VYAPAR INDUSTRIES LTD. vs NEW INDIA ASSURANCE CO. LTD. & ORS.

Challenge in this First Appeal under Section 19 of the Consumer Protection Act, 1986 (for short the "Act") by the Complainant, is to the order dated 12.5.2011, passed by the State Consumer Disputes Redressal Commission, Gujarat (for short the ''State Commission'') in Complaint Case No. 47 of 2007. By the impugned order, the State Commission dismissed the Complaint on the ground that there was no deficiency of service on behalf of the Insurance Company in repudiating the Complainant''s claim.

The brief facts as set out in the Complaint are that the Complainant is a Public Limited Company, having various offices and godowns throughout the country, has taken a Standard Fire and Special Perils Policy No. 230600/11/06/11/00001246 valid from 2.8.2006 to 1.8.2007, in respect of stock lying in Godown situated at Sams Manzil, Basement, Ward No. 4, Nondh No. 2529, Shetrunjiwad. It was averred that this policy was taken to cover the risk of floods, occurring due to release of water from Ukai Dam on the Tapi River, causing heavy loss to the stocks stored in the said godown. It was pleaded that the Complainant had submitted the proposal form on 2.8.2006 and paid 29,070/- towards premium, for which the Opposite party issued receipt No. 1125 dated 2.8.2006. It is stated that the Complainant was neither informed for supplied with the terms and conditions of the policy.

While so, on 7.8.2006, due to heavy rains in Surat City, rain water entered the insured godown and the Complainant suffered heavy damage to the stock lying in the said godown. On the very same day, i.e. on 7.8.2006, the Insurance Company was informed about the loss and damage. On receipt of the information, the Divisional Office appointed Mr. Kaushal Kishore as a Surveyor and Loss Assessor, who visited all five godowns of the Complainant. By letter dated 28.8.2006, the surveyor reported to the Complainant the details of all the five claims with the policy number, value of stock and the sum insured. In the said letter, the Surveyor informed that he was not instructed by the Insurance Company to assess the loss in the subject godown situated at Samath Manzil. Hence, by letter dated 31.10.2006, the Complainant requested the Divisional office to issue a letter authorizing the surveyor to assess the loss. A reminder vide letter dated 1.11.2006 was also sent requesting for assistance of surveyor. The Complainant, on the Surveyor''s insistence to get the authorisation letter from the Insurance Company, approached Shri P.R. Gandhi, the Insurance agent, who advised him to get the policy copy from the Divisional Office, Surat. On enquiry, the Complainant''s representative was informed that due to the flood situation there was a breakdown of electricity supply and it was not possible for the Opposite Party to issue the policy copy and that it would be sent by courier.

It was specifically pleaded that only after repeated requests and visits, the Complainant''s representative was given the policy copy on 17.10.2006, while the incident took place on 7.8.2006. It was averred that the Complainant was surprised to see an endorsement in the policy copy that flood risk was not covered for the first 15 days. This endorsement was made only on 7.8.2008 while the Policy coverage period was from 2.8.2006 to 1.8.2007. The endorsement read as "flood risk not covered for 15 days from today". The process of assessment of loss of all five godowns was completed by the Surveyor and the Complainant received a copy of the Survey Report from Mr. Kaushal Kishore on 21.11.2006, assessing the net loss for an amount of 50,32,720/-. It was stated that the policy was taken for covering the risk upto 70 lakhs and at the time of loss, the stock was worth 1,00,50,619/- and hence, this being a case of under insurance, the loss was assessed after deducting prorata basis of 5% excess of 2,64,880/- and finally the net loss was arrived at 50,32,720/-.

Vide letter dated 25.11.2006, the Complainant brought to the notice of the Divisional Office that such type of endorsement was never informed to the Complainant at any point of time and that the risk commenced on 2.8.2006. It was stated that vide letters dated 20.12.2006, 19.1.2007 and on 1.2.2007, a request was made to the Regional Office to settle the long pending claim. On 12.3.2007, the Complainant received a letter dated 14.12.2006 issued by the Divisional Office stating that the claim was not payable as the Insurance Company was not on risk as the risk of flood commenced only 15 days after the issuance of the Policy. The Complainant had requested the Chief Regional Manager, Surat vide letter dated 21.3.2007 to intervene and settle the claim for which the General Manager immediately responded and called for a meeting, but expressed his inability to consider the claim. Thereafter, the Complainant had written to both the Regional and Head Offices on 30.4.2007 and on 29.6.2007 requesting for settlement of the claim, but there was no response.

