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Judgment
A. P. Sahi, President Member
This appeal was admitted on 14.08.2023 and the following order was passed at the admission stage (14.08.2023):-
“ORDER
IA/9592/2023
We have heard learned Counsel for the Appellant.
Cause shown for condoning the delay has been sufficiently explained. The Application for condoning the delay in filing the Appeal is allowed subject to any objection by the other side.
FA/775/2023
Admit.
It has been contended by learned Counsel for the Appellant that the Insurance Company under the cover of Insurance was not liable to extend any payment as claimed in the Complaint inasmuch as the onus lay on the Complainant to have stopped the functioning of the machine once the leakage as alleged had been located and not to continue to operate the machine by filling it up with helium gas subsequently which led to greater damage. This therefore was not an unforeseen circumstance, rather the subsequent damage as has been recorded by the Surveyor and has also been indicated by the Service Engineer does not call for fixing any liability on the Insurance Company.
On the other hand, we find that the findings recorded by the State Commission with regard to the extent of damage of leakage that had occurred in the steel body of the equipment that had developed cracks as also holes, it is on that foundation that the malfunctioning of the unit has been noticed and the liability has been fixed on the Insurance Company.
Prima facie on the said findings, the matter requires consideration as it may need assessment on the proportionate amount of liability or otherwise exclusionary clause as claimed by the Appellant in order to decide the complaint.
Issue notice.
List the matter on 09.01.2024.
Subject to deposit of 50% of the decretal amount as statutorily required, within one month, the operation of the Impugned Order is stayed. In the event if such deposit is not deposited within one month, it shall be open to the Opposite Party to proceed for Execution.”
Learned Counsel for the Appellant informed the Bench on 03.10.2023 that the decretal amount had been deposited which is recorded in the order dated 03.10.2023 extracted herein under.
“ORDER
IA No. 12262 of 2023
Learned counsel for the appellant submits that the demand draft for Rs.25,53,830/- has been prepared and is available with the learned counsel. He submits that the same can be directed to be deposited or otherwise.
The demand draft may be tendered before the Registry within three days. The Registry shall accept the same and get it deposited for further orders with regard to investment or release to the respondent.
The application stands allowed.
Appeal
List on the date fixed, i.e. 09.01.2024.”
The insurance claim was lodged by the Respondent before the Appellant Insurance Company under a policy that was valid from 27.02.2009 to 26.02.2010 contending that a loss had occurred on account of the leakage in the machine namely High Gradient Magnetic Separator (HGMS) which was installed at a plant in Bhuj, Gujarat. The Appellant intimated the said damage and the consequential loss to the Insurance Company whereupon the Company appointed an independent surveyor on 30.09.2009, namely M/s Puri Crawford & Associates India Pvt. Ltd. to conduct a survey and report accordingly. The final survey report dated 05.08.2010 was submitted whereafter the claim was repudiated by the Insurance Company vide letter dated 17.12.2010.
The Appellant approached the State Commission contending that the repudiation has been made on erroneous grounds and that the loss and damage suffered was covered as a risk inasmuch as the policy undertakes to indemnify any damage caused by unforeseen and sudden physical impact by any cause resulting in immediate repair or replacement. The claim had been denied on the ground that the exclusion clause no. 4 of the policy provides for exclusion of gradually developing flaws, defects or cracks and therefore such a leakage cannot be indemnified. The third ground taken is on the strength of exclusion clause no. 2 whereby objects as referred to therein if lost are not indemnifiable. Accordingly, the cost of the refrigerant was not found admissible.
The State Commission was apprised of the aforesaid facts and all the evidence was led whereafter the State Commission accepted the plea of the Insurance Company for excluding the cost of the refrigerant, but came to the conclusion that the loss and damage that had been caused to the machine was clearly indemnifiable as it had been caused due to an unforeseen and sudden physical damage. These findings were arrived at after assessing the evidence on record including the report of the service engineer of the OEM (Original Equipment Manufacturer) dated 17.03.2010. It is to be noted that the said report was very much available with the surveyor and was there with the Insurance Company when the claim was repudiated. Since the said letter has a direct bearing on the questions raised and also reflects on the findings recorded by the State Commission, it would be apt to reproduce the entire report herein under:
“20 MICRONS LTD.
