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Judgment
This Complaint arises out of an alleged deficiency on the part of OP No.1 New India Assurance Co. Ltd., complaining that the Insurance Company has erroneously repudiated the claim of the Complainant with regard to the reported loss of Molasses in an incident on 16.05.2012, where the cause of loss is stated to be on account of spontaneous combustion. The contention is that the loss due to the said cause is indemnifiable under the policy as the risk stands covered.
There is no dispute that for an earlier period from 05.04.2011 to 04.04.2012, there was a policy with a premium of Rs.25,850/- covering the stocks of molasses as well. This risk coverage with endorsement no.7 was for spontaneous combustion.
The subsequent policy which was taken for the period from 05.04.2012 to 04.04.2013 that is posed for analysis in this case, also covers the risk with endorsement no.7 of spontaneous combustion but with a lesser premium of Rs.24,391/- only for Bagasse and Coal for an insured sum of Rs.25.00 lacs. The incident of loss of molasses undoutedely occurred due to damage caused by internal spontaneous combustion which began on 15.05.2012 and the loss was informed to the first OP on 16.05.2012.
The Insurance Company appointed Mr.P.V.Rajeswar Rao as Surveyor who visited the sugar factory on 17.05.2012 and after inspection, the Surveyor submitted his report in detail. The final report is dated 04.10.2012 and runs into several pages. The Surveyor came to the conclusion that on account of this process, the damage was suffered and the Surveyor’s observation and cause of loss are extracted hereinunder:
“5.0 SURVEYORS OBSERVATIONS
Location where Auto-Combustion or Spontaneous Exothermic Chemical change has occurred Molasses Tank
5.1 Observations : The following have been observed by the Surveyor and a team consisting of Surveyor, His associate and Insurance Officials (mentioned at page 3) on 17/05/2012. Thursday 13 30 hrs.
(a) The molasses tank has over flow marks all around it and chemically decomposed molasses got flown down all around.
(b) Area in the vicinity of the tank was very hot we could inspect the tank from a distance as near as possible.
(c) Large area around the tank in particular on northern side had large Pools of flown out molasses which were found all around the tank.
(d) The over-flown Molasses has covered large area of about 10,00) Square meters or 2 to 3 Acres of land
(e) Neither the dry grass in the vicinity of the molasses pools and trees in the area did show any burning marks of being caught in fire
(f) Some portion of completely decomposed molasses in the form of carbonaceous mass was found near pumping area.
(g) Audible noise of bubbling caused due to evolution of Carbon Dioxide was found emanating from the tank.
(h) GI sheets on the top of the tank were observed to have got disturbed due to over flowing of the molasses. About 450 GI sheets got damaged.
(I) The flown down molasses has been found getting decomposed and the level of it getting slightly increased due to continuous chemical reaction changes.
5.2 Examination of flown down Molasses
(j) Flown down molasses can be scraped within four to Six weeks and disposed as coal / coal tar to be used as fuel for brick butties or boiler fuel-But insured stated that in spite-off several trials they could not get a buyer for the final decomposed molasses turned in to carbonaceous powder.
k) We have observed the over flowing due to internal combustion or Spontaneous Exothermic chemical change happening.
6.0 CAUSE OF LOSS
6.1 Insured's Version
It has been confirmed by technical management of the insured that the Chemical decomposition of molasses should have been caused by spontaneous chemical change developed internally only.
The damage has occurred due to spontaneous Chemical change only and in such cases there will not be any visible physical fire but only molasses gets decomposed and final products are formed while heat is generated.
6.2 SURVEYORS PHYSICAL INSPECTION AT SITE
(1) There is a coverage for spontaneous combustion for Rs. 25,00,000 covering bagasse Rs. 20.00 Lakhs and Coal Rs. 5.00 Lakhs.
(2) There is no cover for molasses damage due to spontaneous combustion.
(3) Molasses does not burn or catches fire even if a burning stick is immersed in to it and electrical short circuit can not ignite the same
(4) There is no possibility for the decomposition of molasses other than internal reaction called Auto-Combustion or Spontaneous Exothermic Chemical change only.
The Surveyor also explained the Maillard Reaction Process as contended in clause 6.4 which is extracted hereinunder :
6.4 Literature - WHAT LITERATURE SAYS ABOUT IT
As per L Wong Sak Hoi and C Chasteau De Balyon (Page 103) the same is called "Maillard Reaction in Molasses Storage Tank". It was found frothing and hot fumes at temperature of 63’C was found coming out the Molasses tank. See pages 106 to 108
They further state neither recirculation of the molasses to second tank, nor the addition of ice or water through air-vent was possible at that time. Nothing could be done to save the molasses.
When evolution of the Carbon dioxide had subsided, most of the molasses had turned into a dark brown carbonaceous mass, with only a small proportion remaining in the liquid state.
They call it as "It was a spontaneous exothermic Chemical change with evolution of carbon dioxide and forming of volatile acids Mainly acetic.
un-cleanliness or local rises in temperature can cause such damages Page Number 123 Molasses by Hubert Olbrich Given in the enclosure as Page 105-1
The Surveyor’s opinion is that no physical fire had occurred but he opined that it was an exothermic chemical reaction. He indicated that the policy covers spontaneous combustion for bagasse and coal only and not for molasses.
