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Judgment
Heard Mr. Puneet Taneja, Advocate, for the complainant and Mr. Joy Basu, Senior Advocate, assisted by Mr. Yogesh Malhotra, Advocate, for the opposite party.
M/s. Ratnagiri Gas and Power Pvt. Ltd. (the Insured) has filed aforementioned complaint for directing National Insurance Company Ltd. (the Insurer) to pay (i) Rs.166147643/- along with interest @12% per annum from 15.07.2008 till actual payment, towards the insurance claim; (ii) Rs.One crore, as the compensation for financial loss, harassment and inconvenience suffered by the Insured due to the deficiency in service by the Insurer; (iii) Rs. One Lakh as the cost of litigation and (iv) any other relief which is deemed fit and proper, in the facts and circumstances of the case.
The facts as stated in the complaint and emerged from the documents attached with the complaint are as follows:-
(a) Enron Group established Dabhol Power Project at Anjanwel Dabhol, district Ratnagiri, Maharashtra during 1995 to 2005. The project has three Blocks i.e. Block-I (670 MW), Block-II (740 MW) and Block-III (740 MW), total 2150 MW, power generation capacity. Each Block contains two gas turbines and one steam turbine in addition to the LNG terminal. Enron group faced difficulty to continue with the project, in 2005. Government of India, therefore, incorporated Ratnagiri Gas and Power Pvt. Ltd. (the Insured), a joint venture of NTPC Ltd and GAIL India Ltd. on 08.07.2005, which is now subsidiary of NTPC Ltd., for operating the project. The Insured engaged BHEL Ltd., who in turn engaged General Electric, USA (original manufacturer of the equipment) for revival of the project. After revival, Block-II and Block-III started function on 01.09.2007 and 21.11.2007, respectively.
(b) The Insured invited bids for obtaining Industrial All Risks Policy on 30.04.2008. The bid of National Insurance Company Ltd. (the Insurer) dated 15.05.2008 was found most genuine and accepted by the Insured. The Insured deposited requisite premium and Industrial All Risks Policy No.251100/11/08/3400000018 was issued on 31.05.2008 by the Insurer, which was effective from 20.05.2008 to 19.05.2009. This policy extended coverage of Rs.2150/- crores for Block-II and Rs.2150/- crores, for Block-III, on material damage and Rs.500/- crores, for business interruption loss, due to failure of these Blocks.
(c) The Insured with GE, used to carry out regular inspection/test of all the Blocks, comprising of turbines and other ancillary equipment, for examining its satisfactory function. In April, 2008, The Engineers of GE USA conducted performance test of all the machineries and submitted its report dated 05.06.2008. In this report, the restriction in HP turbine section of Block-III was noticed. They advised for boroscopic inspection of HP Inlet diaphragm and HP exhaust buckets in order to find out the actual defect. The Insured received this report through BHEL, on 16.06.2008. The Insured shut down Block-III on 18.06.2008 and informed the Insurer with request to appoint a surveyor in whose presence the boroscopic inspection could be done.
(d) The boroscopic inspection was done on 15.07.2008, in which, internal damage in STG#3X was noticed. The Insured wrote a letter dated 15.07.2006 to the Insurer, for informing the name of the surveyor, so that advance intimation for dismantling STG#3X could be given to him. The Insurer appointed M/s. Cunningham Lindsey International Pvt. Ltd., Mumbai, as the surveyor. STG#3X was dismantled during 24.07.2008 to 28.07.2008, in presence of Milind Modak, the surveyor and a metal piece was observed in between first stage nozzle blade while taking clearances of the first stage nozzle. A visual inspection note was prepared on 25.07.2008 and signed by the officer of the Insured and Milind Modak, the surveyor.
