V.V. Rama Raju vs UNITED INDIA INSURANCE COMPANY Limited

CONSUMER Complaint (Original Petition) No. 54/1996 by Mr. V. V. Rama Raju and No. 55/1996 by M/s. Isnar Acqua Farms, were filed against the United India Insurance Co. Ltd. The matter in both these petitions related to insurance of prawn culture business which were very similar in nature. Therefore, the two petitions were heard and disposed of together by this Commission on 29.4.2004. In both cases, repudiation of the claim by the Insurance Co., was held to be unjustified. National Commission awarded compensation of Rs.17,64,097 to M/s. Isnar Acqua Farms and Rs. 24,97,609.24 to M/s. V. V. Rama Raju. Both were awarded interest at 9%.

OP/United India insurance Co appealed to Honourable Supreme Court of India against these orders. The Supreme Court, in Civil Appeal No. 5294/2004, together with three other civil appeals, passed the following order" "Heard learned counsel for the parties. The appeals have been filed against the judgment and order dated 29.4.2004 of the National Consumer Disputes Redressal Commission, New Delhi under Section 23 of the Consumer Protection Act, 1986. It appears that the respondents are doing shrimp cultivation and there was widespread disease among the shrimps. We are satisfied from a perusal of the record that such disease took place. However, we are of opinion that the National Commission has not properly calculated the compensation including interest to be paid to the complainants. Hence we set aside the order of the National Commission and remand back the matters to it to decide the same expeditiously preferably within four months after getting the order of this court. The Civil Appeals are disposed of." In compliance with the above, the matter has been considered afresh by this Commission. Mr. K. P. Sundar Rao, counsel to the complainants and Mr. Vishnu Mehra, counsel for the OP, Insurance Company, have been heard. Clarifications submitted by the parties, in the light of the observations of Honourable Supreme Court of India, have been perused. For facility of reference, facts of the case of the complainant, Isnar Aqua Farms, are referred to in the discussions hereinafter. OP No. 55/1996

Facts of the case, as seen from the records, are that the complainant Isnar Aqua Farms, is a registered partnership firm set up for shrimp culture. It acquired 98 hectares of land on which investment of the order of Rs. 81.44 Lacs was made for undertaking brackish water shrimp culture in 1994. On this land, houses for the farm labour, food godowns, laboratory buildings were constructed. Land was developed with formation of bunds, water supply canals were built and the requisite machinery including aerators and diesel generator sets, were installed. In July 1994, on the request of the complainant for technical help, Andhra University nominated Dr. D. E. Babu, Reader in the department of Biology. In August 1994, the respondent/OP was requested to provide the insurance cover. Officials of the insurance company visited the farm on 25.11.1994 and inspected the facilities. On 25.11.1994 itself, the Insurance Co. issued a "Brackish Water Prawn Insurance Policy" providing a cover of Rs.120 lakhs for prawns raised in 37 tanks, for a period of five months.

AS per the complaint petition, on 1.12.1994, there were 28.45 lakh prawns, with average body weight of 17.78 gms. On 2.12.1994, abnormal behaviour was noticed in the shrimps (prawns) like banking, reduced feeding and incidence of death. Dr. D. E. Babu was called. He inspected and informed that it was a rare bacterial disease called "white-spot disease" and would lead to mass mortality. The insurance company was contacted. They deputed A. R. Rao and B. N. Rao as surveyors/consulting engineers. They conducted the survey from 4th to 9th December 1994. In view of sudden and fast spread of the disease, salvage operation was also tired out and completed on 13.12.1994. There was some correspondence between the Insurance Company and the complainant on submission of documents required for consideration of the complainant''s claim under the policy. From the records, we find that as early as 27.1.1995, the managing partner of the complainant firm had sent a set of 15 documents to the surveyor A. R. Rao and Consulting Engineer, B. N. Rao, with a two page explanatory covering letter. The enclosures included pond wise details of bio-mass that was totally lost, quality inspection records issued by Andhra University, feed consumption, salvage and death certificate. Nine months later, the insurance company wrote to the complainant seeking as many as 17 clarifications. A perusal of this letter shows that, besides seeking original bills of purchases of feed and seed claimed by the complainant, there is hardly anything in the nature of clarifications on the information/data already supplied by the complainant. We are therefore inclined to agree with the apprehension voiced by the complainant that "A reading in between the lines of this letter clearly indicates that the only intention of the opposite party was to somehow frustrate the complainant"s genuine claim".

