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Judgment
THESE appeals challenge four separate orders each dated 9th July 2010 of the Chhattisgarh State Consumer Disputes Redressal Commission, Raipur (in short, the State Commission ) in complaints no. 05/2009, 06/2009, 07/2009 and 08/2009. The appellant was the complainant in each case and the respondent was the only opposite party (OP). Though the State Commission s orders disposing of these four complaints are all dated 9th July 2009, the facts differ marginally from case to case. For the sake of convenience, the parties in these appeals are referred to by their position before the State Commission.
THE facts, common to each complaint (and also each appeal), are that the complainant, a registered small -scale industry, was at the relevant time (and continues to be) engaged in manufacturing mild steel bars/rounds using steel ingots, the ingots being smelted, in turn, from sponge iron and ferrous scraps. The industrial entity consisted of a re -rolling mill and an Induction Furnace unit. The Re -Rolling Mill (hereafter, RRM ) was installed in 1999 -2000 and the Induction Furnace unit (hereafter, IFU ) in stages since June 2005. In view of the fact that the complainant availed of a loan from the Andhra Bank, Raipur to set up the IFU, the plant and machinery of the IFU were insured with the OP Insurance Company under the latter s Standard Fire and Special Perils Policy . The first policy was for the period from 29.03.2005 to 28.03.2006 as per the proposal dated 29.03.2005 and later renewed for the period from 01.04.2006 to 31.03.2007. Subsequently, the complainant obtained a new policy with wider coverage from the OP for the period 12.05.2007 to 10.05.2008. During 2007, there were four accidents in the steel crucibles of the Induction Furnaces in quick succession. (i) The first accident occurred on 10.01.2007 in crucible no. 2. It was averred in the complaint that in the process of charging the said crucible, some scrap in the shape of a closed container burst in the heat inside the crucible and impacted against the refractory -lined bottom of the crucible, resulting in crack/damage to the bottom plate of the crucible. As high -temperature molten metal flowed out, it caused fire and further damaged some material stored around the furnace. The complainant immediately informed the Divisional Manager of the OP, Branch Manager of the Andhra Bank as well as the Police Station concerned about the accident. Simultaneously, it also contacted the suppliers of the Induction Furnace, viz., M/s. Megatherm Electronics Pvt. Ltd. (MEPL) to inspect the damaged crucible and give estimate of the repairs. (ii) The insurance claim for Rs. 12,44,900/ - was submitted to the OP on 10.03.2007 along with supporting documents. The OP appointed a preliminary surveyor (one Hitesh H. Chitalia) who visited the site on the day of the peril, i.e., 10.01.2007, recorded the statements of the owner, manager and workers of the IFU and submitted his report. The final surveyor (one Ram Mohan Gupta) appointed by the OP visited the unit on 28/29.03.2007. (iii) In March 2008, i.e., after a delay of nearly a year, the OP sent a claim settlement voucher for Rs.35,918/ - against the claimed amount of Rs.11,10,668/ -. By letter dated 26.03.2008, the OP also informed the complainant that it had disallowed/deducted (a) Rs.8,30,652/ - as the crucible structure and coils were not covered by the insurance policy; (b) Rs.43,542/ - towards re -instatement premium; and (c) Rs.2,00,556/ - on account of under -insurance. Aggrieved by these large disallowances, the complainant sent a notice to the OP on 02.09.2008, which was not replied to by the latter. (iv) Finally, alleging negligence/deficiency in service, the complainant filed a complaint (no. 07/2009) before the State Commission praying for payment of the insurance claim of Rs.17.50 lakh, compensation of Rs.20 lakh towards loss due to negligence of the OP, interest @ 13% per annum from the date of the loss till the date of payment, Rs.5 lakh for mental agony and harassment and cost of Rs.20,000/ -. In support of the complaint, the complainant also produced the affidavit of an engineer MEPL (who had inspected the IFU on the date of the accident) as well as several documents.
THE next accident occurred to crucible no. 1 of the IFU on 12.01.2007 damaging the entire crucible, all electrical wirings, control panel, capacitors and other surrounding materials. This accident was also reported to the Divisional Manager of the OP, Branch Manager of the Andhra Bank and the Police Station concerned on the same date. As in the case of the first accident, M/s. Megatherm Electronics Pvt. Ltd. were also informed as a result of which the latter s representative visited the IFU the same day and gave his report to the OP. Likewise, MEPL was also informed and the same engineer inspected the damaged machinery on the date of the accident. (ii) The complainant submitted its insurance claim for Rs. 44 lakh on 10.03.2007 along with supporting documents. The same preliminary surveyor (Hitesh H. Chitalia) visited the unit on the date of the accident itself and recorded the statements of the owner, manager, and workers of the factory and submitted his report. The OP appointed Ram Mohan Gupta as the final surveyor who visited the unit on 28th/29th March 2007. (iii) After follow -up, in March 2008 the OP sent to the complainant a claim settlement voucher of Rs.2,55,858/ - against the claimed amount of Rs.43,91,786/ -. Disallowances/deductions were clarified in the OP s letter dated 26.03.2008 in terms of (a) Rs.21,16,325/ - on account of the crucible structure and coils not being covered by the insurance policy; (b) Rs.7,79,698/ - towards the cost of damaged material, i.e., HRC sheets and MS plates also not being covered by the policy; (c) Rs.2,24,364/ - towards re -instatement premium; and (iv) Rs.2,65,914/ - on account of under -insurance. The complainant protested against these large deductions by its letter/notice dated 2nd September 2008, which was also not replied to by the OP. (iv) Once again, alleging deficiency in service on the part of the OP, the complainant approached the State Commission with a complaint (no. 06/ 2009) praying for directions to the OP to pay the claimed insurance amount of Rs.40,91,786/ -, compensation of Rs.25 lakh towards the total loss, interest @ 13% per annum from the date of loss till the date of payment, Rs.5 lakh for mental agony and harassment and cost of Rs.20, 000/ -.
