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Judgment
Subhash Chandra, Presiding Member;
This complaint under section 21 of the Consumer Protection Act, 1986 (in short, the ‘Act’) has been filed against the opposite party alleging deficiency in service in the repudiation of an insurance claim filed under a valid Standard Fire and Special Peril Insurance Policy (in short, the ‘Policy’). The complainant is the proprietor of Manasa Rice Mill, Kummaragunta, Venkatagiri, Nellore District, Andhra Pradesh and had obtained the policy from the opposite party for Rs 4.70 crores for the Rice Mill (including building, plant & machinery and stocks) in which stocks were claimed to have been damaged in a fire on 15.09.2012.
The facts, as per the complainant, are that he has been running a Rice Mill since 2007 with all statutory licenses, clearances and certifications. The mill also undertakes milling of paddy on behalf of the Andhra Pradesh Civil Supply Corporation which supplies the same to the Food Corporation of India (FCI). Large quantities of paddy belonging to farmers for custom milling are stored on its premises. During February-April 2012, 1684.304 MTs of paddy was received for milling for FCI. By 14.09.2012 321.459 metric tonnes was milled and 215.378 metric tonnes was delivered to FCI. At around 3.30 am on 15.09.2012 an accidental fire took place in the mill and paddy bags stored in the yard were completely burnt. The fire brigade was summoned and the fire extinguished. Police and revenue authorities were informed. The insurance company/opposite party was also intimated on 15.09.2012. The loss of paddy stocks destroyed including that belonging to Civil Supply Corporation was estimated as Rs 2.50 crores. A Loss Assessor and Surveyor was appointed by the opposite party and thereafter M/s Cunningham Lindsey International Pvt. Ltd. was appointed the Surveyor. The complainant filed a claim with the opposite party based on loss of 1200 metric tonnes of paddy of AP Civil Supply Department worth Rs 1,61,02,100/-, 817.1 metric tonnes of paddy of farmers worth Rs 1,09,00,000/- and gunny bags (26540 numbers) worth Rs 5,30,800/- aggregating to Rs 2,75,32,900/-. The claim was repudiated on 24.05.2013 on the basis of the Surveyor’s report which concluded that the cause of fire was not established, the burnt stock which was stored in an open yard was not pure paddy but comprised of husk and impurities and the goods burnt were held in trust or commission and therefore excluded under the policy. The complainant is before us with the prayer to “pass an award of Rs 2,75,32,900/- with interest and such other reliefs this Hon’ble Commission may be pleased to grant in the interest of justice and equity”.
The complaint was resisted by the opposite party by way of reply. It is contended that the complaint was not maintainable as no deficiency in service was shown against the opposite party. Records and documents relied upon by the complainant needed authentication. Opposite party had appointed a loss assessor/surveyor, A.C. Rami Reddy, who submitted a preliminary report dated 23.09.2012 after two inspections and M/s Cunningham Lindsey International Pvt. Ltd. who submitted their report on 06.03.2013 after inspections and recommended that the claim was not admissible. The finding of the Surveyor was that based upon the complainant’s assessment and the police investigation, the cause of the fire was not conclusive. The physical quantity of paddy available was only 208.25 tonnes against the claimed quantity of 2017.1 tonnes which is 10.33% of the claimed quantity. The surveyor had concluded that 90% burning of the paddy in gunny bags was not feasible. Quality analysis and testing by a laboratory viz., SGS India Pvt. Ltd., Chennai indicated that the sample contained more foreign matter than paddy. Testing was also undertaken by the Indian Institute of Crop Processing Technology, Thanjavur and only 46.8% paddy was found apart from husk. The material was also stored in the open which rendered it ineligible for indemnification under the policy since only stocks in ‘premises’ were covered and therefore paddy stored in open yard was excluded. It was also stated that the paddy stock of the AP Civil Supply Department was goods held in trust/commission and therefore not covered under the policy, that proper records were not produced and that the buildings were not of kutcha construction. The complaint was therefore stated to be baseless.
Parties filed their rejoinder and led their evidence on affidavit and filed their short synopsis of arguments. I have heard both the learned counsels for the parties and perused the records carefully.
