Sumangala Steel Ltd. vs Oriental Insurance Co. Ltd

THIS is a complaint under Sec. 17 read with Sec. 12 of the Consumer Protection Act.

THE complainant is a manufacturer of steel ingots having its factory at Industrial Estate, Pondicheri. It took a Machinery Insurance Policy from the opposite party for a total sum of Rs. 17,00,402/- for the period from 11.9.87 to 10.9.89. According to the complainant, the officers of the opposite party visited the factory and satisfied themselves about the value and condition of the various machineries. On 23.6.89 there was a major breakdown of the transformer purchased from M/s. Crompton Greaves, and the opposite party and the manufacturer were duly informed. THE engineers of the manufacturer came and examined the transformer and wanted the machinery removed to Bombay for major repairs. Accordingly, the transformer was sent to Bombay by road on 22.8.89. After negotiating with the manufacturer the complainant finally paid a sum of Rs. 18,51,988/- to M/s. Crompton Greaves for all the repairs done. THE surveyor appointed by the opposite party assessed the loss at Rs. 12,72,910.45 apparently excluding the charges paid by the complainant for making modifications in the transformer. Though the assessment made by the Surveyor is open to challenge the complainant was ready and willing to accept the Surveyor''s assessment of the loss and receive Rs. 12,72,910.45 as compensation. However, the opposite party by its letter dated 5.3.93 informed the complainant that only a sum of Rs. 3,67,676/- was payable, consequent to deductions made on applying the average clause and for alleged deficit in premium. THE complainant received the said amount of Rs. 3,67,676/-under protest. According to the complainant there was no case of under insurance. THE value of the machinery fixed by the surveyor as in 1991 is untenable. As per the certificate issued by the manufacturer, the value of the machinery on the date of breakdown was only Rs. 14,53,920/- which was about 10 months after the inception of the policy and hence the value of the machinery ought to have been much less at the time of the policy. THE opposite party demanded a premium of Rs. 22,000/- and was paid. Subsequently, it claimed Rs. 1,871/- which was also paid by the complainant. THE deduction made by the opposite party is unjust and unreasonable and amounts to gross deficiency of service and negligence. Hence this claim for the payment of Rs. 9,05,243.55 after deducting the amount received with interest thereon at 24% p.a. and for compensation in the sum of Rs. 1,00,000/-. The claim is resisted by the opposite party. It is contended that the complainant has received Rs. 3,67,676/-on 5.3.93 in full and final settlement of the claim and the complainant is not, therefore, entitled to maintain this complaint. It is further contended that any adequacy or inadequacy of the compensation, if at all, has to be agitated only in Civil Court and not before this Commission. On merits it is admitted that there was a policy of machinery insurance for the period from 11.9.88 to 10.9.89. But it is denied that the officers of the opposite party inspected the machinery and satisfied themselves of the value given. There is no such duty cast on the officers of the opposite party. The premium was fixed at Rs. 22,000/- and was paid by the complainant. The opposite party called upon the complainant to submit additional bills for fixing the final premium and an additional sum of Rs. 1,871/- was payable. It was paid only on 30.6.89 and 9 months after the commencement of the policy of insurance. The opposite party arranged special inspection by M/s. Paramount Surveyors. Subsequently the opposite party requested Mr. Shankar Dhawan, Chartered Engineer, Surveyor, Assessor and Valuer to value the loss. This particular machinery which broke down was insured for Rs. 10,29,600/-. But the complainant preferred a claim for Rs. 19,01,940.20. M/s. Crompton Greaves submitted the replacement cost of a similar new Transformer basing on the prevailing prices in July 1991 at Rs. 32,03,410/-. There was, therefore, under insurance by 67.85%. The Chartered Engineer as-sessed the loss at Rs. 12,72,910.45. Applying the average clause on account of under insurance, the amount of claim assessed was Rs. 3,98,944.70 and because of the delay in the payment of the full premium this amount was further proportionately reduced to Rs. 3,67,676/-. There was, therefore, no deficiency of service. The complainant is not entitled to any relief.