THE third accident occurred in crucible no. 2 of the IFU on 26.01.2007. (ii) The same sequence of appointment of and inspection by the same preliminary surveyor and final surveyor was followed by the OP which finally sent a claim settlement voucher of Rs.1,37,332/ - in March 2008 against the claimed amount of Rs.18,31,427/ -. The MEPL engineer also inspected the damage and gave his report, followed by an affidavit. By its letter dated 26.03.2008, the OP clarified the deductions as (a) Rs.9,00,880/ - on account of non -coverage of certain parts of the crucible structure and other materials; (b) Rs.1,39,582/ - towards the salvage value; and (c) Rs.1,47,357/ - on account of under -insurance. (iii) Once again, the complainant protested against these deductions by its notice dated 03.09.2008 and ultimately filed a complaint (no. 08/ 2009) with the State Commission praying for directions to the OP to pay the claimed amount of Rs.18.31 lakh, compensation of Rs.20 lakh towards financial loss, interest @ 13% per annum from the date of loss till the date of payment, Rs.5 lakh for mental agony and harassment and cost of Rs.20, 000/
- Crucible no. 2 of the IFU once again met with accident on 06.09.2007 on account of an explosion caused by some scrap (moulded/closed container) inside the melting bath. This resulted in damage to the furnace, capacitor, changing switch, etc. The accident was intimated to all concerned on the same day. The representative of MEPL visited the unit on 22.09.2007 and gave his assessment of the cause of the accident and of the loss to the complainant on 06.11.2007. (ii) The complainant submitted its insurance claim for Rs. 33.03 lakh to the OP on 02.01.2008 along with supporting documents. The OP appointed a surveyor (Kiran Chhabra) who visited the site on 07.09.2007 and submitted her report. The claim filed by the complainant was not settled despite notice dated 02.09.2008. (iii) By its letter dated 25.11.2008, the OP informed the complainant that the claim file had been closed due to non -submission of the required papers/documents and the peril leading to the loss (break -down of refractory casing of the crucible due to high temperature of molten metal, causing the fire) not being covered by the insurance policy. The complainant represented to the OP in December 2008 against this decision also but to no avail. (iv) Consequently, the complainant approached the State Commission alleging deficiency in service on the part of the OP by way of a complaint (no. 5 of 2009), in which it prayed for directions to the OP to pay Rs.33.03 lakh towards the insurance claim, Rs. 20 lakh as compensation, interest @ 13% per annum from the date of loss till payment, Rs.5 lakh for mental agony and Rs.20, 000/ - towards cost.
BY its order dated 09.07.2010 in complaint case no. 07/2009, relating to the accident that occurred on 10.01.2007, the State Commission held the OP guilty of deficiency in service and relying entirely on the surveyor s report partly allowed the complaint by directing the OP to pay Rs.41,527/ - (the loss assessed finally by the surveyor) to the complainant with interest @ 9% per annum from the date of submission of the claim, i.e., 10.03.2007 till realisation, within two months from the date of the order. It also directed that any amount that might have been paid earlier would be adjusted against from the awarded amount from the date of payment for the purposes of calculation of interest. The State Commission also directed payment of cost of Rs.1000/ -. (ii) Similarly, by order dated 09.07.2010 in complaint case no. 6/2009 relating to the accident that occurred on 12.01.2007, the State Commission held the OP guilty of deficiency in service and partly allowed the complaint by directing the OP to pay Rs.2,57,725/ - (the amount assessed by the surveyor) to the complainant with interest @ 9% per annum from 10.03.2007 till realisation. The other directions including that relating to payment of cost were identical with those in the preceding case. (iii) Disposing of complaint case no. 8/2009 by its order dated 09.07.2010, the State Commission directed the OP to pay to the complaint Rs.1,37,357/ - (loss as assessed by the surveyor) with interest (rate not specified) from the date of the claim (10.03.2007) till payment, with similar further directions as in the previous case. (iv) Finally, by its order dated 09.07.2010 in complaint case no. 5/2009 (which related to the last accident of 06.09.2007), the State Commission held that the peril was covered by the insurance policy (despite repudiation of the claim by the OP based on the surveyor s report) and directed the OP to pay to the complainant Rs.2,44,264/ - (or, the complainant s Bank with its consent) along with interest @ 9% per annum from the date of submission of the claim (02.01.2008) till payment and cost of Rs.1000/ -.