Plot No. 157-VII-Mamuara
Bhuj, Kutchh
Gujarat
India
To Whom It May Concern:
On the 22nd of August 2009, 20 Microns Ltd. observed and reported the liquid helium level in the Cryofilter, located in the HGMS Plant, was reduced. After reporting the reduction and with Outotech’s consent, 20 Microns Ltd. immediately refilled the magnet with liquid helium in order to keep the machine in running condition. Subsequently, 20 Microns Ltd. had to refill the system with liquid helium several times until Outotech could understand the problem and work out a solution. Outotech was informed of the refilling procedure.
After completion of appropriate documents and other formalities, I visited 20 Microns Ltd.-Mamuara Unit from 19/09/2009 to 25/09/2009. During my visit, I investigated many areas and observed the operation of the magnet. I saw that the working parameters were abnormal and inaccurate as compared to its standard operation. After consultation, I decided to return to England for detailed discussions with the Cryofilter technical team and for working out the necessary action. The suspected reason may be an additional heat load to the unit’s outer shield. This is indicated by the temperature difference seen between T1+T5. The cause could be from vacuum leak or a “touch” between the outer radiation shield and OVC. No sign of touch could be seen on the OVC.
After discussions with Outotec (USA) Inc., it was anticipated that the entire unit should be brought to Outotec’s OEM’s works located in the UK. This was ruled out in view of the long shipping time, risk of further damage to the equipment during the transshipment, and very high cost. It was decided to further diagnose the problem at site only and, hopefully, remedy the situation at site.
On 15th October 2009, Outotech was informed that the HGMS at 20 Microns Ltd. had quenched. On 20th October I travelled to 20 Microns Ltd. I arranged the hire of vacuum pumps through Pfeiffer Vacuum and the Pfeiffer team traveled to site to carry out a leak test in my presence.
After changing all the o-rings, leak testing was carried out continuously for the next six (6) days. This was done to find the exact location of the leaks. After investigating a series of possibilities, a vacuum leak was found in the stainless steel neck bellows assembly.
The bellows assembly is not a repairable part and, thus, must be replaced. Replacement of the damaged bellow was not possible at site, and repair of the equipment would again require return to the UK for repair. Again, due to the long shipping time and the risk of further damage to the equipment during transshipment, a decision was made to install a secondary bellows assembly around the outside of the existing damaged bellows. A stainless steel bellow was designed, fabricated and installed.
The cryostat was re-evacuated and found leak tight. The magnet was then pre-cooled with liquid nitrogen and liquid helium.
After refilling with liquid helium, the magnet was energized to start production.
Conclusion
The HGMS is a cryogenic unit that generates a very high magnetic field. The loss of a vacuum due to leakage from the bellows would lead to the quenching of magnet and loss of the liquid helium.
The damaged bellows was made from stainless steel. The possibility of aging effect is unlikely. The most likely reason for the puncture in the bellows is from an impact on the outer side of the bellows. Outotec (USA) Inc. is of the opinion that the most likely cause of the impact damage is from housekeeping activities. The bellows are fragile and a small impact would damage the bellows assembly. No other possibilities for damage were observed at site.”
Learned Counsel for the Appellant has come up questioning the correctness of the impugned order of the State Commission dated 10.03.2023 contending that it is evident from the evidence that was adduced that the Appellant kept on utilising the machine and running it without stopping it by refilling the gas and as a result of this process adopted, they allowed the machine to deteriorate and also causing the damage and loss which has been suffered. He submits that the repudiation letter categorically records the aforesaid finding that the machine was being run without lowering down its efficiency and capacity by simply refilling the gas and hence there was no breakdown at all of the machine.
