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Judgment
This appeal has been filed by the appellant New India Assurance Company Ltd. against the order dated 20.8.2010 of the State Consumer Disputes Redressal Commission, Uttar Pradesh, (in short 'the State Commission') passed in complaint No.30 of 2004.
Brief facts relevant for disposal of the present case are that on 10.4.2003, respondent No.1 obtained a Standard Fire and Special Perils Policy for deterioration of stock for a sum insured of Rs.1,68, 96,000/- and another Machinery Insurance Policy for a sum insured of Rs.68,57,000/-, both valid from 10.4.2003 to 09.04.2004 covering risk of the goods stored in the cold storage consisting of two refrigeration chambers. On 26.08.2003, respondent No.1 sent letters to the Director, Power Corporation, the sub-station, District Magistrate, Executive Engineer and a copy to the appellant that due to less supply of electricity and due to low voltage, germination has started in the potatoes in the cold storage. Further, he prayed for regular supply from the 33 KVA Rewati Feeders. On 08.09.2003, the appellant insurance company wrote letter to respondent No.1 and orally advised him that the loss was caused due to non-maintenance of temperature and further advised that the damaged potatoes be disposed of immediately. On 18.09.2003, respondent No.1 informed the appellant insurance company that due to machinery fault and extreme irregular electricity supply and low voltage germination has started in potatoes, due to which 81,000 bags had been damaged. Further, requested to assess the loss. On 23.09.2003, preliminary survey of the cold storage was conducted by Shri S.P.Singh. On 25.09.2003, Shri S.P.Singh submitted his report and observed that the cause of loss was irregular and frequent interruption from electricity supply of sub-station Bairiya, and the failure on the part of the insured in not running the D.G.Sets adequately to bring down the temperature within the cold storage, during lack of power supply and low voltage. On 22.10.2003, appellant Insurance Company deputed Shri M.S.Khamesra to conduct final survey. On 10.11.2003, final survey report was submitted by Shri M.S.Khamesra. In the final survey, it was stated that the cause of the loss was non-maintenance of temperature during the loading as well as the holding down period and frequent power failures and non-running of D.G.Sets. On 02.12.2003, repudiation letter was issued by the appellant Insurance Company and the claim was rejected on the following grounds:
(i) As per Chartered Engineer's Report, no loss was found to have been caused by damage in plant and machinery;
(ii) the prescribed temperature was not maintained which constitute breach of warranty condition 6 (i) and 6 (ii);
(iii) the claim was not payable also because during faulty power supply and low voltage the generator was only minimally used, thus violation of condition.
In July, 2004 respondent No.1 filed a complaint Case No.30 of 2004 before the State Commission, against the appellant and respondents No.2 and 3. Respondents No.2 and 3 contested the complaint and in their reply inter alia pleaded that the erratic and low voltage supply of electricity depends on various factors and as such, it was beyond their control and that it is the duty of the cold storage to make alternative arrangements to maintain proper required temperature in the cold storage and that they are not liable to pay any compensation. The appellant contested the complaint and in its reply inter alia pleaded that there is no deficiency in service on their part because on examination of survey report, relevant documents and terms and conditions of the policy, it was established that the insurance claim in question of the respondent No.1 was not payable and accordingly the same was correctly repudiated and duly communicated to the respondent No.1 vide letter dated 02.12.2003. It was further contended in the reply that the policy states that the Company shall indemnify the insured if there occurs an accident to the Refrigeration Machinery described in Schedule I resulting in a rise in temperature in the Refrigeration chambers thereby directly causing damage to the goods described in Schedule II by deterioration, 'putrefaction' or contamination following such accident.
The State Commission vide its order dated 20.08.2010 allowed the complaint as under:-
"17. Accepting the complaint partially, Respondent no.1 The New India Insurance Co. Ltd. is directed to pay the amount of loss assessed by the surveyor Rs.82,59,644.00 with interest @ 6% p.a. to the complainant within two months with receipt of certified copy of the order.
The amount of interest is calculated from the date of filing of the complaint till payment"
Hence the present appeal.
Heard the learned counsel for the parties and perused the record. Learned counsel for the appellant stated that the claim of the complainant was repudiated by the Insurance Company mainly on three grounds. The first ground related to the fact that the claim is only payable when there is rising temperature in the refrigeration chamber on account of any accident due to machinery break down as covered under the machinery break down policy. In the present case, there is no machinery break down. The second point of repudiation was that there was no accident due to any break down of the machinery. The accident is itself defined in the policy and the present case is not covered under the definition of the accident as given in the policy. The claim was also repudiated on the ground of breach of warranty No.6(i) and (ii) and condition No.2 of the policy, which read as under:-
"6. The inured shall take care to see that:
(i) The temperatures inside the cold chambers are brought down to 34 F (1.1 C) in all the floors of all the chambers before the loading commences and
(ii) Further ensure that the temperature in all the Chambers does not exceed 50 F (10 C) during the entire period of loading and 40F (4.4. C) during the subsequent period of storage.
