A.V. COTTEX LIMITED vs THE ORIENTAL INSURANCE CO. LTD., & ANR.

This Consumer Complaint No.64 of 2006 has been filed by the complainant, A.V. Cottex Limited alleging deficiency on the part of opposite parties, Oriental Insurance Company Ltd.

The brief facts of the case are that the complainant had purchased a fire insurance policy effective from 20.04.2000 to 19.04.2001 and also purchased a loss on profit policy(in short LOP policy) under the cover note no.0109301 which was also effective from 20.04.2000 to 19.04.2001. On intervening night of 4 th /5 th May, 2000 a fire took place at the factory premises of the complainant which resulted in damage to all the stocks of raw material, semi-finished goods, finished goods, apart from the fixed assets including plant and machinery that were burnt. The total claim of the complainant was Rs.564.08 lakhs under both the policies which included Rs.150 lakhs for LOP policy. The opposite party admitted the claim for Rs.270.95 lakhs under the Fire policy and released a sum of Rs.264 lakhs after deducting the reinstatement premium but nothing was released in the LOP policy. The amount under Fire policy was released in the year 2002 in favour of the Bank and the financial institutions. The present complaint is to the tune of Rs.1,46,92,841/- in respect of the LOP policy. The opposite party appointed a surveyor who recommended payment of Rs.45,43,714/-. The complainant gave a consent letter for Rs.48,21,812/- on 24.6.2003. However, the claim was not settled by the opposite party. Hence, the consent letter was withdrawn vide letter dated 23.6.2006. The claim was repudiated vide OP''s letter dated 7.12.2006.

The OP insurance company has resisted the complaint by filing the written statement. The OP has repudiated the claim vide letter dated 7.12.2006 on three grounds. The first being the violation of the condition mentioned in the schedule of the policy that reinstatement of the property should be done within 12 months. The second ground taken by the OP is the violation of Condition No.3(b) of the policy.The third ground of repudiation has been taken to be the violation of Condition no.4(a) and 4(b) of the policy.

Complainant and Opposite Parties filed their affidavit evidence on 28.3.2007 and 21.2.2008 respectively.

Heard the learned counsel for both the parties and perused the record.

The learned counsel for the complainant stated that the claim under the fire policy was settled in the year 2002 by payment of Rs.2.64 crores to the complainant and therefore there was no question of reinstating the factory premises within the period of 12 months. In fact, the complainant made serious efforts for additional finance and approached many Banks/Finance Companies,however, as the previous loan amount was not paid by the insurance company under the fire policy, no banking institution came forward to lend fresh loan to the complainant. The delay in reinstating the factory premises was due to the delay in finalizing the claim under the fire policy by the OP. Hence, the claim of Loss of Profit (LOP) policy cannot be rejected on this basis. The counsel referred to the following judgement of this Commission to support his view.

Diamond Elastomers Pvt. Ltd. Vs. United India Insurance Co. Ltd. II (2006) CPJ 250 (NC) wherein the following has been held:-

"9. The aforesaid contention requires to be rejected because facts of the present case reveal that there was inordinate delay on the part of the Insurance Company in assessing and paying the loss suffered because of the fire which took place on 5.5.1988. Admittedly, due to fire the entire rented premises was gutted. Under the Fire Policies, Insurance Company appointed surveyors. They took considerable time and thereafter, only in April, 1991 the amount was paid to the complainant''s Bank and the Diamond International Private Limited for the damage to the building. It has been also pointed out that complainant imported plant and machinery as the same were completely destroyed. After the building was constructed and finance was made available, complainant commenced the business of trading in footwear. It is, therefore, submitted that before the building could be re-constructed, there was no question of purchasing plant and machinery which were required to be imported and this obviously could not be done within a period of one year.

Law and Practice on Consequential Loss Insurance, Halsbury''s Laws of England, Fourth Ed. Vol. 25 Insurance......Further, Paragraph 439 reads thus:

As a general principle, the onus is on the insurers to prove that a condition has been broken, not on the assured to prove compliance on his part with each and every Stipulation... Where the question is as to the Insurer''s liability under an admittedly effective policy, the rule as to the burden of proof is axiomatic in insurance law...."

