DIAMOND ELASTOMERS PVT. LTD. vs United India Insurance Co. Ltd.

FACTS : These cases are having chequered history. Before referring to the same, we would mention a few facts which are similar in both the cases. The complainant Companies M/s. Diamond Elastomers (P) Ltd. and Diamond Polymers (P) Ltd., (hereinafter referred to as "insured") were engaged in the business of manufacture of footwear at A-9 and A-9/1, Mayapuri Industrial Area, Ph. II, New Delhi respectively and had taken on rent a portion of the building owned by M/s. Diamond International Private Ltd. The insured had taken fire policies dated 1st September, 1987 for both the premises from the opposite parties for a period between 5.9.1987 and 4.9.1988 for a sum of Rs. 95,50,000 and Rs, 95,00,000 respectively with a view to safeguard the consequential loss in the event of unforeseen perils. It had also taken insurance to cover for loss of profit vide Insurance Policy dated 30th September, 1987 from the respondent for the period between 28th September 1987 and 27th September, 1988. The sum insured for each of the policies was Rs. 30 lacs (Rupees thirty lacs) to cover the consequential loss of profit due to fire, riots, etc.

ON 5th May, 1988 at about 1.25 p.m. fire broke out in the factory premises of the insured which caused extensive damage to the building, plant and machinery and other materials including furniture, fixtures, fittings. The respondent finally paid the amount under fire policy on 21.2.1989 The dispute in these complaints is with regard to the second policy pertaining to loss of profit. For the policy dealing with loss of profit, Surveyors of the Insurance Company verified the record of the Company. For submission of the report, they took nearly two years and determined the amount payable to the insured for the loss of profit. After having discussion, the complainant communicated its acceptance of the Surveyor''s report by which loss of profit was assessed at Rs. 12,32,134 and Rs. 13,16,194 respectively. Despite this, Insurance Company failed to respond. It is submitted that the claim for the insurance was required to be investigated and settled within 6 and 8 weeks after receipt of the report for the loss suffered by the complainant. As it was not settled for more than three years, complaint was filed. The aforesaid complaint was dismissed by this Commission by order dated 18.5.1992 by holding that investigation involves adducing of elaborate oral and documentary evidence and determination of complicated issue of facts and law.

That order was challenged before the Supreme Court by filing C.A. No. 338 of 1993 which allowed by order dated 2nd December, 1996. The Court inter alia observed as under: "We are taken through the terms of the Insurance Policy. Clause (3) of condition No. 1 was pointed out by the learned Counsel for the Insurance Company which stipulates that the insurance by the policy shall cease if any alteration is made in the business or in the premises of property therein whereby the risk of damage is increased at any time after the commencement of the policy. In the present cases prima facie, there was no alteration of the business because the premises caught fire and the damage was caused and, prima facie it is seen, efforts were made to minimize the damage. This was observed on the prima facie view and we think it was necessary for the Commission to examine the stand taken by the Insurance Company on the basis of the terms of the policy. We are, therefore, of the opinion, this was not a fit case of the Commission to reject the application at the threshold and direct the Companies to go by way of a suit."

THEREAFTER the matter was heard by this Commission. It appears that the dispute was virtually settled between the parties and that Insurance Company agreed to pay a sum of Rs.12,32,134 in OP 60/91 and Rs.13,69,194 in OP No. 61/91 with interest at the rate of 12% p.a. from 1 st May, 1990 till the date of payment in full and final settlement of the claims raised in the petition. The orders were passed accordingly. Those orders were challenged by the Insurance Company by filing Civil Appeal No. 5478 of 2002 before the Supreme Court which was allowed by order dated 3.2.2003 as it was alleged by the Insurance Company that Counsel for the Company was not having instructions to settle the matter at all. At the time of hearing of the said appeal, it was agreed by Counsel for both the parties that the matter may be remitted to the Commission for fresh decision. On that basis, the Court passed the following order: "Pursuant to an interim order granted by this Court a sum of Rs. 30 lakh has been deposited by the respondent. The amount so deposited may be allowed to be withdrawn by the respondent subject to appropriate conditions to be imposed by the Commission, As there is serious dispute between the parties as to whether the settlement had taken place or not, it would be futile to go into that aspect of the matter and it would be better if the case is decided on merits by the Commission. Considering the long pendency of the matter, it would be appropriate for the Commission to dispose of the matter as expeditiously as possible."