Conditions:
Due observance and fulfilment of the terms, provisions, conditions, warranties and endorsements of this policy shall be a condition precedent to any liability of the Company to make payment under this policy."
It is clear that the electric supply was very erratic and therefore, the temperature could not be maintained by the complainant in the refrigeration chambers. This condition is covered under the exceptions given in the policy, which reads as under:-
"The Company shall not be liable:
.........................................................................
(iii) Any damage to the stocks due to rise or fall in temperature caused by failure of electric supply for whatever reasons."
Learned counsel argued that the case of the complainant is that the temperature could not be maintained in the refrigeration chambers due to erratic supply of electricity as stated in para 8 of the complaint, which reads as under:-
"8. That there was erratic power supply and low voltage in the cold storage of the complainant due to which the complainant had to use the additional generator set. The complaints regarding the said erratic supply was made to the opposite parties no.2 and 3."
The State Commission has also observed that Electricity Department has accepted low voltage and supply of power for 8-10 hours in a day. It was argued by the learned counsel that the damage has occurred due to low voltage and non-supply of the electricity for large periods and the complainant was not able to supply the power to the refrigeration plant on diesel generating sets. The Insurance Company is not responsible under the contract of insurance to ensure uninterrupted power supply to the complainant's cold storage or for any damage occurring due to failure of electric supply. It was argued by the learned counsel for the appellant that it was clearly established from the survey reports and the relevant documents that deterioration of potatoes in the cold storage was not caused due to any accident in Refrigeration Machinery. It was also evident from both the survey reports and the relevant documents that the deterioration of potatoes occurred due to the negligence and failure on the part of the respondent No.1 in not maintaining the temperature within the prescribed limits and that the D.G.Sets were not run adequately during lack of power supply and feeble power supply.
The State Commission has also observed that the surveyor reported that roof of the cold storage was damaged in cyclone on 4.6.2001 and there was a leakage of the chamber No.1. On 10.6.2003, surveyor Shri S.P.Singh and Associates submitted their survey report and in this report in column 9, the surveyor has mentioned that in chamber no.1 the stored potatoes started getting damaged and because of the same, insurance company paid a sum of Rs.2,84,000/- for the repair of the roof of cold storage. On the basis of this fact, the learned counsel argued that the temperature in refrigeration chamber No.1 could not be maintained due to leakage of the chamber and it was the duty of the complainant to have repaired the same on time.
It was further argued by the learned counsel that there is a system of loading the potatoes in the refrigeration chamber, whereas in the present case, the potatoes were already stored prior to taking of the policy. The State Commission has relied upon the judgment of this Commission in United India Insurance Company Limited Vs. Damodar Cold Storage, I (2006) CPJ 77 (NC). It was contended by the learned counsel that in that case, there was a pre-insurance inspection, whereas there was no pre-insurance inspection in the present case. Hence, this judgment cannot be applied in the facts and circumstances of the present case. It was emphasised by the learned counsel that the policy was effective from 10.4.2003, whereas the erratic power supply was reported since March, 2003. Hence, the risk was already continuing before coverage date.
It was further contended by the learned counsel for the appellant that potatoes actually belonged to different farmers and the Insurance Company does not know whether the claims of those farmers have been settled by the complainant under some other insurance. Complainant has not provided this information. Obviously for the same potatoes, claim cannot be settled twice.
On the other hand, learned counsel for the respondent/complainant stated that it is necessary to obtain insurance for stocks kept in the cold storage as per the provision of the cold storage regulations. The complainant tried to run the cold storage during the time of failure of electricity by way of generator set, however, no cold storage can be run totally on the DG set. In fact, the complainant purchased 160 KVA generator set on 9.2.2000 on payment of Rs.5,55,000/- and which was used at the time of shortage of the supply. When the complainant felt necessity on 14.3.2003, he took a 250 KVA generator set on monthly rent of Rs.55,000/-. After this because of the shortage of electricity supply, complainant took second 380 KVA generator set in place of 260 KVA on a monthly rent of Rs.80,000/-. Thus, the complainant has taken all the precautions to maintain the electricity supply to the cold storage, however, it is not possible to run cold storage wholly on the basis of DG sets. The complainant has spent huge amount on the diesel purchased for DG sets. The State Commission has clearly recorded that the policy was issued with failure of electricity supply coverage clause of the complainant for which he has also paid the insurance premium. The State Commission has further observed that due to this clause, the Insurance Company cannot avoid its liability in respect of the damage caused due to short and erratic supply of electricity.
