Sunil Gautam vs NATIONAL INSURANCE COMPANY LTD

ALLEGING deficiency in service on the part of the opposite party/Insurance Company in not settling the claim of the complainant under an insurance policy and rather repudiating the same on unjustifiable grounds, the complainants, who are the partners of M/s. Gautam Ice and Cold Storage, Sadabad Road, Raya, Distt. Mathura have filed this complaint seeking an order on the opposite party/lnsurance Company to settle the claim of the complainant by paying a sum of Rs. 29,19,000 along with interest @ 18% per annum besides a compensation of Rs. 20 lacs and the cost of litigation.

THE facts of the case are in narrow compass. The complainant is running an Ice and Cold Storage and used to store the stocks of potatoes belonging to various parties/growers in their cold storage. They had taken three policies from the opposite party to cover their risk against the building, etc., in the sum of Rs. 60 lacs, machinery breakdown in the sum of Rs. 20,66,000 and a damage of stock policy covering the risk of deterioration of stocks of potatoes of 50,000 bags @ Rs. 100 per bag in the sum of Rs. 50 lacs by paying the requisite premium on those policies. As the luck would have it, during the currency of the said insurance policies, there was break down of the machinery of the cold storage on 15.5.1999 for which a claim was lodged by the complainant under the machinery breakdown policy, which was settled and paid by the Insurance Company to the satisfaction of the complainant. The breakdown of the machinery was rectified. However, in late September, 1999, at the time of the unloading of the potatoes stocks from the cold storage, the complainants noticed that a large portion of stock of potatoes had been damaged on account of germination of potatoes which they presumed was on account of the breakdown of the machinery in May, 1999. The complainant intimated to the Insurance Company about the damage to the stocks of potatoes but no prompt action was taken by the opposite party to get the loss assessed. It was after a communication dated 2.11.1999 issued by the complainant that the opposite party/Insurance Company appointed M/s. Kaypsens, Surveyors and Loss Assessors, New Delhi whose representative Shri Hemant Jain visited the site of the cold storage on 6.11.1999 for a general inspection but he returned without assessing the loss holding out assurance that senior officers will look into the matter. According to the complainant, as many as 29,19,000 bags of potatoes had deteriorated / damaged and computing the price of the damaged @ Rs. 100 per bag the complainant lodged a claim of Rs. 29,19,000. It would appear that after about one year of the peril, the Surveyors M/s. Kaypsensvide their report dated 13.10.2000 assessed the net loss towards the damage of stocks of potatoes at Rs. 22,66,355 but after deducting certain sums towards under-insurance and excess of policy, the net adjusted loss was quantified at Rs. 13,01,030. Even that amount was not paid by the opposite party/Insurance Company and the Insurance Company lastlyvide their letter dated 8.6.2001, repudiated the claim of the complainant all together giving out the following reasons. We would like to extract the said letter: "NATIONAL INSURANCE COMPANY LTD. BRANCH OFFICE 1953, DAMPIER NAGAR, MATHURA - 281 001 WITHOUT PREJUDICE DATED 8.6.2001 M/s. Gautam Ice and Cold Storage, Sadabad Road, Raya, Distt. Mathura Dear Sir, Ref.: Deductions of stocks (potatoes)-claim No. 44/99.99/54/40 On going through the claim filed by our competent authority, it has been observed: ''That Clause of loss of deterioration of stocks (potatoes) was due to rise in temperature of storage chamber due to abnormal operation or stoppage of refrigeration plant and machinery and this is our policy exclusion. '' The above claim file is repudiated by our competent authority, so we are filing the papers as No Claim, which may please note. Thanking you, Yours faithfully, BRANCH MANAGER " Not satisfied with the stand of the Insurance Company, the complaint was filed.