The Surveyor visited the spot on 26.07.2013 as well, which is also recorded in paragraph 8.2.1, that is extracted hereinunder :
“8.2.1 OBSERVATIONS DURING THE VISIT OF THE SURVEYOR ON 26/7/2013
Observations made on the date of survey on 26th July 2013
Persons present during inspection on 26/7/2013
Mr. G. Satyaanarayana Reddy, CGM, GSL NSR Mobile, 944080578, 9440800571
Mr BV Subba Reddy, Chief Chemist, Mobile: 9440800578
Mr. P V Rajeswar Rao, Insurance Surveyor, 98480 37641
Observations
(a) The total tank surface has been thoroughly scrapped off the over flow marks of molasses and painting work was found going-on.
(b) The top portion of the tank does not have MS sheet but only covered by Roof sheets like a shed or a House. It facilitated release of pressure and prevented occurrence of explosion.
(c) Initially taken out damaged materials from pools of Molasses was in the form of lumps and it got slowly went on forming granules.
(d) By the end of September only removal of material in the tank was undertaken.
(e) Huge heaps look like mini-mountains was found which has been the residue from the tank and duly gathered damaged mass from spread out in the vicinity of the tank.
(f) As per insured they tried their level best to find out any usage for the damaged residue which is huge quantity.
(g) It could not be used as fuel for Boiler.
(h) If left out for few years it may get converted in natural fertiliser like Cow-dung but takes several years.
(i) It could be used in fluidised bed boilers but they did not agree since flue gases may get condensed on boiler like a product similar to tar which may damage the boiler internals hence they refused to use the same.
(j) It can be used in brick kilns - But normal kilns are very far from the sugar plant - Transport costs were found to be high. What ever the kilns in the vicinity were miniscule few and cannot consume huge quantity.
The cost of transport of the collected damaged materials may be huge working to several Lakhs.”
The Surveyor then went on to summarize the final loss assessment and rounded it off for Rs.47,97,890/-.
The final conclusion is also worth noting in clause 8.8 which is extracted hereinunder :
“8. CONCLUSION
I conclusively state the following
Auto-Combustion of Spontaneous exothermic Chemical change is suspected to have occurred in the tank containing stocks of molasses. Further due to change the molasses tank combined with increase in temperature molasses in the tank has overflown and spread over the area in the vicinity of the tank. The over flow of molasses also caused damage to roof sheets over the tank. The Tank needed to be cut to remove total build up of damaged solidified molasses which has been conclusively confirmed by employees, eye witnesses and proved through physical, & circumstantial evidence.
The damage claim is not tenable and hence the loss is not recommended for any payment as there is no cover for spontaneous combustion and I have come to the conclusion only after extensive study and verification of literature and opinion from experts on the subject.
The final loss assessed of Rs. 47,97,890.00 (Rupees Forty seven Lakhs Ninety Seven thousand Eight Hundred and Ninety Only) may be considered for payment at the sole discretion of the Insurance Company subject to terms & Conditions of the Policy issued by them to the insured since there is no cover for spontaneous combustion.
This survey report is issued without any favour or prejudice either to the Insured or to the Insurer and the conclusions arrived by surveyor are based on purely with the information provided by the insured, Observations made by surveyor during survey, Knowledge the surveyor possessed and on the basis of information & Literature obtained through several channels available to him.”
The claim was repudiated by the Insurance Company vide letter dated 13.05.2014, which is extracted hereinunder :
“BY REGD. POST WITH AD
WITHOUT PREJUDICE
To
M/s. GSR SUGARS LTD.
B2, 2ND FLOOR, 6-3-1090,
T.S.R. TOWERS, RAJ BHAVAN ROAD
HYDERABAD - 500082
Dear Sirs,
Re: Reported loss of molasses dated 16.05.2012 - our Policy No. 61060511120200000001, Period: 05.04.2012 to 04.04.2013 & our Claim No. 61060511120290000002
With reference to the above subject we bring to your kind notice that the following observations are made on the claim by the appropriate authority.
The molasses in the tank is lost due to overflow from the tanker. The observations made by the Surveyor, in his report, are enclosed for your ready reference. The cause of loss is attributed to spontaneous combustion i.e., the inherent nature of molasses. The Policy cited above covers Standard Fire & Special Perils specifically excluding Fire due to spontaneous combustion.
As per the policy clause the policy covers inter alia,
Fire, excluding destruction or damage caused to the property insured by
a) i) its own fermentation, natural heating or spontaneous combustion.
ii) its undergoing any heating or drying process.
b) burning of property insured by order of any Public Authority.
The spontaneous combustion clause applicable on covering as add on perils, is as follows.
Quote
"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 exclusions of this policy to the contrary that the insurance by (items.......) 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 any circumstances.