The learned counsel for the complainant further pleaded that the insurance company appointed a surveyor to assess the claim under the LOP policy. The surveyor has recommended the claim for Rs.45,43,714/-, whereas the complainant had preferred the claim of Rs.1,46,92,841/-. The learned counsel for the complainant also stated that the surveyor assessed the loss under the LOP policy based on its calculation for 180 days whereas the full period of one year should have been taken for such assessment. However, the complainant even agreed to this assessment.The complainant earlier had given his consent letter for Rs.48,21,812/- on 24.6.2003, although it was withdrawn vide letter dated 23.6.2006. The learned counsel emphasized that it is not only the assessment but the surveyor had also recommended this amount under the policy. It also means that all aspects have been considered by the surveyor. The report of the surveyor is an important document and cannot be disbelieved or brushed aside. The following case has been cited to support the view:-

Sri. Venkateshwara Syndicate Vs. Oriental Insurance Company Limited And Another, (2009) 8 SCC 507 wherein Hon''ble Supreme Court has held that:-

"31. The assessment of loss, claim settlement and relevance of survey report depends on various factors. Whenever a loss is reported by the insured, a loss adjuster, popularly known as loss surveyor, is deputed who assess the loss and issues report known as surveyor report which forms the basis for consideration or otherwise of the claim. Surveyors are appointed under the statutory provisions and they are the link between the insurer and the insured when the question of settlement of loss or 17damage arises. The report of the surveyor could become the basis for settlement of a claim by the insurer in respect of the loss suffered by the insured.

There is no disputing the fact that the Surveyor/Surveyors are appointed by the insurance company under the provisions of Insurance Act and their reports are to be given due importance and one should have sufficient grounds not to agree with the assessment made by them."

The counsel emphasized that the report of the surveyor is dated 16.2.2005 and the surveyor has allowed the claim. It simply means that he was convinced on the issue of non-reinstatement of the factory premises. It was also informed by the learned counsel that the company became sick due to delay in payment of the claim under the fire policy and non-payment of the claim of the LOP policy. In fact, the complainant company went under BIFR on 4.6.2003 and remained under BIFR till 30.1.2006. Thus, it was not a sick unit when the fire broke out.

Coming to the Condition no.3(b) and 4 (a) and (b) of the policy, learned counsel stated that in connection with condition no.3(b),it was totally wrong to say that the complainant company did not make any effort to minimize the loss and reinstate the factory premises as quickly as possible. However, the same could not be done due to non-payment of the claim under the fire policy and non-availability of additional funds from the financial institutions. For the same reasons condition no.4 is also not applicable in the present case. The learned counsel further pointed out that only the cover note was supplied to the complainant. Terms and conditions were never supplied. Therefore, they are not binding on the complainant. He relied upon the following judgement in this regard:-

(i)New India Assurance Co. Ltd. Vs. Avadh Wood Products (Cold Storage), II (2013)CPJ10(NC) wherein this Commission has held that:-

"The fact that Respondent had taken two insurance policies to cover, (i) potato stocks, and (ii) building and machinery respectively are not in dispute. It is also an admitted fact that Appellant-Insurance Company issued only the cover note to the Respondent and the insurance policy specifying the detailed terms and conditions was not made available to the Respondent. This itself is a deficiency in service on the part of Appellant-Insurance Company. Further, since the cover note does not specify the actual terms and conditions governing the policy, we agree with the State Commission that the Appellant-Insurance Company could not have bound down the Respondent to provisions of the policy of which he was not made aware. The National Commission has taken a similar view in the case of Oriental Insurance Co. Ltd. v. BrahmdeoPanjiyara, II (2012) CPJ 349 (NC) : decided on 14th of March, 2012, which is also relevant to this case. We, therefore, agree with the finding of the State Commission in this connection that the Appellant-Insurance Company was guilty of deficiency in service in not settling the Respondent''s insurance claim."

The learned counsel for the OP stated thatthe schedule of the LOP policy clearly mentions that LOP rate is calculated on the average Fire ''C'' policy sale subject to reinstatement of factory premises within 12 months as per the terms and conditions of the policy. Thus, it does not stipulate that reinstatement is to be made out of the funds of settlement of claim under the fire policy. The complainant has to do it independently. In fact, the complainant had no intention to reinstate the factory as the same was running in loss and finally went under BIFR.