(e) Based on the inspection, the Engineers of GE and the Insured prepared a record notes of discussion regarding STG#3X dated 26.07.2008, with the manufacturer. In which, they mentioned that first four stages of bucket needs replacement. Damages were noted on tenons and bucket covers, also heavy damages were found on the leading edges of bucket vanes. The surveyor, in e-mail dated 29.07.2008 (pages 229 to 232), acknowledged the damages during removal top half of the HP control valve, some part of seat lining one missing and metal piece (width 1 inch, chord around 7 inch and thickness around 4 mm) found between the nozzle from the said seat lining. However, he also noted erosion, corrosion and pitting. Top half of HP control valve was removed on 31.07.2008, in which, it was found that some part of the seat lining was missing. At that time, the surveyor was not present, therefore, he was informed through e-mail dated 31.07.2008 along with its photographs, with request to depute his representative for inspection. G.P. Ray, the representative of the surveyor visited the spot on 04.08.2008 and verified the damages and gave an email dated 04.08.2008.
(f) After examining, the reports/photographs, GE USA advised for complete repairing of the damaged Block. The estimate of repairing was Rs.166147643/-, which were informed by the Insured to the Insurer vide e-mail dated 13.08.2008. GE USA submitted its final Steam Turbine Inspection Report on 30.08.2008, in which, it has been mentioned that heavy damage has been caused to the diaphragm stages 1 to 3 and stage 4 was moderately damaged due to foreign object. The diaphragm was required to be repaired/replaced. Stage 1 to 4 of the turbine rotor buckets required replacement. The Insured sent the report dated 30.08.2008 to the Insurer and the surveyor immediately. GE USA also conducted a Root Cause Analysis of CSCV (combined Stop/control Valve) Stellite Piece Liberation and submitted its report dated 30.12.2009. In this report, it has been mentioned that stellite piece was liberated due to cracks/lack of bond between the stellite inlay and the base material on the left seat. GE also noted the discovery of the stellite inlay
sticking on the leading edges of HP 1 st stage diaphragm. GE also stated that stellite liberated from CSCV seat travelled through HP turbine causing steam path damage. The complainant forwarded the report dated 30.12.2009 to the surveyor on 06.01.2010. However, the surveyor informed that he has already submitted final survey report dated 17.12.2009.
(g) The surveyor, in his final survey report dated 17.12.2009, came to the conclusion that the insured has failed to prove that the damage occurred accidentally and at one particular time or incident. In the Steam turbine STG# 3x, high steam consumption problem existed much before 18.06.2008. GE, vide letter dated 01.06.2008, based on earlier correspondence and data advised that machine should not be run and immediate boroscopic inspection should be carried out, but the Insured has not provided earlier correspondence with GE in respect of high steam consumption problem. There was plant trips on 11.06.2008 onwards on 5 to 6 occasions, but the insured continued the operation, ignoring GE recommendation dated 01.06.2008 and stopped on 18.06.2008 due to gas shortage. This means the turbine was operated in same condition as observed on opening after 18.06.2008 and it was not known that this problem was continuing since when. Had the gas shortage not become an issue, it would have continued to run and not known how long. The corrosion existed in steam turbine even before 2005 as per GE reports. The physical evidence such as thinning out of blades, pitting, erosion, corrosion, deformation are gradual over a period of time and not sudden, accidental damage. For the aforesaid reason, the surveyor came to the conclusion that the loss falls within exclusion clause i.e. gradual wear and tear and the claim was not payable. Thereafter the insurer vide letter dated 11.03.2010 repudiated the claim.
(h) This complaint was filed on 24.10.2011 claiming deficiency in service inasmuch as the technical reports of expert authority namely, General Electric, USA, visual note dated 25.07.2008 which was signed by the surveyor and email dated 02.08.2008 were ignored and the opinion that it was gradual wear and tear is based upon no evidence.