Exhs. Al to A16 and Bl to B20 are marked by consent. Proof affidavits are filed. No oral evidence has been let in.

THE points that arise for consideration are : - (1) Whether the complaint is maintainable? (2) Whether there has been any deficiency of service or negligence on the part of the opposite party? (3) To what compensation, if any, is the complainant entitled?

Point No. 1 : The complainant has insured his machinery with the opposite party under Exh. Al policy of insurance for the period from 11.9.87 to 10.9.89. The furnace transformer which was insured for Rs. 10,29,000/-suffered a breakdown on 23.6.89 and it was repaired in the factory of the manufacturer M/s. Crompton and Greaves at Bombay. The complainant preferred a claim under Exh. A7 for a sum of Rs. 18,747/- lakhs. The opposite party settled the claim at Rs. 3,67,676/- and paid the same to the complainant under Exh. A15/B20. It is the case of the opposite party since there has been full and final settlement by payment of Rs. 3,67,676/- the present complaint is not maintainable. Exh. A15/B20 is the voucher issued by the complainant for the receipt of Rs. 3,67,676/-. It is clearly written therein as follows : "Received under protest and without prejudice to our claim and accepted as a part payment of claim." In the light of this endorsement it is futile on the part of the opposite party to contend that there was full and final settlement and accord and satisfaction. It is open to the complainant to agitate the claim for the balance of compensation, if any.

IT is then contended that the question of adequacy or inadequacy of compensation fixed by the insurer has to be agitated only in the Court of competent civil jurisdiction and the consumer forum has no right to entertain such a claim. This view also cannot be accepted. Sec. 2(1)(g) of the Consumer Protection Act defines ''deficiency'' as any fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance which is required to be maintained by or under any law for the time being in force or has been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any service. IT follows that whether the amount of compensation fixed by the insurer is unfair and unjust and unreasonable, there is deficiency of service and it is open to the insured to agitate his claim before this Commission. The National Commission has also held that even where the insurer repudiates the claim the matter can be entertained by the Forum constituted under the Act to find out whether the repudiation is proper or not. We hold, therefore, that the complaint preferred in this case is maintainable in law. Point No. 2 : Exh. A.1 is the policy of machinery insurance for the period from 11.9.88 to 10.9.89 for a total sum of Rs. 17,00,402/-. Break-up details are also given therein in respect of the sum assured in respect of each machinery. We are concerned with furnace transformer which was insured for Rs. 10,29,600/-. It broke down on 23.6.89 and the entire transformer had to be transferred to Bombay for effecting repairs in the factory of the manufacturer M/s. Crompton Greaves. According to the complainant, he negotiated with the manufacturer and paid a sum of Rs. 18,51,988/- for manufacturing the machinery and making some alterations. Mr. Shankar Dhawan, Chartered Engineer has been appointed by the opposite party to survey and assess the loss and his report is Exh. B18. In paragraph 6 of the report, he has assessed the loss at Rs. 12,58,000/- The complainant and the opposite party have accepted in their respective pleadings that this assessment was made by the surveyor. The learned Counsel appearing on both sides have also stated at the bar that the sum of Rs. 12,58,000/- arrived at by the Surveyor as the charges for repairs is acceptable to both of them. We, therefore, hold that the loss sustained by the complainant is Rs. 12,58,000/-. The opposite party has not paid this full amount of Rs. 12,58,000/- and has made proportionate deduction on 2 grounds (i) there was under insurance and (ii) delay in the payment of part of the premium. Let us consider whether these proportionate deductions are tenable in law.