AGGRIEVED by these orders, the complainant has come up in these four appeals while the OP Insurance Company has not challenged any of the orders of the State Commission. We have heard Mr. R. N. Mishra, Authorised Representative of the complainant company and Mr. Ravi Bakshi, learned counsel for the opposite party/respondent insurance company, considered the evidence and perused the surveyor s reports as well as other documents produced by the complainant/appellant in respect of the valuation of the building, plant and machinery involved in these claims.
THE main arguments of the authorised representative of the complainant are two -fold in each case: (a) The first ground relates generally to allegedly excessive deduction from the assessment of loss on account of certain damaged components, which have been held outside the purview of the insurance coverage in the surveyor s reports. An argument subsidiary to this is that in some cases the value of the salvage material deducted from the assessed loss in determining the payable claim in the surveyor s report is also excessive. (b) The second contention is that the deductions/disallowances from the assessed loss on account of under -insurance in each claim is also excessive because the surveyors concerned and the OP have over -estimated the total value of the plant and machinery of the IFU vis a vis the amount covered in the insurance policy. (ii) As against this, Mr. Bakshi, learned counsel for the OP has strongly argued in support of the respective reports of the final surveyor and contended that though the insurance company was advised to challenge the order of the State Commission in each case, it chose not to do so mainly because the State Commission had ordered payment strictly in accordance with the loss assessed by the respective surveyors in each case. He also objected to the appellant/complainant seeking to now rely on (an allegedly) new document giving an apportionment of the historical costs and written down values of the building and plant and machinery of the entity between re -rolling mill and Induction Furnace unit from year to year.
IT may be noticed at the outset that the insurance company did not challenge any of the orders of the State Commission and thus they became final qua the insurance company under the provisions of section 24 of the Consumer Protection Act, 1986 ( the Act ). In other words, the only issue that needs to be gone into in these appeals is whether the amount awarded in each case (which, in each of the first 3 cases, is based on the payable claim recommended by the final surveyor in question and, in the fourth, on the higher of the two amounts assessed by the surveyor, though she recommended no claim ) is appropriate. The following examination of the reports of the surveyors is only from that viewpoint. First Claim arising from Accident of 10.01.2007 (i) The first claim related to loss due to the damages from the accident to crucible no.2 of the IFU that occurred on 10.01.2007. The corresponding insurance policy was for the period 01.04.2006 31.03.2007. In this policy, the coverage was of Rs.7.5 lakh for Buildings and Rs.54 lakh for Stocks/Contents , though the proposal had clearly stated Rs. 7.5 lakh for building and Rs. 54 lakh for plant and machinery. Under Description of Risk , the following was recorded in the policy document: ON BUILDING BOUNDARY OFFICE BLOCK OVERHEAD TANK ETC. RS.54,00,000/ - and ON PLANT, MACH. ACCESSORIES ETC. SIMILAR TYPE OF MACHINE ELECTRICAL FITTINGS WHICH IS INSTALLED AT RE ROLLING UNIT KNOWN AS M/S. RAJESH STEEL INDUSTRIES SITUATED AT RING ROAD NO.2 TATIBANDH RAIPUR. However, for the purpose of assessing the premium, the description of the Tariff Item (075) was the following: Engineering Workshop Structural Steel Fabricators, Sheet Metal Fabricators, Hot/Cold Rolling, Pipe Extruding, Stamping, Pressing, Forging Mills, Metal Smelting, Foundries, Galvanising works, Metal Extraction, Ore Processing (other than Aluminium, Copper, Zinc) . The divergence/discrepancies in the descriptions of the risks covered by the policy were thus entirely the creation of the OP s officials who underwrote the policy and issued the document. (ii) The preliminary surveyor (Hitesh Chitalia) appointed by the OP visited the insured premises on the date of the accident and noted in his report in detail the nature and extent of the loss/damage, which he had physically verified. Describing the incident, he wrote: I have carefully inspected involved premises and found that (the sic) bottom of Furnace No.2 found (was - sic?) punctured, and hot molten metal leaked out and spreaded (spread sic?) nearby to Furnace no.2, even heat of molten metal engulfed 1 No. mould and 1 No. base (Bottom) plate, kept beside Furnace no.2 in which molten metal (was sic?) to be poured . However, in his conclusion, this surveyor noted: In my opinion, it is a genuine occurrence of Fire claim due to puncture of furnace crucible, and Insured sustained loss to furnace no.2, its accessories, Mould and Base plate, Molten Metal. INDUSCTION FURNACE IS CONSTRUCTED BY INSURED LATER ON, AS IT WAS BASICALLY A REROLLING MILL AS PER POLICY, NO ANY (sic) ENDORSEMENT OBTAINED BY INSURED FOR ADDITION OF INDUCTION FURNACE, Hence, claim of Induction Furnace found outside scope of policy. [Emphasis supplied] (iii) On the other hand, in respect of inclusion of the Induction Furnaces within the ambit of the insurance policy, the final surveyor (Ram Kumar Gupta) had the following, inter alia, to say in his report: In our opinion the conclusion made by Shri Chitalia that as there is a specific mention of re -rolling mill in the policy, Induction Furnace could not be considered as a subject matter of insurance is not correct. In our opinion the integrated re -rolling mill where ingots which is the raw material for manufacturing saria/rods can have both the manufacturing units. During our physical inspection of the insured units, (we found sic?) that insured has both manufacturing of ingots and re -rolling mill in the same premises at two different sheds. Since both the units are in the same premises and are supplementary to each other, outright rejection of the claim on the above surmise and presumption that the Induction Furnace