage to a building.

Wherever the foundations are embedded in rock and it does not suffer from existing cracks/faults, due to uneven movement of the foundation superficial cracks may occur in the structure of the building at worst, and cracks in plastering brick walls, etc. when damage is not very serious. The buildings which are built in RCC structures may resist damage due to tremors and the damages may be confined to skin crack and/or dislocation of plastering on the walls or the walls between the RCC columns and beams. All buildings are designed to withstand earthquake. Buildings are designed to withstand earthquake termors, especially those which are constructed in known seismic zones.

The damage to the building of Hotel Bhagirathi Palace, Uttarkashi, pertains to the last type mentioned above. Intensity of the earthquake which shock Uttarkashi was 6.5 on Richter Scale. It was widely reported in the National Press and damage to buildings built of loosely plastered stone walls and roofs was of more serious nature than the damage occurring to buildings built on RCC foundations, columns and beams, unless these buildings stood on rocks which suffered from existing faults and crack.

It is surprising that while the insured has claimed Rs. 20,81,550/- they continued to occupy the building and use it for the intended purposes during the winter of 1991-92. The first time the Surveyor visited the captioned building at Uttarkashi was on 10.12.1991. The photographs taken by him at that occasion clearly indicated that not only the ground floor shops were doing active business and were normally occupied, but the upper rooms were also being used. Even the Restaurant was in use on the date of survey.

We draw your kind attention to photograph Nos. 21, 31, 32, 1, 2, 3, 4 and 5. Photograph Nos. 8, 9, 12 and 14 also indicate that the building was being used as a hotel on the date of taking photographs. As per information available to us the building was used by the insured not only in the winter of 1991-92 but till much later.

We wish the Surveyor had demanded a plan of building duly approved by the competent authority to establish that the building had been built as per approved plan and specifications laid down by the District/Municipal Authorities.

Just to establish a claim almost on total loss basis on a building which was still being used even in December of 1992, the date on which the insured got a set of drawings prepared by Mr. Devindra Prasad, Consulting Civil Engineer, Vasant Vihar, Dehradun. It is also evident that the insured''s attitude right from the beginning was of non-cooperation with the Surveyor and insured''s clear intention was to take unjustified and undue advantage of an unfortunate natural calamity which struck Uttarkashi Region on October 21, 1991.

The building is of four-storey height, built in a highly seismic zone and the approval of its plan and construction of the building as per plan becomes of paramount importance.

ON account of the same earthquake, damages were caused to 5 storeyed buildings of Gururamdas Academy in Dehradun which has several blocks and is a far larger and taller building as compared to the insured''s building. The Engineers of the insured agreed to accept the repairs of skin cracks and replastering and replacement of a few walls between the RCC structures without any hesitation. We do not understand as to why the insured insist on an unjustified claim in spite of nominal damage caused to the building.

AS a matter of fact, we would have assessed the loss even lower than what Mr. Nandwani had done but respecting his experience and expertise concur with adjustments made by him for the repairs of the building to put it back into a safe habitable condition. The report of Mr. Nandwani deals in detail with various points raised by the insured and assessed by the Surveyor. He has dealt with various discrepancies, item-by-item and page-by-page and has arrived at an assessment of Rs. 2,09,500/- which, in our opinion, is more than adequate for rehabilitation of the earthquake-affected building. The report of Mr. Yogesh Kumar Nandwani is enclosed in original.

It is quite clear that none of the furniture, fixtures and fittings were damaged, thus obviating the possibilities of collapse of any portion of the building due to the earthquake. This fact is also evident from several photographs taken by the Surveyor. While Mr. Devindra Prasad has taken pains to prepare drawings of various cracks and sealing in walls, nowhere depth of cracks or nature thereof has been explained. Moreover, while he prepared detailed drawings of even cracks in plastering on 7.12.1992, he conveniently overlooked that the building was occupied and being used, without affecting even nominal repairs. This particular point would establish that damage to building was nominal and did not affect the basic structures." 9. The report dealt in detail the various points raised by the insured on the basis of the amount of damage made by Devendra Prasad. He pointed out various discrepancies in the report given by Devendra Prasad item-by-item and page-by-page and ultimately arrived at an assessment of Rs. 2,09,500/-. The offer of the Insurance Company to settle the claim on the basis of the report of its own Surveyor did not satisfy the insured and he has now come before us with the complaint of deficiency of service in settling the claim.

The insurance policy contains a specific clause for Arbitration. Clause 11, is in the following terms : "If the difference shall arise as to the quantum to be paid under this policy liability being otherwise admitted such difference shall independently of all other questions be referred to the decision of an Arbitrator to be appointed in writing by the parties in difference, or if they cannot agree upon a single Arbitrator to the decision of two disinterested persons as Arbitrators of whom one shall be appointed in writing by each of the parties within two calendar months after having been required so to do in writing by the other party in accordance with the provision of the Arbitration Act, 1940 as mentioned from time-to-time and for the time being in force. In case either party shall refuse or fail to appoint Arbitrator within two calendar months after receipt of notice in writing requiring an appointment, the other party shall be at liberty to appoint sole Arbitrator and in case of disagreement between the Arbitrators, the difference shall be referred to the decision of an Umpire who shall have been appointed by them in writing before entering on the reference and who shall sit with the Arbitrators and preside at their meetings. It is clearly agreed and understood that no difference or dispute shall be referable to arbitration as hereinbefore provided, if the Company has disputed or not accepted liability under or in respect of this policy. It is hereby expressly stipulated and declared that it shall be condition precedent to any right of action or suit upon this policy that the award by such Arbitrator, Arbitrators or Umpire of the amount of the loss or damage shall be first obtained." That there was an earthquake which caused damage to the building is not in dispute. The only dispute is about the quantum of the damage caused. The arbitration cause clearly covers the situation as to how the quantum dispute should be resolved.