Unquote
The loss that has occurred in your premises on 16.05.2012 is not due to any insured peril including spontaneous combustion as per clause mentioned above.
Regarding passing the endorsement on the Policy, covering the spontaneous combustion, the appropriate authority, observed that the reported loss is not payable, even if the spontaneous combustion peril is covered under the Policy and the Policy expired without any further event. Hence, the decision on passing the endorsement is treated redundant.
Hence, we hereby inform that the claim is inadmissible under the policy and the file shall be closed as "no claim".
We regret that the matter is kept pending for an unreasonable amount of time only with an intention to work out the possibilities to view your claim positively.
Thanking you and assuring our best services at all times.”
The repudiation letter on the one hand states that since there was no fire due to spontaneous combustion hence not covered under the policy and simultaneously that fire due to spontaneous combustion for molasses is excluded, hence the claim was inadmissible.
The complainant sent his protest on 13.05.2014 contending that the policy was inclusive of loss of molasses as well due to internal combustion and, therefore, the repudiation is invalid, but of no avail.
The Insurance Company has come up disputing the claim on the ground that, firstly, the complainant had negotiated the policy for the period in question through OP No.2, namely, M/s Unison Ins. Broking Services Pvt. Ltd., who are Insurance Brokers and who were acting at the behest of the Complainant as an agent.
Learned counsel for the Insurance Company has invited the attention of the Bench to the invitation floated by OP No.2 on behalf of the complainant calling for quotations through their website. This invitation was open and was issued by OP No.2, the Brokers. The same is extracted hereinunder:
“Dear Sir,
The policies are pending for renewals on 04.04.2012. Kindly arrange your competitive quotes immediately
STANDARD FIRE & SPECIAL PERILS INSURANCE POLICY FOR STOCKS OF RAW MATERIALS AT THE UNIT OF M/s. GAYATRI SUGARS LTD., MAAGI VILLAGE
WORKMEN COMPENSATION INSURANCE POLICY FOR 30EMPLOYEES FOR THE UNIT OF M/s. GAYATRI SUGARS LTD., KAMAREDDY UNIT.
The details are given in above attached file. Kindly expedite your quotes so as to reach us before this evening.”
The quote offered by OP No.2 specified a premium of Rs.27,406/- for covering the stocks, and the sum insured to the tune of Rs.4,29,07,500/-. While making this offer, the Insurance Company indicated that the sum insured is for spontaneous combustion for coal and bagasse. The contents of the said letter is extracted hereinunder :
“Dear Sarma Garu,
This has reference to your mail seeking quotation, We hereby quote you Rs. 27,406/- towards premium including Service Tax for covering Stocks of Mollasses, Baggasse and Coal at Maagi Unit. The Premium is calculated on the Sum Insured of Rs 4,29,07,500/- (which includes SI for Spontaneous Combustion for Coal & Baggasse). Kindly send us your instructions alongwith your cheque to go on cover.
With Warm Regards,
Praveen Kumar
Admn Officer,
NIA, Kamareddy Branch”
This quotation was in response to the invitation referred to above.
The aforesaid offer made by the insurance company was accepted by the said Broker on behalf of the complainant informing that they have collected the premium through a cheque of Rs.27,406/- for renewal in respect of the existing policy and the details will be informed later. The said acceptance by OP No.2 dated 04.04.2012 is extracted hereinunder:
“Dear Mr. Praveen Kumar,
In response to your trail mail quote, pleased to inform that we have collected the premium cheque for Rs.27,406.00 toward renewal of FIRE DECLARATION (Existing Policy No. 61060511110200000001 validity expires today) and the scanned copy is herewith attached for your ready reference and records. The Originals are being couriered today itself and shall inform the C.N. details later. Kindly arrange the policy effective from 80.00hrs of 05.04.2012 to 04.04.2013 and the same to us for our verification and forward submission to the insured. Kindly do the needful and confirm.
Thanks & Regards,
E. Srinivasa Sarma, Mobile No. +91-9490105343
Unison Insurance Broking Services Private Limited 6-3-562/13/1, Venkataramana Colony, Erramanzil, Hyderabad 500082
Ph: +91-40-23326090 Fax: +91-48-42007657”
The Broker on 09.04.2012 wrote a letter to the insurance company that they have found on scrutiny that the spontaneous combustion is covered only for Rs.25.00 lacs as against the total sum insured therein and, therefore, an endorsement should be made for the total sum insured as the complainant had tendered a Business Slip for renewal of the policy on the same terms as in the previous year. The Business Slip has also been brought on record as Ex.C-4, which places an order for coverage of molasses as well. This Business Slip was placed by the Complainant to the broker and was sent to the insurance company.