On being noticed, the Insurance Company filed its written version raising preliminary objections about the maintainability of the present complaint and setting out various reasons why ''no claim '' is payable to the complainant towards the loss due to damage to the stock of potatoes under the insurance policy in question. The repudiation of the insurance claim is sought to be justified on the same grounds on which it had already repudiated the claim besides giving detailed reasons and circumstances in support of the said grounds. The issuance of the policy "Deterioration of Stocks (Potatoes) and stock of potatoes of the complainant having been damaged is not seriously disputed. It is also not disputed that the Surveyor had assessed the net adjusted loss at Rs. 13,01,030 after making statutory deductions as per the terms of the policy. It is however denied that the opposite party has committed any deficiency in service by repudiating the claim of the complainant and is liable to pay any amount much less the amount claimed by the complainant in the complaint.

IN the rejoinder, the complainants have controverted the objections and pleas raised in the written version of the Insurance Company and have generally reiterated the averments and allegations already made in the complaint. Various reasons/circumstances pointed out by the opposite party/Insurance Company in support of the repudiation of the claim have been controverted and explained. It is maintained that the complainant is entitled to the indemnification of the loss suffered by them due to the damage of the stock of potatoes.

IN order to establish their cases, parties have generally relied upon the documentary evidence i.e. Insurance Cover Notes, policy documents, report of the Surveyor and the correspondence exchanged between the parties. Parties have also filed supporting affidavits. From the side of the complainants affidavit of Mr. Sunil Kumar Gautam, Managing Partner of the complainant has been filed while affidavit of Smt. Indu Sharma, Deputy Manager, Insurance Company and Shri K.P. Sen, Surveyors have been filed on behalf of the opposite party/Insurance Company. We have carefully considered the said evidence and material placed on record. We have also heard Mr. S.K. Sharma, Advocate learned Counsel for the complainant and Mr. Maibam N. Singh, Counsel representing the opposite party/Insurance Company and have given our thoughtful consideration to their submissions. Having regard to the undisputed factual positionviz. the complainant had taken three insurance policies from the opposite parties to cover their risk towards building, machinery, break down and damage/deterioration of potatoes and that there has been an incident of machinery breakdown on 15.5.1999 after the cold storage had been loaded with stock of potatoes of about 58,400 bags in the cold storage and that the opposite party/Insurance Company had settled the claim of the complainant in respect of the breakdown of the machinery under "Machinery Breakdown Policy " and that in the end of September, when the unloading of the stock of potatoes started from the cold storage, the complainant/owners of the stocks noted damage/deterioration to the huge quantities of potatoes on account of germination, the only question, answer to which would decide the fate of this complaint is as to whether the complainant is entitled to indemnification of the loss suffered by them. This in turn will need the examination of the crucial aspect as to whether the repudiation of the claim by the opposite party/Insurance Company in the present case was correct and for justifiable reasons. Going by the ground of repudiation, it would appear that the Insurance Company wanted to repudiate the claim mainly on the strength of the Exclusionary Clause (iv) appearing under the heading ''Exceptions '' in the terms and conditions of the Deterioration of Stocks (Potatoes) Policy. The said clause is worded as under: "The company shall not be liable for.... (iv) Any damage to stocks caused by rise or fall in temperature due to stoppage of any section or sections of the Refrigeration plant for repairs, maintenance, overhauling or for replacement of parts or due to wear and tear of the plant and equipment or failure of any part or parts requiring periodical renewal and operation of fuses and kindred devices however, this exception will not apply for repair or replacement necessitated. "

MR . Sharma, Counsel for the complainant submits that the reliance of the Insurance Company on the above Clause is misplaced firstly on the ground that the terms and conditions of the policy or rather the policy documents as recorded by the underwriter was never communicated to the complainant either at the time of issuing the policy or even after the peril had taken place. On the strength of the decision of the Hon ''ble Supreme Court in the case of Modern Insulators Ltd. v. Oriental Insurance Co. Ltd., I (2000) CPJ 1 (SC)=II (2000) SLT 323=(2000) 2 SCC 734, Mr. Sharma strongly contended that unless the terms and conditions of the policy are communicated by the underwriter to the insured, the Insurance Company would not be allowed to claim the benefit of Exclusionary clause. In the said case, the Hon ''ble Supreme Court held as under: "It is the fundamental principle of insurance law that utmost good faith must be observed by the contracting parties and good faith forbids either party from non-disclosure of the facts which the parties know. The insured has a duty to disclose and similarly it is the duty of the Insurance Company and its agents to disclose all material facts in their knowledge since the obligation of good faith applies to both equally (para 8). Since the terms and conditions of the standard policy wherein the Exclusion Clause postulating cesser of the insurance in case of second-hand/used property was included, were neither a part of the contract of insurance nor disclosed to the insured, the insurer could not claim the benefit of the said Exclusion clause (Paras 9 and 5). "