Learned counsel for the complainant contended that it was wrong to say that the loading of the potatoes was not done in accordance with the conditions of the policy. The surveyor has himself noted that while loading, Engineer of the Insurance Company was present, therefore, it cannot be said that the potatoes were loaded before the policy was taken. The complainant has informed the Insurance Company time and again in respect of erratic supply of power, so that Insurance Company is not caught unaware and may take the remediable steps. Finally, it was requested by the leaned counsel for the complainant that the State Commission has considered all the objections raised by the Insurance Company and has finally allowed the claim on the basis of the loss assessed by the surveyor.
I have carefully considered the arguments advanced by the leaned counsel for the parties and have examined the material on record. The State Commission has clearly recorded "failure of electricity" coverage was there and the complainant has paid premium for the same. Obviously, exception clause iii will not be applicable in the present case. It is surprising that though the surveyor has mentioned FOES clause in the introductory remarks about the policy and clause, he has not deliberated upon this clause any further in the report as to what effect this clause will have on the claim. If the failure of electricity supply is covered under the policy, then the Insurance Company cannot take the plea that the Insurance Company will not be liable for any loss or damage due to failure of electricity supply or erratic supply of power. Though the accident has been defined in the policy as sudden break down of machinery, however, the stoppage of the machinery would have the same effect as the sudden break down of the machinery. If the stoppage is due to failure of electricity, which is covered under the policy under FOES clause, in the case of United India Insurance Company Limited Vs. Damodar Cold Storage, (supra), which has been relied by the State Commission, this Commission has taken a view that the damage due to failure of electricity supply will be treated as damage due to accident. As the relevance of uncertainty and suddenness is there as the FOES clause is applicable, I do not intend to discard the decision in United India Insurance Company Limited Vs. Damodar Cold Storage (supra).
I do not agree with the contention of the learned counsel for the appellant that the claim is not payable because loading of potatoes started prior to taking of the policy. First of all, the policy was to be effective on 10.4.2003. It was the duty of the Insurance Company to have inspected the cold storage because the arrival of potatoes was already over by that time and potatoes were already in the cold storage by that time or they were in the process of being stored in the cold storage. If the Insurance Company has issued policy without ensuring the inspection of the cold storage, insurance company cannot take the ground that the potatoes were already stored in the cold storage prior to taking of the policy. The Insurance Company has filed a pre-insurance inspection report dated 26.03.2002 but this is not relevant for the policy in question and it seems to be of the earlier policy. Moreover, the surveyor has reported that the potatoes were stocked in the presence of the engineer of the insurance company. In this situation, clearly, the Insurance Company cannot take the plea that the potatoes were not loaded as per the condition mentioned in the policy.
Now coming to the question of the quantum of Insurance claim, it is seen that the preliminary surveyor has observed the loss to the tune of Rs.70,00,000/- only. Moreover, the final surveyor has observed the following:-
"Log book for period up to 1.4.2003 could not be presented by the Insured for my perusal. The temperature in the chambers was mostly above permissible limits except for the period from 10.5.03 to 11.7.03 from available log books during loading as well as holding period."
The surveyor has further observed the following:
"Nature Extent of loss.
The potato got sprouted in both the Chambers & Chamber no.1 potato finally rotted. The sprouting was first noticed by the Insurer's Inspecting Engineer on 24.8.2003. The Insured has not informed the Insurers about any damage till then."
The surveyor has assessed the loss as follows:-
"Before the time of my survey 68814 Bags/Packets of damaged potato had been thrown out or left in the chamber in the shape of rotted/torn bags & loose scattered potato in Chamber no.1. This could be seen in the photographs taken by the Preliminary Surveyor or one taken by me& enclosed. Looking to the quantity of rotten potato already disposed off, the quantity cannot be verified physically but has been verified from records & seems to be correct in light of the preliminary surveyor's observations.
From Chamber no.-2, 20025 Bags/packets had been safely delivered. The balance 66997 Bags/Packets of potato left in the Chamber is all sprouted. Four photographs taken by me & enclosed herewith and the photographs taken by the preliminary surveyor is self explanatory.
I have fairly assessed the loss at an average rate of salvage in case of sprouted potato as 40% and no salvage (100% loss) in fully rotten potato.
In absence of details of bags and packets of potato, the balance stock is being treated as packets i.e. 50 K each.
Total value of 68814 bags/packets of potato i.e.34407
Qtls potato @ 450 per Qtl. -Rs.1,51,83,150.00
Total value of 666997 bags/packets of potato i.e.33498.5
Qtls potato @ 450 per Qtl. -Rs.1,50,74,323.00
Total value of damaged potato -Rs.3,05,57,475.00
Material salvaged & its value
As stated above salvage value in case of sprouted potato is being taken as 40% i.e. 40% of 15074325
=60,29,730.00
In case of rotten potato nothing could be salvaged but involved expenses of removal from the chambers.