The clear case of the insurance company in the written version and also through the documents which have been filed on record is that the previous policy of 2011-12 referred to above had a higher premium of Rs.25,850/- ( Total with service tax Rs.28,513/-) and which included the coverage of spontaneous combustion for molasses as well. However, when the request was made for renewal for the year 2012-13 through the invitation of the quotation, the insurance company offered a lesser premium of Rs.24,391/- ( total with service tax Rs.27,406/-) excluding coverage of spontaneous combustion for molasses. The contention, therefore is that even assuming that the case was of spontaneous combustion, same was not covered for the loss of molasses and it only covered the loss of Bagasse and Coal for Rs.25.00 lacs (20 lacs for baggase and Rs.5.00 lacs for coal). This was clearly sated and the terms of the policy are clear, with no ambiguity on that count, which is also supported by the report of the Surveyor and the letter of acceptance dated 04.04.2012 on the offer of quotation dated 03.04.2012 of OP No.2.
The complainant for the aforesaid reason had also impleaded the broker M/s Unison OP No.2 in the wake of these allegations, but a Bench of this Commission vide order dated 14.10.2014 permitted the complainant to withdraw the complaint as against OP No.2.The order dated 14.10.2014 is extracted hereinunder :
“When a query was put to counsel for the petitioner as to why M/s Unison Ins. Broking Services Pvt. Ltd. has been impleaded as a party in the complaint, learned counsel for the complainant sought to withdraw his claim against the opposite party no.2. Hence, complaint against opposite party no.2 is dismissed as withdrawn.
Issue notice to the opposite party, returnable on 27.04.2015.”
Learned counsel for the Insurance Company also submitted that in the absence of any existence of flammable fire having been noticed or observed to prove its correctness, the report of the Surveyor that it was only a chemical change and not a spontaneous combustion is correct. Thus, the contention is that it is not a case of spontaneous combustion apart from the loss of molasses not being covered under the policy.
Having considered the submissions, the first issue needs to be clarified regarding the status of the claim of the complainant due to spontaneous combustion. This is necessary as Mr. Tiwari, leaned counsel for the complainant also submits that spontaneous combustion is synonymous with the word ‘fire’ and no distinction can be drawn on the ground that the loss was not on account of spontaneous combustion as covered. Rather the nature of the incident as reported by the Surveyor, the entire process which resulted in the overflowing of the molasses tank and spreading of the molasses all over the area causing the destruction, was nothing else but an outcome of the said process which is known and has been defined as spontaneous combustion and falls also within the definition of fire. Mr. Tiwari insists that even if molasses was not covered under the risk coverage of spontaneous combustion, since spontaneous combustion is also fire, the fire cover policy covers this claim as well.
The contention, therefore is that even assuming that spontaneous combustion is not available on the facts of this particular case due to the insurance company’s claim that it has been excluded from spontaneous combustion, yet since the incident admittedly is of spontaneous combustion which amounts to fire, therefore the policy otherwise also covers such a risk.
To understand this argument, judgments that have been cited at the Bar by the learned counsel for the complainant need to be considered. As to what is spontaneous combustion came to be vividly explained in the case of Roshan Lal Oils Mills Ltd Vs. M/s United India Insurance Co. Ltd., a complaint decided by this Commission by a Four-Member Bench reported in 1 (1992) CPJ page 293. The dispute in that case was that the insurance company had repudiated the claim due to spontaneous combustion on the ground that said combustion was not accompanied by any fire. The contention was that the policy emphasized the words “by fire only” and, therefore, these special conditions should be read to construe that a spontaneous combustion complaint cannot be accepted unless there is proof of actual fire.
In the present case as well, the repudiation emphasizes the terms of the policy referring to the note (NB) as extracted herein above, which categorically states that “expression by fire only must not be omitted under any circumstances”. A similar recital was considered in the case of Roshan Lal Oil Mills Ltd. (supra), where the Commission rejected the contention of the insurance company after having discussed the definition of the word ‘spontaneous combustion’ and the scientific literature thereon. The Bench narrated this in paragraph 9 to 12 and then 15 and 16 which are extracted hereinunder.
“9. In scientific literature combustion is defined as under:
“The burning of any substance, whether it be gaseous, liquid, or soild. 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 temperatures, 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).
In this context the definition of spontaneous combustion is also relevant:
Spontaneous Combustion: “This occurs when certain materials are stored in bulk. The oxidizing action of microorganisms often produces the initial heat.” “As the temperature increases, the air trapped in the material takes over the oxidation process, liberating more heat. Because the heat cannot be dissipated to the surroundings, the temperature of the material rises still more and the rate of oxidation increases. Eventually the material reaches an ignition point and bursts into flame.”
(Mc-Graw Hill Encyclopaedia or Science and Technology, New York, Vol. 3,1982).
In the other text ‘Spontaneous combustion’ has been defined as under:
“Slow chemical reactions between the oxidant and fuel or its impurities may locally build up enough heat due to the presence of a thermally non-conductive medium to spontaneously start the combustion.”
At this stage we may also extract the meaning given to the expression ‘Fire’ in Collins English Dictionary “The state of Combustion in which inflammable material burns, producing heat, flames and often smoke.”
