AI Structured Summary
Not yet generated for this judgment
Judgment
Avm J. Rajendra, Avsm Vsm (Retd.), Presiding 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 08.03.2018 passed by the State Consumer Disputes Redressal Commission, Bangalore, Karnataka (hereinafter to be referred as “the State Commission”), in Consumer Complaint No. 282 of 2014, wherein the Complaint filed by the Complainant (Respondent herein) was partly allowed.
There was a delay of 53 days in filing the Appeal. For the reasons stated in IA/14217/2018, the delay is condoned.
For the sake of Convenience, the parties in the present matter being referred to as mentioned in the Complaint before the State Commission. “M/s. Kamal Tex Fab, Wholesale Cloth Merchants, through its Proprietor Mukesh Jain is referred to as the Complainant. While "Oriental Insurance Co. Ltd.”, is referred to as the Appellant Opposite Party/ Insurer (for short OP) in this matter.
Brief facts of the case as per the Complainant are that the Complainant obtained a Shopkeepers Insurance Policy (SKP Policy) from OP/insurer vide Policy No. 472108/48/2014/681, covering stock in trade to an amount of Rs. 54,00,000/- and furniture and fixtures at Rs. 4,00,000/-.
The Policy was valid from 24.11.2013 to 23.11.2014. On 09.02.2014, during the validity of the policy a fire incident occurred, resulting in damage to the entire shop including burnt articles and furniture worth Rs.2,00,000/- lakhs, as well as the loss of Rs.3,50,000/- in cash. The fire was eventually extinguished by the fire brigade. The Complainant filed an FIR into the incident. Thereafter, the Complainant submitted a claim, estimating the loss at Rs. 87,50,000/-. The OP insurance company appointed 'Shri D Srinivas' as the Surveyor to assess the loss. It was alleged that the Surveyor erroneously applied the ‘average clause’ method and recommended a net loss of Rs.13,52,630/-. Consequently, the OP repudiated the Complainant's claim for Rs. 87,50,000/-. Being aggrieved and alleging the deficiency in service by the OP, the Complainant filed Consumer Complaint No. 282/2014 before the learned State Commission and claimed Rs.87,50,000/- with interest @18% per annum; Rs.2,00,000/- for mental agony; Rs.1,00,000/- for loss due to delay and Rs.1,00,000/- as costs. Despite due notices and appearing through its counsel in the proceedings, the OP failed to submit its version, despite numerous opportunities being afforded. The State Commission, on due consideration of the facts and the circumstances of the case, partly allowed the complaint as follows: -
“ORDER
The above complaint is partly allowed by directing the OP to pay a sum of Rs. 38,72,192/- with interest at the rate of 6% p.a. from the date of complaint till realization to the complainant together with compensation of Rs.25,000/- and cost of Rs.10,000/- within 8 weeks from the date of receipt of copy of this order, failing which the said amount shall carry interest at the rate of 18% p.a.”
Being aggrieved by the order of the learned State Commission, the Opposite Party (Appellant herein) filed this present Appeal with the following prayer:
A. Set aside the impugned judgment and order dated 08.03.2018 passed by the Hon’ble State Commission, Bangalore, in Complaint Case No.282 of 2014.
B. Allow the present First Appeal and award the cost of the Appeal to the Appellant.
C. Pass any other or further order(s) as this Hon'ble Commission deems fit and proper in the facts and circumstances of the present case.
In the present Appeal, the main issues raised are as follows:
(a) The State Commission did not consider that the Surveyor's assessment of Rs. 13,52,630/- was correct, as it was underinsurance case.
(b) The State Commission did not provide any reason or findings for disregarding the surveyor's assessment and the Respondent did not produce any evidence to challenge the survey report.
(c) The State Commission failed to consider the findings of the surveyor's report regarding the value of the stocks held. As per the insured's books of accounts, the stock value was Rs.1,46,85,723/-. However, the insured sum was only Rs. 54,00,000/-. The surveyor physically inspected the damaged material and calculated its value, as well as the value of the salvageable material. Thus, the surveyor determined the under-insurance factor as: (Rs. 54,00,000 ÷ 1,46,85,723 × 38,72,192) = Rs.14,23,821/-. After deducting 5% policy excess, adjusting under-insurance, and deducting the value of the compulsory excess, the surveyor calculated the loss to be Rs. 13,52,630/-. The deduction of Excess clause was as per the terms and conditions of the policy, which state that the first Rs.10,000/- of each loss arising from other perils covered by the policy is not covered. This excess applies per event per insured and was agreed to by the Respondent when the insurance policy was executed.