The learned counsel further stated that condition no.3(b) and 4(a) and (b) are framed for settling the claim under this policy. Condition no.3 specifically provides that "no claim under this policy shall be payable unless the terms of this condition have been complied with and in the event of non compliance therewith in any respect, any payment on account of the claim made shall be repaid to the company forthwith.". From the facts available in the file and the report of the surveyor, it is clear that the complainant has not acted with due diligence so as to minimize the interruption period. In this regard, the learned counsel drew our attention towards letters of the surveyor dated 7.5.2000 and 8.6 .2000 and their repeated oral reminders cautioning that any delay in reinstating the process of production is viewed as a serious breach of policy condition. Even then no sincere and strenuous efforts were made by the complainant to restart the factory in the prescribed time. Perhaps this was so, because, enquiries revealed that the unit had already become unviable even prior to the fire although declared sick unit subsequently. The so called efforts made by the complainant by approaching the financial institutions were only a cover up so as to meet the requirements of condition no.3(b). The facts revealed that Condition no.4(a) has not been complied with because indemnity period as per the policy is 12 months from the date of fire i.e. 4 th May, 2000. Hence, it expiredon 3 rd May, 2001 and no reinstatement work was carried out till that time and even thereafter. Moreover, the liability under the material damage policy was admitted by us when ''On Account'' payment was made on 28.2.2002 and 3 months period thereafter expired on 28.5.2002 in terms of condition No.4(b). Once again complainant carried out no reinstatement and therefore the company is not liable in terms of Condition No.4 of the Policy of Insurance in question. Therefore, the complainant has clearly violated these conditions and they are not liable for any payment under this policy. The learned counsel further pointed out that the surveyor is appointed to assess the loss but his recommendation is not binding on the insurer and insurer has to consider overall circumstances of the case.

It was further pointed out by the learned counsel for the OP that the policy is a contract between the insured and the insurer based on the actual wordings mentioned in the policy. Therefore all the conditions mentioned in the policy are binding on the complainant and are necessary to be fulfilled for settlement of the claim. The learned counsel cited the following judgements in support of this view:-

Oriental Insurance Co. Ltd. Vs. Sony Cherian,II(1999)CPJ13 (NC)

"16. The insurance policy between the insurer and the insured represents a contract between the parties. Since the insurer undertakes to compensate the loss suffered by the insured on account of risks covered by the insurance policy, the terms of the agreement have to be strictly construed to determine the extent of liability of the insurer. The insured cannot claim anything more than what is covered by the insurance policy. That being so, the insured has also to act strictly in accordance with the statutory limitations or terms of the policy expressly set out therein."

United India Insurance Co. Ltd. Vs. HarchandralChandanlal, (2004) 8 SCC 644

"6. ....The terms of the policy have to be construed as it is and we cannot add or subtract something: Howsoever liberally we may construe the policy but we cannot take liberalism to the extent of substituting the words which are not intended.

...It is settled law that terms of the policy shall govern the contract between the parties, they have to abide by the definition given therein and all those expressions appearing in the policy should be interpreted with reference to the terms of policy and not with reference to the definition given in other laws. It is a matter of contract and in terms of the contract the relation of the parties shall abide and it is presumed that when the parties have entered into a contract of insurance with their eyes wide open, they cannot rely on definition given in other enactment.

Therefore, it is settled law that the terms of the contract has to be strictly read and natural meaning be given to it. No outside aid should be sought unless the meaning is ambiguous."

Oriental Insurance Co. Ltd. Vs. Samayanallur Primary Agricultural Co-op Bank,

"3. ...The insurance policy has to be construed having reference only to the stipulations contained in it and no artificial farfetched meaning could be given to the words appearing in it."

General Assurance Society Ltd. Vs.Chandmull Jain,[1966] 3SCR 500

"17. ...In interpreting documents relating to a contract of insurance, the duty of the court is to interpret the words in which the contract is expressed by the parties, because it is not for the court to make a new contract, however reasonable, if the parties have not made it themselves."

