New India Assurance Co. Ltd vs M/s The Design Sangrah

Avm J. Rajendra, Avsm, Vsm (Retd.), Member

The present First Appeal has been filed under Section 19 of the Consumer Protection Act, 1986 (hereinafter referred to as “the Act”) against the Order dated 27.02.2018 passed by the learned State Consumer Disputes Redressal Commission, Delhi (hereinafter referred as “the State Commission”), in Consumer Complaint No. 28 of 2011, wherein the Complaint filed by the Complainant (Respondent herein) was dismissed.

For the sake of Convenience, the parties in the present Appeal being referred to as mentioned in the Complaint before the State Commission. The Complainant “M/s The Design Sangrah” is a Proprietorship firm engaged in the business of production of garments. While the "The New India Assurance Company Ltd.” is referred to as the Opposite Party/Insurer (OP in short) in the case.

Brief relevant facts of the case as per the Complainant are that the Complainant firm obtained three insurance policies from OP/Insurer. Policies were known as ‘Standard Fire' and 'Special Perils Policy'. The 1st policy covered the building for Rs.41,00,000 and the plant, machinery and accessories for Rs.2,70,000/-, valid from 30.12.2006 to 29.12.2007. The 2nd policy covered stocks for Rs. 45,00,000, valid from 09.02.2007 to 08.02.2008. The 3rd policy was to cover the risk of pressing tables and sewing machines for Rs. 2,00,000 and was valid from 10.04.2007 to 09.04.2008.

On 21.04.2007 at about 10:15 AM fire broke out on the first floor of the factory. Fire was extinguished by five fire tenders, which took 4-5 hours. The storeroom in the 1st floor, fabric, finished goods, stocks and samples got completely burnt. Office equipment, ACs, computers, some records, furniture, fixtures and fittings also got damaged/ burnt. On the same day, OP was informed of the incident. On 23.04.2007, OP was requested to appoint a surveyor to assess the loss and settle the claim. OP appointed M/s RL Aggarwal Surveyors Pvt. Ltd. to inspect the site and assess the loss. The surveyor visited the premises on 01.05.2007, 07.05.2007, 28.05.2007, 08.08.2007, 15.10.2007, 22.10.2007 and 02.02.2008. Thereafter, the firm filed its claim for Rs.44,63,003 with the OP on 22.05.2007. Vide its report dated 31.05.2007, the Fire Brigade Officer assessed the loss to Rs.37,00,000. As per the Complainant, the surveyor demanded certain documents on 28.04.2007 which were provided on 22.05.2007. Complainant contended that the stock register got burnt in the fire and the surveyor was informed. Copies of the stock statement submitted to Punjab National Bank for the period 2006-07 and from 01.04.2007 to 31.09.2007 were supplied to the surveyor, who vide initial report dated 05.02.2008 assessed the loss at Rs.35,64,750. OP on 25.06.2008 asked for production of the stock register for the year 2007-08. Complainant vide its letter dated 26.06.2008 informed the OP that the production of documents including stock register was beyond his control.

Thereafter, the OP appointed a second surveyor named M/s RN Sharma & Co to assess the claim. M/s RN Sharma vide letter dated 03.02.2009 demanded certain records. The Complainant vide letter dated 14.02.2009 apprised the OP of IRDA guidelines for settling the claims within 30 days of the initial surveyor report. Vide letters dated 08.05.2009 and 11.05.2009, the Complainant forwarded the requisite documents to the second surveyor M/s RN Sharma. However, OP vide its letter dated 12.11.2009 repudiated the claim stating that there was violation of condition nos. 6(i)(b) and 8 of the fire policy.

Being aggrieved by the repudiation, alleging deficiency in service by the OP/Insurer, the Complainant filed Complaint (No. 28 of 2011) before the learned State Commission, claiming Rs.80,18,003 with interest @ 18% per annum.

