w w w . L a w y e r S e r v i c e s . i n

M/s. Murli Agro Products Ltd. v/s M/s. Oriental Insurance Co. Ltd.


    Decided On, 10 December 2004

    At, National Consumer Disputes Redressal Commission NCDRC

    By, MEMBER

    For the Complainant : Mr. Arun Khosla, Advocate. For the Opp. Party : Mr. S.M.Tripathi & Mr. Kishore Rawat, Advocates.

Judgment Text

M.B. Shah, J., President

The question which requires decision in this complaint is whether coverage under the insurance policy for the peril of ‘its own fermentation, natural heating or spontaneous combustion’ stands excluded if there is no flame or fire?

Admittedly the complainant took the insurance policy for a sum of Rs.7 crores by paying a premium of Rs.1,78,054/- for the stock stored in the godowns, namely, ‘stock of all kinds of soya seeds’/DOC/DORB.

In addition, Item 8 of the policy provides for properties required to be insured – specifically, inter alia, covers spontaneous combustion. The said term is quoted above:

“Building construction warranty, agreed bank clause, spontaneous combustion warranty, earthquake warranty, godown warranty, ‘C’ & ‘D” as per form attached h/w. The Insurance under this policy is subject to warranties and clauses (as per forms attached) and extended to cover risks (as per forms attached). The total sum assured Rs.7 crores only on item(s) above bearing No. 4 only.”

The slip attached to the policy provides as under:


In consideration of the payment by the Insured to the Company of additional premium of Rs._____ the Company agrees notwithstanding what is stated in the printed Exclusion of this policy shall extend to include loss or damage by fire only of or to the property insured caused by its own fermentation, natural heating or spontaneous Combustion.”

N.B.: The expression ‘by fire only’ in the endorsement

above must not be omitted under circumstances.”

From a bare reading of the aforesaid term, it is apparent that it is vague.

Further, relevant part of the insurance contract is as under:


In consideration of the Insured named in the schedule hereto having paid to “THE ORIENTAL INSURANCE COMPANY LIMITED (hereinafter called the Company) the premium mentioned in the said schedule, THE COMPANY AGREES, (subject to the Conditions and Exclusions contained herein or endorsed or otherwise expressed hereon) that if after payment of the premium the property insured described in the sale schedule or any part of such Property, be destroyed or damaged by :-

1. Fire

2. Lighting

3. “Explosion/Implosion but excluding Loss or damage:

(a). To boilers (other than domestic boilers) economizers or other vessels, machinery or apparatus in which steam is generated or their contents resulting from their own explosion/implosion.

(b). Caused by centrifugal forces.

4. Impact by any Rail/Road vehicle or animal.

5. Aircraft and other aerial and/or space devices and/or articles dropped there from, excluding destruction or damage occasioned by pressure waves caused by devices.

6. Riot, strike Malicious and terrorise Damages as per clause printed hereon during the period of insurance named in the said schedule or of any subsequent period in respect of which the insured shall have paid and the Company shall have accepted the premium required for the renewal of the policy, the company will pay to the insured the value of the property at the time of the happening of its destruction or the amount of such damage or as its option reinstate or replace such property or any part thereof.

PROVIDED that the liability of the Company shall in no case exceed in respect of each item the sum expressed in the said schedule to be insurance thereon or in the whole the total sum insured hereby, or such other sums or sums as may be substituted there for by memorandum hereon of attached hereto signed by or on behalf of the company.


This insurance does not cover

(a). The first Rs.2,500/- of each and every loss in respect which the insured indemnified by this policy. This exercise is applicable per event per insured.

(b). Loss by theft during or after the occurrence of any insured peril except as provided for in Riot, Strike and Malicious Damage Clause.

(c). Loss or damage to property occasioned by its own termination natural heating or spontaneous combustion or by its undergoing any heating or drying process.

(d). Loss or damage occasioned by or through or in consequence of

(i) The burning of property or order of any Public Authority

(ii) Subterranean Fire

(e). Loss or damage directly or indirect caused by or arising from or in consequence of or contributed to by nuclear weapons material.

