United India Insurance Co. Ltd vs M/S. Poongdhai Textiles (P) Ltd

M. Shreesha, J

Aggrieved by the order dated 30.04.2013 in Consumer Complaint No. 10 of 2004, passed by the Tamil Nadu State Consumer Disputes Redressal Commission, Chennai (in short "the State Commission"), M/s. United India Insurance Co. Ltd. (hereinafter referred to as "the Insurance Company") preferred this First Appeal under Section 19 of the Consumer Protection Act, 1986 (in short "the Act"). By the impugned order, the State Commission has allowed the Complaint directing the Insurance Company to pay an amount of Rs.59,14,544/- towards cost of repair together with the interest @ 9% p.a., compensation of Rs.10,00,000/- and costs of Rs.10,000/-.

The facts in brief are that the Complainant Company took a 'Marine Open Cover Policy' Insurance Policy for shipment of Sulzer Projectile Looms on 07.01.2002, paying premium of Rs.26,069/- for a sum insured of Rs.76,00,000/- covering the period from 08.01.2002 to 07.01.2003. It is averred that the Complainant entered into a sale contract with CTE International, Inc, U.S.A for the purchase of 20 numbers of used Sulzer Projectile Looms and wanted to bring the same to India by Sea. The Looms were dispatched by a Vessel named Inda Mex Daj 1151 and the Looms were loaded in five containers and dispatched from Charleston U.S.A. to Tuticorin. The journey commenced on 17.01.2002, with the Looms being loaded in four containers and the spares of the Looms in the fifth container.

While so, the Complainant received information from the shifting agent on 09.02.2002, that the four containers were damaged on account of a bad storm encountered by the ship during the voyage, as a result of which, the containers were off loaded at Port Said Egypt. The same was intimated to the Insurance Company. A Surveyor was appointed at Egypt to survey the damage and on 14.02.2002 an inspection was carried out and the report was received by the Complainant on 25.02.2002. It is averred that on 28.03.2002 the Complainant paid a sum of $7,200/- towards the inspection charges at Port Said Egypt and thereafter the Looms were dispatched from Egypt to the Complainant Company and Surveyor M/s. Rank Associates were appointed by the Insurance Company, who conducted detailed Survey on 03.05.2002, 04.05.2002 and on 07.05.2002 at the Factory premises. On 17.12.2002, the Complainant made a claim for an amount of Rs.59,14,544/- towards the damages occurred during the transit of Looms, but never received any response from the Insurance Company for more than six months. The Complainant got issued a Notice on 10.03.2002 calling upon the Insurance Company to settle the claim and a Legal Notice on 24.06.2003, which was received by the Insurance Company but there was no response. Hence the Complaint seeking the following reliefs:

"a) To pay a sum of Rs.60,00,000/- (Rupees Sixty lakhs only) towards the damages caused to the looms and the containers.

b) To pay a sum of Rs.11,40,000/- (Rupees eleven lakhs forty thousands only) towards interest for the period 17.12.2002 i.e. the date of claim of this date, the filing of this claim petition, at the rate f 12% per annum.

c) To pay a sum of Rs.10,00,000/- (Rupees ten lakhs only) towards damages and mental agony.

d) To pay a sum of Rs.20,000/- (Rupees twenty thousands only) incurred by the complainant so far towards legal fees.

e) To pay interest for Rs.60,00,000/- (Rupees Sixty lakhs only) at the rate of 12% per annum from the date of filing this complaint till the payment is made by the Opposite Party, and pass such further or other orders as this Hon'ble Forum may deem fit and proper in the above circumstances. "

The Insurance Company filed their Written Version admitting to the issuance of 'Marine Open Cover Policy' for a sum of Rs.76,00,000/- and averred that the consignment was of a second hand machinery namely 16 Sulzer Projectile Looms, which was admitted during transit from Charleston Port, U.S.A. to Tuticorin. The damaged Looms, lying at Port Said, Egypt, were initially surveyed on 08.02.2002 and the Surveyors have given a report stating as hereunder:

"Aforesaid four containers found to have bulges, different torn opened across mainly located at side walls due to cargo of heavy weaving machine (used) were slamming against walls when post their fixation with showing wooden rodles inside containers.