In their written version before the State Commission, the OPs admitted the incident of fire due to short circuit. In relation to the report of the fire brigade officer assessing the loss of Rs.37,00,000, OPs stated that the same was not highly relevant. Similarly, the contention that the fire took place on the 1st floor only, saving the ground floor, again was not of much concern to the OP. the OPs admitted the intimation of loss by the Complainant as well as the ‘safety certificate dated 28.06.2006 received from Fire Brigade Dept. The OP also admitted that the Complainant informed the surveyor of the stock statement (for the year ending 31.03.2007 and from 01.04.2007 to 30.09.2007) having been burnt in fire. As per the OP, the surveyor inadvertently did not further notify the said information to the insurer. It was for that reason the insurer was compelled to call for the said core information from the Complainant. The complainant was duty bound to obtain the information sought from his banker and furnish it to the OP instead of directing the surveyor to approach the banker. The stock statement submitted to the bankers by the insured generally does not reflect the true picture of the stock insured. For this reason, OP wanted the primary evidence of stock possession (or secondary evidence in lieu thereof) thus enabling it and its surveyor to have a true picture of the stock held.

The State Commission after due consideration of the evidence partly allowed the complaint with following observation: -

“22) In the absence of any reason given by the OP for appointment of the second surveyor for opinion, this Commission Is left with no option but to discard the opinion of the second surveyor. Complainant is, therefore, entitled to the amount of loss as assessed by the first surveyor. OP is, therefore, directed to pay to the complainant an amount of Rs. 35,64,749/- alongwith interest @ 12% p.a. w.e.f. the date of repudiation of the claim till the date of its realization. The aforesaid payment shall be made by the OP to the complainant within a period of sixty days from today failing which the amount shall carry interest @ 18% p.a. Complaint is accordingly disposed of:

Being aggrieved by the impugned order, the Appellant filed this present Appeal no. 574 of 2021 with the following prayer:

“It is therefore, most respectfully prayed that the appeal of the appellant may please be allowed and the Impugned Judgment dated 27/02/2018 passed in C.C. No. 280 of 2011 by State Commission, Delhi may please be set aside and the original complaint may please be dismissed with cost.”

In the Appeal, the Appellant raised the following key issues:

(a) The State Commission erred in relying upon the report of M/s. RL Aggarwal Surveyors to allow the complaint in respect to the quantum of loss as assessed and rejected the report by Shri RL Sharma solely based on the insurer’s failure to provide a reason for appointing a second surveyor for an opinion.

(b) The State Commission completely misread/ misunderstood the ratio of the decision of Hon’ble Supreme Court in Sri Venkateswara Syndicate Vs. The Oriental Insurance Co. Ltd., (2009) 8 SCC 507, while holding that the insurance company was not within its rights to get the matter investigated by an investigator. The OP asserted that the Supreme Court ruling permits appointment of investigators when doubts or discrepancies arise regarding the accuracy of the report.

(c) The State Commission failed to consider that investigator in his report rendered detailed reasons after physical inspection of all records that stock register was not maintained for 2006-07, while claiming that it was burnt in fire. The 2007-08 audit report revealed Rs.32,70,463.80 as loss on stocks. However, strangely, no mention of loss of stocks and building is revealed in the said audited balance sheet for 2007-08. Otherwise, the same should have been reflected in profit and loss account.

(d) The State Commission completely ignored the concerns of the investigator on the reliability of stock register for 2007-08 as opening stock details were not available, casting doubts on the accuracy of closing stock immediately before the fire. The investigator concluded the claim to be fraudulent.

Upon the notice on the memo of Appeal, the Respondent / Complainant has not filed any reply/objections to the present Appeal. Nonetheless, the Respondent reaffirmed the case's facts, asserting that there was no violation or breach of any policy terms and conditions issued by the OP/Appellant. Furthermore, the Respondent contended that the report of the second surveyor, M/s. R. N. Sharma, was entirely inaccurate, unfounded, misconceived, and misleading, rendering it devoid of merit.

In his arguments, the learned Counsel for the Appellant emphasized that the State Commission failed to consider the report of the investigator which meticulously examined all relevant records and discussions with the respondent. It revealed that no stock register was maintained for the year 2006-07, despite the claim that it was burnt in the fire. Further, the audit report for the financial year 2007-08 showed a loss on stocks amounting to Rs. 32,70,463.80, raising questions about the substantial loss claimed. Surprisingly, this substantial loss was not reflected in the audited balance sheet for the year 2007-08, suggesting either a nominal loss or no loss at all. This discrepancy should have been evident in the profit and loss account for the financial year ending on 31.03.2008. He also argued that the investigator concluded that the stock register for 2007-08 was unreliable as the figures for opening stock quantities were unavailable, rendering the closing stocks immediately before the fire indeterminable. Additionally, no physical verification of the damaged and burnt stocks was possible due to their complete destruction in the fire. Based on these findings, the investigator deemed the respondent's claim fraudulent. He further argued that the investigator's report was not a mere reassessment or revaluation of the loss but an independent investigation report highlighting various irregularities, inconsistencies, and falsehoods in the balance sheet. However, the State Commission ignored this detailed and conclusive investigation report regarding the authenticity of the respondent's claim. Further, the State Commission failed to consider that since the respondent had relied on the investigator's report to make a final decision, it was obligated to examine the report thoroughly and provide reasoned findings regarding its reliability. Instead, the State Commission dismissed the report solely on the grounds that the insurance company did not provide a reason for appointing a second surveyor, even though Mr. R.L. Sharma was appointed as an investigator, not a second surveyor.