However, when the complaint was lodged both the complainant and the Insurance Company struck to their position and were not willing to go for arbitration. The complainant claimed that it was entitled to be paid an amount of Rs. 20,81,550/-. The Insurance Company insisted that its Surveyor was a highly qualified person. He had gone into the question in great detail and has given an assessment which was correct and the insured was not entitled to get anything more than what had been fixed by the Surveyor.

When the case was taken up for hearing before us on 20th December, 1994, a joint prayer was made by the parties for the appointment of two experts to inspect the hotel buildings and to examine the structural safety including the stability of the land underneath in its present condition after the earthquake, assess the damage, if any, suffered by the said buildings because of the earthquake which took place on the night between 19th and 20th October, 1991. A report was also to be given by the two experts and the estimated expenditure that will have to be incurred for repair or reconstruction of the building, as the case may be. The two experts jointly suggested by the complainants and the opposite parties were : (i) Prof. Satyendra Mittal, University of Roorkee and (ii) Shri K.D. Sehgal, J-76, Main Bazar, Rajouri Garden, New Delhi. In view of the joint prayer the following order was passed : "We accept the said prayer jointly made by the parties in these two Original Petitions and hereby appoint the two persons named above as experts to conduct a joint inspection of the two buildings in question and to report to this Commission on the matters specified in paras 1 (a to c) set out in the joint application filed by the parties. It has been averred in paragraphs 2 and 3 that the total charges involved in carrying on the work of the experts will amount to Rs. 53,000/-. The said amount shall be payable in equal shares by the two complainants on one hand and by the two Insurance Companies on the other. the complainants should as between themselves divide the said expenditure in half and the Insurance Companies shall also equally share the expenditure in half. A copy of this order shall be communicated by the Registry to the Experts at their addresses to be furnished by Shri R.K. Virmani, learned Advocate for the complainants in these two Original Petitions. Dusti service may also be effected by the complainants and the opposite parties as the case may be on the Experts. The amount payable to the Experts as indicated above shall be deposited by the complainants and the opposite parties within a period of four weeks from today. The experts are requested to enter on the work immediately after the funds are deposited with them and to complete the work within a period of four months thereafter. Within the said period, the Experts shall furnish their reports to this Commission. The parties shall be given prior intimation by the experts about the date on which they propose to go to the sites in question for conducting the inspection so that they may be enabled to be present at the site and the inspection can be carried out in the presence of the parties or their authorised representatives."

Consequently, K.D. Sehgal and Satyendra Mittal were appointed by this Commission to inspect and report the extent of damage caused to the building known as Hotel Bhagirathi Palace at Joshiyara, Uttarkashi. The two Experts jointly carried out the inspection of the building. Shortly thereafter they submitted their reports. According to Mr. Mittal repair and replacement cost of the damage caused to the building would come to Rs. 12.03 lakhs. He was also of the view that the insured not only suffered as result of damage caused to the building, he also suffered commercial loss because the tourists were not willing to stay in cracked building due to fear of collapse of the building. Mr. Mittal noted that at the time of occurrence of the earthquake the building was in occupation of tenants as shops, Government offices, godowns, etc. A portion of the available accommodation was kept apart for tourists in the same building. After the earthquake, the owners of the building were expecting that the tenants would vacate the building, but the tenants declined to do so, possibly because most of the buildings in Uttarkashi had suffered damages. The tenants had no better option than to continue occupying the accommodation which they had.

IT was quite unnecessary for Mr. Mittal to make any observation about this commercial loss suffered by the insured. His explanation for continual occupation of the unsafe building is also only a guess. He had to find out as a matter of fact whether the building had become unsafe as a result of the earthquake. According to the report given by K.D. Sehgal, the estimated total cost of repair work for the building would come to Rs. 3,81,000/-. This report was given some time in January, 1996. Both the experts have gone extensively into the nature of the damage suffered in the building. They noted cracks in the floors, kitchen walls, damage to joints, wall supporting the lower platform and various other aspects but have arrived at totally divergent figures. The dispute is very difficult to resolve. The case is hanging fire before this Commission since 1993. Various orders have been passed by this Commission right from 17.3.1994. The Commission has made various suggestions to the parties so that the matter could be settled on a mutually agreed basis. It will not be reasonable now to send the complaint to seek remedy in a Civil Court at this stage.

THE estimate made by Mr. Mittal is on the high side. THE complainant is also of the view that the assessment made by Mr. Sehgal is grossly inadequate and not realistic. THE estimate of damage has been done by two highly qualified persons. THE reports are at sharp divergence. It is difficult to accurately compute the repair costs. Justice will be done in this case if we do not accept the reports of Shri Sehgal and Shri Mittal in toto but take the mean figure of the two estimates. By this process the estimated cost of repair comes to Rs. 7,92,000/-. This is the only way the problem can be solved in this case. THE Insurance Company will pay to the respondent a sum of Rs. 7,92,000/- with interet at the rate of 12% p.a. from 7.8.1992, the date on which the claim was lodged by the complainant to the Insurance Company till the date of payment. THE Original Petition is disposed of as above. Complaint partly accepted.