(e) The Learned State Commission has not considered the survey report, which is a statutory document, submitted by an independent duly licensed surveyor appointed under Section-64UM of the Insurance Act, 1938.
Upon notice on the memo of Appeal, the Respondent did not file any reply/objections to the Appeal and placed reliance on the pleadings before the State Commission.
The learned Counsel for the Appellant/ OP in his arguments reiterated its grounds outlined in at para 7 above and asserted that the maximum liability of insurer is limited to Rs.13,52,630/- as per the survey report, which is a statutory document. This amount is arrived at after due application of Average Clause and other deductions. The learned State Commission has wrongly taken into consideration the entire amount assessed by the surveyor i.e. Rs.38,72,192/- without considering the Average Clause as required for underinsurance. The State Commission failed to consider the survey report by an independent duly licensed surveyor appointed under Section 64UM of the Insurance Act, 1938 and thus holds the status of a statutory report. He further stressed that, in practice, the Survey/Investigation report alone should be sufficient for the learned State Commission to base its final decisions. Further, the State Commission considered the opening stock and concluded that there was no underinsurance, whereas the stock that is required to be taken into consideration should be the stock at the time of loss. The Appellant relies on the following Condition:
“If the property hereby insured shall at the breaking out of any fire or at the commencement of any destruction of or damage to the property by any other peril hereby insured against be collectively of greater value than the sum insured thereon, then the Insured shall be considered as being his own insurer for the difference and shall bear a rate able proportion of the loss accordingly. Every item, if more than one of the policy shall be separately subject to this condition"
Thus, clearly, there has been no deficiency of service on the part of the insurance Company, as it has acted with all due diligence, relied upon the report of the Surveyor, and considered other related documents before repudiating the claim. To support the contentions, the Counsel has referred the following judgments:
a) National Insurance Co. Ltd. vs. Utkal Forest Products Ltd. F.A. No. 237 /2002, decided on.24.11.2003 by NCDRC.
b) United India Insurance Co. Ltd. Vs Roshan Lal Oil Ltd. & Ors., Civil Appeals No.2339/1992 decided on 27.07.1999 by the Hon’ble Supreme Court.
The learned Counsel for the Respondent reiterated the facts of the case and affidavit of evidence filed before the State Commission and argued that despite the Appellant filing their appearance before the learned State Commission, deliberately they abstained from contesting the Complaint for as many as 21 hearing dates. The learned State Commission provided ample opportunities to submit their reply, but they consistently chose not to respond. On the other hand, Appellant had made a false claim on oath that they received the impugned Order for the first time on 10.05.2018. In reality, the Respondent furnished a certified copy of the impugned Order to the Appellant as early as 11.04.2018, and this fact was acknowledged by the Appellant. However, misleading information was stated in the Condonation of Delay Application. He argued that after the unfortunate fire incident on 09.02.2014, over eight years have elapsed and the Respondent has not received any compensation for the losses incurred, despite having insurance coverage. Considering all facts, including the assessment of actual damages, the value of opening stock and other relevant considerations, the decision of State Commission to rule in favour of the Respondent is well-founded.
I have gone through the pleadings and associated documents placed on record and have given thoughtful consideration to the detailed arguments advanced by the both the learned Counsels.
The primary issue and objection raised by the Appellant/OP is that the surveyor's assessment of Rs. 13,52,630/- was correct as it was a case of underinsurance. The OP argued that the State Commission failed to give any reason for findings for disregarding the surveyor's assessment and the Respondent did not produce any evidence to challenge the report. However, the State Commission in its Order and made the following observations: -
“5. Thus, the complainant obtaining Shop Keeper's Insurance Policy from the second OP for a sum insured stock to the extent of Rs. 54.00 lakhs and for furniture and fixtures to the extent of Rs.4.00 lakhs are not in dispute. Likewise, the period of existence of policy from 24.11.2013 to 23.11.2014 is also not in dispute. Similarly, the contention of the complainant that during subsistence of the policy on 09.02.2014 there was a fire accident in the said shop is also not in dispute. The only dispute between the parties is that the surveyor who visited the spot submitted his final survey report as per Ex. C23 by assessing actual loss incurred at Rs.38,72,192/- as against the loss assessed by the complainant at Rs.43,35,495/-. Further surveyor by holding that as per the profit and loss account value of stocks as on the date of loss amounted to Rs.1,46,85,723/- and the policy was undervalued. Thus, opined that application of average clause is proper to assess the liability of the insurance company. As against which the Learned Counsel for the complainant submits that by considering the value of opening stock at Rs.41,58,114/- and the loss which is assessed by the surveyor of the insurance company at Rs.38,72,192/-, it has to be seen that most of the items are covered under the policy were burnt. Hence, he submits that decision rendered by the Hon’ble Supreme Court in the case of I.C. Sharma Vs. Oriental Insurance Co. Ltd. reported in I (2018) CPJ 6 (SC) is applicable. In the said decision at Para 11 it is observed as hereunder.