The Insurer filed their written reply on 05.07.2012, in which, material facts have not been denied. It has been stated that as soon as the Insured gave information regarding damage in Block-III, the Insurer appointed M/s. Cunningham Lindsey International Pvt. Ltd., Mumbai as surveyor. The surveyor in his final survey report dated 17.12.2009 has recorded finding that the damage was not an accidental damage rather it was gradual wear and tear and was falling within the exclusion clause; therefore, the claim was not payable. It was further stated the problem relating to high steam consumption developed and noticed much prior to 01.06.2008, but the Insured deliberately concealed the communications in this respect with GE USA. GE USA submitted their report dated 01.06.2008 and advised for boroscopic inspection, but the plant was not immediately stopped. It was stopped on 18.06.2018 when there was shortage of gas supply. It has been denied that any foreign object was found on the turbine blades. The surveyor confirmed that one broken piece of valve seat had got stuck at the inlet of HP 1 st stage and therefore, could not have even entered the turbine. According to final Steam Turbine Inspection Report prepared by GE dated 30.08.2008, the foreign object damage was found on diaphragm stage 1-3 and 4 only on the discharge side and stage 1-4 of the buckets only on the admission side. According to the diaphragm inspection report, the partitions on the discharge side where the foreign object was found were “found thinning’ and ‘dent and profile damage’ were observed. The replacement was recommended not just because of foreign object damage but because of these other problems with diaphragm. The buckets in stages 3-4 had erosion and rough surface, black colour deposits were also found on the buckets. It was because of all these issues, the buckets were recommended to be replaced. HP and IP Rotor blades were found to have heavy erosion, pitting, corrosion, hard deposits in 1 st , 2 nd and 3 rd row. The 4 th row had the same to a lesser extent. Other rows were also similarly corroded and pitted. Some corrosion existed in a casing of the turbine during revitalisation of the turbine. GE report stated the expected performance of Block –III units significantly reduced compared to the original design due to environmental degradation experience over last five years. It observed that the steam turbine for Block-III required significant maintenance to remove large amount of corrosion evident from inspection. On the basis of this report also the only conclusion can be drawn that it was a gradual wear and tear.
The complainant filed rejoinder reply on 12.09.2012, in which, the facts stated in the complaint were reiterated. The complainant filed Affidavit of Evidence of Sanjay G. Date. The opposite party filed Affidavit of Evidence of A.S.N.Murthy, Manager and affidavit of Yogesh P.Gandhi, surveyor. Both the parties filed their documentary evidence. Both the parties filed their written synopsis also.
We have considered the arguments of the counsel for the parties and examined the record. The repudiation letter dated 11.03.2010 recorded following reasons:-
“(i) There is no accident resulting in damages.
(ii) The Steam turbine was continued to run despite advise to contrary by OEM.
(iii) The corrosion existed in steam turbine even before 2005 as per GE reports. The physical evidence such as thinning out of blades, pitting, erosions, corrosion, deformation are gradual over a period of time and not sudden accidental damage.
(iv) Source of foreign object and subsequent Foreign Object Damage is not established beyond reasonable doubts.”
The insurance policy covers risk of any of the property Insured be accidentally physically lost, destroyed or damaged other than by an excluded cause. Exclusion Cause 1(b)(ii) provides corrosion, rust extremes or changes in temperature and dampness dryness wet or dry rot fungus shrinkage evaporation loss of weight pollution contamination change in colour flavour texture or finish action of light vermin insects marring or scratching. Unless such loss is caused directly by damage to the property insured or to premises containing such property by a cause not excluded in the policy.
General Electric has prepared boroscopic inspection report of STG#3X dated 16.07.2008 (page 270) in which work-scope has been noted at 1.2, which is quoted below:-
“Work-scope
The following scope of work is envisaged as minimum scope to Dismantle and Inspect the unit
Dismantling & Inspection of HP/IP Turbine
- Removal of Insulation cladding.
- Opening of casing bolts by induction heating.
- Removal of casing top half.
- Measurement of Turbine internal clearances.
- Decoupling of HP/IP rotor after measurement of alignment.
- Removal of top half diaphragms.
- Removal of Rotor.
- Removal of diaphragms from bottom casing.
- Placement of top casing in upside down position.
- Blast cleaning of rotor & diaphragms by aluminium grit blasting.
- Inspection of buckets, diaphragms & nozzles.
MPI Inspection of Rotor
- Peripheral Magnetic Particle Inspection (MP) of Turbine Rotor & Blades with 10,000 Amps MPI Equipment.”
After repair General Electric has submitted his report dated 30.08.2008 (page 297). In this report, it has been noted that HP section stage 1 to stage 4 buckets found with significantly heavy damages that needs replacement. Stage 1 and 2 bucket covers found eroded heavily due to trapped foreign object debris . HP section stage 5 to stage 10 moderate damages RHP section stage 11 to stage 14 moderate foreign object debris and SPE observed blackish brown deposits collected at the inner periphery of the bucket covers.