is not specifically described in the policy would not stand in court of law. Further, the risk code for both the industry is same, i.e., 075 and rate of premium is also the same. ... ... ... ... ... Hence, in view of this fact we are of the opinion that Induction Furnace could also be considered as a part of Re -Rolling Mill, as Induction Furnace is nothing but a furnace where metal smelting is done. Therefore, it could be considered (to sic?) fall under the scope of the policy. [Emphasis supplied] (iv) Having thus held the IFU to be covered by the insurance policy in question, the final surveyor proceeded to assess the loss. In doing so, however, he concluded that the damage due the incident of 10.01.2007 was because of overrunning due to excessive heating or pressure or leakage of some electricity . Hence, he applied clause 7 of the General Exclusions in the policy document, which excluded indemnification of loss [ to any electrical machine, . . . arising from or occasioned by over -running, excessive pressure, short circuiting, arcing, self heating or leakage of electricity from whatever cause (lightning included) provided that this exclusion shall apply only to the particular electrical machine, so affected and not to other electrical machines, , which may be destroyed or damaged by fire so set up. ] As such, the final surveyor did not consider the loss in respect of the crucible as well as molten material as admissible and concluded that the loss to the surrounding electrical equipment such as hydraulic systems, electronic panel, power source supply, cooling coils and other items become payable and can be considered covered under the Fire Policy. (v) The total loss assessed by the final surveyor was Rs.11,12,668/ - including Rs.6.25 lakh towards 7 MT Furnace Crucible Structure and Rs. 1,70,280/ - towards Crucible Coil suitable for 7 MT Induction Furnace of Megatherm design. (vi) In assessing the loss payable, the final surveyor deducted Rs.7,95,280 towards the cost of the above -mentioned two items as inadmissible. Applying a salvage value of 15% to the difference of Rs. 3,17,388/ -, he arrived at the adjusted loss of Rs.2,71,580/ -. (vii) In respect of adequacy of the insurance coverage, the final surveyor adopted the gross block values of the plant and machinery at Rs. 2,76,05,166 from the balance sheet of the complainant company for the financial year ending March 2006. To this, he added 5% by way of appreciation and arrived at the total insurable value of the plant and machinery at Rs.2,89,85,426/ - as of the date of the peril. As the policy coverage was of Rs.54 lakh for plant and machinery, the surveyor worked out the under -insurance factor at (54,00,000/2,89,85,426) and, applying the said factor, arrived at the net loss of Rs.51, 527/ -. (viii) After deducting the excess clause as per policy (Rs.10, 000/ -), the net payable loss was worked out to Rs.41, 527/ -.
IN his report, the final surveyor discussed the cause of damage and the admissibility of the claim in the following words: But it is certain that the damage was caused due to over boiling of the molten material and its splashing over the surrounding area. In our opinion, due to some foreign impurity which remains either in scrap or in sponge iron, sometimes these crucibles get over boiled and this type of accident could be possible. [Note: Clause 7 referred to above reproduced here and hence not repeated] Thus it is clear that in crucible heating is done and flames are always there which in fact heat the material to a high temperature. Hence, crucible can be treated as an independent electrical equipment and the molten material in hot condition was splashed or got over boiled due to excessive heating or pressure or some leakage of electricity. Hence loss in respect of crucible and molten material is not payable. However, the loss which was caused due to the fire in the surrounding electrical equipment such as hydraulic systems, electronic panel, power source supply, cooling coils and other items become payable and can be considered to be covered under the Fire Policy. Hence we have confined our assessment of loss only to these items and excluded the loss in respect of crucible structure, which in our opinion is not payable under fire policy under any conditions. [Emphasis supplied] (ii) It may be noticed, however, that the preliminary surveyor ascribed the cause of the damage (vide sub -paragraph 11 (ii) supra) to the crucible s bottom steel plate (lined with refractory from inside) getting punctured and the high temperature molten metal flowing out of the punctured plate, causing the fire in the surrounding areas and damaging the items he also described. (iii) Likewise, the MEPL engineer stated in his affidavit dated 08.03.2010 (copy of his initial report has not been filed with the appeal paper book): That I had found Furnace no. 2 was totally damaged due to drain -out of hot liquid metal from bottom. All the relevant parts of Furnace and surround materials like moulds and bottom plate, etc., were also badly damaged. That I believed the cause of accident was due to internal blasting inside the Furnace crucible from the changed scrap materials which strike on it during operation. Some times closed metal contained mixed up with the scrape and charged in furnace and most of the cases, container blast due to tremendous heat an strike on furnace bottom. As bottom is made of refectory and having limitation to with stand the striking force, so most of the cases its cracks of broken during such incidence. The purpose of used of refectory materials in furnace top and bottom to hold the electric coils and give protection from short circuit from Earth. Refectory is highly resistive and highly heat withstand materials (upto 1600 deg C temperature) but very brittle in nature. Hence, its crack/broken any time due to external or any internal strike on it. The aforesaid exploration may be the cause of accident. (iv) Thus, there was no suggestion whatsoever in the description of the preliminary surveyor or of the MEPL engineer (both of whom inspected the affected areas on the date of the accident) of any overrunning of molten metal or the molten material over boiling and coming out of the crucible because of any