HOWEVER, we do not consider it necessary to delve any further into this matter as, on this matter, this Commission has already held as follows" "Insurance coverage was accepted after thorough inspection by the senior officers of the insurance company on 25th of November 1994. The culture ponds were inspected by Shri E Gopala Krishna, ADM insurance company, Dr P A Chakravathy, Veterinary doctor, regional office of the opposite party, with Shri M Suryanarayana, retired Additional Deputy Director, Fisheries, prior to issuing the policy. At that time the aforesaid persons were satisfied with the methods adopted by the complainant and demanded the balance premium of Rs. 219800 plus the Service Tax of Rs12240, which amounts were paid promptly and the policy was issued for ensuring the plan from PL-20 of period 9/10 fortnights. The policy is exhaustive giving various tables with retrospective effect from 10.9.1994. It recites the date of acceptance of advance premium on 16/17th August, 1994. The schedule attached to the prawn culture policy gives details of size of the pond, date of nursery stocking, date of exchange stocking, age of prawn at the time of stocking, number of seed stocked (density) expected date of harvesting and expected yield (in tones). It begins from 7th September 1994 onwards. Expected harvesting is from 8th to 10th February 1995. This is signed by one of the members of inspecting committee and the Managing Partner of Aqua farm. Therefore, once it was accepted and everything was found as per insurance scheme on 25.11.1994, it would be totally unreasonable to hold that on 2nd /3rd December 1994 the complainant was not maintaining proper record."

Mr. K. P. S. Rao, learned counsel for the complainant, argued that the Surveyor"s report was common to five claims, including two in the present proceedings. The other three are all settled" i. the claim of Mr Vishnu Kumar Raju was decided in a civil suit which was decreed in his favour. The OP did not challenge the verdict. ii. Claims of Mr Murli Maheshwar Raju and Mr Rayappa Raju, have been settled by the OP/insurance co, on its own. Hence, there is no justifiable reason for not settling these two claims as well. Mr. Vishnu Mehra, learned counsel for the respondent, insurance co. agreed that in terms of the decision of Hon"ble Supreme Court, the only issues for decision before this Commission now are the quantum of relief and the rate of interest that it should carry.

On the quantum of the relief amount, the case of the complainant is that the report of Frank & Fair Investigators, dated 1.9.1995, submitted to the OP/United India insurance Co, had clarified the picture through the following conclusions -- "a.Occurrence of white spot disease and mortality due to this in Isnar Aqua Farm, in the 1st week of December 1994 is genuine. b. Availability of seed source in September 1994 ranging from one lakh to 15 lakhs is genuine. c. The brokers or direct owners sold the wild seed to Isnar Aqua farm is also true. d. During the infection period in Isnar Aqua Farm, other farms nearby also got affected by virus, of which we made thorough enquiries. e. Feed bills were verified at Yelamanchili, Chandanada, (Nakkapalli mandal) Kakinada, Butterfly Aquatech. Perusal of the concerned books and duplicates of the bills issued which were found correct. f. Disease post inspection technical persons, Prof M Rama Seshaiah, Department of Marine Living Resources, Andhra University and Dr G Sudhakar Rao, Scientist, CMFRI stated that as on 2.12.1995, in the ponds they inspected, shrimps ABW was only 10 to 12 grams. g. Severe loss occurrence due to disease is genuine as per our inquiries."

THE above report calls it a case of "severe loss" due to disease. Learned counsel for the complainants referred to the DEATH CERTIFICATE issued by the Directorate of Fisheries, Visakhpatnam Regional Office on 1.5.1995, according to which the loss was total, despite all care and precaution having been taken in the care and attention of the cultured prawns. This report mentions total weight of the dead prawns as 50585 Kgs, average body weight as 17.78 gms and total value as Rs.94,97,952/-. THE cause of death is noted as "White Spot Disease". Details in the Enclosure relate to 37 ponds, as of the 7th fortnight.