“[1] HPRHP ROTOR:
HP/RHP Rotor removed from casing and inspected visually before and after Sandblasting. Observations are as follows
HP section stage 1 to stage 4 buckets found with significantly heavy damages- Needs replacement.
Stage 1 and 2 bucket covers: Found eroded heavily due to trapped Foreign Object Debris. HP section stage 5 to stage 10- Moderate damages
RHP section Stage 11 to Stage 14- Moderate Foreign Object Debris and SPE observed-blackish brown deposits collected at the inner periphery of the bucket covers
As found rotor run-out and alignment checks were normal.
[2] HPRHP DIAPHRAGMS: STAGES 1 TO 18 removed from casing visually inspected before and after Stand blasting and found as
HP section: Stage 1 to Stage 3 diaphragms were found heavily damaged- Needs repair or replacement.
HP section: stage 4 diaphragms found moderately damaged-Need repairs
HP section: Stage 5- Stage10: Moderate SPE and minor FOD
RHP Section: Stage11- Stage 18: Found minor FOD-s on the trailing edges of the diaphragms.
Visual Inspection performed post blast cleaning of Diaphragms stages 5 to 18.
Minor Dent Observed on the partitions on stage # 5
Sever damage on Diaphragms stages 1 to 4 and recommended for Repair
NON DESTRUCTIVE EXAMINAITON:
Fluorescent Magnetic Particle Examination performed on blast cleaned Diaphragms stage 5 to 18
NO SIGNIFICANT INDICATION
[3] Journal Bearing No.1&2 Thrust Bearing and Coupling
Bearings 1,2 and Thrust pads Disassembled and routine Dimensional check, visual and NDE performed
Found Okay an No Significant Indication
[4] COMBINED MAIN STEAM STOP AND CONTROL VALVE
MSCVs were opened and inspected followed by the discovery of piece of stellite inlay sticking on the leading edges of the HP first stage diaphragms.
MSCV Left:
Portion of stellite inlay from the combined SC seat found missing-Seat needs replacement CV disc sustained minor scratches.
SV plug found OK.
MSCV Right:
Combined SC seat was found OK
CV disc sustained multiple cracks- Needs replacement
SV plug was found OK.
Visaul and NDE inspection performed on Valve Seat, CV Disc, Valve Body and strainer
[5] LP BOROSCOPE INSPECTION:
LP Blades L-4, (Stage 19) TE and GE were inspected visually and using boroscope and no significant damages noticed.
Stage L-1, (Stage 22) TE and GE were inspected using borosope and no significant damages were noticed.
There is no structural damage to the nozzle partitions, spill strips or ring/web.
There are deposits/corrosion shown on the partitions/ring/webs. A sample of the deposit should be obtained for material analysis on next LP inspection.
No additional action required for the diaphragms at this time.
[6] Steam path components:
Inter-stage and steam seal packing were visually inspected and found to be normal.”
In the presence of the surveyor dismantling of machine was done during 24.07.2008 to 28.07.2008, in which, the foreign object/ metal piece was found in first stage nozzle blade which is duly recorded in joint Minutes of Meeting (MOM) prepared on 25.07.2008, which has been filed at page 226 of the complaint. The photographs of metal piece were also taken at that time. The surveyor, in his email dated 29.07.2008 (page 229) acknowledged of MOM dated 25.07.2008 and on removal top half of the HP control valve, some part of seat lining one missing and metal piece (width 1 inch, chord around 7 inch and thickness around 4 mm) found between the nozzle from the said seat lining. The foreign object/metal piece was also mentioned in the report dated 30.08.2008 and Root Cause Analysis report of GE.
However, the surveyor in his Final Survey Report dated 17.12.2009 recorded following conclusions:
“1.0. Insured is unable to establish that damage had occurred accidentally and at one particular time or incident. Steam turbine STG # 3x had high steam consumption problem existed much before 18 th June 2008. GE advised vide their letter dated 1 st June 2008 based on earlier correspondence and date submitted that machine should not be run and immediate boroscopic inspection should be carried out. Insured has not submitted to us any of their earlier correspondence with GE with regards to high steam consumption problem in spite of our request.