excessive pressure that developed inside the crucible or there having been self heating or any leakage of electricity in any part of the crucible or the furnace structure or the latter s induction coils or any other associated electrical equipment. Therefore, analysis of the causes of the accident and the damage/loss on the basis of simultaneous reading of the contemporaneous reports of the preliminary surveyor and the engineer of MEPL (manufacturer and suppliers of the Induction Furnaces) would show that the fire or consequent damages of 10.01.2007 could not be ascribed to any overrunning due to excessive pressure or self heating , or leakage of electricity in the damaged crucible of Induction Furnace no. 2, i.e., any of the reasons that the final surveyor advanced, in rather speculative wording using or every time, to hold the damage to the crucible and the surrounding induction coil as inadmissible in terms of exclusion clause no. 7 of the insurance policy. (v) As regards the assessment of under -insurance, the final surveyor was, however, not in error. This is so because the insurance policy clearly provided for indemnity on reinstatement basis. This implied that both the cost of repairs to (or, replacement of the whole or any part of) the damaged equipment and the insurable amount would need to be worked out at current costs. The latter would thus have to be without any depreciation in the balance sheet values of the insurable assets (here, the plant and machinery of the IFU). The modest addition of 5% of the historical costs of the plant and machinery as per the balance sheet to the latter (base) values was also justified in view of the likely increase in the current costs because the base values adopted were as of 31.03.2006 while the accident occurred in January 2007. (vi) In view of the foregoing discussion, we are inclined to hold that the reasons put forth by the final surveyor for rejecting consideration of the loss to the crucible/steel bucket and the surrounding induction coils were not in accord with the facts leading to the peril as observed and recorded contemporaneously by the preliminary surveyor as well as the Engineer of the supplier of these equipment, viz., MEPL. Consequently, the assessed loss would stand restored to Rs.11,20,668/ - in this case. However, it was reasonable to deduct the salvage value @ 15% of the said amount, i.e., Rs.1,68,100/ -, leading to the adjusted loss of Rs.9,52,567.80 (rounded off to Rs.9,52,570/ -). (vii) The extent of under -insurance will be as calculated by the final surveyor, i.e., (54,00,000/2,89,85,426), or, 0.1863. Hence, the net loss will be (Rs. 9,52,570 x 0.1863=) Rs. 1,77,464/ -. Deducting the policy excess of Rs.10,000/ -, the net payable claim would work out to Rs.1,67,464/ -, rounded off to Rs.1,67,460/ -. Second Claim arising from Accident of 12.01.2007
THE second accident leading to damage by fire, etc., occurred on 12.01.2007 in Induction Furnace no. 1, which had been started after damage to Induction Furnace no. 2 by the fire of 10.01.2007. In this case also, both the preliminary surveyor and the authorised engineer of MEPL visited the affected premises on the date of the accident while the final surveyor did so and surveyed the loss on 28/29.03.2007. (b) The engineer of MEPL submitted his report dated 14.01.2007 to the complainant, the relevant parts of which are reproduced below: We have noticed that the hot liquid metal has been drained out from the bottom portion of the crucible and damaged the copper coils, crucible structure, yokes, insulation materials of crucible, all electrical wirings of crucible and control room, SFC panel, capacitors and other surrounding materials. The exact reasons of such mishap is difficult to identify. However, we presume that the incident may be occurred due to formation of excessive amount of undesirable gas inside the melting bath. At the last heat of patching cycle, when crucible was full of liquid metal, suddenly main power was shut down when liquid meta was totally covered with thick sticky DRI slag, which is not possible to remove from the metal at that moment. Resulting, huge amount of gas produced inside crucible bath and create tremendous presser on the bottom. At last heat, as bottom lining was eroded the Ferro static presser of liquid metal put unexpected presser on bottom portion and it has forced to drain out the liquid metal through bottom part. The basis perpose of used refractory at top and bottom is for holding coils, so that electric power cannot flow through structure, as the thermal resistance is very high. The mechanical strength of refractory has a limit to withstanding the ferostatic presser and it may break/ crack due to any abnormality. The SFC panel is badly damaged due to scattered of highly temperate liquid metal inside the control room of the furnace. As the incoming electrical circuit was tripped off before the incident, no short was occurred, but due to excessive heat the control cable of SFC panel has been burnt out and catch fire inside the panel, resulting all the electronic controller, metering system, active and passive component of the panel have been destroyed. As well as all nylon hose for capacitor cooling have been melted, resulted discontinued the water flow in capacitor and spoiled the insulating fluid of the capacitor and damaged. This type of incident occurs very seldom and is unpredictable. (c) Though this report is full of grammatical errors, it does manage to convey a fairly plausible explanation that the sudden spillage of the intensely hot liquid metal through the bottom plate of Induction Furnace no. 1 (which led to the fire and damages outside) was on account of excessive pressure of the gas which was generated inside the hot crucible bath but could not find its usual release out of the crucible on account of partial solidification of the liquid slag due to sudden failure of electric power and consequent cooling. (d) However, the preliminary surveyor who, like the MEPL engineer, visited the IFU on the date of the accident, did no better than to record in his report of 31.03.2007 the following in this context: 2. Cause of the loss not explained by insured side as nobody understood, service engineer of