Learned Counsel therefore submits that in view of the said conclusions drawn the State Commission erred by ignoring the said aspects and has thus arrived at an incorrect conclusion. He further submits that the indemnity clause is clearly not attracted inasmuch as there was no breakdown and the machine did not stop hence there was no cause necessitating any immediate repair or replacement. Whatever activities were carried out by the Appellant in order to restore the machine therefore does not fall within the risk coverage clause and hence the State Commission has incorrectly applied the aforesaid provisions to arrive at a wrong conclusion.
Learned Counsel for the Appellant submits that a perusal of the report of the engineer dated 17.03.2010 extracted hereinabove is a clear evidence with regard to the status of the damage and loss caused which was clearly an unforeseen and sudden physical damage that resulted in the puncturing of the bellows. The opinion of the expert engineer who was an engineer from the United Kingdom of the Original Equipment Manufacturer could not have been ignored and hence the conclusion drawn by the surveyor being contrary to the same deserves outright rejection and so does the reasoning given in the repudiation letter dated 17.12.2010. It is therefore submitted that taking an overall view and assessing the evidence on record, the State Commission has rightly arrived at the conclusion and awarded the indemnity amount for the loss and damage caused as established by the Appellant before the State Commission.
Learned Counsel has also relied on certain judgements to substantiate the claim.
Having heard learned Counsel for the parties, the first fact which deserves notice and which practically clinches the issue is the report of the engineer dated 17.03.2010. This was as an evidence before the State Commission as also a document before the surveyor and the Insurance Company as well. It is categorically opined and recorded that the impact causing the puncture of the bellows was assessed as external and in all probability was an outcome of housekeeping activities. This was based on physical inspection and observation. 11. There is nothing on record at any of the stages namely either at the stage of survey or the stage of repudiation or even before the State Commission to counter the findings recorded by the engineer in the said letter dated 17.03.2010. A perusal of the concluding part establishes that the damage could have been caused on account of any fragile or small impact so as to puncture the bellows. At the same time it has also been opined that the damaged bellows were made from stainless steel and the possibility of their ageing or diminishing in content was unlikely.
As against this, surprisingly enough the surveyor in his report stating the cause of loss in paragraph 6 has opined that there was a crack in the system, but the reason given by him is that it was due to thinning down of the wall of the tube which gave way and the gas accordingly started leaking. This opinion of the surveyor is neither credit-worthy nor even worth believing inasmuch as the engineer having specifically indicated that the entire bellows was made of stainless steel and there was no likelihood of it diminishing in any way, has not been attended to nor any reason has been given by the surveyor to counter the same. Thus, the theory of thinning down of the wall is purely imaginary.
The inference is based on no scientific or other plausible reason. When the damaged part is said to be made of stainless steel, and is also not susceptible to suffering from ageing as opined by the engineer, then to deduce that there was a thinning of the wall that may be the cause of damage appears to be an unsubstantiated reasoning and against the engineer’s report.
Learned Counsel for the Appellant is right in her submission that this could have been established by way of an expert opinion or otherwise or conducting any technical examination of the same. This was not attempted either by the surveyor or by the Insurance Company and hence the opinion of the engineer as extracted herein above has to prevail. The State Commission also therefore rightly relied on it and there being no evidence to the contrary or any other material brought before this Commission, there is no occasion to reverse the finding on the said issue.
There is one thing more which deserves to be noted, not only where the surveyor went wayward in going to record his own imaginary opinion about the thinning of the wall, but the Insurance Company also did not leave any stone unturned for repudiating the claim, and what they have recorded, also needs mention which is extracted herein under:
“To,
M/s 20 Microns Ltd.
307-308, Arundeep Complex,
Race Course,
Vadodara-390 007
Dear Sur:
Reg.: Your claim under our Machinery Insurance
- Policy No. 222200/44/08/51/30000131 Issued for the period 27/2/2009 to 26/2/2010
- Loss of High Gradient Magnetic Separator (HGMS) at your Mamuara (Bhuj) Plant
- Date of loss 29/08/2009 intimated to us on 29.09.2009.