MR . Sharma in support of the plea that the terms of the insurance policy were not disclosed to the complainant, has invited our attention to certain observations made by the Surveyor in Para 4.4 of his report dated 13.10.2000. While discussing the case, the Surveyor had categorically pointed that insured i.e. complainant hadvide his letter dated 16.11.1999 again requested the underwriter ''s Mathura Office for issuance of DOS policy. He also commented that even he (Surveyor) had not received the relevant DOS policy either from the Insured or from the Insurer. Had the complainant been communicated with the terms and conditions of the policy, he would not have asked it again on 16.11.1999 i.e. after the peril had taken place. Surprisingly, the Insurance Company did not supply a copy of terms and conditions of the policy even at that stage either to the complainant or to the Surveyor. Mr. M.N. Singh, however, submits otherwise and contends that it is not possible that terms and conditions of the insurance policy were not communicated to the complainant. In view of the above noted letters as also the legal position settled by the Hon ''ble Supreme Court, we must hold that the terms and conditions of DOS Policy/Deterioration of Stocks (Potatoes) policy were not disclosed/communicated to the complainant except issuing the only insurance Cover Note covering the risks of different types. Assuming for the sake of arguments that the terms and conditions of the policy were communicated or complainant could have knowledge of the same because such terms and conditions were in relation to a specific policy i.e. "Deterioration of Stocks (Potatoes) ". Still in our view, the present case in regard to the loss/damage to the potatoes would not fall within the above Clause (iv) (supra). We say so because ample material has been produced on record more particularly in the shape of Logbook of the cold storage during the relevant period between 15.5.1999 and 19.5.1999 giving out detailed temperature inside the cold storage at different hours i.e. after a gap of four hours in every 24 hours of the day. On a perusal of the same would show that alteast the temperature on 16.5.1999 and 17.5.1999 were within the prescribed parameters i.e. less than 40ï¿ 1/2 Fahrenheit but on two subsequent dates i.e. 18.5.1999 and 19.5.1999 it had gone up beyond 40ï¿ 1/2 Fahrenheit. The increase in the temperature was despite that the complainant made alternative arrangement has not been disputed by the opposite party/Insurance Company. However, it is pleaded that this alternative arrangement was not satisfactory because although there was no rise of the temperature beyond 40ï¿ 1/2 Fahrenheit, following the breakdown of 100 HP motor. The Temperature of the storage chamber eventually was maintained by operation of stand by 7 x 7 compressor following the breakdown of 100 HP motor of main 9 x 9 compressor.

