Oral Order: (Per Hon?ble Justice D. Appa Rao, President)
1) This is a complaint claiming compensation and expenses for the loss of stock in trade covered under the insurance policy .
2) The case of the complainant in brief is that it is a partnership firm doing business in rice mill, purchasing paddy, milling it, polishing the rice and delivering the fine rice to the Food Corporation of India (FCI) and exporting remaining rice to various dealers in Andhra Pradesh and other States. It stocks huge quantities of paddy and fine rice. It has insured its building, plant, machinery and other accessories for Rs. 72 lakhs with the opposite party insurance company valid from 13.12.2005 to 12.12.2006 besides stocks of paddy, rice, broken rice, gunny bags, and other packing materials for Rs. 85 lakhs valid for the same period at the instance of State Bank of India to whom it hypothecated the above said properties. While so, there were heavy rains for more than 7 days from 15.9.2006 to 22.9.2006 resulting in floods due to which they were unable to mill the paddy. It had purchased the paddy on large scale from farmers in April, 2006 in Rabi season and heavily stocked in godowns, and also in mill premises by taking all precautionary measures like covering with tarpaulin and other material. It started milling from 20.10.2006 after removing water from the elevator pond. When the rice was sent to the FCI, it rejected the stock on the ground that it was discoloured and of poor quality and unfit for human consumption. On that it verified and found that the paddy was drenched in water in spite of covering with tarpaulin. Immediately it was informed to the insurance company on 23.10.2006. It had appointed a surveyor by name Sri B. Mohan of Karimnagar. He along with officers of the insurance company inspected the stock and found that 3,500 bags of paddy were completely damaged, while 10,850 bags of paddy were partially damaged and 150 bags of rice were completely soaked in the water. It had also handed over the relevant registers. Belatedly on 12.7.2007 the insurance company repudiated the claim stating that the policy did not cover the peril of rains and that the policy covers only fire and allied perils like explosion and flood risks like floods, inundation, storm, cyclone etc. In fact the paddy was damaged due to rain water, and heat developed within the paddy technically termed as ?spontaneous combustion?. The repudiation was totally baseless. It amounts to deficiency in service. The surveyor himself assessed the loss at Rs. 60 lakhs. Therefore it claimed Rs. 60 lakhs towards damage to the stock in trade and Rs. 1 lakh towards the expenditure incurred while segregating the damaged paddy and Rs. 2 lakhs towards mental agony together with interest @ 24% p.a., and costs.
3) The insurance company resisted the case denying each and every allegation made in the complaint. However, it admitted that two policies were issued one covering the risk of building while the other for stocks of paddy, rice, broken rice etc. The amount covered under the policy was Rs. 85 lakhs. The loss or damage due to rain water was not covered under the terms and conditions of the policy. It put the complainant to strict proof that all precautionary measures were taken for covering the stocks with tarpaulin and that the water would not percolate inside causing damage to the stocks of paddy, rice etc. It also put the complainant to strict proof that there were continuous rains resulting in damage to the stocks. In fact the very complainant mentioned that it could know or aware that the damage was caused to the stocks of paddy, rice etc., when the FCI rejected the stocks delivered to them. The claim was made one month thereafter. On that it has appointed a surveyor who in turn submitted his report estimating the loss at Rs. 14,73,373/- while noting that the terms and conditions of the policy did not cover the loss or damage caused due to rain and spontaneous combustion. Therefore it repudiated the claim by letter Dt. 12.7.2007. The claim was purely speculative and that there was no deficiency in service on its part and therefore prayed for dismissal of the complaint with costs.
4) The complainant in proof of its case filed the affidavit evidence of its Managing Partner and got Exs. A1 to A11 marked, while the opposite party filed the affidavit evidence of RW1 Sri N. Narsaiah, Divisional Manager of the insurance company and RW2 Sri B. Mohan, Surveyor and got Ex. B1 survey report marked.
5) The points that arise for consideration are :
i) Whether there was any loss or damage caused to the stock in trade, paddy and rice etc. if so, to what amount?
ii) Whether the terms and conditions of the policy cover the loss or damage of stock in trade, paddy and rice etc. due to rains and ?spontaneous combustion?.?
iii) To what relief?
6) It is an undisputed fact that the complainant is a partnership firm doing business in rice mill, purchasing paddy, milling it, polishing the rice and delivering the fine rice to the Food Corporation of India (FCI) and exporting remaining rice to various dealers in Andhra Pradesh and other States. It stocks huge quantities of paddy and fine rice. Though it had taken two polices, the claim pertains to the policy towards stock in trade viz., paddy, rice, broken rice etc. for Rs. 85 lakhs valid from 13.12.2005 to 12.12.2006.
7) The complainant alleges that the paddy kept in the mill premises covered under tarpaulins. However the paddy was damaged due to heavy rains from 15.9.2006 to 22.9.2006. It milled the paddy and sent the rice to FCI they returned stating that the rice was discoloured and of poor quality and unfit for human consumption. Immediately the said fact was informed to the insurance company on 23.10.2006 on which it appointed Sri B. Mohan, a Surveyor.