M/s. Megatherm, Manufacturer of Furnace inspected and issued his report, is believing that due to puncture of crucible is possible reason for originating the fire. The shock absorbing capacity is very brittle in very hot (1600 degree centigrade) condition, and may crack/ brake any moment due to internal/external striking on it. Internal exploration inside the crucible from chargeable scraps, strike in hot condition during heating operation, however perfect reason cannot ascertained. It is a sad commentary on the competence of the surveyor that this description is a verbatim reproduction of the corresponding paragraph in this surveyor s report on the first accident of 10.01.2007 affecting Induction Furnace no. 2. (e) Even more unfortunate is the fact that like the preliminary surveyor, the final surveyor also described the cause of this accident exactly in the words that he had used in respect of the previous accident of 10.01.2007 involving Induction Furnace no. 2. To quote: As per statement of Shri A. N. Mishra and Foreman and Manager recorded by preliminary surveyor, we noted that insured expressed his inability on the cause of over boiling of the molten material from the crucible. But it is certain that the damage was caused due to over boiling of the molten material and its splashing over the surrounding area. In our opinion, due to some foreign impurity which remain either in scrape or in sponge iron sometimes these crucible get over boiled and this type of accident could be possible. Thus it is clear that in crucible heating is done and flames are always there which in fact heat the material to a high temperature. Hence, crucible can be treated as an independent electrical equipment and the molten material in hot condition was splashed or got over boiled due to excessive heating or pressure or some leakage of electricity. Hence loss in respect of crucible and molten material is not payable. However, the loss which was caused due to the fire in the surrounding electrical equipment such as hydraulic systems, electronic panel, power source supply, cooling coils and other items become payable and can be considered to be covered under the Fire Policy. Hence we have confined our assessment of loss only to these items and excluded the loss in respect of crucible structure, which in our opinion is not payable under fire policy under any conditions. [Emphasis supplied] (f) It is clear that the foregoing conclusion of the final surveyor did not take into account an important distinguishing fact of this accident, namely, sudden failure of electric power supply to Induction Furnace no. 2 and the implications thereof (as pointed out by the MEPL engineer) and was a blind reproduction of his conclusion/logic in the case of the previous accident of 10.01.2007 with the aim of somehow applying exclusion clause no. 7. (ii) A reading of this exclusion clause, reproduced in paragraph 11(iv) above, will, however, show that though application of the clause on the grounds of over -boiling or over -running of the crucible due to excessive heating or some leakage of electricity , as attempted by the final surveyor, cannot be held to be tenable in this incident, it will have to be accepted that in view of the same clause the damage to Induction Furnace no.1, having been caused by excessive pressure inside the crucible, was also specifically excluded from the purview of the insurance policy. (iii) Hence, though not for the reasons cited by the final surveyor, the payable claim in this case will be Rs. 2,57,725/ -, i.e., the same as assessed by him. Third Claim arising from Accident of 26.01.2007
The third accident took place on 26.01.2007 in crucible no. 2 of the IFU. Both the preliminary surveyor and the final surveyor recorded their observations regarding the cause of the accident in exactly identical word as they had done in respect of the accident to crucible no. 1 of the IFU on 12.01.2007 and crucible no. 2 on 10.01.2007. Therefore, neither of these observations can be held to be reliable in explaining even the tentative reasons for the damage to that crucible, leakage of molten metal from crucible no. 2 and the consequent damage to parts of the Induction Furnace and associated equipment. (ii) On the other hand, the engineer of MEPL who inspected the damaged crucible on 27.01.2007 gave a report addressed to the complainant, followed by his affidavit dated 08.03.2010 before the State Commission. The inspection report of the MEPL engineer read as under: We have inspected your furnace on 27.01.2007.and noticed liquid metal came out in between crucible coil and cast able bottom resulting bottom and structure of the crucible have been totally damaged, also spoiled the hydraulic system and all the hoses, water cooled cables and insulation etc., details are given below: The reason of occurred such accident is difficult to find out, although so far we have collected the information from the personnel s who were operating the furnace that before the incidental heat while charging the rejected moulds, one number mould with ingot was slept out from crane hook and strike on the bottom corner at high speed, as bottom is made of special type of refectory material, it can not withstand such dynamic hit and produced crack. Gradually crack had extended and allowed hot metal to come out while operation the furnace, normally it is very difficult to identify by observe such crack because the furnace was totally red hated and coated with slag. This is an accident, no one made intentionally and charging of rejected mould is a standard practice, and most of the industries used defective mould in furnace. Very rear case such incident occurred. The character of refectory made top and bottom is brittle and it has specific static load bearing capacity but it can crack in abnormal striking effect. We used such materials in furnace for holding the coils because electrical resistance and thermal property are very good. No other materials are available easily with such specified character. So this is the reason for using refectory materials. (iii) Thus, the accident to crucible no. 2 and consequent damage was caused by the impact of rejected mould with ingot on the bottom plate as the said mould slipped from the crane hook