This would indicate that fire develops only at a particular point in the combustion process. In fact, the fire or flame is produced only when the point of auto ignition is reached. It is, therefore, evident that the term ‘Spontaneous combustion’ in the complainant’s report of 3rd August, 1990 cannot be construed to imply that there was no fire.
xxxxxx
While repudiating the claim; the Respondent attributed the damage to spontaneous combustion without fire. From the definitions of the terms ‘combustion’ and ‘spontaneous combustion’, the dictionary meaning of ‘Fire’ & from the expert opinions recorded above, it would only be natural to presume that the damage to the seeds stock had been caused by fire arising from spontaneous combustion, though high temperature below the ignition point can also cause oxidation and chemical change and bring about thermal degradation of the seeds.
Assuming that the ignition point was not reached in this case due to measures taken to smother combustion at the earliest, and therefore no fire was caused, can be insurer repudiate the claim? If the contentions of the insured were to be accepted, it will lead to the anamolous, nay absurd situation, that the insured will be disentitled to make a claim for damages, if he takes measures to control combustion at the earliest stage and thereby prevent rise in temperature to the ignition point, even though the rise in temperature below the ignition point bring about the thermal degradation of and thus damages the insured material.
We have also considered whether the complainant would be entitled to compensation under the policy if it were to be assumed that the respondent’s contention that it was a case of combustion without fire is correct, and, therefore, is not covered by the insurance policy.”
The ratio of the said order was again followed by a Five-Member Bench in case of New India Assurance Co. Ltd. Vs. Taj Sugar Works and Anr. reported in II (2002) CPJ page 43, where the issue was that the by-product of the processing of sugar, namely, Rab, was burnt on account of spontaneous combustion or not. The same was examined and it was held on the facts of that case after relying on the Roshan Lal Oil Mills case (supra) after examining the judgment of the Apex Court in the same case reported in 2000 Vol.10 SCC page 19 United India Ins. Co. Ltd. & Ors. Vs. Roshan Oil Mills Ltd. and Ors. The Bench observed that even though the matter was remanded by the Apex Court on the issue of the report given by the surveyor having not been considered , the Apex Court did not go into the question as to whether spontaneous combustion was or was not equivalent to fire. The findings recorded are extracted hereinunder:
“2. …….The question which was before the State Commission and is also before us is whether the complainant is entitled to claim of damages for loss suffered on account of loss of 3000 quintals of ‘rab’ stored in the tanks. State Commission records that according to the parties the damage was done due to spontaneous combustion of ‘rab’. The issue is if the ‘spontaneous combustion’ is covered under the definition of ‘fire’. If it falls within the term ‘fire’ premium for spontaneous combustion could not be payable. State Commission noticed the judgments of National Commission in the cases of Saraya Sugar Mills Limited v. United India Insurance Company Limited, II (1996) CPJ 6 (NC), and Roshan Lal Oil Mills Ltd. v. United India Insurance Company Ltd., I (1992) CPJ 293 (NC), and came to the conclusion that ‘spontaneous combustion’ is covered under the definition of word ‘fire’. Once having reached this conclusion, the State Commission, therefore, decreed the claim of the complainant. It relied on the report of the second Surveyor in decreeing the amount.
Our attention has been drawn to the decision of the Supreme Court in the case of United India Insurance Co. Ltd. & Ors. v. Roshan Lal Oil Mills Ltd. & Ors., (2000) 10 SCC 19. This is one of the two cases decided by the National Commission and against that order appeal was filed in the Supreme Court. Matter was remanded to this Commission as it was held by the Supreme Court that the report of the Surveyor which was given under Section 64-UM(2) of the Insurance Act, 1938 was not considered by the National Commission which report had repudiated the claim of the insured. It was argued before the Supreme Court that the report under Section 64-UM(2) of the Insurance Act, was statutorily required and could not be brushed aside without any reference to it. Supreme Court said that the National Commission was not justified in awarding the insurance amount without adverting itself to the contents of the Surveyor report. It was also contended before the Supreme Court that ‘spontaneous combustion’ was not equivalent to ‘fire’. Supreme Court, however, did not say anything if ‘spontaneous combustion’ was or was not equivalent to ‘fire’. Since this Commission has already taken the view that ‘spontaneous combustion’ falls within the definition of fire, view taken by the State Commission is correct. We may also notice that the petitioner did not file the original insurance policy and what was filed before us was a proforma of the fire policy ‘C’ of which we do not consider to take any notice. Accordingly, the appeal fails and it is dismissed.
Learned counsel then invited the attention of the Bench to the order of this Commission by another Five-Member Bench in Murli Agro Products Ltd. Vs. Oriental Insurance Co. Ltd. reported in 1 (2005) CPJ page 1. The aforesaid decisions quoted herein above were also examined once again in the background that in the case, claim had been repudiated by the insurance company attributing damage to spontaneous combustion without fire. The Bench held that they are not inclined to take a different view than what was taken in Taj Sugar Works case (supra). Paragraph 12 of the order raised this issue and then the answer given is in paragraph 13 thereof and was explained in paragraph 17 as well. It is not necessary to repeat the same as the Bench further went on to hold that if there is any slight indication of vagueness of the terms of policy, then the benefit should be given to the insured.