(f). Loss or damage directly or indirectly caused by or arising from or in consequence of or contributed to by ionizing radiations or contaminations by radio activity from any nuclear fuel or from any nuclear waste from the combustion of nuclear fuel. For the purpose of this Exclusion only, combustion shall include as self sustaining process of nuclear fission.

(g). Loss of/or damage to any electrical machine, apparatus, fixture or fitting (including electric fans, electric household or domestic appliance, Wireless sets, television sets and radios) or to any portion of the electrical installation arising from or accessioned by over running excessive pressure, short circuiting, arcing, self heating or leakage of electricity from what ever cause (lighting included, provided that this exemption shall apply to the particular electrical machine apparatus, fixtures, fittings, or portion of the electrical installation so affected and not to other machines, apparatus, fixtures, fittings or portion of the electrical installation which may be destroyed or damaged by fire so set up.

(h). Any loss or damage occasioned by or thought or in consequence directly or indirectly of any of the following occurrence namely.

(i). Earthquake, Volcanic Eruption or other convulsions of nature,

(ii). Typhoon, Hurricane, Tornado, Cyclone or other atmospheric disturbance, Flood and inundation.

(iii). War, invasion, act of foreign enemy, hostilities or warlike operations (whether war be declared or not) Civil War.

(iv). Mutiny, Civil commotion assuming the proportions of or amounting to a popular rising military rising, insurrection, rebellion, revolution, military or usurped power.

(v). Acts of Terrorism committed by a person or person acting on behalf of or in connection with any organization. For the purpose of this exclusion Terrorism means use of violence for political ends and includes, any use of violence for the purpose of putting the public or any section of the public in fear.

(vi). Burning, whether accidental or otherwise, forest, bush and jungles and the clearing of lands by fire.

In any action suit or other proceeding where the Company alleges that by reason of the provisions of the above Exclusions any loss or damages is not covered by this insurance, the burden of proving that such loss or damage is covered shall be upon the insured.

(i) Unless otherwise expressly stated in the policy, loss or damage to

(i). Goods held in trust or on commission

(ii). Bullion or unset precious stones

(iii). Any curios or work of art for an amount exceeding Rs.2500/-

(iv). Manuscripts, plans, drawings or designs or designs, patterns, models or moulds.

(v). Securities, obligations or documents of any kind, stamps coins or paper money, cheques, books of accounts or other business books, computer system record.

(vi). Explosives.

(j). Property insured if removed to any building or place other than in which it is herein stated to be insured except Machinery & Equipments temporarily removed for repairs, cleaning renovation or other similar purposes for a period not exceeding 60 days.”

From the aforesaid terms of the policy even though the policy is named as ‘fire policy’, it is not restricted only to the damage caused by fire. It covers various perils as mentioned in Item Nos. 1 to 6. The said insurance coverage, in short, is for damage to the property by (i) fire; (ii) lightening; (iii) explosion; (iv) impact by any rail, road vehicle or animal; (v) dropping of any aerial article’ (vi) riot, strike, etc.

Thereafter, there are exhaustive exclusion clauses (a) to (j). We are concerned only with Clause (c) which provides that insurance does not cover loss or damage to property occasioned by (i) natural heating or (ii) spontaneous combustion, or (iii) by its undergoing any heating or drying process.

At the time of hearing of this matter, learned counsel for the complainants submitted that the issue involved does not require much consideration as it is concluded by the decisions rendered by this Commission in the cases of (i) M/s.Roshanlal Oil Mills Ltd. Vs. M/s. United India Insurance Co. Ltd. – 1(1992) CPJ 2939(NC) and (ii) Saraya Sugar Mills Ltd. Vs. United India Insurance Co. Ltd. – II(1996) CPJ 6 (NC).

In the case of Saraya Sugar Mills, after considering the similar terms of the policy, this Commission arrived at the conclusion that if fire was required for giving the insurance coverage, then there was no necessity of taking an additional premium for spontaneous combustion.