while the raw material was being charged in the crucible prior to smelting. This impact, according to MEPL engineer, led to invisible cracks in the refractory layer covering the bottom plate because the refractory material was, by its very nature, brittle. Also according to the MEPL engineer, use of rejected/defective moulds as raw material for smelting was a standard practice and this damage was totally unintentional. It is because of the cracks in the refractory layer that the hot molten metal forced its way out and in the process caused damage to the hydraulic system and all the hoses, water -cooled cables, insulation, etc. (iv) The insured/complainant filed insurance claim for Rs. 18.50 lakh. Based on the documents furnished by the insured, the final surveyor assessed the gross loss at Rs.18,31,427/ -. However, for the same reasons as in the case of the accidents of 10.01.2007 and 12.01.2007 in crucibles no. 2 and 1 respectively, the final surveyor once again disallowed the cost of the induction furnace structure, lamination packets and yoke equal to Rs.9,00,880/ - citing the same exclusion clause that he had relied upon in the two earlier cases. After deducting the salvage value @15% of the balance amount of (Rs.9,36,547/ -), the adjusted loss came to Rs.7,90,965/ -. Using the balance sheet costs of plant and machinery, electricals and electrical installations and adding 5% appreciation thereto, the final surveyor arrived at the same under -insurance factor as in the previous cases. After deducting the policy excess of Rs.10,000/ -, the net payable loss worked out by the final surveyor came to Rs.1,37,357/ -. (v) We have to discard the reasoning of the final surveyor in respect of the causes of the accident for the same reasons as discussed in paragraph 14(i)(e) above, i.e., verbatim reproduction of the reasons for the first accident. On the other hand, from the MEPL engineer s description of the cause/s of the accident as well as damage to crucible no. 2 and other associated equipment, it is clear that the damage was not caused by any of the reasons/factors specifically excluded under clause 7 of the exclusion clauses. Therefore, disallowance of Rs.9,00,880/ - on account of cost of damage to crucible no. 2 was not permissible. However, for the reasons already discussed in paragraph 12(v), the under -insurable factor would remain unchanged at 0.1863. Therefore, the revised calculation of the net payable amount would be under: Gross loss Rs. 18,31,427 Less salvage value @ 15% of Rs.18,31,427 (Rs. 2,74,714) Rs. 15,56,713 Under -insurance factor 0.1863 Gross payable claim Rs. 2,90,016 Less excess clause as per policy Rs. 10,000 Net payable claim Rs. 2,80, 020 (rounded off) Fourth Claim arising from Accident of 06.09.2007
ON 06.09.2007, crucible no. 2 of IFU once again met with accident that caused widespread damage. The complainant reported the consequent loss to all concerned including the insurance company and filed a claim of Rs.33.03 lakh. The insurance company repudiated this claim by its letter dated 21.11.2008, due to non -compliance in respect of submission of required papers/documents and on account of the reasons, . due to break down of refractory/casing of excess molten metal, due to high temperature of molten metal, the adjoining part of the furnace got affected. This is not a part of the SFSP policy. (ii) In this case, one Ms Kiran Chhabra was appointed as surveyor. In her report dated 15.10.2008, the surveyor reproduced and relied upon the report dated 24.09.2007 of the MEPL engineer, which read as under: Dear Sir, We have inspected the damaged crucible no. 2 at yours works on 22.09.2007 which had faced an accident on 06.09.2007. We found the hot liquid metals came out near to bottom portion of the crucible and damaged the copper coils, lamination packets crucible structure, all water cooled power supplied cables, all water supplied hoses, insulation materials of crucible, all electrical wirings of crucible, SFC panel, M.F. Capacitors, Hydraulic pump, water circulation pumps and other surrounding materials. We presumed, the incident may be occurred due to explosions of some closed/molded type scrap in side the melting bath. Along with scrap some closed/molded type metal container or shock absorber of motor cycle or hollow metal ball, etc., must be charged during operation. When the scrap were over heated, the inside contained air are being tried to expanded, altimetely produced an explosion in the bath. Resulting the surrounding scrap were splint with high velocity towards the crucible wall and strike on it. As the wall is made of refractory materials, it could not with stand such sharp striking and form a hole/crack on the wall. Gradually, when the fluidity of metals have developed due to induction effect then there is every possibility for penetration of liquid metals and this was reason for happened such incident. Due to such high temperature of metals the listed materials were badly damaged. As the control system of the furnace tripped off the incoming electrical circuit at the time of incident, so no electrical short was occurred. All the materials were damaged from external heat. The major components of the furnace, i.e., crucible are necessary to replace positively to avoid future incident from electrical short circuit hazard. As the said crucible was already faced such accident previously, so electrical and mechanical parameters have been deteriorated so it may not withstand the required high voltage. The cost of repairing charge will come near to new crucible, so it is recommended for new crucible. We hope you will realize our opinion. This type of incident occurs very seldom and is unpredictable. (iii) Commenting on the said report, the surveyor observed as under: The cause and circumstances of loss as mentioned are that some scrap inside striked wall of crucible and as the wall is made up of refractory material, it could not withstand such sharp striking and formed a hole/crack on the wall. Gradually when the fluidity of metals have developed due to induction effect then there is every possibility for penetration of liquid metals and this was the reason for this incident. It should be noted from the report that due to melting process when