Upon opening all above containers, the weaving machines found badly tumbled, turned over and in severe contact with side walls, beside their components were either detached or distorted and scattered over floor. Most machines looses dropped on container floor and partly embedded so that attempt of removing of them for proper repositioning and lashing was in vain. The forklifts used were not powerful enough to shift them."

The findings of M/s. Marine Technical Services Ltd., Cairo, Egypt was quite contrary to what is stated in the report of Mr. Christy Devadoss. The said findings inter alia read as under:

"The only explanation for these damages was the lack of any means of lashing and securing the machines in the container's. i.e., machines were lossely stuffed in the containers."

The Insurance Company in their Written Version have pleaded that considering the nature of the Machine Looms, they cannot be transported by placing one over the another which would led to balancing problem involving sideway movements of turbulence and that the reports of M/s. Marine Technical Services Ltd., Cairo and M/s. Samrat Shipping and Logistics Pvt. Ltd., Tuticorin show that proper steps have not been taken to ensure safe passage by Sea. In the Written Version,The Insurance Company relied on the observation of M/s. Samrat Shipping and Logistics Pvt. Ltd., Tuticorin, which is as follows:

"All containers were loaded within the Contship allocation. The damage was suffered during heavy weather but the underlying suspicion remains that the sequence of events was triggered by Incorrect/ Insufficient lashing of the cargo within the containers. This will be determined by the surveyor in Port Said. It will be necessary to discharge the containers from the vessel and restuff the cargo back into different containers."

It was averred that the Final Survey conducted by M/s. Comtec, Surveyors, Values & Assessors, assessed the damages as Rs.41,85,549/-, but stated that the assessment was only for analytical purpose as the claim does not fall under the scope of the policy. M/s. Rank Associates assessed the damage at Rs.35,00,000/-

It is averred by the Insurance Company that the Policy was issued subject to terms and conditions such as second hand machinery clause. It is further averred that the present claim is excluded vide Clause 3 and 3.3, which is as follows:

"3. Exclusions

In no case shall this insurance cover

3.3 Loss damage or expense caused by insufficiency or unsuitability of Packing or preparation of the subject matter insured. .........."

It is pleaded by the Insurance Company that the Complainant has violated these conditions on account of having transported the Looms keeping the boxes one on top of the other and not ensuring that the boxes were firmly kept and hence their repudiation is justified.

The State Commission based on the evidence adduced and the pleadings put forwarded allowed the claim observing as follows:

"19. On perusal f the pre-inspection report, as well as the inspection report dated.3.7.2002 safely we could come to a conclusion that the contention of the opposite party cannot be taken seriously, and the consignment suffered damage due to violent storm, and when it was under the custody of carriers. In the report in Ex.5 dated.3.7.2002 the damage has been assessed as Rs.35 Lakhs. Though M/s. Comtec, Surveyor, in their report dated. 10.12.2002 assessed the damage to an extent of Rs.41,85,549/-, stated that the claim does not merit scope of cover under the policy. On careful perusal of the reports, we could come to a conclusion that the opposite parties have reached such a decision for repudiating the claim, without any basic materials. While disagreeing with the stand taken by the opposite party, we are of the considered opinion that the complainant is entitled for repair charges claimed under the policy.

The opposite party though was in possession of all the materials, failed to reply to the claim petition and legal notice of the complainant, and only when the complaint was filed before this commission, chosen to reply and we are of the considered opinion that this itself will constitute deficiency of service and negligence.

The National Commission has held in Prakash Road Lines Ltd., Vs. R.S. Chandel reported in 2004 III (NC) CPJ 10 as "when the respondent brought to the notice of the petition did not respond to the demand at that relevant time which amounts to deficiency in service."