The relevant part of discussion is as under:

“We have heard the parties and gone through the records. The relevant facts are not in dispute. The molasses of the complainant in Tank No.1 were burnt and solidised due to auto heating and spontaneous combustion. The Insurance Company’s case is that as there was no fire due to spontaneous combustion therefore the loss was not covered under the policy. Thus the fate of the case entirely hangs upon the definition of “combustion, spontaneous combustion and fire”. The definition of combustion and spontaneous combustion was considered by this Commission in M/s. Roshanlal Oil Mills Ltd. Vs. M/s. United India Insurance Co. Ltd., 1(1992)CPJ 293(NC). It was observed:

“In scientific literature combustion is defined as under:

‘The burning of any substance, whether it be gaseous, liquid or solid. In combustion, a fuel is oxidized evolving heat and often light….’

The combustion of solids such as coal and wood occurs in stages. First, volatile matter is driven out of the solid by thermal decomposition of the fuel and burns in the air. At usual combustion temperature, the burning of the hot, solid residue is controlled by the rate at which oxygen of the air diffuses to its surface….(Mc-Graw Hill Encyclopaedia of Science & Technology, New York, Vol.3 1982).

Another test defines combustion as under:

“The term combustion signifies the process of burning associated generally with fire, flame, the generation of heat, and certain products of reaction’. (Encyclopaedia Dictionary of Physics Chief Editor Thewlis, Pergamon Press, Oxford, 1961)”.

As noticed above, the case of the insurance company is that auto combustion/spontaneous combustion did not cause fire. Therefore, the loss is not covered under the policy. ‘Fire’ had been defined in Chambers 20th Century Dictionary as follows :

“the heat and light of burning : a mass of burning matter, as of fuel in a grate : flame or incandescence : a conflagration : firing : fuel : a heating apparatus : heat or light due to other causes than burning.”

In the Concise Oxford Dictionary the meaning of ‘fire’ has been given as follows:

“Active principle operative in combustion in which substances join chemically with oxygen in air and usu. give out bright light and heat; flame, incandescence.”

From the above definition of fire given in the two dictionaries, it is clear that fire need not necessarily be accompanied by flame. Fire is a form of heat energy which cause smouldering, burning, heating, melting and perhaps some few more words.

The complainant wrote a letter dated 6th February 1991 to the opposite party stating:

“We would like to inform you that molasses season 1990-91 stored in covered Pucca Tank No.1 is overflowing due to high temperature and excess foaming in spite of taking best precautions.”

A Telegram was sent by the complainant to Excise Commissioner and Controller of Molasses, U.P. and Collector, Central Excise, Allahabad and its copy was also sent to the opposite party. The telegram reads as follows:

“Temperature of Molasses Tank Number One reached eighty five degree centigrade despite all efforts of cooling and controlling it () Auto combustion appears to have started”

This telegram was followed by the complainant by means of letter dated February 12/15,1991 addressed to the Excise Commissioner & Controller of Molasses, U.P., Allahabad and its copy was sent to opposite party. Thus the case of the complainant is that temperature of the molasses tank had risen due to auto combustion by which the molasses stored in Tank No.1 was burnt and solidised. While repudiating the claim the opposite party attributed the damage to spontaneous combustion without fire. From the definitions of terms ‘combustion’ and ‘spontaneous combustion’ and the dictionary meaning of “Fire”, it would only be natural to presume that the damage to the stock of molasses has been caused by fire arising from spontaneous combustion.

The complainant has paid additional premium at the rate of 0.25 per thousand for spontaneous combustion over and above the basic rate. If the basic rate for the damage by fire simpliciter covered the risk there was no precise purpose of charging additional premium for spontaneous combustion. As remarked in Roshan Lal’s case (supra) by this Commission if the contention of the insurance company is to be accepted it would mean that the risk ‘spontaneous combustion’ is merely tautological inasmuch as it already falls under ‘Fire’ for which basic premium has been prescribed. We have not been able to understand why the additional premium for ‘spontaneous combustion’ was charged if the loss was payable only if it leads to fire.”