THE complainant counsel, Mr. Rao, argued that while the two reports above (one from Frank & Fair Investigators and the other from the Department of Fisheries, Andhra Pradesh) present one picture of the magnitude of loss, the report of the Surveyor gives a very different assessment. This joint report from the three surveyors is dated 22.9.1995. At the beginning itself, the report quotes one K. Shekar, who was consulted by one of the three surveyors, expressed an opinion that "In CONCLUSION, the records submitted by any or all of the farmers DO NOT provide a true picture of the culture and none of the records are, in my opinion, genuine" This sweeping remark refers to the five claimants, including the two complainants here, mentioned earlier in this order. Similarly, we find several other conclusions/remarks, in this survey report, which are in the nature of value judgments/surmises, not supported by evidence on record or the contents of the report itself. We may mention some such remarks" a. "It is further opined that the mortality of ponds started much earlier to the date of intimation." (Page 8 of the report) b. "THE pond records and the feeding patterns were better than the best book/laboratory/feed suppliers example." (Page 8 of the report) c. "Even the most cursory glance at the pond records will show that they have been systematically and expressly created for the purpose of preferring the claim only." (Page 15 of the report) d. "Further, the insured had grown a culture in the reservoir without any feed and which was not declared for insurance". (Page 32 of the report) e. "THE assessment, has assumed prima facie that the peril has occurred on or after 25th November 1994. While there is substantial amount of evidence of circumstantial nature to show that the loss has occurred on or before 25th of November 1994 i.e. more than seven days before the surveyor first entered the insured farm." (Page 40 of the report)

According to this report, the sum insured is based on an assumption of survival rate of 70%. The report therefore, questions the claim of the complainants that the survival rate in all ponds was between 95 to 100%. Understandably, having questioned all reports relating to the input cost i.e. quantum of seed stocked and feed purchased and consumed, as also average body weight of the prawns when the problem arose, the surveyors have worked their recommendations on the basis of the declared seed stock of 22,67,000. Average body weight of the prawns is taken as 9.086 gm, on the basis of test date of 13 ponds collected by the surveyors. Accordingly, the report projects the loss as follows " "22,67,000 seeds x 9.086/1000 kg average body weight of prawns x Rs.150 per kg at 100% survival of stocking, less salvage of Rs. 20,207.50. Total loss Rs. 30,69,486.80, net of salvage."

From this amount, the surveyor has proposed certain deductions, which we will examine later. The net amount finally recommended in the surveyor"s report is only Rs. 17,64,097. The above computation is questioned by the complainant. Mr. Rao, learned counsel for the complainants, argued that their entitlement under the policy is 80% of the input cost. The relevant para I the policy reads" "The company hereby agrees subject to the terms, conditions and exceptions contained herein or endorsed or otherwise expressed hereon that if the prawns hereinafter described be totally lost or dead resulting from ACCIDENT or DISEASE or another peril specified in the schedule herein during the period of insurance stated herein or any subsequent period in respect of which the insured shall have paid the company and the company shall have accepted the premium required for renewal thereof, the company will pay to the insured 80% of value of the inp. As on the date of loss as per valuation mentioned in the table attached."

MR. Rao pointed out that, As per the schedule attached to the policy, the crop in all 37 ponds was due for harvest between 7th and 11th February 1995. The disease attack was noticed on 2nd February 1995. He argued that the complainant is accordingly entitled to 80% of the input cost as on 2nd February 1995. He argued that the schedule to the policy clearly mentions that the declarations are as on 25.11.1994 (as per inspection of the insurance team) and the period of insurance is five months with effect from 10.9.1994. If the prawn culture was found in all 37 ponds as on 25.11.1994, there is no question of eight ponds being found without culture, as claimed in the report of the surveyors. In reply to this argument, learned counsel for the Insurance Co., Mr. Mehra relied upon the affidavit of P. S. Ramanujam, one of the three signatories to the survey report, which merely states that "our report is correct." The counsel further argued that the basis for excluding the eight ponds was the insured"s own admission before two Surveyors and the notes of the third surveyor. But the counsel could not explain why the first mentions the number of ponds without culture as eight and the second as (37-28=9) nine, in two different sections of the survey report. Further, there is no explanation why only 18 hand written notes of Mr. Suryanarayna are detailed in the survey report instead of 28. There is again no explanation how 200,000 seed could be stocked in the reservoir by the insured (as claimed in the survey report) without any feed. In the written arguments submitted on 24.5.2010 it is stated that one pond was occupied as reservoir. This claim is directly contradicted by the report of Frank and Fair Investigators, taken by the Respondent/Insurance Company. On the very first page the report of the investigator shows that the reservoir of 10 hectares with good water source, as an entity very distinction from 37 tanks (Pond) located in 40 hectare of land. It is also argued that there is no justification for awarding higher interest as 9% has been awarded by the National Commission in other cases as well.