On the other hand, the learned Counsel for the Respondent reiterated the facts of the case and the Affidavit of evidence filed before the State Commission. He argued that the appointment of a second surveyor should not be a mere formality, as per Section 64UM (3) and (4) of the Insurance Act, 1938. These provisions indicate that the insurer cannot appoint a second surveyor arbitrarily. Furthermore, he pointed out that as per IRDA Regulation 2002, claims should be settled within 30 days from the date of receiving the final report of the surveyor. This implies that the insurer should not unnecessarily delay the claims settlement process. The Counsel for the Respondent cited several judgments to support his arguments, including the following:

(a) Hundi Lal Jain Cold Storage and Ice Factory Pvt. Ltd. Vs. Oriental Insurance Co. Ltd.

(b) Sri Venkateshwara Syndicate Vs. Oriental Insurance Company Ltd. and anr.

(c) Ravindra Nath Fruit Canning Industries (P) Ltd. through its Managing Director Shri G. Jayaram Naidu Vs. The Divisional Manager United India Insurance Co. Ltd. and The Manager, Andhra Bank, Chittoor Branch.

(d) Sona Spices Pvt. Ltd. Vs. New India Assurance Co. Ltd.

(e) Jaipur Ceramics Pvt. Ltd. Vs. New India Assurance Co. Ltd.

(f) B. V. Nagaraju Vs. M/s. Oriental Insurance Co. Ltd. Divisional Officer, Hassan.

We have examined the pleadings and associated documents placed on record and rendered thoughtful consideration to the arguments advanced by the learned Counsels for both the Parties.

The primary contention of the Appellant is that it had rightly repudiated the claim of the Complainant/Insured on the ground of violation of condition 6(i) and 8 of the Fire Policy. The relevant portion of the conditions are reproduced below: -

Condition No. 6(i) (b)

"The insured shall also at all times at his own expense produce, procure and give to the Company all such further particulars, plans, specification books, vouchers, invoices, duplicates or copies thereof, documents, investigation reports (internal/external) proofs and information with respect to the claim and the origin and cause of the loss and the circumstances under which the loss or damage occurred, and any matter touching liability or the amount of the liability of the Company as may be reasonably required by or on behalf of the Company together with a declaration on oath or in other legal form of the truth 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."

Condition No. 8:

If the claim be in any respect fraudulent, or if any false declaration be made or used in .support thereof or if any fraudulent means or devices are used by the Insured or any one acting on his behalf to obtain any benefit under the policy or if the loss or damage be occasioned by the willful act, or with the connivance of the insured, all benefits under this policy shall be forfeited.

The State Commission, in its Order dated 27.02.2018, made the following observations:-

“20). Coming to the case in hand though the stock register for the year 2007-08 was not produced before the first surveyor, complainant relied upon the balance sheet for the period from 01.04.2007 to 31.03.2008. It shows an amount of Rs. 89,11,733/- appearing against the loans and advances. Group summary of the loan and advance' attached to the balance sheet shows Rs. 44,63,003/- received against the insurance claim. Statement of loans and advances also shows the amount of Rs. 44,63,003/- as refundable. Insurance claim refundable under the head 'building' is shown as Rs. 9,68,115/-. Likewise, under the head 'fire' surveyor equipment and stock Rs. 20,374/- and Rs. 34,74,514/- respectively appear. First surveyor, therefore, based his findings on this document. Complainant also submitted copies of the stock statement furnished by it to Punjab National Bank for the period 2006-07 and from 01.04.2007 to 31.09.2007. Complainant also filed audited bank balance sheet.