Against that judgement, Civil Appeal No.15376 of 1996 was filed before the Supreme Court. That appeal was dismissed on 17th February 1997.

In Roshan Lal Oil Mills Ltd. Vs. M/s. United India Insurance Co. Ltd., I(1992) CPJ 293 (NC) this Commission has also observed:

“We may, further, observe that if it was the intention to exclude damage by spontaneous combustion in the pre-ignition stage i.e. combustion without fire as contended by the Respondent, this ought to have been stated much more clearly and directly. In any case, it has already been observed that the language used in the insurance policy is unqualified and the rejection of the insurance claim by the respondent was not justified in terms of the insurance policy”.

Similar views are taken by the State Commissions.

It is to be stated that against the judgment rendered by this Commission in Roshanlal Oil Mills Ltd. the Insurance Company has preferred an appeal before the Supreme Court. The Apex Court has allowed the same and remanded to this Commission for fresh hearing in accordance with law, in the light of the observations made in previously, the said observation deals with only non-consideration of the Surveyor’s report. [(Re. M/s. United India Insurance Co. Ltd Vs. Roshanlal Oil Mills Ltd. (2000) 10 SCC 19].

Hence, we have to decide as to whether there is any justifiable ground for taking a different view?

For the reasons stated hereinafter we are not inclined to take any different view:

(a) Firstly, undisputedly, if the damage to the property is because of the ‘fire, for any reason’, there is insurance coverage. The exclusion clause does not provide that loss or damage caused by fire on account of ‘spontaneous combustion’ is excluded. Reading the term as it is, it can be held that what is excluded is loss or damage caused by spontaneous combustion which may or may not cause fire or flame.

(b) Secondly, for the peril which is excluded, namely, the spontaneous combustion, insurance coverage is given, i.e. to say, if the insured property is destroyed or damaged by spontaneous combustion the Insurance Company is liable to pay to the insured the value of the property. Therefore, it can be stated that it is agreed that insurance coverage is given for spontaneous combustion which could be Item 7, as per the policy which covers damage by such items namely fire, lighting, explosion, etc.

(c). Thirdly, recovery of additional premium indicates the nature of the contract that subsists between the parties. That contract cannot be of giving insurance coverage only in case of damage by fire. If that contention is accepted, the object and purpose of payment of additional premium is frustrated. Recovery of additional premium indicates acceptance of risk by the Insurance Company for the perils contemplated. This aspect, to some extent, is discussed while considering the premium in general in Halsbury’s Laws of England, Vol.25 (fourth edition), pr.440, wherein it has been, inter alia, observed:

“…..In making their assessment insurers normally work on the basis of an average of their previous experience of comparable risks, increasing or perhaps reducing the figure according to their estimate as to whether the graph of the risk is tending or likely to rise or fall. The rate of premium in fact charged may give rise to important inferences. The materiality of a representation which has been made may be inferred from a reduced rate of premium being charged. Similarly, ignorance on the part of the insurers of some matter supposed to be well known may be inferred if they charge no more than the ordinary rate of premium, while an exceptionally high rate of premium may be indicative of their acceptance of the risk as hazardous without requiring disclosure of the precise facts making it so.”

In the case of Hanil Era Textiles Ltd. Vs. Oriental Insurance Co. Ltd. & Ors. (2001) 1 SCC 269, the Apex Court has referred the aforesaid paragraph from the Halsbury’s Laws of England and has, inter alia, observed that when the premium is thus demanded and collected at a higher rate, it is an indication regarding the nature of the contract that subsists between the parties, namely, that the insurer was aware of the higher risks involved.

(d) Fourthly, if the contract is vague, the intention of the contracting parties is to be gathered from the surrounding circumstances or the nature of the contract. In the present case, considering nature of contract it is clear that additional premium was taken from the insured so as to cover loss or damage to the property by spontaneous combustion. Therefore, also, Insurance Company is liable to pay the damage suffered by the Complainant because of ‘spontaneous combustion’.