IN regard to high temperature conditions during the period 18.5.1999 to 22.5.1999, the following factors are pointed out by the Insurance Company: "(i) The motor (100 HP) of 9 x 9 compressor (which is normally in operation to maintain proper temperature in storage chamber) had suffered a breakdown at 1.15 a.m. However, 7 x 7 compressor was put into operation at 3.30 a.m. on 17.5.1999, due to leakage in seal section; (ii) The claim for said breakdown of motor of 9 x 9 compressor was admitted by the Underwriters but evidently the breakdown of 7 x 7 compressor was not accidental in nature hence its claim was not considered tenable by the Underwriters; (iii) The refrigeration plant remained inoperative upto 8 a.m. of 18.5.1999 and possibly 7 x 7 compressor was put into operation at 8 a.m., but the same is incorrectly mentioned as 9 x 9 compressor in the log sheets. Initially the temperature in range of 41.42 degree F had come down to 38 to 40 degree F by 8 p.m. of 18.5.1999; (iv) The log sheet of 19.5.1999 shows consistent high temperature in the range of 46-49 degree F. It is not understandable as to how an increase of 8 degree F is possible for chamber tempera-ture within a period of four (4) hours from 8 p.m. of 18.5.1999 to midnight of 18.5.1999. This is all the more logically unacceptable as these four hours pertain to night period which is comparatively cooler than day time. Clearly the actual temperature details have not been properly recorded; (v) The high temperature of 19.5.1999 indicates clearly that the standby 7 x 7 compressor was not under normal operation. Also in such a case the temperature should have shown a gradual increase during day time with increase in atmospheric temperature but the temperature is recorded uniformly in range of 46 - 48 degree F throughout the day. This again indicates that the actual temperature conditions have not been property recorded in the log sheets; (vi) The 9 x 9 compressor was put back into operation at 7.30 p.m. on 19.5.1999 and gradually the temperature of cold storage chamber was brought within the stipulated range of 40 degree F by 23.5.1999. "

FROM the above noted circumstances, the opposite party/Insurance Company wants us to infer that the temperature on 19.5.1999 was on much higher side and the said rise in temperature must have been due to breakdown and subsequent abnormal/improper operation of 7x7 compressor, which is definitely not due to accidental cause(s). It is also pointed out that the same may be on account of normal wear and tear and poor maintenance. We have noted these submissions only to be rejected because nothing has been brought on record from the side of the opposite party to establish that there was any abnormal operation by 7x7 compressor due to normal wear and tear. In our view, the complainant had taken all steps to minimize the loss and to avert any damage or deterioration of the stock of potatoes when there was a breakdown of the machinery by maintaining the temperature within reasonable limits. To non-suit the complainant on the assumption that rise in temperature was due to improper functioning of 7 x 7 compressor, which did not work due to normal wear and tear, cannot be accepted because the said compressor continued to function even after 19.5.1999.

MR . M.N. Singh, learned Counsel for the Insurance Company then invited our attention to certain observations made by the Surveyor under the heading ''About the cause of Damage ''. We would like to extract the relevant portion here: "Keeping in view the facts and circumstances of loss detailed out in preceding Section 4.0, the probable cause (s) of damage in our opinion can be any of the following: (a) Rise in temperature of storage chamber directly caused by accidental damage to refrigeration plant and machinery which is indemnifiable under the Machinery Breakdown Policy; (b) Rise in temperature of storage chamber due to abnormal operation or stoppage of refrigeration plant and machinery for repairs necessitated by normal wear and tear, maintenance, etc.; (c) Inherent defects or, diseases, natural deterioration or, natural putrefaction; (d) Improper storage, insufficient circulation of air/non-uniformity of temperature. While the causes stated at (b), (c) and (d) are falling under specific exclusions of the DOS Policy, only the damage to stocks of potatoes arising from (a) are indemnifiable as per terms and conditions of DOS Policy under reference. "

WE cannot accept the above findings/observations of the Surveyor for the same reasons as stated above. The Insurance Company has failed to establish that rise in temperature of cold storage chambers was due to abnormal functioning of 7 x 7 compressor or refrigeration plant and machinery for repairs necessitated by normal wear and tear/maintenance. While it cannot be denied that the operation of the refrigeration plant must have been stopped for some time i.e. for few hours due to breakdown of 100 HP motor, but it is not in dispute that immediately the 7 x 7 compressor was put into service in order to keep the cold storage running and to maintain the temperature inside the chambers within the prescribed limit. Thus going by the material placed on record, we have no hesitation to hold that the repudiation of the insurance claim by the Insurance Company on the alleged ground cannot be justified. By doing so, the opposite party has committed deficiency in service.