We have carefully gone through the material on record and have given a thoughtful consideration to the arguments advanced by the counsel for the parties. From the record it is seen that no proper claim form was submitted under the prescribed proforma for the loss under this policy, though only Claim Bill dated 22.5.2006 alongwith application was submitted on 22.5.2006. The items covered under the policy are as under:

Net Profit : Rs. 3,20,000/-

Depreciation : Rs.56,12,000/-

Interest : Rs.70,80,000/-

Outstanding Charges : Rs.40,00,000/-

Total :Rs.1,70,10,000/-

We find that the schedule to the policy clearly mentions that that LOP rate is calculated on the average Fire ''C'' policy sale subject to reinstatement of factory premises within 12 months as per the terms and conditions of the policy. The surveyor has assessed the loss of Rs.45,43,714/-. Even if we agree with the arguments of the learned counsel for the complainant that the complainant made sincere efforts to minimize the loss and reinstate the factory premises as quickly as possible, the fact remains that any claim under the policy was payable only if the factory was reinstated within 12 months of the incident of fire or within the extended time for the same. From the record it is seen that the complainant had applied for extension of this period of 12 months. The surveyor in his report has stated that as per reinstatement clause, reinstatement should be carried out in 12 months from the date of loss which is further extendable by another 12 months (in two instalments of six months each). The OP in the written statement has also mentioned that the complainant applied for a further extension of the reinstatement upto 31.12.2002 only. Thereafter no such request was made by the complainant to the OP for any further extension which proved their intention not to reinstate the factory and minimize the loss of profits. The OP has not stated clearly in the written statement whether the extension was allowed or not. However, even if we take the extension for further period of 12 as allowed, the reinstatement should have been done before 3.5.2002. On this point it is important to consider the condition no.3(b) and condition no.4 as well. These read as under:

"3. On the happening of any Damage in consequence of which a claim is or may be made under this Policy, the insured shall

(b) With due diligence do and concur in doing and permit to be done all things which may be reasonably practicable to minimize or check any interruption of or interference with the business or to avoid or diminish the loss."

"In no case whatsoever shall the Company be liable in respect of any claim under this Policy after the expiration of:

One year from the end of the period of indemnity or if later.

Three months from the date on which payment shall have been made or liability admitted by the insurers covering the Damage giving rise to the said claim, unless the claim is the subject of pending action or Arbitration."

From this condition No.4, it is seen that the policy was valid till 19.4.2001. If we take the payment under the fire policy on 28.2.2002 and after three months from this date, it becomes 28.5.2002. Thus, from both the clauses, the insurance company was right in not allowing the claim if the factory was not reinstated upto 28.5.2002.

So far as the judgement passed by this Commission in Diamond Elastomers Pvt. Ltd. Vs. United India Insurance Co. Ltd. (supra) is concerned, we find that in that case, the bonafides of the insured are evident from the fact that insured had taken steps to import the machinery to reinstate the factory and even the imported material had arrived. In the present case, we do not find that any such step was taken by the complainant in the direction of reinstating the factory. Therefore, the relaxation granted in the case Diamond Elastomers Pvt. Ltd. Vs. United India Insurance Co. Ltd. (supra) cannot be straight away taken to allow the same in the present case. This also proves violation of condition No.3(b).

We also subscribe to the view that the insurance policy is a contract between the insured and the insurer and its terms and conditions are to be considered as such in the same spirit in which they are written and agreed upon by the parties. From this point of view, parties are bound by the conditions no.3(b) and 4(a) and (b) and it is difficult for us to grant any exemption or relaxation from those conditions. From the above examination, it is clear that the complainant has violated the conditions of the policy and therefore, the claim is not payable. We are also of the view that it is difficult to believe that the complainant did not receive the terms and conditions of the policy, Being an industrial enterprise, the complainant may have asked for the full policy alongwith terms and conditions if it did not receive the same within the period of validity of the cover note. Hence contention of the complainant that terms and conditions were not received by the complainant is not acceptable.

Based on the above discussion, we are of the view that the complainant has not been able to establish its claim as the same is in violation of the conditions of the policy. Hence, the claim is not payable. Thus, the Consumer Complaint No.64 of 2006 stands dismissed with no order as to cost.