SIRPUR PAPER MILLS LTD vs NATIONAL INSURANCE CO LTD

1.SIRPUR Paper Mills is the complainant and the National Insurance Company is the respondent. The petitioner Company insured its plant, machinery and stocks of raw material against the risk of fire etc. by taking policies from the National Insurance Company Ltd. The policies were effective from 1.7.86 to 1.7.87. One of the policies, namely, Policy No. 5790 -3300262/86 was in respect of bamboo stock, pertaining to insured''s business/ under lien with the Central Bank of India while stored in the Vanjari Depot at SIRPUR Kaghaznagar. There was a fire in this depot on the night of 28/29 October/1986 resulting in a huge loss of material. Claims were lodged with the Insurance Company and a Surveyor was appointed who gave a report No. MR/0200 (MS/5099) dated 2nd July, 1987 and assessed the loss at Rs. 1,83,58,529/ -. Based on this assessment by the Surveyor, the Insurance Company settled the claim and paid the entire amount to the Petitioner Company.

THE Petitioner Company had another policy bearing No. 1020/3400112 effective from 1st July, 1986 to Ist July, 1987 for compensating any loss of business/profits consequent to the loss of buildings, stores etc. etc. It is in respect of this policy that the present petition has been filed. The Petitioner Company filed its claim for consequential loss with the Insurance Company immediately after the fire through a telegram. This claim was repudiated by the Insurance Company vide their letter No. 10 -20/Fire/DC/ PKM dated 14.11.86 stating that "the insurance under loss of profit policy does not cover the loss sustained by you outside your mills premises", and, therefore, the claim for the loss lodged by the Petitioner Company was not maintainable. The Petitioner Company wrote back on 3rd December, 1986 explaining their position that the stocks at Vanjari Depot are covered by the policy and, therefore, their claim should be accepted. Therefore, the correspondence continued for more than a period of six years, and it was on 27th July,1993 that the Insurance Company vide its letter to the insured finally stated "that even after further examination the liability for loss in the matter of Vanjari Depot is not acceptable since it does not fall within the scope of cover granted under the subject policy". The Sirpur Mills again wrote back on 23rd July, 1994 to which a reply was sent by the Insurance Company on 25th August, 1994 stating that "we regret to state that we have nothing to do in the matter and that the matter was fully considered by the competent authority after a thorough examination of all the aspects". It is against this repudiation that the Petitioner Company has filed this petition claiming Rs. 42,24,387/ - on account of loss of profit, and interest @ 18% p.a. from the date of lodging of the claim i.e. 29.10.86. The Insurance Company has contested this petition mainly on the following grounds: (1). That the loss occurred in October, 1986 and the Insurance Company had informed the petitioner vide its letter dated 14th November, 1986 regretting that the claim was not covered by the policy No. 1020/ 3400112. As both these dates are prior to 24.12.86 when the Consumer Protection Act, 1986 came into force, no petition can lie before this Commission in this regard.

(2). Even if the jurisdiction of this Commission is accepted to entertain this petition, it was not filed within the prescribed period of 12 months from 14th November, 1986 as it was filed on 7.6.95 and, therefore, the petition was not maintainable.

(3). Even if the objection No. 2, as indicated above, is not accepted, the petition is not maintainable because it is beyond the period of two years from 14th November, 1986, when the repudiation had been conveyed to the petitioner Company and, therefore, was barred by limitation in terms of the Limitation Act, as well as the provisions of the Consumer Protection Act.

Before going into the merits of the complaint on the basis of the subject policy, it is necessary to deal with these three questions.