Therefore, acceptance of additional premium for spontaneous combustion leaves no doubt that insured accepted to cover the said risk. Otherwise, there was no necessity for taking additional premium.

As against this, the learned Counsel appearing for the Insurance Company vehemently contended that as there was no fire for flame, the Insurance Company is not liable to reimburse the damages. For this purpose, he has also relied upon the slip attached to the policy and also referred to the law of insurance by Raoul Colinvaux wherein the author has stated that:

“An insurance policy is a mercantile contract, and the words used in it must be given their plain meaning unless the surrounding circumstances or the nature of the contract make a special construction necessary. Thus, the word ‘fire,’ in contracts of fire insurance, is taken in its ordinary signification. It is not confined to any technical and restricted meaning, which might be applied to it on a scientific analysis of its nature and properties, nor should it receive that general and extended meaning which, by a kind of figure of speech, is sometimes applied to the term, but it should be construed in its ordinary popular sense.

Actual ignition necessary. So unless there be actual ignition, and the loss be proximately caused by such ignition, the insurers are not liable; for example, where sugar was spoilt by great heat, through a register in the chimney being closed, but where there was no actual ignition, it was held that the assured could not recover.”

He also referred to the insurance law by John H. Magee (Revised Edition) wherein the author has stated that for fire policy ‘there must be some evidence in addition, that there was a flame or glow’. Author has referred to earlier decision wherein it is observed that combustion or spontaneous combustion may be so rapid as to produce fire but until it does so, combustion cannot be said to be fire. He also referred to Fire Insurance Law by Herbert Taylor wherein the author has observed that

“The meaning of the word ‘Fire’ for purposes of a policy may be limited by the contract, and the wording chosen by the parties must always be considered in order to ascertain their intentions.

Fire occurs only when there is ignition: spontaneous fermentation or heating without ignition is not a fire. The policy wording, however, usually excludes fire due to spontaneous fermentation or heating of the property actually destroyed or damaged, although it covers any such fire which spreads to any other insured property. Similarly, it expressly excludes the destruction of, or damage to, property by fire caused by it undergoing any process involving the application of heat.”

The aforesaid principles laid down by the English Courts would have no bearing to the policy in question. The policy, in the present case, is not a simplicitor ‘fire policy’, but a comprehensive policy covering various perils including fire. By taking additional premium, risk by one part of the exclusion clause is given insurance coverage, namely, for loss caused by ‘its own fermentation, natural heating or spontaneous combustion’. The result is damage due to above causes is given insurance coverage. Therefore, if the insured property is damaged by natural heating, the insurance company is bound to pay the loss suffered by the assured. In this view of the matter, we are not required to consider further scientific or chemical meaning of the word “Fire” and or “Spontaneous Combustion”, which, inter alia, in simple words provides that in some articles even at the ambient temperature oxidization process may start and lead to spontaneous heating.

Learned Counsel for the Insurance Company heavily relied upon the slip attached to the policy covering spontaneous combustion and submitted that as per the term even for spontaneous combustion there should be fire.


In consideration of the payment by the Insured to the Company of additional premium of Rs._____ the Company agrees notwithstanding what is stated in the printed Exclusion of this policy shall extend to include loss or damage by fire only of or to the property insured caused by its own fermentation, natural heating or spontaneous Combustion.”

N.B.: The expression ‘by fire only’ in the endorsement

above must not be omitted under circumstances.”

Firstly, it is to be stated that under Item No.8 of the policy spontaneous combustion is covered for which additional premium is recovered. Secondly, the aforesaid terms is apparently vague. It provides that for consideration of additional premium the Company agrees –

“notwithstanding what is stated in the printed exclusion of this policy shall extend to include loss or damage by fire only of or to the property insured caused by its own fermentation, natural heating or spontaneous combustion.”

By a bare reading of this clause, it would be difficult to conclude that what it exactly conveys. It is required to read down as –

‘this policy shall extend to include loss or damage by fire only’, or

‘loss or damage to the property insured caused by its own fermentation, natural heating or spontaneous combustion’.