Submissions

AT the time of hearing of this appeal, learned Counsel for the Insurance Company Mr. Nandwani relied upon the following terms of the Insurance Policy and submitted that insured has not taken appropriate steps to re-start the business and, therefore, he is not entitled to reimbursement of loss of profit suffered by it: (1) ............ (2) ............ (3) On the happening of ''any'' damage in consequence of which a claim is or may be made under the Policy, the Insured shall forthwith give notice thereof to the Company-

(a)with due diligence do and concur in doing and permit to be done all things which may be reasonably practicable to minimise or check any interruption of or interference with the business or to avoid or diminish the loss,

(b)not later than thirty days after the expiry of the period of indemnity or within such further time as the Company may in writing allow, at his own expense deliver to the Company in writing a statement setting forth particulars of his claim together with details of all other insurance (if any) covering the damage or any part of it or consequential loss of any kind resulting therefrom,

(c)at his expense produce or procure and give to the Company such books of account and other business books, vouchers, invoices, balance sheets and other documents, proofs, information, explanation and other evidence as may reasonably be required by or on behalf of the Company for the purpose of investigating or verifying the claim together with a declaration on oath or in other legal form of the Trust of the claim and of any matters connected therewith. No claim under this Policy shall be payable unless the terms of this condition have been complied with and in the event of the non-compliance therewith in any respect, any payment on account of the claim already made shall be repaid to the Company forthwith."

Admittedly, the business which was carried out by the complainant, was required to be stopped because of the fire. Further, sub-Clause (a) of Clause (3) was complied with viz. notice was given to the Company. For Clauses (c) and (d), there is no dispute. Necessary accounts were produced whenever sought for by the insurers or surveyors. However, with regard to Clause (b), learned Counsel for the Insurance Company submitted that there is no evidence on record that complainant has taken necessary steps to minimize or check the interruption in the business or to avoid or diminish the loss. It is submitted that insured ought to have made sincere effort to re-start the business within the period of one year. 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. Conditions only.

IN the background of the aforesaid facts, the learned Counsel for the appellant rightly referred to settled norms relevant to service by the INsurer to the INsured which are: (1)Effective protection of the interest of the INsured; (2)INsurer''s duty to make diligent application of mind to the terms of the policy and the relevant material, and to accept the claim of the INsured unless the INsurer has clear evidence of the breach of a condition on the part of the insured; (3)Onus of proof of breach of conditions by INsured is on the INsurer; (4)Prompt settlement and payment of claim.

These propositions are born out from the following passages:-

LAW and Practice on Consequential Loss Insurance, Halsbury''s LAWs of England, Fourth Ed. Vol. 25 Insurance at para 811: "Consequential loss insurance was devised for the purpose of giving protection to the assured against losses which although consequent upon the loss of his property by a peril insured against, such as fire, are not recoverable under an ordinary form of policy. Usually the losses contemplated are the losses which flow from the interruption of the assured''s business by reason of a fire which destroys or damages the premises on which the business is carried on." 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 relevant discussions in Denis Riley, Consequential Loss Insurance and Claim: Fourth Edition, 1977, London, Sweet & Maxwell, at paragraph 389 is as under: "A matter of very considerable importance is the attitude which insurers might adopt to the effect, on the time taken to rehabilitate a business after damage, of external influences which prolong the period of interruption. For example, delays in rebuilding premises, or in obtaining alternative accommodation, caused by town planning or other legislation, Government restrictions on building activities, adverse weather conditions, the reluctance of a landlord to rebuild, a scarcity of steel, bricks, cement or other materials or of machinery, the effects of war here or abroad or of strikes or lockouts in the building, engineering or transport industries. The traditional practice in this country has always been to accept increase of consequential loss due to extraneous causes outside the control of the insured (other than new damage at the premises caused by either an uninsured or an insured peril) which delay rehabilitation of a business, as being within the scope of the intended indemnity. This was substantially proved during the war of 1939-45 and the years immediately following. During that period, delays in or complete prohibition of rebuilding prolonged the period of interruption in nearly every case of a large fire, but it was never claimed by insurers that the additional loss entailed thereby was not their liability ..........