AS already pointed out under Exh. Al policy of insurance dated 30.6.89 covering the period from 11.9.88 to 30.9.89 this transformer has been insured for Rs. 10,29,600/-. According to the opposite party and Mr. Shankar Dhawan, Chartered Engineer, Surveyor appointed by it, the total cost of the machinery as in July 1991 when the repairs were completed was Rs. 32,03,410/- and on the basis of this value it is contended that this Furnace Transformer has been under insured by 67.85%. Exh. Al policy of insurance contains the following clause known as the average clause. "If the sum insured is less than the amount required to be insured as per provision hereinabove the company will pay only in such proportion as the sum insured bears to the amount required to be insured." This average clause does not show as to the time at which the value of the insured article has to be taken into consideration. Normally, the question of under insurance or over insurance must be considered with reference to the date of insurance. The insured cannot be held liable for subsequent increase or decrease in the value of the articles. Under Exh. A18 survey report, the surveyor has fixed the cost of the transformer at Rs. 32,03,410/- as in July 91 when the repairs were completed. The very basis of valuation of this machinery as at the time when the repairs were conducted which is clearly one year and 10 months after the date of the policy is unsound and unacceptable. The opposite party has also not produced any record to show that even in July 1991 the value of the transformer was Rs. 32,03,410/-, In the counter statement, it is stated that M/s. Crompton Greaves has submitted replacement of some new transformer based on the prevailing price in July 91 at Rs. 32,03,410/- But no such document is produced. We are, therefore, unable to accept the claim of the opposite party that this transformer was of the value of Rs, 32,03,410/ even in July 91. According to the complainant, the approximate price for the transformer was Rs. 12,00,000 only as on July 89 ''ex-works'' allowing for excise duty, sales tax etc., the amount will come to Rs. 14,53,920/- as stated in para 17 of the complaint. There is, therefore, no basis for the contention of the opposite party that the value of the machinery was Rs. 32,03,410/- as assessed by the surveyor in Exh. B18. If at all there was under insurance, it must have only be in the sum of Rs. 12,72,910.45 - 10,29,600.00 = 2,43,310.45 which works out at 23.64%.

ASSUMING without admitting that there was any under insurance, the question is whether the average clause will be applicable in such a case where the loss sustained by the complainant is more than the amount of insurance. The point is covered by a direct decision on Allahabad Bench of High Court in The General Assurance Society Ltd. v. Mohd. Salim (AIR 1965 All 561 DB). It has been held therein that this average clause would come into play only if it was proved, that the loss sustained by the insured was less than the sum insured. Where the loss was much more than the sum insured the Trial Court was right in granting to the insured a decree for recovery of the whole sum insured in spite of the ''average clause''. The amount of insurance in this case of the transformer is Rs. 10,29,000/- while the loss sustained as assessed by the surveyor and accepted by both the parties is Rs. 12,72,910.45. The average clause has, therefore, no application. Unfortunately the insurer has not looked into this position of law. The other deduction made by the insurer is for delayed payment of the premium. At the time of taking the policy of insurance, the complainant has paid Rs. 22,000/-. Subsequently, the opposite party has written to the complainant that the policy amount was Rs. 23,871 /- and the complainant has been asked for the balance of Rs. 1,871/-. This sum of Rs. 1,871 /- has been paid by the complainant by means of a cheque drawn on the Canara Bank, Madras dated 20.6.89 and sent alongwith Exh. B9 letter dt.20.6.89. According to the opposite party this cheque has been received on 30.6.89 and negotiated. Whatever it may be, the balance of premium has been paid and accepted by the opposite party without a murmur and it is not now entitled to deduct the compensation payable on the ground of delayed payment of the premium. This deduction must also fail. This is also deficiency on the part of the opposite party.

As laid down in the decision of Allahabad cited above in the General Assurance Society Ltd. v. Mohd. Salim where the loss sustained by the insured is more than the sum insured, he is entitled to the entire sum insured. Accordingly, the complainant is entitled to the insured amount of Rs. 10,29,000/- and nothing more. Deducting the sum of Rs. 3,67,676/- the balance payable to the complainant comes to Rs. 6,61,324/- with interest thereon at 18% p.a. from the date of the part payment under Exh. A15 dated 5.3.93.

IN the result, we order as follows : (1) The opposite party shall pay to the complainant Rs. 6,61,324/- with interest thereon at 18% p.a. from 5.3.93 till payment. (2) The opposite party shall also pay costs of Rs. 3,000/- to the complainant. (3) The payments shall be made within one month.

Complaint allowed.