Mr. Tiwari also invited the attention of the Bench to the order passed by this Commission in Adani Wilmar Limited Vs. Oriental Insurance Co. Ltd. passed in CC No. 1525 of 2015 decided on 20.02.2017, wherein the Bench relied upon the judgment of the Apex Court in Murli Agro Products Ltd. ( supra) and applied the ratio thereof with approval.
Learned counsel for the Complainant has also relied on the judgments in these cases to contend that renewal of the insurance policy in the present case will amount to renewing the earlier policy which covered molasses as well.
On a perusal of the ratio of the aforesaid judgments, it is evident from the Surveyor’s report and the Chemical Examiner’s report in this case that the cause clearly was spontaneous combustion, which the Surveyor attempted to downplay only as a chemical reaction but in the concluding part, he accepted the exothermic chemical change to be the suspected cause for spontaneous combustion and then took a U-turn that since there was no cover for spontaneous combustion, therefore, the claim did not deserve to be recommended. This conclusion of the Surveyor is contrary to the entire investigation made by him including the literature and report of the Chemical Examiner which ultimately led the surveyor to believe that it was a suspected case of spontaneous combustion. Thus, after having examined the same and in the light of the decisions cited at the Bar, there is no doubt that the loss suffered was due to spontaneous combustion that was established on the facts of the present case. The contention, therefore, of the insurance company that words “by fire only” in the policy should be strictly read, cannot be accepted and is accordingly rejected.
The contention raised by Mr. Tiwari is that even if molasses is taken to be not covered under the spontaneous combustion, yet it is covered under fire as there is no distinction between the two.
His further contention is that coverage should be construed to include molasses also for spontaneous combustion as the previous policy had specifically included the same and the renewal was only its continuation as was given to understand to the complainant. He also urges that the complainant had no direct communication with the insurance company of having excluded molasses from the coverage and since it was renewal of the previous policy, therefore, the complainant was rightly under the impression that renewal was on the same terms and conditions as the policy of the year 2011-12.
The argument with regard to equivalence of spontaneous combustion as fire has already been explained by Larger Bench decisions referred to hereinabove and therefore there is no doubt that spontaneous combustion would also stand included within the definition of ‘fire’ even if there is an indication of “not omitting the words by fire only” in the policy. This issue of equivalence need not detain this Commission to proceed further inasmuch as the nature of the reaction and its occurrence in the present case undoubtedly is of spontaneous combustion.
The only question is as to whether spontaneous combustion in respect of molasses can be presumed to be covered under the renewed policy or not.
This takes the Commission to the next issue with respect to renewal. There are three noticeable facts, namely, as admitted to the complainant they never approached the insurance company directly and all their transactions were through the broker OP No.2 against whom they had already withdrawn any claim vide order dated 14.10.2014 and therefore, OP No.2 was clearly acting on behalf of the complainant. This is also the stand of the insurance company that the entire negotiations were conducted through OP No.2 on behalf of the complainant. The complainant, therefore, is bound by what has been communicated by OP No.2 regarding the renewal of policy for 2012-13 on their behalf and also its acceptance, which is on record.
The second fact is that admittedly the premium with service tax of the previous year i.e. 2011-12 was Rs.28,513/- which is more than the premium that was paid for the subsequent year during renewal in the year 2012-13, which is Rs.27,406/-.
The third glaring fact is that in the policy in question, there is an indication of coverage of spontaneous combustion only for Rs.25.00 lacs, whereas the said coverage for the stocks in the previous year as against spontaneous combustion, which is Code No.7 (1007) was Rs.2,75,00,000/-. It is thus evident that the premium and the amount are different in both the policies. The amount of premium in 2012-13 is less and stock coverage of molasses of Rs.4,04,07,500/- is not included as against Code No. 7 (1007). The amount of only Rs.25.00 lacs against spontaneous combustion is covered and is clearly correlated to Rs.20 lacs for bagasse and Rs.5.00 lacs for coal.
Mr.Tiwari vehemently urged that insurance polices at times utilize very minute terminologies and this distinction in coverage was neither offered by the complainant through their Business Slip nor the Complainant ever intended to exclude molasses from the coverage of spontaneous combustion, which was clearly understood by the complainant to be a continuance and renewal of the terms and conditions of the earlier policy.
This argument of Mr.Tiwari cannot be accepted inasmuch as the complainant in the present case is not a layman and is a corporate firm / company which obviously has Managers and legal experts who handle all such documentations. It is, therefore, evident that this is not a case where any probability or preponderance thereof can be presumed that the complainant had overlooked this aspect. The decision of the Apex Court in the case of Jacob Punnen and Another Vs. United India Insurance Company Limited reported in (2022) 3 SCC 655 has been cited by Mr. Tiwari to urge that the renewal of the earlier policy amounts to an agreement on the same terms which was also intended by the Complainant and their brokers. The Apex Court on having considered the ratio of earlier judgments held as under :
“22. In these circumstances, this Court is of the opinion that the eventuality contemplated in Biman Krishna Bose [Biman Krishna Bose v. United India Insurance Co. Ltd., (2001) 6 SCC 477] i.e. inapplicability of old terms, in the cases of renewal, when the contracts provide “or otherwise”, has to be applied contextually. If the renewed contract is agreed, in all respects, by both parties, undoubtedly the fresh terms (with restrictions) would be binding. However, that would not be the case when a new term is introduced unilaterally about which the policyholder is in the dark. Further, the allusion to continuation of the terms of the Gold Policy in respect of senior citizens (who were not to be compelled to migrate to another policy) but were to be subject to the same terms, upon payment of a different rate of premia, reinforces the conclusion that there was in fact, a renewal of the existing terms.”
