Utpal Kumar Bhattacharya, Member
Instant Complainant u/s 17(1)(a)(i) of the C P Act, 1986 has been filed by the Complainant praying for passing an order directing the OPs to pay to the complainant the principal claim, lump sum compensation and litigation cost of Rs. 38,17,904/-, Rs.40,00,000/-and Rs. 1,50,000/-respectively, total amount being Rs.79,67,904/-.
Succinctly put, the facts relevant with the instant complaint were that the Complainant, an SSI Unit incorporated under the provisions of the Companies Act, 1956, obtained financial assistance from the OP No. 2 Bank for setting up his industrial unit. The OP No. 2 Bank was fully aware of the valuation of the assets of the unit like entire building, plant and machineries and the stock which were kept on mortgage with it. It also ensured security to its loan insisting the complainant on insuring his assets with the OP No. 1, its own subsidiary unit.
The Complainant obtained two policies from the OP No. 1 Insurance Company. The first one was the Fire Insurance Policy insuring the component like plant and machineries, building and stock with sums insured for the said components as Rs. 1,00,000,00/-, 50,00,000/-and Rs. 1,00,00,000/-, total sum assured being Rs. 2,50,00,000/-. Said policy was renewed for the year 07/12/2013 to 06/12/2014 on payment of a premium for an amount of Rs. 70, 225/-. The Insurance Policy ran uninterrupted since 23/09/2009.
There was one burglary policy also for a sum of Rs. 2, 00,00,000/-upon payment of a premium for an amount of Rs. 7,864/- only.
There was an incident of fire in the company on 01/03/2014 at 4-45 AM. The said incident of fire which caused substantial damage to the insured assets as above was reported to all concerned like Police Authority, Insurance Company, Bank, BDO, Panchayat Pradhan, WBSEDCL and Fire Brigade. The fire was ultimately brought under control by the Fire Brigade which, through its report dated 17/04/2014, corroborated the incident.
The Complainant submitted a claim of Rs. 1,59,54,000/- which included losses in money value in respect of Stocks, Plant and Machineries and Building to the extent of Rs. 79,54,000/-, 45,00,000/-and Rs. 35,00,000/-respectively. Incidentally, this was the first claim submitted for reimbursement by the complainant since initiation of the policy.
The surveyor appointed by the OP Insurance Company assessed a loss of Rs. 87,79,005/-which included losses on account of stock, building and plant and machineries. A net loss for an amount of Rs. 49, 71, 573/- ,however, was assessed by the said surveyor after deducting amounts on account of underinsurances in respect of the building, plant and machineries.
The OP No. 1 Insurance Company ultimately paid the complainant an amount of Rs. 49,61,101/- only which the complainant had to accept under compelling circumstances. The aggrieved complainant, realizing the fact that there had been an undue deduction of Rs. 38,17,904/-from the loss of Rs. 87, 79, 005/-as assessed by the surveyor engaged by the OP No. 1 Company, filed the Complaint Case before this Commission.
Heard Ld. Advocates appearing on behalf of both sides.
The Ld. Advocate appearing on behalf of the Complainant was more vocal about the deficiency of the OP No. 2 Bank which had played at a time the roles of Financier, partner of the OP No. 1 Insurance Company and intermediary. He elaborated in detail the loss sustained by the complainant and assessment of the same by the surveyor engaged by the OP No. 1 Insurance Company.
The Ld. Advocate vehemently objected the arbitrary deductions on account of under insurances in respect of the buildings, plant and machineries as were made based on recommendations of the surveyor who, as stated, not being a Civil Engineer was not supposed to have sufficient knowledge regarding application of a definite yardstick for assessing the valuation of the assets with expected accuracy.
The Ld. Advocate critically analyzed the role of the OP No. 2 who, as pointed out in the case record, was a partner of the OP No 1 Insurance Company and under whose persuasion, the complainant was convinced to insure all its assets and stock with the OP No 1 Insurance Company. Moreover, as he continued, the OP No. 2 Bank, as financier of the loan in favour of the Complainant for setting up its SSI Units, secured the loan receiving under mortgage the entire stock and assets of the Unit. Expectedly, he was having a thorough knowledge about the valuation of the entire property and its enhancement and diminution with the passage of time.