21) Fire brigade department assessed Ihe loss to the tune of Rs.37,00,000/-. OP did not raise any objection to the same at any point of time.

We have examined the Surveyor Report dated 15.02.2008 submitted by M/s RL Agarwal Surveyors Pvt Ltd. The Report reveals that the Surveyor and his team had visited the site several times and collected detailed evidence. The Surveyors in their Report have comprehensively brought out the details of the incident, evidence, types of loss occasioned, the extent of loss that is covered under the policy etc and determined the liability of the insurer as Rs.3564749.52. All necessary corroborative details in support of the conclusions are enumerated in the said Report. It is also an admitted position that, in addition to appointing the said surveyor, the Respondents had also appointed M/s RL Sharma & Co for opinion in the same case. This Opinion Report was submitted on 29.06.2009. The Appellants relied on this Opinion Report and repudiated the claim of the Complainant. This report was made based on the records and no visit is stated to have been made by the agency to the site. It is also evident that while making the appointment of M/s RL Sharma & Co. the Appellants have not give any reasons for the said appointment or reasons for rejecting the Surveyor Report dated 15.02.2008 submitted by M/s RL Agarwal Surveyors Pvt Ltd.

The Hon’ble Supreme Court in Sri Venkateswara Syndicate Vs. Oriental Insurance Company Limited and Another, (2009) 8 SCC 507, decided on 24.08.2009, has held that:

"32. There is no disputing the fact that the surveyor / surveyors are appointed by the insurance company under the provisions of the insurance Act and their reports are to be given due importance and one should have sufficient grounds not to agree with the assessment made by them...

In our considered view, the Insurance Act only mandates that while settling a claim, assistance of a surveyor should be taken but it does not go further and say that the insurer would be bound by whatever the surveyor has assessed or quantified; if for any reason, the insurer is of the view that certain material facts ought to have been taken into consideration while framing a report by the surveyor and if it is not done, it can certainly depute another surveyor for the purpose of conducting a fresh survey to estimate the loss suffered by the insured."

The option to accept or not to accept the report is with the insurer. However, if the rejection of the report is arbitrary and based on no acceptable reasons, the courts or other forums can definitely step in and correct the error committed by the insurer while repudiating the claim of the insured. We hasten to add, if the reports are prepared in good faith, with due application of mind and in the absence of any error or ill motive, the insurance company is not expected to reject the report of the surveyors."

In Khatema Fibres Ltd. v. New India Assurance Company Ltd., 2021 SCC OnLine SC 818, decided on 28.09.2021 it was held that:

“32. It is true that even any inadequacy in the quality, nature and manner of performance which is required to be maintained by or under any law or which has been undertaken to be performed pursuant to a contract, will fall within the definition of the expression ‘deficiency’. Butto come within the said parameter, the appellant should be able to establish (i) either that the Surveyor did not comply with the code of conduct in respect of his duties, responsibilities and other professional requirements as specified by the regulations made under the Act, in terms of Section 64UM(1A) of the Insurance Act, 1938, as it stood then; or (ii) that the insurer acted arbitrarily in rejecting the whole or a part of the Surveyor’s Report in exercise of the discretion available under the Proviso to section 64UM(2) of the Insurance Act, 1938.

Two things flow out of the above discussion, They are (i) that the surveyor is governed by a code of conduct, the breach of which may give raise to an allegation of deficiency in service; and (ii) that the discretion vested in the insurer to reject the report of the surveyor in whole or in part, cannot be exercised arbitrarily or whimsically and that if so done, there could be an allegation of deficiency in service.

A Consumer Forum which is primarily concerned withan allegation of deficiency in service cannot subject the surveyor’s report to forensic examination of its anatomy, just as a civil court could do. Once it is found that there was no inadequacy in the quality, nature and manner of performance of the duties and responsibilities of the surveyor, in a manner prescribed by the Regulations as to their code of conduct and once it is found that the report is not based on adhocism or vitiated by arbitrariness, then the jurisdiction of the Consumer Forum to go further would stop.”

In view of the discussion above, we are of the considered view that the Order of the State Commission does not suffer from any illegality. The FA No. 574 of 2018 is, therefore dismissed.

There shall be no order as to costs.

Pending applications, if any, stand disposed of accordingly.

The Registry is directed to release the Statutory deposit amount, if any in favour of the Appellant, on compliance of the order of the learned State Commission.