“11. To clarify, the matter further, we may give another example. Supposing, the insurer owns two "paintings of Rs.5,00,000/- each but pays premium for insurance cover of Rs. 1,00,000/- for both the paintings, if one painting is lost, even though the value of the painting may Rs.5,00,000/- he will not get Rs.1,00,000/- but get only Rs.50,000/-, as proportionate amount. Therefore, when a group of items is insured under one heading and only some of the items and not all items are lost/stolen then the principle of under-insurance will apply. However, if all or most of the items of value covered under the policy are stolen, then the insurance company is bound to pay the value of the goods insured."
Further he submits that as on the date of obtaining the policy the stock in trade was to the extent of Rs.54.00 lakhs only. Further also submits that as on the date of incident also considering the statement given by the surveyor opening stock in trade has to be taken into account and not goods purchased as on that date. Thus, considering the said submission and also decision relied upon by the Learned Counsel for the complainant it is seen that the decision is applicable to the facts and circumstances of the case and application of average clause is not proper. Accordingly, the complainant is entitled for value of the goods lost in fire accident to the extent of goods which were insured. Admittedly, though the value assessed by the complainant at Rs. 87.50 lakhs is not substantiated, considering the report of the surveyor at Ex.C23, the complainant is entitled for total value of goods lost which is less than amount insured. For the sake of ready reference valuation arrived by the surveyor is excerpted hereunder:
Sl.
No.
Description
Qty
Claimed
amount in Rs.
Assessed
Amount in Rs.
Varieties of Sarees & Dress
Material
1.
Fully Burnt
1649
8,44,983
8,44,052
2.
Smoke damages to different
degrees & burnt
6759
32,51,122
29,22,325
3.
Wet damages and affected by
smoke also
423
2,39,390
2,30,743
Total
8831
43,35,495
39,97,120
Less: 2.5% Obsolete items
99,928
Total
38,97,192
Less: Offer of Salvage Value
by insured
25,000
Total Amount
38,72,192
“7. Further, even while calculating average clause the surveyor has mentioned the loss of goods at Rs.38,72,192/-. Thus, the OP is liable to make good the loss to that extent.”
While the learned State commission quoted Para 11 of I.C. Sharma Vs. Oriental Insurance Co. Ltd. cited above, the following other paragraphs of the said Judgement elucidate the principal question involved in this matter further:
“8. The only legal issue which arises for consideration is “what is under-insurance – and the effect thereof?”. Under-insurance basically means that the insured has taken out an insurance policy in which he has valued the insured items for a sum which is less than the actual value of the insured item. In a country like India this is normally done to pay a lesser premium. This is, in fact, harmful to the policy holder and not to the Insurance Company because even if the entire insured property is lost, the policy holder will only get the maximum sum for which the property has been insured and not a paisa more than the sum insured. To give an example, in case a person takes out the householder policy covering fire insurance and gives the value of the structure of his house and goods stored therein at Rs.50,00,000/- even though the value of the same is Rs.1,00,00,000/- then even if the entire house and goods are completely lost in a fire, he cannot get an amount above Rs.50,00,000/- even though the value may be more.
If all the insured goods are lost then there is no problem. The insured is entitled to the amount for which the goods were insured even if that be less than the actual value of the goods. In case a person gets a painting insured for Rs.1,00,000/- though the value of the same is Rs.10,00,000/-, if the painting is lost the insured is entitled to Rs.1,00,000/- only. If all the insured goods falling under one head are stolen or lost then the insurance company cannot apply the principle of averaging out because, though the loss may be Rs.10,00,000/-, the claimant will get only one Rs.1,00,000/- as per the value assessed and the insurance premium paid by him.