some scrap striked the refractory wall and further damaged it thus in our opinion the loss is due to breakage of refractory i.e., breakdown of refractory leading to escape of molten metal. Further, in the report s third paragraph it has been mentioned that due to such high temperature of metal the listed material were badly damaged and all the materials were damaged from external heat. It is very significant to note that due to high temperature of molten metal, the adjoining parts of the furnace got affected. (This is not a peril of SFSP Policy). The affected furnace had got damaged in past thus the engineer is of the opinion that the electrical and mechanical parameters have deteriorated so it may not withstand the required high voltage hence recommended for new equipment. The repairer/supplier has not submitted the estimated cost of repairs . (iv) On this basis, the surveyor s final conclusion was the following: The refractory had failed and was broken/damaged at bottom section resulting the molten metal under process has escaped through the broken section only and due to high temperature of molten metal the parts in the vicinity, i.e., the furnace structure, yoke, cables, etc., were affected by high temperature. The cause of loss is the breakdown of refractory through which the molten metal at high temperature escaped out of the furnace and high temperature molten metal damaged the structure, cooling cables, copper turns, yoke etc. Thus the damage/loss to the equipment of insured is due to high temperature molten metals after the breakdown/damage of refractory. In our opinion this cause of loss does not fall in any of the insured perils of standard fire and special perils policy. Though the insured has mentioned that explosion took place but as per our observation the molten metal has escaped from bottom side only after the refractory failure/damage and when high temperature metal comes in contact with water cooled cables, i.e., high temperature molten metal when coming in contact with water cable at normal temperature then blast sound of some intensity is possible but it cannot be called an explosion. Further, the damages have occurred due to high temperature molten metal after damage/breakdown of refractory and crucible and not due to any explosion. This case and nature of loss does not fall in any of the perils of standard fire and special peril policy. The insured did not inform/call the undersigned when the engineer of M/s Megatherm arrived thus the joint inspection as mentioned in the minutes of meeting could not be carried out. This is for the information of the insurers. [Emphasis supplied] (iii) However, the surveyor went ahead and assessed the gross loss at Rs.29,48,649.20. After deducting the cost of labour, transportation, etc., she arrived at the estimated loss of Rs.27,36,904/ -. To this, she applied depreciation @ 20% per annum since 2005, i.e., total deduction of 60%, amounting to Rs.16,42,143/ -. She further deducted 25% (Rs.6,84,226/ -) as salvage value. Thus, after deduction of depreciation and salvage value she arrived at Rs.6,22,280.63 as the net loss. (iv) As regards under -insurance, after an erroneous calculation of the insurable amount without taking into account the reinstatement basis of the insurance policy, the surveyor corrected the calculation by her note dated 10.11.2008 and estimated the under -insurance factor at (75,00,000/3,62,41,677), the numerator being the sum insured and the denominator representing the balance sheet value of the insured plant and machinery of the IFU as of 31.03.2007, plus 5% appreciation. Applying this factor, the net payable claim came to Rs. 1,18,812.10/ -. (v) The surveyor s recommendations that the claim was not payable and, if payable, it would be Rs. 1,18,812/ - and the consequent repudiation of the claim by the insurance company were both rejected by the State Commission for the reasons recorded in the impugned order. In view of the discussion in paragraph 11 above, it not necessary to go into the relative merits of the surveyor s analysis of the causes of the loss and their validity under the insurance policy vis a vis that of the MEPL engineer; only the amount of the claim awarded by the State Commission is open to re -examination. (vi) The surveyor s report provides no explanation, far less a logical one, of the deduction of as high as 60% of the assessed gross loss on account of depreciation. Likewise, there is no reason why the salvage value was enhanced to 25% vis a vis 15% in the 3 previous cases. Admittedly, the IFU plant and machinery were installed in phases during 3 years beginning 2005 -06 and the accident in question was in mid 2007 -08. However, this fact is of no consequence when the loss is to be estimated on reinstatement basis, i.e., on current cost estimates; this is what lends justification to the methodology of re -calculation of the insurable amount, as the surveyor did; she seems to have completely forgotten to make the corresponding corrections in the assessment of loss (in fact, she seems to have forgotten, in her revised calculations, to deduct Rs. 10,000/ - from the payable claim). There is also no reason to assess the salvage value at 25%, as against 15%. (vii) Therefore, the gross loss is to be taken at Rs. 27,36,904/ - and the salvage value at 15% thereof, i.e., Rs. 4,10,536/ -. Hence, the adjusted loss will be Rs. 23,26,368/ - Applying the under -insurance factor (75,00,000/3,62,41,677) and deducting the excess of Rs. 10,000/ -, the payable claim would come to Rs. 4,71,326/ -.
IN conclusion, therefore, the insured/appellant would be entitled to the claims of (i) Rs.1,67,460/ -, (ii) Rs. 2,57,725/ -, (iii) Rs. 2,80, 020/ - and (iv) Rs. 4,71,326/ - respectively, less any amount paid by the insurance company in the interregnum. In addition, it will be entitled to interest on the aforesaid amounts @ 9% per annum from the first of the month 3 months after the month of filing each claim, till realisation needless to add, interest shall be payable only on the balance claim amount/s since the date/s of such payment/s. The appeals are partly allowed and the orders of the State Commission are accordingly modified in the aforesaid terms, leaving the parties to bear their own costs.