AT the end of the arguments of the counsels, a written clarification was filed by the counsel for the OP/United India Insurance co, on behalf of one of the surveyors, Mr. Suryanarayana. The same has been perused and is found to be substantially a reiteration of the comments in the survey report, not answers to specific information gaps therein. On behalf of the complainant a detailed account of expenditure was filed on 11.2.2011, which is intended to explain the claim of the complainant that total expenditure was Rs. 94,97,952 and under the policy he was entitled to receive Rs.75,98,362, being 80% of the input cost, of which the details are as follows-- S.No. EXPENDITURE VALUE IN RS. 1. Expenditure incurred towards seed, 48,46,869.00 Tank Maintenance, etc. 2. Expenditure towards Ponds Preparation 7,32,960.00 3. Value of Feed Utilised 25,26,063.00 Total Feed: 80,600 Kgs. Feed Returned: 8,453 Kgs. 72,147 Kgs. x 44.00 = 31,74,468.00 Less: - 6,48,405.00 (Included inNo.1 above) 4. Debit Notes towards Feed 3,11,836.00 5. Expenditure towards Usage of Plant & 7,44,224.00 Equipment and Lease Rent 6. Other Incidental Expenditure 3,36,000.00 TOTAL INPUT COST RS. 94,97,952.00

Coming to the methods of computation of loss, the Policy states that, "In the event of loss, all loss adjustment will be made on declared value /unit cost basis or input cost (production cost) basis, whichever is less. For a loss to be admissible the agreed mortality rate will be on the residual stock as on date anterior to loss. The residual quantity being as per the cumulative mortality percentage for the applicable fortnight as per the valuation table or actual as per pond record, whichever is less".

ACCORDINGLY, the three ways of computing the loss are" a) 80% of the value of the input on the date of loss, as per valuation method. This method is called input cost method. b) Under the unit cost method, the actual survival number is calculated as on the date anterior to the loss. The prevailing average body weight is applied to this number. This, multiplied by unit cost of Rs 150 per Kilo, gives the admissible loss, as per this method. c) Fortnightly valuation method. As the crop period is 9 to 10 fortnights, maximum claim admissible in the first fortnight is 25% of the sum assured. It scales up through the fortnights and becomes 10% in the 9th and 10th fortnight.

THESE methods have also been explained at length in the survey report. The admissible loss will be the least of the above three methods of calculation. The counsel for the petitioners stated that their claim was based on input cost method, though under the terms of the policy the loss could be determined in one of the three different ways. According to him, the computation under the three methods gives the following figures of acceptable loss" a. Input cost method Rs. 75,98,361/- b. Unit cost basis Rs. 75,87,750/- c. Fortnight basis Rs. 79,20,000/-

The method adopted by the surveyor, in this case, is the unit cost method. It is significant to note that his computation is based on the figure of prawn seed given by the complainant and accepted by the surveyors. In so far as figures pertaining to elements of the input cost are concerned, there is no agreement between the two. The total loss arrived at by this method is Rs. 30,69,486.80, as shown in para 12 above. On this, the survey report has recommended the following deductions" a. For eight ponds which, according to the report, did not have any prawn culture. We have discussed it above. If the insurer found prawn culture in 37 ponds on the date mentioned in the policy i.e. 25.11.1994, it is impossible to find 8 of them without culture, a week later. We therefore, do not find any justification for this deduction. It is not agreed. b. Deduction for 200,000 seed for being put in the reservoir. This is a mere assumption of the surveyor, with no supporting evidence. The survey report itself calls it stocking without feed. Stocking without feed would tantamount to outright destruction of prawn seed, which is illogical. Hence this deduction is also not agreed. More importantly, the schedule annexed to the insurance policy, carries total of all seed put into 37 ponds, which accounts for the total quantity of seed. It is authenticated by Mr. Suryanarayna, one of the surveyors. In view of this, the suggestion that 200,000 seed were put into the reservoir, turns out to be a pure conjecture and is rejected. c. Proposed deduction of 20% from the assessed loss is apparently towards the policy stipulation, which allows only 80% of the total input cost. In the present case, 80% of the input cost is a much higher amount than the loss assessed by the survey report (Rs.75,98,361 as compared to Rs.30,69,486.80). Reducing it further of 20% will amount to double deduction, which is illogical. Even without it the amount of loss assessed by the surveyor, is less than half of what worked out as 80% of the input cost. Hence, further reduction by 20% cannot be agreed.