This has reference to the captioned loss intimated to us vide your letter dated 26/09/2010 received by us on 29/09/2009 under said Machinery Breakdown Policy. We appointed an independent surveyor on 30/09/2009 to assess the loss.
The attending surveyor inspected the machine on 1/10/2009 and found that the machine CARPCO SMS make HGMS model # Cryofilter 5T/320 serial # 118-97 was in its normal working condition, no production loss was observed/reported. They observed that Helium gas is used in the machine as cooling media, which circulate in the machine to reduce the temperature below-20 degree centigrade.
Further, during discussion with your plant stall it was informed to the surveyor that on 29/08/2009, when the said machine was in operation, the quantity of Helium gas circulating in the system was found to be reduced to 50% of its original filled quantity (ie. 1000 litres). The staff filled the gas to run the machine efficiently. It was repeated for 2 weeks. Thus within a month the machine was filled with 1000 litres of Helium gas, which had leaked out/escaped from the system/machine.
Thus the machine was being run without lowering down the efficiency/ capacity. The machine was run by simply refilling the gas. Thus, there was no break down at all of machine. The production activity was continued with repeated topping of the system with Helium gas.
The surveyor’s observations with respect to our liability are:
“A. The claim is not payable due to following:
that at no point of time there was any stoppage of the machine. The insured continued refilling the gas and run the machine without any stoppage of production.
The policy states that the company will indemnify the insured against,
“Unforeseen and sudden physical damage by any cause necessitating its immediate repair or replacement.”
As there was no stoppage and no sudden physical damage, hence the claim is not falling under coverage of the policy.
B. Exclusion No.4 of the policy states,
“Gradually developing flaws, defects, cracks or partial fracture in any part not necessitating immediate stoppage, although at some future time repair of the parts affected may be necessary”.
As the loss of Helium was of pin-hole developed due to thinning down of the tube in due course of time due to wear & tear (ie.e. Gradual loss development flaws), A peril which is falling under the exclusion of the policy and hence not covered.
C. the special Exclusion no.2 of the policy states.
“Loss of or damage to belts, ropes, chains, rubber tyres, dies, moulds, blades, cutters, knives, or exchangeable tools engraved or impression cylinder or rolls; objects made of glass, porcelain, ceremics, all operating media (i.e. lubricating oil, fuel, catalyst, refrigerant, dowtherm) felts, endless conveyor belts or wires; sieves, fabrics, heat resisting and anti-corrosive lining and parts of similar nature, packing material, parts not made of metal (except insulating material) and non-metallic lining or coating of metal parts; unless loss or damage to the equipments/ machinery is indemnifiable in terms of the policy”
Hence the loss to the refrigerant is not payable.
Keeping in view of above points Insurers are not liable of for any loss.”
In view of the above, we regret our inability to admit your claim. We therefore, repudiate our liability and have filed your claim as No Claim.”
A perusal of the said conclusions drawn in the repudiation letter is that there was no breakdown borders what can be termed as preposterous. The reason is that the leakage was a puncture and the plant had to be run continuously. It is for this reason that the refilling process was attempted to in order to see that the production does not come to a halt. The breakdown was of the damage caused by the puncture of the bellows, and therefore the running of the machine need not have been necessarily stopped to establish breakdown. The puncture was clearly located and the damage has been indicated in the report of the service engineer. Thus, the finding and conclusion drawn in the repudiation letter is also erroneous for all the aforesaid reasons. There is no material so as to interfere with the finding of the State Commission or dilute the indemnification as awarded by it. The appeal lacks merits and is accordingly dismissed; the order of the State Commission is hereby confirmed.
The amount deposited before this Commission through a bank draft as noted above shall be released to the Opposite Party within 15 days.
The Registry will calculate the amount with regard to the claim payable as per the order of the State Commission and then from the calculations as available on record, the amount deposited by the Appellant has to be adjusted as against the decretal amount coupled with the statutory deposit made by the Appellant in case there is any excess to the decretal amount, the same shall be refunded to the Appellant.