The Complainant pleaded that he had received one intimation and circular issued by the Regional Office, Surat dated 31.5.2007 issuing guidelines and instructions to all Divisional and Branch Offices stating that fresh proposals and renewals with break to be accepted with 15 days waiting period for all proposals accepted between 15 th June to 30 th September. The circular was issued on 31.5.2007 and there were no such guidelines prior to this date and hence this endorsement was only added to defeat their claim. It was also averred that the Complainant was informed that the Insurance Company had settled the claims of various other insured persons who suffered loss in incident of flooding, but arbitrarily rejected the claim of this Complainant.

Hence, the Complainant approached the State Commission seeking direction to the Insurance Company to settle the claim of 50,32,720/- with interest at 18% p.a. from 7.8.2006 till the date of realisation; refund of surveyor''s fees of 95,033/-; payment of compensation of 2,50,000/- and other costs.

The Insurance Company filed their Written Version stating that the insurance cover in question was given on 2.8.2006 for the subject location as agent Mr. Pankaj Gandhi brought the proposal duly filled-in along with the cheque and was put forth for acceptance to the underwriting officer, Mr. K.S. Kapadia. The proposal was accepted and Mr. K.S. Kapadia had imposed a waiting period of 15 days for flood risk as there was onset of monsoon from June/July 2006 and there was news of upcoming flood due to heavy rain within Surat and the surrounding cities. It was stated that it is a usual practice to impose waiting period for flood risks in Surat as the City is always hit by flood for the last several years. It was stated that the prudence of underwriter requires safeguard against future loss and even when the peril is in operation, underwriter has to impose waiting period for flood risk to avert their losses. The waiting period was imposed and the same was conveyed to the agent at the time of acceptance.

It was admitted that the Policy could not be delivered to the Complainant before occurrence of loss since the policy was printed/generated on 5.8.2006 (i.e. Saturday) and before the Insurance Company could deliver the policy, flood had affected the entire Surat City on 7.8.2006 and there was no opportunity till 11.8.2006 to deliver the policy to the Complainant on time. The electricity connection was resumed only on 15.8.2006. The Insurance Company was flooded with claims in large numbers and hence all other works got hampered. The waiting period was effected on all the fresh proposals and break-in-renewals without exception and it was not as if the Complainant only was singled out.

It was admitted that the Complainant''s godown was affected by flood water on 7.8.2006 till

8.2006, which damaged its stock. The Opposite Party refused to send a surveyor to carry out the survey initially as the policy did not cover the claim. The Complainant had informed the Regional Office which had given permission to Mr. Kaushal Kishore to carry out the survey without admitting liability of the insurer. The Surveyor assessed the loss for 50,32,720/-.

It was denied that there was any deficiency on behalf of the Opposite Party in repudiating the claim on the ground that the Policy was taken on 2.8.2006 and the waiting period was informed orally to the Complainant and also by the agent. It was denied that the endorsement was made belatedly only to frustrate the claim of the Complainant and it was stated that there was no deficiency of service on their behalf.

The State Commission has dismissed the Complaint on the ground that the Complainant''s claim was not covered by the Insurance Policy as the flood had occurred in the first 15 days which fell in the waiting period, stipulated in the endorsement.

Aggrieved by this order, the Complainant preferred this Appeal.

Learned counsel for the Appellant submitted that the proposal form is dated 2.8.2006; the risk commenced from the same date as stated in the Policy copy; no such endorsement was made in the proposal form; admittedly the policy was printed on 5.8.2006; the circular dated 31.5.2007 stipulates that the condition of waiting period should be put on the proposal form; the policy terms and conditions were never issued prior to the occurrence of the incidence.

The learned counsel for the Opposite Party submitted that all proposals were accepted only with 15 days waiting period between 15 th June to 30 th September on account of the onset of monsoon and flood risks specific to Surat Town. He contended that this waiting period of 15 days was informed to the Complainant and relied on the affidavit of Mr. Pankaj Kumar Ratilal Gandhi, the Insurance Agent, who certified that the waiting period was orally conveyed by him to the authorised persons of the Complainant Company, though, written communication was not given. He submitted that the Surveyor was appointed only on the insistence of the Complainant and, therefore, the Surveyor''s fee was also paid by the Complainant. The counsel submitted that the translation copy of the same affidavit filed by the Appellant before this Commission cannot be taken into consideration as the translation copy of the same affidavit of the same agent has already been filed before the lower Fora.

The brief point that falls for consideration is, "Whether the endorsement of this waiting period of 15 days was communicated and accepted by the Complainant Company?; Whether, there is any stipulation that such an endorsement should be made in the proposal form?".