THEREFORE, the loss assessed in the survey report i.e. Rs. 30,69,486.80 is to be accepted as payable in entirety, without the deductions proposed by the surveyor. As per the complainant, the actual bank rate of interest then was 16.5%, at the time the claim arose. However, we are aware that the interest rates did substantially come down later. THEREFORE, a simple interest of 10%, from the date of the consumer complaint is considered just and proper. OP NO. 54/1996 The facts and circumstances of this case are very similar to those of the Isnar Aqua Farms discussed above. However, in this case, the activity was started earlier and therefore, the policy too came into effect earlier. The surveyor, adopting the same method, had assessed the loss as Rs.30,69,486.80 in the ISNAR case and Rs. 32,30,946. in this case. Another area of significant comparison between the two cases is that in the present case the average body weight of the shrimps was calculated by the surveyor as 30.60 gms while in the case of Isnar Aqua it was calculated as 9.086 gms.

THE National Commission came to the following conclusions" "(a) In similar cases, the insurance company has settled the claim and paid the amount to the insured; in some cases the State Commission has passed such orders and in one case a decree was passed by the civil court. THEre is no justifiable reason for accepting the negative report given by Shri P S Ramanathan, Surveyor. (b) THE surveyors of insurance company had visited the site of various insured farms from 3rd December 1994 onwards. In such circumstances, it would be difficult to arrive at the conclusion that the complainant has in clandestine manner removed the prawns and sold them. In our view the report given by PS Ramanathan that the complainant has removed/sold the prawns in clandestine manner is without any basis as there was no evidence to that effect. Admittedly, the insurance was given on 28th November 1994, after due inspection by the officers of the insurance Co. Outbreak of the disease came to the notice of the insurance company on 3rd December 1994. (c) THEre was no justifiable reason for the insurance company not to produce the report of Sri Y Ravindra Babu and Sri B Pydi Raju or its officers who visited the ponds on 17th to 19th December 1994 or the notes of the officers of insurance company who visited on 19 December 1994. (d) THE death certificate dated 1.5.1995 issued by the end MPEDA office confirms the loss suffered by the complainant. THE certificate was issued by the officers after inspecting the site."

The National Commission therefore, had held the repudiation of the claim to be unjustified. The report of Surveyor mentions that the insured had claimed input cost of Rs.31,22,011/-. The National Commission allowed 80% of this amount, being Rs.24,97,606/- as the admissible amount of compensation in this case. However, the report of the Surveyor shows that he had followed the same method of computing the loss as in both the cases. The computation of loss for stocking in 8 pond has come to Rs.32,30,946/-. The main reason for difference between the two cases, as already noted, came from the average body weight of the prawns of over 30 grams in this case, as against 9 grams in the other one. Despite the above quantum of loss assessed by the surveyor, he had advised acceptance of nil liability. The reason, as per his report, was-- "Once again, it has to be reiterated that there is no single set of circumstances by which from a near 90% survival, the culture could suffer a 100% loss. Even by harvesting, it would normally have taken two days to complete all the eight ponds. No insured peril could have resulted in such a sudden and total loss of culture in all the eight ponds. The only remaining explanation is that the cultures had already been removed from the pond much earlier to the claimed occurrence date." The above is strange logic, which has led to even stranger conclusion. The Surveyor report does not point to any concrete evidence, which could show that the stocks had been clandestinely sold. We therefore, have no option but to reject this conclusion. Following the same method of computation, the loss has been assessed by the Surveyor as Rs.32,30,946/-. However, we deem it appropriate to limit the award to the amount of compensation claimed by the petitioner i.e. to Rs.24,97,609.24. In our view, as already expressed in para 23 above, it will be just and proper to award simple interest at 10%, with effect from the date of the complaint to this Commission.

IN view of the details examined above the OP/United INdia INsurance Company are directed to pay the claims as follows:- OP No. 54 of 1996 " Rs.24,97,609.24/- with simple interest at 10% per annum with effect from the date of the Complaint to this Commission. OP No. 55 of 1996 " Rs.30,69,486.80 with simple interest at 10% per annum with effect from the date of the Complaint to this Commission. IN both cases, the above amounts shall be paid within a period of two months from the date of this order, failing which interest at 13 % shall be paid for the period of delay.