Applying the said principles, this is neither a case of mistake nor a unilateral imposition by the insurance company. The offer through the Business Slip was responded to by the Insurance Company to the broker by quoting a premium by openly reciting a lesser premium with a limited coverage of bagasse and coal in express terms vide letter dated 03.04.2012. The ratio extracted above clearly applies herein as the Complainant was made aware of the express terms of offer and acceptance by the Insurance Company.
There is another attempt made by Mr. Tiwari to portray that the Complainant was not in direct negotiations with the insurance company nor did the company intimate the revised, restricted and reduced terms of having omitted the coverage of molasses to the complainant. This argument is advanced presumably on the strength of the observations made by the Apex Court in Paras 37 to 43, particularly paras 38, 39 and 43 that are gainfully extracted herein under :
“38. During the hearings, it was urged on behalf of the insurer that the agent would have ordinarily informed the policyholder as she or he was in touch with them. The insurer did not lead evidence in this regard. Its agent was not asked to affirm any affidavit. In these circumstances, the inference to be drawn is that the agent did not inform — at the time of renewal of the policy, in 2008, about the limits in regard to coverage of individual procedures but also omitted them any information that there could have been possibility of higher coverage by payment of higher premium which might have resulted in a higher limit for the various surgeries or procedures covered by the policy.
There is no doubt that insurance business is run through brokers and agents. The role of an agent in this regard is to be examined. This Court has spelt out, in the context of insurance business the role of insurance agents and the liability or responsibility of insurance companies in the event of failure to discharge the duties cast upon agents, and the likely vicarious responsibility or liability of the insurer.
Such a failure assumes importance even from the perspective of Consumer Protection law. The Consumer Protection Act, 1986 states the definition of “deficiency” in service under Section 2(1)(g) as:
“2. (1)(g) … any fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance which is required to be maintained by or under any law for the time being in force or has been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any service.”
Firstly, in the instant case, the broker, OP No.2, had invited quotations on behalf of the complainant who had admittedly tendered a Business Slip for renewal of the policy. The broker was, therefore, an agent acting on behalf of the complainant who sought quotations at the behest of the complainant. The agent will, therefore, be presumed to have acted on their behalf. On 03.04.2012, the insurance company made its clear offer. Then the broker collected the cheque of Rs.27,406/- from the Complainant and accordingly intimated the acceptance to the Insurance Company as recited in the mail dated 04.04.2012. This act of receiving and collecting the cheque is proof of communication between the Complainant and the broker. It is for this reason that the broker later on vide his letter dated 09.04.2012 sought an endorsement to clear the coverage that was never responded to by any acceptance by the insurance company. The Complainant, therefore, cannot be presumed to be oblivious of these developments when the agent was acting on their behalf. The Complainant appears to be attempting feigned ignorance which cannot be presumed in the given circumstances. The tendering of cheque against the offer of the insurance company is a conscious acceptance of the express offer of the revised terms for the renewal of the policy. Consequently, nothing was hidden or withheld from the Complainant, and the role of the broker discloses a transparent, undoubted transaction where the broker and the complainant were well aware of the modified terms of renewal.
Mr. Tiwari then urged that it is evident on record that OP No.2 Broker having realized this shortcoming immediately called upon the insurance company to rectify the same through the letter dated 09.04.2012 and, therefore, the complainant was under an impression that the insurance company also understood the contract on the same terms as it did not refute the clarification sought. The submission is that the insurance company should be presumed to have accepted the same as they did not deny the request for rectifying the endorsement.
It is correct that a letter was dispatched by the Broker on 09.04.2012 to rectify the endorsement but the stand of the insurance company is clearly to the effect that insurance company did not respond or accept the said rectification proposal sent by the Broker on behalf of the complainant and, therefore, the policy as approved and accepted indicated above, stood as on the date of accident. There being no acceptance of any such proposal for further endorsement by rectification, the complainant cannot be presumed to have gathered an impression of the continuance of the earlier policy and its renewal on the same terms and conditions.