8) The Surveyor in his report Ex. B1 stated that he visited the premises and found that 5,262 quintals of paddy was completely damaged and 4,530 quintals of paddy was partially affected and assessed the net loss at Rs. 14,73,373/-. He enquired with MRO, Kamalapur, and took rain fall details and found that from 15.9.2006 to 22.9.2006, there was rain fall of 395.4 mm in those eight days.
He noted ?When the rain water entered into the paddy bags and the paddy in bulk, the paddy grain got drenched, soaked in rain water and size of the grain is increased thereby increasing the volume of the paddy bags. These paddy bags were stacked one on the other in two to three rows on four sides and in the middle the paddy was stored in bulk. When these bags are soaked in rain water, the volume of the bags increased and so was the volume of the middle heap of bulk paddy. But there was a limitation to this expansion of the paddy in bags to the congestion resulted in friction between the paddy grains and this resulted in enormous heat developed from within the bags.
So was the case with the paddy in bulk. This paddy got soaked in rainwater and volume of this heap has gone up. But the heap was surrounded on all four sides with rows of paddy bags and increase in volume of the bulk was contained resulting in congestion within the paddy. Again this congestion between the grains caused friction among the grains and this friction caused heat developed from within the heap. The paddy bags and bulk paddy was covered by tarpaulins and were tightly tied up with nylon ropes. Due to this reason, there was no ventilation and there was no possibility of dissipation of heat to other areas. The heat generated in the bags and bulk paddy remained within the paddy thus burning the bulk paddy and paddy bags from within.
As is observed during the survey, the paddy remained beneath the covered tarpaulins, which are tightly tied up with nylon ropes. For about one week, there were incessant rains. There paddy bags and bulk paddy was kept in open on the platforms and there was no electricity power connected to this paddy. No fire was observed outside to cause fire damages to this paddy. But the paddy was found damaged due to heat and rainwater. There was no possibility of outside heat reaching the paddy, which is covered by tarpaulins.
Finally he observed that all these circumstances suggest that the paddy stacked in bags and stored in bulk was damaged due to heat originated within the paddy as a result of rainwater. As already explained above, the heat has originated from within the paddy when soaked in rainwater and therefore the process can be termed as ?Spontaneous Combustion? secondary to rainwater damage. ?
Though the surveyor has confirmed the loss due to rain water opined that the policy does not cover the risk and therefore the complainant was not entitled to the claim.
9) The policy is marked as Ex. A2. It is a Standard Fire and Special Perils Policy (Material Damage). It covers the risk of fire, lightning, explosion/implosion, air-craft damage, riot, strike and malicious damage, storm, cyclone, typhoon, tempest, hurricane, tornado, flood and inundation, impact damage, subsidence and landslide including rock slide. Bush fire. Clause-VI is applicable to the instant case. It reads as follows :
VI. Storm, cyclone, typhoon, tempest, hurricane, tarnado, flood and inundation:
Loss, destruction or damage directly caused by Storm, cyclone, typhoon, tempest, hurricane, tarnado, flood and inundation excluding those resulting from earthquake, volcanic eruption or other convulsions of nature. (Whatever earthquake cover is given as an ?add on cover? the words ?excluding those resulting from earthquake volcanic eruption or other convulsions of nature? shall stand deleted).
The complainant did not allege that there was cyclone or flood and inundation. Even according to the complainant the damage was caused due to seepage of rain water. In that case the complainant was not entitled to the claim under the said policy. Apart from it, the complainant also alleges obviously taking cue from the report of the Surveyor wherein it was mentioned that heat was developed within the paddy which is technically termed as ?Spontaneous Combustion? and therefore the cause of loss is covered by the policy. It is curious to note that though the stock was damaged the complainant had milled a part of paddy sent it to FCI and when the stock was rejected on the ground that it was discoloured and of poor quality it claimed the amount with the insurance company. It was intimated to the insurance company after 30 days. In other words for the damage caused to the paddy between 15.9.2006 and 22.9.2006 intimation was given on 23.10.2006 that too when the F.C.I. rejected the stock on the ground that it was damaged.
The surveyor has categorically noted that the paddy bags were covered by tarpaulins to avoid damage by rain. According to the insured there were heavy rains from
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15.9.2006 to 22.9.2006. Heavy rains damaged the tarpaulins, and they were cut and torn at places. To avoid further rain damage, the owners restored the tarpaulins and covered the stacks of paddy. He noted that the rainwater entered into the paddy bags and damaged paddy stored in bulk in the middle of the stack. Stocks of paddy got drenched in the water. But these damages were not noticed immediately by the assured. It was only when the rains completely stopped and some of the paddy was milled, the rice was found decoloured. This consignment of rice was rejected by the FCI and the insured then removed all the tarpaulins covered over the paddy stacks and found that the paddy was badly damaged due to rain water. It is unfortunate that though it took insurance policy for the stock, it did not take policy for the damage caused by rain. It cannot be equated to tempest, cyclone, floods and other eventualities. The complainant ought to have retrieved the these bags immediately after the rains were abated. There was negligence on its part. At any rate, since the policy does not cover the risk, the complainant was not entitled to any compensation. 10) In the result the complaint is dismissed, however no costs.