IT is an admitted fact that the fire occurred in October, 1986 and the first repudiation had been made on 14th November, 1986. However, the petitioner Company kept on representing against this decision of the Insurance Company. In fact, the Insurance Company appointed a surveyor to assess the loss of profit under the subject policy who submitted his report on 24th April, 1989 more than two years later than the repudiation. It may be mentioned that this surveyor was the same who earlier had assessed the loss of stock on account of fire in the Vanjari Depot and submitted his report on 24th July, 1987, on the basis of which a sum of Rs. 1,83,58,529/ - has already been paid to the petitioner Company. It may also be noted that the Insurance Company appointed a Surveyor much later than the 14th November, 1986 when they first repudiated the claim of the petitioner Company. It is on record and has not been denied that the final repudiation was made on 25th August, 1994 when it was conveyed to the petitioner Company that the respondent had nothing to do in the matter. In our view, therefore, the relevant date for the purpose of this dispute is 25.8.94 when the final repudiation was made after the receipt of the report of the Surveyor on the 24th April, 1989. The reason as to why we have taken into consideration only the final date of repudiation viz., 25.8.1994 as the relevant date for the purpose of considering the question whether the petition is maintainable, and whether it is barred by limitation either under the Limitation or under the Consumer Protection Act is that there has been a continuing correspondence between the petitioner Company and the respondent as regards this claim. The Insurance Company wrote to the Surveyors on April 25,1989 to know from them the estimated amount of loss at the earliest to enable them to inform the same to their Regional Office and a copy of this letter was sent to the petitioner also. Thereafter, the respondent wrote a letter to the petitioner on January 2,1990 stating that "the matter has been referred to our controlling office for their necessary advice and on receipt of their reply, we shall attend to the matter." Again on 18th January, 1991, another letter was sent by the Insurance Company to the insured stating that "the matter is receiving our active attention and we shall write to you further shortly". On Ist April, 1991 the respondent Insurance Company wrote a letter to the petitioner intimating to them that they need some documents which they are trying to collect and, therefore, under the circumstances the matter is getting delayed, and advising the petitioner to take up the matter with their Secunderabad office. A similar letter was sent by the Insurance Company on 4.6.92. And, finally on 27th July, 1993 the Insurance Company vide their letter 100200/Fire/Claim/AL/PKM informed the petitioner that "since the Vanjari Depot does not fall within the scope of cover granted under the subject policy, they do not accept their liability in this regard", and then on 25th August, 1994 the Insurance Company wrote saying that "we have nothing to do in the matter". All this shows that during the period from 1986 to 1994 the matter remained under the consideration of the Insurance Company, that they appointed a surveyor to assess the loss of profit and that they frequently informed the petitioner that their claim was under consideration. Therefore, in our view, it is only just and fair that the final date of repudiation viz. 25.8.94 should be taken as starting point for considering the question of maintainability of this petition before this Commission and of limitation, if any. The petition was filed on 7.6.95 and, therefore, is within permissible time for the date of final repudiation viz. 25.8.94 and is also within the jurisdiction of this commission.

HAVING settled the question of maintainability and limitation, we now come to the merits of this case. The contention of the respondent Insurance Company is that their policy No. 1020/3400112 covers the consequential loss of profit only in respect of any stocks within the mill premises and not outside. We have perused the policy document carefully and do not find any support for the contention of the respondent Company. The policy document mentions the name and the address of the insured as Sirpur Paper Mills Ltd. Sirpur Kaghaznagar, Andhra Pradesh. In the next column relating to the insured premises, it mentions "Sirpur Kaghaznagar/Andhra Pradesh". It is clear that the premises insured for the purpose of loss of profit were not confined to the mills only, but also their extension centres outside the mill, in Sirpur Kaghaznagar. It is a common practice that such big mill have to store a large quantity of raw -material in the form of wood and bamboo etc. at the depots outside the mill premises as the mill premises are not adequately spacious enough to store the required raw material. In fact, it would be worthwhile mentioning the comments of the Surveyor in regard to the definition of "premises" in this case. The Surveyors have the following to say in para 6 of their report dated 24th April, 1989 as regards "premises". "PREMISES : According to the system followed by the entire paper industry within the country in regard to procurement of bamboos and hardwood, the insured also procured their raw materials i.e. bamboo and hardwood from the forest areas leased to them by the Government of Andhra Pradesh and some part of southern Maharashtra (Chandrapur District) bordering the area of Adilabad District of Andhra Pradesh. The Forest Department, as laid down in the lease agreement, allowed the insured to fell the ripe/flowered bamboos. The felled bamboos were allowed to dry in the forest area until the moisture content was eliminated to the maximum. The matured and dry bamboos were collected from the various forest centres during the dry season and held in storage in various intermediate forest depots from where it would be convenient for despatch to the mill from time to time. Since the procurement of the raw materials being seasonal it would not be possible to transport to the mill all the bamboos felled during felling and collecting operations. When once the bamboos are removed from the intermediate forest depots, royalty becomes payable. Since the felled and collected bamboos could not be left for a long time and the space within the insured''s mill being limited, the insured had arrangements to have the stocks stored in different depots with the facilities of weigh bridge etc. approved by the Chief Conservator of Forest, Government of Andhra Pradesh. The raw materials were transported from these storage depots to the mill almost on daily basis. The storage arrangements available at the mill was just sufficient to meet the needs of about a fortnight."