On this aspect, the argument of the learned counsel for the Insurance Company Mr. Rajesh Kumar Gupta has to be accepted that there was no concluded contract with regard to any endorsement of risk coverage due to spontaneous combustion for molasses. The Molasses was not included and it was only bagasse and coal, the loss whereof was covered to the extent of Rs.25.00 lacs ( Rs.20 lacs for bagasse and Rs.5.00 lacs for coal). There is no ambiguity in the terms and conditions of the risk coverage in the policy in question on this count and is clearly supported by the communications the between the OP No.2 after the invitation and the acceptance by the insurance company vide letter dated 03.04.2012 and its further acknowledgment by OP No.2 on behalf of complainant on 04.04.2012. Mr. Gupta has rightly relied upon the order passed by this Commission in the case of Kalakriti Cultural and Convention Vs. Oriental Insurance Co. Ltd. 2020 SCC Online NCDRC 532 which in turn relies on the Apex Court judgment in the case of Deokar Exports Private Limited VS. New India Assurance Co. Ltd. 2008 14 SCC page 598 paragraph 13. Paragraph 13 of the said Apex Court judgment is extracted hereinunder:
“13. A policy of insurance is a contract based on an offer (proposal) and an acceptance. The appellant made a proposal. The respondent accepted the proposal with a modification. Therefore, it was a counter-proposal. The appellant had three choices. The first was to refuse to accept the counter-proposal, in which event there would have been no contract. The second was to accept either expressly or impliedly, the counter-proposal of the respondent (that is, the respondent's acceptance with modification) which would result in a concluded contract in terms of the counter-proposal. The third was to make a counter-proposal to the counter-proposal of the respondent in which event there would have been no concluded contract unless the respondent agreed to such counter-counter-proposal. But the appellant definitely did not have the fourth choice of propounding a concluded contract with a modification neither proposed nor agreed to by either party. If the appellant did not agree to the policy covering the period 26-8-1988 to 25-8-1989 instead of the period 12-3-1988 to 12-9-1989, the result would never create an insurance contract effective from 30-6-1989 or any other date.”
The ratio thereof is that unless the proposal is accepted or the counter proposal is accepted, there is no concluded contract. This Commission in CC No. 2003 of 2018 decided on 15.09.2013 Smt. Shobha Gambhir Vs. Life Insurance Corporation of India has held that silence does not denote consent and no binding contract arises unless the person to whom an offer is made says or does something to signify his acceptance. Para 7 of the said order is extracted hereinunder:
“7. Supreme Court in Life Insurance Corporation of India Vs. Raja Vasireddy Komalavalli Kamba, (1984) 2 SCC 719, held that in case of insurance proposal, silence does not denote consent and no binding contract arises until the person to whom an offer is made says or does something to signify his acceptance. The insurance proposal has to be accepted by the Competent Authority as per Standing Order of the Insurer for creating a binding contract. This judgment has been followed in Civil Appeal No.808 of 2017 Life Insurance Corporation of India Vs. Dakshna Devi (decided on 03.02.2011) and Mahendra Todi Vs. Birla Sunlife Insurance Company Limited (2023) 1 SCC 534 and by this Commission in LIC Vs. Kanchanben, II (1994) CPJ 62 (NC) and LIC Vs. Shubhra Bhambri, III (2007) CPJ 365 (NC).”
The said decision also goes on to state in the concluding paragraph that no presumption of acceptance can be raised only on the ground that proposal form had been accepted and the premium had been retained for a long time.
Applying the aforesaid principles to the facts of the present case, the proposal was accepted by the Insurance company vide its letter dated 03.04.2012, whereafter the policy cover note was issued and the details whereof have already been discussed herein above. The letter requesting for further endorsement on 09.04.2012 was never accepted and there is no evidence to that effect on record. The request made by the Complainant in the Business Slip forwarded through the broker to the insurance company was not accepted as proposed and a fresh premium lower than the previous policies was offered. The cover note clearly omitted Molasses from the risk coverage. As observed in one of the decisions referred to above, assuming that the insurance company kept silent on the letter dated 09.04.2012, the said silence is no acceptance in the eyes of law. The policy , therefore, stood with the coverage of spontaneous combustion risk only to the extent of bagasse and coal and not for molasses. The premium paid also was less and there is nothing to indicate that the endorsement made in the policy for only Rs.25.00 lacs in respect of bagasse and coal was not possibly noticed by the complainant.
Consequently, for all the reasons herein above, the argument of Mr Tiwari that even if spontaneous combustion is not covered, the claim should be presumed to be covered under the fire policy does not stand to reason when there is a clear and conscious omission of the coverage of molasses in the insurance policy and which is pre-dominantly evident from an assessment of entire facts and circumstances of the present case. Even accepting that the incident would be otherwise covered due to fire under the fire policy, the restricted insurance coverage only for bagasse and coal with a reduced premium as discussed above, cannot be interpreted to infer an open ended contract for all losses due to fire in view of the express intention of the terms to indemnify bagasse and coal only. By including loss of Molasses, the same would amount to rewriting the contract by introducing an inferences by the back door which stands clearly excluded as observed above. Terms of contract of insurance have to be interpreted as they stand, and even otherwise there being no ambiguity, the policy does not cover the risk as claimed. An insurance coverage is to indemnify an insurable claim and not to make good profits or losses. It is a compensatory mechanism to protect against perils. Therefore, there is no probability much less a preponderance thereof to construe any deficiency in service on the part of the insurance company while repudiating the claim of the complainant ultimately. The Complaint is, accordingly, rejected.