2.0. There were plant trips on 11 th June onwards on 5 to 6 occasions but insured continued the operation ignoring GE recommendation on 1 st June 2008 and only stopped on 18 th due to Gas Shortage.
3.0. Damages were noticed when force shut down was taken on 18 th June 2008 on account of gas shortage and opportunity taken for inspection of turbine internal when condition was revealed. This means, turbine was operating in the same condition as observed on opening after 18 th June 2008 and not known since when. Also, had the gas shortage had not become an issue, it would have continued to run and not known how long. So it is not understood, how insured can term this as damage payable under the policy when there is no change in operational condition of said steam turbine prior to taking a forced shut down due to gas shortage and not due to any accidental event.
4.0. We believe, components like 1 st , 2 nd , 3 rd , 4 th stage nozzles, HP section rotor blades were replaced as these were thinned and deformed and through GE report indicates effect of FOD, reasons for replacement was not FOD. Also source of FOD is not established.
5.0. In spite of request for the opinion by GE on cause for thinning of blades etc. insured have submitted only their own theory but not GE findings. During last week we had received insured’s mail informing that they are attempting to get GE’s opinion. Insured should have done this long back since we had requested and had we are now not waiting for any report at this stage.
6.0. Insured has not provided sample blades for metallography test for necessary analysis and conclusion. (Ref our letter dated 29 th June 2007- Enclosure 3)
7.0. The corrosion existed in steam turbine even before 2005 as per GE reports. The physical evidence such as thinning out of blades, pitting, erosion, corrosion, deformation are gradual over a period of time and not sudden, accidental damage.
8.0. In view of the above we are of the opinion that relevant policy exclusion of gradual wear and tear is applicable and there is no liability under the policy. Besides, insured have not been able to established the damage as accidental event.”
In the survey report, the surveyor proceeded on the basis that the corrosion existed in steam turbine since before 2005, as per GE report. Contrary to it, in the GE report it has been clearly mentioned that foreign object debris was found in between stage 1 and 2 buckets covers which eroded heavily the buckets. The eroded material due to foreign object resulted in blackish brown deposits collected at the inner periphery of the bucket cover. This cannot be termed as corrosion. In any case there is no evidence to show that the corrosion existed prior to 2005. The surveyor has illegally drawn conclusion that thinning out of blade, pitting, erosion, corrosion, deformation are gradual over a period of time and not sudden, accidental damage. While recording this finding the surveyor has completely ignored the foreign object debris found between stage 1 and 2 of bucket covers of which a joint inspection memo was prepared on 25.07.2008 and was signed by the surveyor (page 226). The surveyor further makes his own story that the plant was shut down, not due to recommendation of GE, but due to gas shortage.
The Insured obtained “Industrial All Risks Insurance Policy” and the claim was based on accidental damage caused due to entering of foreign object debris in steam turbine which was proved from the report of General Electric. Shuttling down of the plant cannot be termed that as a result of shortage of gas while, there is a clear report advice of the expert for shutting down of the plant. The repudiation of the claim by the order dated 11.03.2010 was illegal and based upon extraneous consideration.
Regulation 9 of The Insurance Regulatory and Development Authority (Protection of Policyholder’s Interest) Regulations, 2002 directs the Surveyors to submit their Survey Report within 30 days and in any case within 45 days, from the date of his appointment. The Insurer has been directed to make settlement within 30 days of receipt of Surveyor’s report. Regulation 9 (6) provides as follows:
Regulation-9(6). Upon acceptance of an offer of settlement as stated in sub-regulation (5) by the insured, the payment of the amount due shall be made within seven days from the date of acceptance of the offer of by the insured. In case of delay in the payment, the insurer shall be liable to pay interest at a rate which is 2 per cent, above the bank rate prevalent at the beginning of the financial year, in which the claim is reviewed by it.
In view of this statutory provision, the Insured is entitled to interest @ 9% per annum after six months of the loss.
ORDER
In the result, complaint succeeds and is allowed. The opposite party is directed to reimburse the claim of Rs.166147643/- along with interest @9% per annum from 15.01.2009 till the date of payment. The order shall be complied within a period of two months.