The Insurance Company can however apply the principle of averaging out when all the goods are not destroyed. Supposing the entire house was insured for Rs.50,00,000/-, but on valuation it is found that the value of the structure and the goods was Rs.1,00,00,000/- and if the policy holder claims that he has suffered loss of Rs.40,00,000/- then he will be entitled to only Rs.20,00,000/-, by applying the principle of averaging out. What this means is that if the value of the goods is more than the sum for which they are insured then it is presumed that the policy holder has not taken out insurance policy for the un-insured value of the goods. The claim is allowed by applying the principle of averaging out, i.e. the insured is paid an amount proportionate to the extent of insurance as compared to the actual value of the goods insured.
To clarify the matter further, we may give another example. Supposing, the insurer owns two paintings of Rs.5,00,000/- each but pays premium for insurance cover of Rs.1,00,000/- for both the paintings. If one painting is lost, even though the value of the painting may Rs.5,00,000/- he will not get Rs.1,00,000/- but will get only Rs.50,000/-, as proportionate amount. Therefore, when a group of items is insured under one heading and only some of the items and not all items are lost/stolen then the principle of under-insurance will apply. However, if all or most of the items of value covered under the policy are stolen, then the insurance company is bound to pay the value of the goods insured.”
Based on the above discussion and examination of the material on record and the judgment of the Hon’ble Supreme Court in the case of I.C. Sharma (Supra), an insurer is within its right to apply the principle of averaging out when all the goods are not destroyed. However, in the present case the entire shop was gutted down and entire goods held in the shop were stated to be destroyed.
The main issue for consideration is whether the total stocks as on the date were worth Rs.1,46,85,723/-; and whether the amount determined by the Surveyor by applying under-insurance factor and averaging out the payable amount as: (Rs. 54,00,000 ÷ Rs. 1,46,85,723 × Rs. 38,72,192) = Rs.14,23,821/- is correct?
In this regard, the Complainant pleaded that the entire shop got burnt in the fire accident on 09.02.2014 and he preferred a claim of Rs. 87,50,000. The surveyor report reveals that of the said claim, Rs. 43,35,495 pertains to stocks in the shop which was gutted. The surveyor referred to opening stock as Rs.41,58,114, which apparently pertains to the stock held on first day of trading period under evaluation in the report i.e. 01.04.2013. The surveyor report dated 05.05.2014 reveals that the Claimed Amount was Rs.43,35,495 and the Assessed Amount of loss is Rs.38,72,192/-. In the report, the surveyor carefully recorded the Purchases and Sales every month towards Adequacy of Insurance. These details indicate that, over a period of 10 Months, there were regular sales and corresponding purchases. Admittedly, the total sales in over 10 months from 01.04.2013 to 08.02.2014 was Rs.2,76,36,624. The total purchases made from 01.04.2013 to 08.02.2014 was Rs.3,41,63,593. Therefore, the average sales and purchases in a month were about 28 Lakhs and 35 Lakhs respectively.
It is clear from the record that, the purchases are made corresponding to sale of stocks. Therefore, the contention of under insurance of stocks by taking into account cumulative stocks held over the entire period of 10 months and holding that the value of stocks as on the date of loss as Rs.1,46,85,723 and thus applying ‘Average Clause’ to reduce the final claim of the insured is questionable. It has not been established that the actual stocks held by the Complainant have at any time exceeded the insurance cover limit of 54 Lakhs. It is an admitted position as per the survey report that the claimed amount is Rs.43,35,495. That is, when the entire shop having been gutted, that was the value of the stocks held as on the date of the fire accident. Out of the value of the stocks claimed as Rs.43,35,495, the loss assessed by the surveyor in the final report was Rs.39,97,120/-. From this, 2.5% was reduced towards obsolete items amounting to Rs.99,928/-. Further, Rs.25,000/- was also reduced towards salvage value by insured. Thus, the total assessed amount of loss incurred by the Complainant as assessed by the Surveyor is Rs.38,72,192/-.
After considering the submissions and also decisions relied upon by the learned Counsels and the precedent in the case of I.C. Sharma (Supra), it is clear that the principle of underinsurance is inapplicable and thus ‘Average Clause” cannot be applied.
In view of the discussions above, I am of the considered view that the Order dated 08.03.2018 in C.C No.282/2014 passed by the learned State Commission does not suffer any infirmity. Consequently, the F.A. No. 1381 of 2018 is dismissed.
There is no order as to costs. All the pending Applications, if any are disposed of accordingly.
The Registry is directed to release the Statutory deposit amount, if any, in favour of the Appellant on due compliance of this order.