In any case, if it was intended to cover only loss or damage by fire, there is no question of taking additional premium, because the first part of the policy itself provides that it gives coverage by loss or damage by fire.

Further, it makes it clear that there is insurance coverage in case of damage caused by its own fermentation, natural heating or spontaneous combustion.

Therefore, this condition apart from fire covers damage caused by the aforesaid three causes. In the report submitted by the surveyor, he has quoted the opinion given by National Chemical Laboratory (Council of Scientific and Industrial Research), which, inter alia, provides that the damage was caused by natural heating. The relevant part of the report is as under:

“Now after careful consideration of weather conditions on March 17, 1997 at 12.30 p.m. it is concluded the main cause of damage is temperature due to the sum which burn the soya seed contained in Galvanized iron corrugated (GIC) silo. Due to high temperature at day time the soya material most have absorbed heat and transferred towards central portion. Thus creating high temperature at the middle portion of silo which could burn the volatile oil content of soya seeds.

After considering all the data on damaged seeds and fresh seeds it is the rise in temperature of silo has damaged the seeds which have turned black with loss in oil content”.

Further, it is settled law that contract of insurance is based upon good faith. It is the duty of the insurers and their agents to disclose all material facts within their knowledge since obligation of good faith applies to them equally with the assured [(Re. M/s. United India Insurance Co. Ltd Vs. M.K.J. Corporation, (1996) 6 SCC 428)]. If the insurance coverage was not extended even by taking additional premium for the damage caused by spontaneous combustion/natural heating which may not result in fire, it ought to have been clearly stated.

Secondly, if the contract is vague, benefit should be given to the insured. The exclusion term of the insurance policy must be read down so as to serve the main purpose of the policy that is to indemnify the damage caused due to fire. [(B.V.Nagaraju Vs. M/s. Oriental Insurance Co. Ltd.) (1996) 4 SCC 648)].

Finally, it is to state that it is high time for the Insurance Company to have terms clearly defined in the insurance policy with a reasonable clarity and not to continue with the old forms which terms are vague.

In view of the above discussion, we hold the Insurance Company deficient in service and is liable to pay damages suffered by the Complainant.

Quantum of Damages:

The Complainant has claimed a compensation of Rs.28,70,747 together with interest at the rate of 18% p.a. from 17.6.1997 till its realisation with costs.

This claim is supported by Surveyor’s report and there is no other evidence. The loss assessed by the Surveyors of the Insurance Company is as under:

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r /> Loss: The insured’s loss, being the value of badly damaged Yellow Soay seeds weighing 266.503 mt. (Rs.33,44,612/65) and of partially damaged Yellow Soya seeds weighing 43.106 mt. (Rs.5,40,980/30) i.e. totally Rs.38,85,592.95 Less : Value of salvage Rs. 5,82,838.94 _________________ The Insured’s net loss Rs. 33,02,754.01 Less: Under insurance Rs. 4,29,496.87 _________________ The insured’s claim Rs. 28,73,257.14 Less: Deductible franchise Rs. 2,500.00 _________________ The Insured’s net claim Rs. 28,70,757.14 _________________ i.e. to say Rs. 28,70,757/- =============== The Surveyors have excluded, as per the insured’s contention, as under: 16.3:For considering the values at risk under the policy, the following have been excluded: The values of the following items have been excluded as per the insured’s contention that stocks in the “open” were not covered under their policy and that stocks of DOC were separately covered: Rs. Rs. Rape seeds (in open) 302.360 MT 12,200 36,88,792 Yellow DOC (in godown) 182.951 MT 10,200 18,66,100 Yellow DOC (in godown) 82.155 MT 8,200 6,73,671 ________ Total 62,28,563 _________ Hence, in this matter the loss assessed by the Surveyor could only be the basis for grant of damages suffered by the Complainant. In the result, the complaint is allowed. The Insurance Company is directed to pay the aforesaid amount of Rs.28,70,757/- to the Complainant with interest at the rate of 10% p.a. from two months from the date of the report of the surveyor, i.e. from 15.11.1998 till the date of payment. There shall be no order as to costs.