NOW coming to the question as to what relief the complainant is entitled in the complaint. The opposite party/Insurance Company going by the final report of the Surveyor, in their written version unequivocally stated that if at all the complainant is found entitled to any insurance claim or compensation, the Insurance Company at best is liable to pay the claim as per the following calculations: "(a) The assessment of loss is to be confined to the affected/damaged quantity of 26663 bags of potatoes as has been reasonably quantified by the Surveyors from the available details/records; (b) As per the terms and conditions of DOS Policy under reference, suitable deductions are to be made for ''Shrinkage '' and ''Rottage ''. In case of ''Shrinkage '' the policy specifies a deduction in the same percentage as stated in Insured ''s contract with his hirers or 5% of insured value of damaged stocks whichever is higher. In absence of any specific contract of Insured with the hirers/farmers a deduction of 5% of insured value of damaged stocks towards ''Shrinkage '' could be considered. In case of ''Rottage '' the policy specifies a deduction of 5% of insured value of damaged stocks irrespective of whether the contract of the Insured with the hirers provides for such deductions or not; (c) The deteriorated stocks of potatoes were reportedly thrown out in neighbouring fields as no recovery of partially damaged stocks for sale in market was stated to be practically feasible in view of extensive deterioration. Even accepting such contentions also, a notional deduction of 5% could be reasonably made for value of damaged stocks; (d) The excess of 10% subject to minimum of Rs. 10,000 is to be considered as per terms and conditions of DOS policy under reference. With the above considerations the loss is assessed as under -

...[VERNACULAR TEXT OMMITED]... As per the terms and conditions of DOS Policy under reference the sum insured should represent the total value of stocks obtained by multiplying the full storage capacity of the cold storage by the average price of potatoes at the time of loading including the storage charges. As per license issued by Government of UP the full storage capacity of said cold storage is 50,168.73 quintals and as per information available with the Surveyors the average price of potatoes at time of loading in March, 1999 was Rs. 55 per bag. With storage charges of Rs. 70 per bag the average price at time of loading including storage charges comes to Rs. 125 per bag of potatoes, which translates to Rs. 156.25 per quintal considering average weight of 80 Kgs. of potatoes per bag. Therefore, value of potatoes required to be insured under the DOS policy in this case is Rs. 78,38,864 (50,168.73 Quintals x Rs. 156.25 per Quintal). As against this the sum insured is Rs. 50,00,000 only hence the net assessed loss of Rs. 22,66,355 is adjusted at - Rs. 50,00,000.00 x Rs. 22,66,355= Rs. 14,45,588.93 Rs.7 8,38,864.00 Hence, Gross Adjusted Loss Rs. 14,45,588.93 Less: Excess of 10% as per policy Rs. 1,44,558.89 Net Adjusted Loss Rs. 13,01,030.03 Rounded off to Rs. 13,01,030 The net adjusted loss, therefore, comes to Rs. 13,01,030 "

MR . S.K. Sharma, learned Counsel for the complainants submitted that although as per the reckoning of the complainants, the loss of the complainant was much more i.e. to the extent of Rs. 29,19,000. Going by the quantity of the bags of potatoes and the value of each bag calculated at the rate of Rs. 100 per bag and the complainant has settled the claims of the growers by paying more than Rs. 19,00,000 still, the complainant would not challenge the net adjusted loss as made by the Surveyor in its report dated 13.10.2000. The Surveyor after doing a thorough job had quantified the net adjusted loss @ Rs. 13,01,030 which in our opinion, the complainant is entitled and the Insurance Company should compensate the complainant towards their claim under the policy accordingly. Since the claim of the complainant was not settled even after the assessment of net adjusted loss by the Surveyor and it sought to repudiate the claim on unjustifiable grounds, the Insurance Company must further compensate the complainant for the delay in settling the claim of the complainant. We would compensate the complainant by awarding suitable interest i.e. @ 9% per annum with effect from the date of the complaint.

IN the result the complaint is partly allowed with the direction to the opposite party/Insurance Company to pay a sum of Rs. 13,01,030 with interest @ 9% per annum with effect from the date of filing of the complaint till the payment. The payment shall be made within a period of six weeks from the date of this order, failing which the rate of interest shall stand enhanced to 12% per annum with effect from the date of default. Ordered accordingly.