The facts not in dispute are the receipt of the premium; filling up of the proposal form dated 2.8.2006; the occurrence of the flood on 7.8.2006; the belated issuance of the policy copy to the Complainant Company. To ascertain whether the acceptance was communicated to the Complainant, a brief reading of the written version filed before the State Commission would give us a better understanding. There was an admission on behalf of the Insurance Company that the policy copy could not be delivered to the Complainant before the occurrence of loss i.e. before 7.8.2006; that the policy was printed/generated on 5.8.2006; that the Opposite Party''s office was closed till 11.8.2006 and that electricity was resumed only on 15.8.2006. It is pertinent to note that though the Insurance Company had admitted to the fact that the Policy could not be delivered to the Complainant before 7.8.2006, have also not stated the date on which the Policy was finally issued to the Complainant. It is the Complainant''s case that the policy was issued to the Complainant only 75 days after the commencement of risk. The proposal form shows that the period of insurance was from 2.8.2006 to 1.8.2007 and the perils covered are flood and cyclone group of perils. The Circular dated 31.5.2007 is reproduced hereunder: "Ref.230000/FIRE/CIRCULAR/2007

Date:31 st May, 2007

CIRCULAR

ALL DIVISIONAL/BRANCH OFFICES

KIND ATTN: ALL DO/BR INCHARGE

Re: Acceptance of Flood risk under Fire & other Policies during monsoon.

In view of the adverse claim experience due to floods in Surat region year after year it has been decided to take following precautions as prudent underwriting measure.

Fresh proposals and renewals with break to be accepted within 15 days waiting period for all proposals accepted between 15 th June to 30 th September.

Risk situated in basement and low lying areas should be strictly avoided with immediate effect.

Premium should be collected only in cash/DD.

Condition of waiting period should be put on proposal form by way of Rubber stamp and the signature of insured obtained in person .

Needless to mention this condition should appear clearly on the face of the policy.

Please ensure that above instruction are followed strictly.

Sd/-

(DR. R.K. ATTRI)

Chief Regional Manager".

The Hon''ble Apex Court in M/s. Modern Insulators Ltd. Vs. The Oriental Insurance Co. Ltd. reported in (2000) 2 SCC 734 has held as follows: "It is the fundamental principle of insurance law that utmost good faith must be observed by the contracting parties and good fath forbids either party from non-disclosure of the lads which the parties known. The insured has a duty to disclose and similarly it is the duty of the insurance company and its agents to disclose till material facts in their knowledge since obligation of good faith applies to both equally".

Receipt dated 2.8.2006 issued for cheque of 29,070/- clearly states Policy No. and collection date as 2.8.2006. At the cost of repetition, when it is an admitted fact that the proposal form did not carry the endorsement of the waiting period of 15 days, which ought to have been done as per Circular dated 31.5.2007 and also that the circular pertaining to the year 2006 has not been filed before the State Commission; and the admission by the Insurance Company in their written version that the Policy copy was not issued prior to the occurrence of the date; in the absence of any documentary evidence on record as to the specific date on which the Policy copy was finally handed over to the Complainant; it can be safely construed that firstly the endorsement of 15 days was not made in the proposal form; was never communicated to the Complainant to construe that the acceptance was complete.

The evidence of their own agent filed by way of affidavit substantiates that the risk cover of flood water was only conveyed ''orally'' and was never given in any written form to the Complainant''s Company.

For all the afore-mentioned reasons, the repudiation by the Insurance Company is unjustified. The Insurance Company in its Written Version have admitted that the Surveyor had assessed net loss of 50,32,720/-. The Surveyor has assessed the loss as under:

"Loss after Under-Insurance

7,606,309.00 x 7,000,000.00/10,050,619.00 5,297,600.00

VALUE AT RISK AND UNDER-INSURANCE

Total value of Damaged Stock 10,050,619.00

Total Value of Stock is Rs. 10,050,619.00

against sum insured of Rs. 70,000,000.00,

therefore, under-Insurance is attracted.

LOSS AFTER POLICY EXCESS

Rs.

Loss after under-insurance 5,297,600.00

Less:Policy Excess (5% of Assessed Loss or

Rs.10,000.00 whichever is higher 2,64,880.00

_____________

NET LOSS AFTER POLICY EXCESS IN RS. 50,32,720.00

_____________

Loss is assessed at Rs. 76,06,309.00 (Rupees Seventy Six Lacs Six Thousand Three Hundred Nine Only). However, Loss after policy excess is Rs. 50,32,720.00".

In the result, this Appeal is allowed and the order of the State Commission is set aside and the Insurance Company is directed to pay the net loss assessed by the Surveyor i.e. 50,32,720/- with interest @ 6% p.a. from the date of repudiation till the date of realisation, together with costs of 20,000/-. This amount is to be paid within six weeks from the date of receipt of copy of this order, failing which, the amount shall carry interest @ 9% p.a., till its realisation.