In the case of B.V. Nagaraju v. Oriental Insurance Company Ltd., II (1996) CPJ 28 (SC)=I (1997) ACC 123 (SC)=(1996) 4 SCC 647, the Apex Court considered the question whether the alleged breach of carrying human beings in a goods vehicle more than the number permitted in terms of the insurance policy is so fundamental breach as to afford ground to the insurer to deny the liability altogether. The Court also considered the ancillary question whether the terms of policy of insurance need be considered strictly or be read down to advance the main purpose of the contract. In that case instead of 6 employees permitted 9 persons were carried in the goods vehicle. The Court held that ''the reasoning that extra passengers being carried in the goods vehicle could not have contributed, in any manner, to the occurring of the accident and read down the exclusion terms of the insurance policy so as to serve the main purpose of the policy that is to indemnify the damage caused to the vehicle. For this Court referred to earlier decision in Skandia Insurance Co. Ltd. v. Kokilaben Chandravadan, I (1987) ACC 413 (SC)=(1987) 2 SCC 654, wherein the Court has observed as under: "When the option is between opting for a view which will relieve the distress and misery the victims of accidents or their dependents on the one hand and the equally plausible view which will reduce the profitability of the insurer in regard to the occupational hazard undertaken by him by way of business activity, there is hardly any choice. The Court cannot but opt for the former view. Even if one were to make a strictly doctrinaire approach, the very same conclusion would emerge in obeisance to the doctrine of ''reading down'' the exclusion clause in the light of the ''main purpose'' of the provision so that the ''exclusion clause'' does not cross swords with the ''main purpose'' highlighted earlier. The effort must be to harmonize the two instead of allowing the exclusion clause to snipe successfully at the main purpose. The theory which needs no support is supported by Carter''s ''Breach of Contract'' vide paragraph 251. To quote- ''Notwithstanding the general ability of contracting parties to agree to exclusion clauses which operate to define obligations there exists a rule, usually referred to as the ''main purpose rule'', which may limit the application of wide exclusion clauses defining a promisor''s contractual obligations. For example, in Glynn v. Margetson & Co., (AC at P. 357), Lord Halsbury, L. C. stated- ''it seems to me that in construing this document, which is a contract of carriage between the parties, one must in the first instance look at the whole instrument and not at one part of it only. Looking at the whole instrument, and seeing what one must regard ... as its main purpose, one must reject words, indeed whole provisions, if they are inconsistent with what one assumes to be the main purpose of the contract.'' Although this rule played role in the development of the doctrine of fundamental breach, the continued validity of the rule was acknowledged when the doctrine was rejected by the House of Lord in Suisse Alantique Societe d''Armement Maritime SA v. N.V. Rotterdamsche Kolen Centrale. Accordingly, wide exclusion clauses will be read down to the extent to which they are inconsistent with the main purpose, or object of the contract."

In the present case also, as stated above, the insurer had taken fire policy as well as another policy with a view to safeguard consequential loss of profits. The sum insured under this policy was Rs. 30 lakh which covered the consequential loss of profit due to fire, riots, etc. The fire broke out on 5.5.1988 causing extensive damage to building, machinery, plant and other stock including furniture fixture and fittings. Insurance Company appointed surveyor and they assessed the damage of Rs. 12,32,134 for the loss of profit after examining audited balance sheet of the complainant. The claim of the complainant was repudiated on the ground that there was breach of condition as the complainant have not taken steps to minimise the loss. This contention cannot be justified on any ground because even the condition of the policy only requires that insured should take ''all reasonable and practicable steps to minimise or check any interruption of business to avoid or diminish the loss''. As stated above, because of the fire, it was not practicable or possible to restart the business without construction of the building, import of machinery and plant. After taking the loan, reconstruction of building was completed on 15.2.1990. Admittedly, there was delay in making payment on the basis of the insurance policy convering the damage because of the fire and, therefore, delay in reconstructing the building. In our view Insurance Company has miserly failed to establish breach of condition for relieving it from the liability.

IN the result, complaint is allowed. INsurance Company is directed to pay a sum of Rs. 12,32,134 in OP No. 60 of 1991 and 13,69,194 in OP No. 61 of 1991 with interest @ 12% per annum from the date after 2 months from the fire i.e. from 7.7.1998 till the date of payment. The amount deposited pursuant to interim order granted by the Apex Court in appeal shall be adjusted. INsurance Company to pay Rs. 25,000 (Rs. twenty-five thousand only) as costs in each case. Complaint allowed.