The complainant has averred that the cause of action arose when the fire broke out on 15.09.2012 and a fire claim was filed on 09.10.2012. According to the claim form, paddy destroyed was mentioned as 1200 plus 817, i.e., 2017 tonnes. The complainant has filed a claim for Rs.2,75,32,900/- crores with the opposite party. The complainant had received approximately 3385 tonnes from the A P Government for milling during Kharif season for the year 2011-12. The complainant, in turn, had delivered about 510 tonnes to Food Corporation of India. Hence, complainant had stock of 2875 tonnes of paddy undelivered. The Standard Fire and Special Perils Policy provided for an insurance cover of Rs.1.70 crores for building, plant and machinery and Rs.3.00 crores for the stocks. Complainant states that the description of the risk provided in the policy cover was for plant and machinery, complete rice mill building and godown with compound wall and machinery, stocks. He further states that there was no distinction or exclusion of risk, if stock was placed inside or outside the building, as long as the stock was placed within the premises of the Mansa Rice Mill. Learned counsel for the complainant states that the repudiation letter dated 30.05.2013 states that goods held in trust or in commission are not covered as per General Exclusion 5 of the insurance policy and that the stocks were stored in the open yard. The opposite party has relied the judgment of the Polymat India P Ltd. Vs National Insurance Co. Ltd., - (2005) 9 SCC 174, wherein the Hon’ble Supreme Court held that:
We are satisfied that the action taken by the Insurance Company was within reasonable time. Therefore, it cannot be saddled with a high rate of interest @ 18%. However, insurance companies should speed up disposal of claims in order to inspire greater confidence in them. Be that as it may, since the amount was received by the claimant in 1994, therefore, levy of interest @ 18% does not appear to be justified. Hence, we set aside the order awarding interest @ 18% per annum. Similarly, a levy of costs of litigation of Rs,10,000/- also does not appear to be justified in the present case as in view of our finding above. Hence, we allow CA no. 6063 of 1999 filed by National Insurance Company and set aside the order of the Commission.
Polymat India Pvt. Ltd., (CA no. 4366 of 1999) have also filed appeal against the same order and their grievance is that the Commission ought to have granted entire loss assessed by the surveyors instead of 75% and interest should have been awarded from the date of loss. Since, we have examined the whole matter in detail, we are satisfied that the claimant is not entitled to be compensated for the loss as claimed by them. Hence, we do not find any merit in this appeal and the same is dismissed with no orders as to costs.”
Learned counsel for the complainant has stated that the surveyor’s report highlights the differences in the address contained in the insurance policy and the site visited as one of the reasons for repudiation of the insurance policy. This is stated to be not correct as the mill was visited on two occasions as per the opposite party’s own admission. He further states that the goods are not goods held in trust; rather, these are held as part of its job of milling of paddy into rice against consideration amount payable by the Government of Andhra Pradesh. Learned counsel also states that the policy does not allow an interpretation wherein, if the cause of fire has been proven to be not caused deliberately, then the claim can be denied.
Per contra, the opposite party has argued that on being informed about the alleged loss, the insurance company immediately appointed A C Rami Reddy, Surveyor to carry out the preliminary survey who visited the affected compound on 15.09.2012 and 17.09.2012 and submitted his preliminary survey report on 23.09.2012. Thereafter, the insurance company appointed M/s Cunningham Lindsey International Pvt. Ltd., as Surveyors and Assessors on 29.09.2012 who also visited the site on 29.09.2012 and carried out the survey in the presence of the complainant/ proprietor of the firm. The surveyors recommended that the claim was not admissible as per the policy terms and conditions. Learned counsel for the opposite party has stated that the surveyors observed that the insured had not given the cause of fire with certainty since the possibility of the fire as alleged by the complainant did not appear plausible as the mill was in operation only for some days during the last few months prior to the incident. He further stated that the production data also revealed that the mill did not function on daily basis. Learned counsel for the opposite party also stated that the surveyor observed that the mill was not functioning for the last few days prior to the incident; there was also no possibility of auto ignition/ spontaneous combustion because paddy cannot burn by itself. He further stated that on physical verification of the quantity of stock, a large difference between weight claimed and physically available damaged paddy was found. As against the claimed quantity of 2017.1 tonnes of paddy, physical quantity available is only 208.25 tonnes which works out to only 10.33% of the claimed quantity. Learned counsel for the opposite party states that the surveyors concluded that the paddy stock did not exist at the time of incident to the extent claimed by the insured. The surveyor carried out quality analysis and got paddy samples tested at SGS India Private Ltd., Chennai which reported that the sample contained more foreign matter than paddy and therefore, it was not possible to do the analysis. Learned counsel further states that paddy present in the sample was only 46.8% and there was huge presence of husk which was a clear indication that the material claimed in the stock was not 100% paddy as alleged by the complainant. Hence, the claim was repudiated which was communicated to the complainant on 24.05.2012.
From the foregoing, it is manifest that admittedly, there was a fire in the rice mill which was the insured premises under the policy. The repudiation of the claim is on the grounds that the stock was in an open yard (and therefore not in the ‘premises’), that it was goods held in trust/commission and therefore excluded under General Exclusion 5 to the policy and that the stock had large quantities of extraneous material which did not justify the quantity of stock claimed to have been destroyed. The moot issue is whether the Surveyor’s conclusion that the stocks destroyed in the fire stand covered under the policy and are, therefore, indemnified against loss as per the risks covered.
The Surveyor’s report has concluded as follows:
· Value of damage worked out above is only for physical quantity existed excluding that portion which was supplied by Civil Supplies. Hence only own stock portion is quantified;
· No cenvat/ vat is involved;
· There is no salvage value in our opinion for the damage quantified above in view of nature of damage;
· Sum insured is adequate considering the extent of physical availability of the material;
· The extent of quantify claimed is not available. The open storage area can accommodate the quantity claimed, but on verification it is found that claimed quantity is not available. Quantum of loss is given in the report to the extent of physical availability + allowances for moisture and invisible loss; and
· Damaged gunny bags were not quantified by insured during our visits and hence, same is not considered.