Total value of salvage- Rs.60,29,730.00
Loss after adjustment of salvage:- Rs.2,45,27,745.00
Less Shrinkage & Rottage
@ 5% + 5% =10% Rs.24,52,775.00
Nett loss after adjustment of
rottage & shrinkage Rs.2,20,74,970.00
The RFP policy states that the Insurer will indemnify the Insured in the manner & to the extent hereinafter provided for damage to the stocks described in Schedule-II by contamination and/or deterioration, putrefaction as a result of rise in temperature in the Refrigeration chambers caused by any loss of or damage due to an accident, as defined hereinafter to the Plant & Machinery specified in the Schedule-I and indemnifiable under the Machinery Insurance Policy in force.
As stated earlier the probable cause of the loss is
Non-maintenance of temperature during loading as well as Holding down period of March, April & May 2003.This is breach of Warranty no.6 (i) & 6(ii).
Frequent power failures from the Electric Supply Company & non running of D.G.Sets to compensate them.This is not a cause covered by the terms of the Policy even with FOES coverage
Hence the loss is not payable.
Adequacy of insurance 1. The insured has loaded (C.no.1-43300.7 + Ch.no.-2-47012.8) 90313.5 Qtls of potato against insured quantity of 84480 Qtls. Hence proportionate loss after deduction of rottage & shrinkage
2,20,74,970.00 x 84480 / 90313.5- Rs.2,06,49,111.00
As against market value of 450/- per Qtl., the potato is insured for Rs. 200/- per Qtl.
Hence loss on the sum insured basis is Rs.2,06,49,111.00 x 200/450 = Rs.91,77,383.00
Policy Excess @ 10% = Rs.9,17,738(-)
Though the claim is not payable, the loss
as per policy lines- Rs.82,59,644.00"
So far as loss in refrigeration chamber -1 is concerned, from the observations of the surveyor, it is clear that the surveyor has not verified physical stock in chamber -1 and it was not possible to verify because the potatoes were already disposed of before inspection though he has supported his calculation by stating that he has relied upon the preliminary survey in this regard. Moreover, the roof of the cold storage was damaged and there was leakage in chamber No.1. Thus, apart from erratic supply of electricity, it was possible that due to this leakage, the potatoes started rotting in chamber No.1 much earlier though no information was given to the Insurance Company in respect of rotting of the potatoes as observed by the surveyor. Clearly, the rotting in potatoes in chamber No.1 due to leakage in chamber No.1 cannot be covered under the Insurance policy as it was not due to any machinery break down causing accident. Thus, I am not inclined to allow the loss or damage to the potatoes in chamber No.1 on these two grounds.
Thus, the complainant may be, at the most, entitled to the loss occurred in chamber No.2 where the potatoes started sprouting, but were usable. The surveyor has taken the salvage value of sprouted potatoes at 40% of the actual value. In my view, this value is less, however, in the absence of any data, I would go along with the assessment of the surveyor for the sprouted potatoes in chamber No.2. The surveyor has assessed the loss at Rs.1,50,74,325/-, out of this salvage is 40% of the amount which comes to Rs.60,29,730/-. Further calculation on the lines of the surveyor's calculation would be now as follows:-
) Total loss of potatoes in Chamber No.2 =
Rs.1,50,74,325/-
(ii) Salvage =
Rs.60,29,730/-
(iii) Loss after adjustment of salvage =
Rs.90,44,595/-
(iv) Loss Shrinkage & Rottage
@ 5% + 5% =10% =
Rs.9,04,459/-
(v) Nett loss after adjustment of
rottage & shrinkage =
Rs.81,40,136/-
(vi) Adequacy of insurance 1. The insured has loaded 90313.5 Qtls of potato against insured quantity of 84480 Qtls. Hence proportionate loss after deduction of rottage & shrinkage
8140136 x 84480 / 90313.5 = Rs.76,14,351/-
(vii) As against market value of Rs. 450/- per qtl., the potato is insured for Rs. 200/- per qtl.
Hence loss on the sum insured basis = Rs.33,84,156/-
(viii) Excess @10% = Rs.3,38,415/-
(ix) The loss as per policy lines = Rs.30,45,741/-
Thus, at the most, the Insurance Company is liable to settle the claim of the complainant for Rs.30,45,741/- only.
Based on the above discussion, the First Appeal No.329 of 2010 is partly allowed and the order of the State Commission is modified to the extent that the Insurance Company would be liable to pay only Rs.30,45,741/- instead of Rs.82,69,644/- as ordered by the State Commission. The amount of Rs.30,45,741/- (rupees thirty lacs forty five thousand seven hundred forty one only) will be paid by the Insurance Company along with interest @6% p.a. from the date of order of the State Commission i.e. from 20.08.2010. This order be complied by the Insurance Company within a period of 60 days from the date of receipt of the order.