Further, as the Ld. Advocate continued, the Complainant was not supposed to have any idea about the anticipated increase or decrease of the property valuation which, as appeared from para-5 of the complaint, the OP No. 1 was conversant of. OP No. 1 had also admitted while giving replies to question Nos 2 and 3, put to it by the complainant, that it used to deduct premiums against policies from the Account of the complainant being maintained with the OP No. 2 Bank through EFT payment. It was, as continued further, clear that the OP No. 1 had made an intentional lapse by not deducting the policy premium, proportionate to property valuation and was trying to shift their liabilities upon the Complainant.
As submitted, the interest of his client was seriously prejudiced by being deprived of a huge and genuine claim of Rs. 38,17,904/-for a paltry amount of enhanced premium which the OPs could have easily deducted, had there been any proven enhancement of property valuation, in the same manner as they had done on number of occasions earlier while collecting annual premiums against policies.
The Ld. Advocate informed that the amount of Rs. 49,61,101/- was received by the complainant under compelling circumstances as the company remained closed for long and the labour problem initiated due to such closure. That the amount was not received as a full and final settlement and the complainant reserved its right for further claim proportionate to the loss assessed by the surveyor engaged by the OP No. 1 would be evident from the running pages 80 and 81, the letter addressed to the OP No. 1 by the Complainant which, in the last line, indicated that the Complainant had received the said amount without prejudice to its rights and contentions in the matter.
The Ld. Advocate, in support of his contention, cited the decision of Hon’ble Supreme Court in Civil Appeal No. 3167 of 2017 [I C Sharma—Vs—Oriental Insurance Co. Ltd.] reported in I (2018) CPJ 6 (SC) wherein at para—8 of the order, the Hon’ble Supreme Court observed, “The only legal issue which arises for consideration is “what is under-insurance—and the effect thereof?”. Under-insurance basically means that the insured has taken out an insurance policy in which he has valued the insured items for a sum which is less than the actual value of the insured item. In a country like India this is normally done to pay a lesser premium. This is, in fact, harmful to the policy holder and not to the Insurance Company because even if the entire insured property is lost, the policy holder will only get the maximum sum for which the property has been insured and not a paisa more than the sum insured. To given an example, in case a person takes out the householder policy covering fire insurance and gives the value of the structure of his house and goods stored therein at Rs. 50,00,000/- even though the value of the same is Rs. 1,00,00,000/- then even if the entire house and goods are completely lost in a fire, he cannot get an amount above Rs. 50,00,000/- even though the value may be more.”
And at Para—9 in the said order the Hon’ble Apex Court further observed, “If all the insured goods are lost then there is no problem. The insured is entitled to the amount for which the goods were insured even if that be less than the actual value of the goods. In case a person gets a painting insured for Rs. 1,00,000/- through the value of the same is Rs.10,00,000/-, if the painting is lost the insured is entitled to Rs. 1,00,000/- only. If all the insured goods falling under one head are stolen or lost then the insurance company cannot apply the principle of averaging out because, though the loss may be Rs. 10,00,000/-, the claimant will get only one Rs. 1,00,000/- as per the value assessed and the insurance premium paid by him.”
The Ld. Advocate, with the above citation, submitted that the Hon’ble Apex Court, while elaborating the significance of underinsurance, clarified at para—9, the Insurance Company’s liability to pay the amount of assessed loss due to destruction of the insured property to the extent of sum assured recorded in the policy even if the insured property was of bigger value.
Ld. Advocate appearing on behalf of the OP, on the other hand, went straightway to the point of underinsurance which, according to him, was the only point of dispute.
Referring to clause No. 10 in “General Condition” of the policy, the Ld. Advocate continued that the said clause was not a new thing and it applied to all insurance policies.
The Ld. Advocate continued further that it is a settled principle of law that the surveyor’s report, being a vital document should be considered attaching due importance to it. On the instant occasion, as submitted, there was an underinsurance of 64.04% and 86.55% in respect of building and plant & machineries respectively.
Ld. Advocate referred to para -16 of the order of the Hon’ble Supreme Court in Civil Appeal No. 6527 of 2002 [Sikka Papers Ltd.—Vs.—National Insurance Co. Ltd. & ors] wherein the Hon’ble Apex Court was pleased to observe, “under-insurance occurs when the amount of insurance is less than the full value of property insured and means that the insured pays a smaller premium than that required as the rate is fixed on the basis of full values being insured. It leads to partial loss claims being scaled down by average (qv).”