From the record, it is manifest that the opposite party’s letter of repudiation of the claim of the complainant dated 24.05.2013 is based upon this report since it reads as below:
“ The cause of fire incident dated 15.09.2012 in Manasa Rice Mill situated at Venkatagiri is not established as reported by the Surveyor. The material burnt in the said incident was not pure paddy but mixed with lot of husk and impurity etc. Your claim includes stock of paddy supplied by Civil Supplies Department. As per policy General Exclusion-5, goods held in trust or in commission are not covered. Further the material claimed was stored in open yard. As per policy schedule, stock kept in the premises only covered.
We therefore regret to inform that your claim is repudiated as not admissible as per policy terms and conditions.”
It is also evident that the basis for the repudiation draws upon General Exclusion-5 of the policy which reads as below:
Loss, destruction, or damage to bullion or unset precious stones, any curios or works of art for an amount exceeding Rs 10,000/-, goods held in trust or on Commission, manuscripts, plans, drawings securities, obligations or documents of any kind, stamps, coins or paper money, cheques, books of accounts or other business books, computer systems records, explosives unless otherwise expressly stated in the policy.
(Emphasis added)
The complainant would have us believe that the fire was accidental and that merely because the surveyor could not establish the cause of the fire it cannot be concluded that the claim was inadmissible. He also argues that the policy covers goods in the ‘premises’ of the rice mill which includes the open yard within the compound of the mill and therefore the repudiation of the claim on the ground that the stock was not in the ‘premises’ is incorrect. It is contended that the stock position of paddy was correctly provided based upon the stock of paddy received for milling from the AP Civil Supply Department and from farmers. Lastly, it was argued that the paddy was milled for a consideration and therefore the stocks were not held in trust or commission and were accordingly eligible for the claim filed. The stock quantity in the open yard is justified by the petitioner as eligible for coverage as it was within the premises and was for milling for a consideration and not held in trust/commission.
From the record it is evident that the complainant’s rice mill was operating and milling paddy. The paddy was procured by farmers and the AP Civil Supply Corporation. The conclusion of the opposite party that the stocks were held in trust is not supported by any document. The exclusion of the paddy stocks from coverage under the policy on account of the fact that it was in an open yard cannot be considered valid since the policy clearly mentions the ‘premises’ of the rice mill and as per the Oxford dictionary, ‘premises’ is defined as ‘the building and the land around it that a business owns or uses’. As per this definition, the exclusion of the open yard by the opposite party from the ‘premises’ covered under the policy is not a valid or correct interpretation of the policy. On the issue of the quantum and quality of stocks, the complainant has been unable to controvert the report of SGS, Chennai regarding the presence of husk and foreign material in the bags. The quantity of paddy claimed to have been lost in the fire should rightly be determined based on the average paddy available as estimated by the relevant test agencies. Accordingly, the damage/loss to the paddy stock needs to be reckoned as 46.8% of the available stocks stated to be on the premises i.e., deduction of 46.8% will apply on the stock available on the ‘premises’. On this basis, the quantity of paddy destroyed due to the fire will be 927.82 tonnes (i.e. 46.8% of available stock of 2017.10 tonnes). The loss of paddy in financial terms works out to Rs.928/- per tonne on the basis of the price at which the loss has been claimed, and which is not controverted by the opposite party. The quantity of paddy available on the premises after deducting the quantity of milled paddy of 321.459 MT from the total paddy received (2017.10 MT), works out to 1695.641 MT. Applying the reduction factor of 46.8% as per the test report of SGS Lab, Chennai, the quantity of paddy works out to 944.002 M T. In monetary terms, based upon the loss @ Rs.13619.74 per MT adopted by the surveyor in his report, the value of his quantity comes to Rs.1,28,85,381.85. Applying deduction of Rs.10,000 for ‘Act of God Perils’ and Rs.10,000/- for loss arising out of other perils in which insured is indemnified by the policy as per policy conditions numbers (A) General Exclusions (1) (a) and (b) respectively, the net value of paddy is estimable to be Rs.1,28,65,381.85. The loss of gunny bags is estimated by the surveyor at Rs.5,30,800/-. Therefore, the cumulative loss can be quantified at Rs.1,34,16,181.85.
The cause of the fire being accidental, based upon the above, the opposite party is liable to pay the complainant an amount of Rs.1,33,96,181.85/- towards the loss of paddy and gunny bags due to the accidental fire in the premises of the rice mill which was a covered peril as per the insurance policy with compensation in the form of interest on this amount from the date of the preferring of the claim. This amount is within the insured value of stocks of Rs. 1,00,00,000/- and is therefore admissible.
The complaint is accordingly found to have merits and is allowed. The opposite party shall pay the complainant a sum of Rs.1,33,96,181.85 towards the settlement of the claim of loss of paddy in the premises of the complainant’s rice mill that was destroyed in the accidental fire along with simple interest @ 6% p.a. from the date of the submission of the claim till the date of this order. This order shall be complied within 8 weeks failing which the rate of interest payable shall be 9% p.a. till the date of realization. There shall be no order as to costs. All pending IAs, if any, also stand disposed of alongwith this order.