Even otherwise it does not stand to reason that a big Company like the Sirpur Kaghaznagar would not be prudent enough to cover the stocks of wood lying in such depots, in a consolidated policy for consequential losses. It is also to be noted that the total sum insured under this policy for consequential losses is Rs. 14,68,75,000/ -. The only clause which needs to be considered in regard to the stocks lying outside the mill premises is Memo 5 which reads as follows:

"In the event of loss or damage to the stocks of raw materials, stores materials and finished goods other than those in the Main Process Blocks, the Company shall not be liable for more than 4 weeks for any resultant loss of profits sustained as a consequence of such interruption or interference in production in accordance with the provisions of the Insurance."

This particular clause refers to stocks etc. in the Main Process Block and outside the Main Process Blocks for determining the specific period of four weeks for compensating the consequential loss. Nowhere it specifically restricts the coverage of policy to the mill premises. The Insurance Company has attempted to interpret this clause through an indirect inference that since the Main Process Blocks are in the mill premises, the coverage should be presumed to be restricted to the mill premises only. We are unable to accept this interpretation of the coverage of the policy. More so, because the Surveyors have very clearly indicated that what has been done by the insured Company is in line with the practice followed by the entire paper industry in the country. We, therefore, hold that the consequential loss policy did cover the loss of stocks lying outside the mill premises in the approved depots within the area of Sirpur Kaghaznagar, as mentioned in the column relating to ''premises'' and not the mill premises. It is not in dispute that the Vanjari Depot is within the area of Sirpur Kaghaznagar as has been mentioned in the survey report in para 7 very clearly. It is also mentioned in the survey report that this was one of the approved storage depots and the Conservator of Forests, Adilabad, had accorded sanction as per his Order No. 4440 / 84 -85 dated 6th May, 1984 for the storage of dried bamboo and hard -wood at this Depot. We, therefore, hold that the loss of profit on account of fire at Vajari Depot is covered by the consequential loss of profit policy.

The Surveyor in his report dated 24th April, 1987 has dealt with the question of quantification of loss of profit in a very lucid manner taking into account of cost of wood which was destroyed and the cost of wood which was later acquired by the mill for continuing the production of paper. The difference between these two costs has been taken as loss of profit after making adjustment of excess moisture etc. Taking note of Memo 5, in the policy document, the Surveyor assessed the loss at Rs. 27,88,745/ -. The Surveyor has also pointed out that the increased cost of bamboo resulting in an assessment of Rs. 27,88,745/ - had avoided a loss of gross profit of Rs. 65,92,109/ - and, therefore, the increased cost of acquiring the wood was justified. Although, the petitioner has claimed a loss of Rs. 42,24,387/ - we accept the assessment of the Surveyor which is fair and objective and, therefore, put the claim liability at Rs. 27,88,745/ -. Hence, we direct the respondent Insurance Company to pay to the petitioner Company this amount within a period of 30 days from the date of receipt of a copy of this Order.

AS regards the question of interest, we find that the fire took place in October, 1986 and the Insurance Company was informed about it immediately thereafter. The report of the surveyor is dated 24th April, 1989. We do not know as to why more than two years were taken by the Insurance Company for appointing a Surveyor. We are also not aware as to why the Insurance Company did not settle the matter till 25.8.94 after they had received the report of the Surveyor on 24th April, 1989. Throughout this period the petitioner Company was kept informed that the matter was under consideration. Finding no satisfactory explanation for this delay on the part of the respondent Insurance Company, we feel that there is a deficiency in service and, therefore, the petitioner Company is entitled to interest on the amount of claim as assessed by the surveyor and accepted by us. Taking a period of 9 months as a reasonable period for the settlement of the claim, we are of the view that it would be just and fair to give interest @ 18% p.a. from Ist August, 1987 till the date of payment of the amount of Rs. 27,88,745/ -.

IN the final analysis, the Insurance Company is directed to pay Rs. 27,88,745/ - and interest thereon @ 18% per annum from 1.8.87 till the date of payment to the petitioner Company within a period of 30 days from the date of receipt of a copy of this Order. There will be no order as to costs. Complaint allowed.