The Hon’ble Apex Court in the said para explained the expression “average” as under.
“In non-marine property insurance if a sum insured is ‘subject to average’, and the sum insured is less than the value at risk at the time of loss, the claim will be reduced in the same proportion. The measure combats under-insurance.”
The Ld. advocate concluded praying for dismissal of the Appeal as, what was submitted, the part repudiation of the claim was made based on the above observation of the Hon,ble Apex Court.
Perused the papers on record and considered the submissions of the Ld. Advocates appearing on behalf of both sides.
As regards veracity of the incident, we refrain from raising any point in contradiction. The OP Insurance Company had already paid a part claim. Presumably, it had satisfied itself as to the criteria governing the sanction and payment of any claim. So, to make the long story short, we intend to restrict our discussion on underinsurance, the lone point governing the crux of the issue of part repudiation and the point as well on which the participating sides have their own ways to defend their respective interest.
The record revealed that the policy insuring the subject property was initiated as back as in the year 2009 and it ran uninterrupted till 01/03/2014, the date on which the incident of fire had occurred. It was not disputed that the insured Complainant should have divulged the valuation of the insured property before adopting the policy but, we were, at the same time , not in disagreement with the fact that the insurer OP should have verified the valuation of the property at the time of initiation of the policy and not have left the policy valuation unverified for a long period of almost five years.
Presumably, the policy sum insured was determined by the OP Insurance Company on verification, ascertaining and being satisfied with the valuation of the property. The OP Insurance Company had no authority to deny the said sum insured after ensuring un-objected coverage for so many years and that too, on mere conjecture of suppression of the actual valuation of the property which was treated with denial by the Complainant.
In this context, we place our reliance on the illuminating observation of the Hon’ble Supreme Court in Civil Appeal No. 1299 of 2019 [Sunil kumar Saha—Vs—Reliance General Insurance Company Ltd.] reported in 2019(1) CPR 344 (SC) wherein the Hon’ble national Commission was pleased to observe, “It is precisely in this set of facts that the question in the present matter arises. If both the sides, with their eyes open, had arrived at a particular figure to be the real value of the subject matter of insurance, is it open to any party to dispute said sum and contend that the real value was something different from what was declared by the parties to be the sum insured. One may understand cases where there is non-disclosure of material facts which may go to the root of the matter and as such the sanctity of the agreement itself may get affected. But if both the parties had agreed and arrived at an understanding, which understanding was otherwise not vitiated by any misrepresentation, fraud or coercion, the parties must be held bound by stipulation of such figure.”
It was peculiar that the Surveyor engaged by the OP Insurance Company had ascertained the loss less than the total claim submitted by the complainant and thereafter deducted further a considerable amount from the assessed loss on the ground of underinsurance which remained unnoticed for years and the policy was allowed to go on till the time it was pointed out in the survey report on physical verification of the property which had sustained a serious damage by the accidental fire. We are apprehensive lest a genuine claim gets disregarded by an assessment—imaginary and based on eye assessment—of a destroyed structure, plant and machineries.
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he role of Insurance Company also appeared to be untenable as it allowed to run an un-objected policy for years but preferred with promptitude to accept the recommendation of deduction of the assessed loss an amount for allegedly underinsurance which was never challenged or pointed out before. Their action threw light only to their effort to protect their own interest. Without denying the principle of attaching due importance to a survey report, the Bench takes the liberty to discard the instant survey report prepared based on apparently wrong conception. We are of the considered view that the report itself has sustained material irregularities that projects its demerits for acceptance. We, however, are unable to accept the claim of huge compensation of Rs. 40,00,000/- against a less payment of Rs 38,17,904/-and a cost of Rs. 1,50,000/-and feel those are to be reduced considerably and reasonably. Hence, ORDERED that the Appeal be and the same is allowed in part. The OP Insurance Company is hereby directed to pay to the complainant an amount of Rs. 38,17,904/-. It is further directed to pay to the complainant a compensation of Rs. 5,00,000/-and a litigation cost of Rs. 10,000/-. Entire amount has to be paid within a period of 45 days from the date of the instant order, failing which, simple interest @ 9% per annum shall accrue to Rs. 43,17,904/-being the total of the amounts of principal claim and compensation, from the date of default till the entire amount is fully realized.