Having issued the Insurance Policy, on the basis of pre-inspection report, it is unfortunate that a peculiar stand has been taken, that such inspection was not conducted and such a report is non-existent. Even after receiving a report of surveyor, without even informing the complainant, appointed a second surveyor, which was all along discouraged. In case in Sri Sai Anil Enterprises Vs. Oriental Insurance Co. Ltd., reported in I (2004) CPJ 196, it has been held that "The National Commission has time and again pointed out that the insurance company cannot go on appointing surveyors till they get a favourable report without justifiable cause. We are of the opinion that there is absolutely no justification to appoint a third surveyor having obtained two reports merely because they are not acceptable to the opposite parties. For these reasons we hold that there is deficiency in service, on the part of the opposite parties."

Having held that the opposite party has committed deficiency of service the case of the complainant shall be considered on available materials. Though the report of the surveyors quantify the damages as Rs.35,00,000/- and Rs.41,85,549/- the claim made by the complainant for carrying out the repair is Rs.59,14,544/-. The opposite party having delayed even to reply the legal notice, taken a stand to repudiate the claim on the sole ground that the goods were not properly packed. However failed even to take into account the observation made by their own surveyors that "this type of packing for a second hand machinery can be termed as customary". The opposite party simply ignores the stand report "there was a bad storm when the ship was undergoing voyage" and "the severity of the damage to the parts would clearly indicate how violent the storm had prevailed". The opposite party never bothered to look into the correctness or quantum of claim made by the complainant and this lethargic conduct of a reputed insurance company shows that how casual in handling the claim of consumers. We are of the opinion that the opposite party has not only committed deficiency of service but also highly negligent in considering the claim made by the complaint. Apart from the repair charges, the complainant sought for a relief to levy interest and damages towards mental agony. The complaint is pending consideration for 10 years and we are of the considered opinion that the complainant must be suitably compensated. The point is answered in favour of the complainant."

(Emphasis Supplied)

Learned Counsel appearing for the Appellants vehemently contended that the grounds of repudiation were fully justified as the second hand Looms were not properly packed; that the containers were kept one on top of the other on account of which they were damaged due to the sideways movement on account of turbulence due to the storms; that no damage was caused to the spare parts container; that the huge machines were resting on four bolts only; that there were inconsistencies between the pre-inspection report made by Mr. Christy Devadoss and the findings made by M/s. Rank Associates; that the actual damage is only to the extent of Rs.41,85,549/- and also that the claim does not fall within the scope of the Policy.

The issuance of the Policy, the sum assured , the period of coverage is not in dispute. For better understanding of the case the main grounds for repudiation by the Insurance Company in their letter dated 24.12.2003 is reproduced as herein:

"Even as confirmed by the manufacturer M/s. Sulzer Textile Ltd., the customary packing of the particular model of equipment in question was place two looms in one 40' container and not to place on loom over the other. The machinery of identical make/ model, whether bought as new or as used being of the same dimension, the only prudent method would be to adopt packing/ stuffing procedure as that of the manufacturer, more so when the transportation involves long sea voyage from USA to Tuticorin.

The 19' long looms that too placed one over another had been made to rest on 4 small bolts which on account of lack of holding and also due to the asymmetric and imbalance loom load had caused heave stresses on the bolt fastners, compounded by the sea turbulence which caused the looms to move, collapse and suffer damage besides causing enormous dam age to the Containers themselves.

Further there had been no plastic cover provided to the machines inside the Container as usually adopted by the manufacturer as a result of which the moisture had entered through the torn container walls causing rust apart from the damage otherwise suffered due to the improper stuffing.

It is therefore very clear that the machines had not been properly and adequately packed, loaded or stuffed in the containers. Even minimal protection measures had not been provided to avoid movement of the equipment within the container during transit resulting in the damage.

The Policy clearly excludes liability for damage caused due to inadequacy of packing, which is the sole and direct cause of the loss in the present case. The loss therefore stands excluded from the scope of cover and accordingly the claim is inadmissible.

Hence we regret our inability to admit the claim, which hereby stands repudiated."

It is relevant to mention that the Consumer Complaint was filed in August, 2003, whereas the repudiation was done only in 24.12.2003, which is subsequent to the filing of the Complaint. It is also relevant to mention that the Complainant received the information with respect to the damage of the four containers due to a bad storm on 09.02.2002, a Surveyor was appointed on 25.02.2002, who submitted his finding on the same day stating that the damage was caused because of the machines were loose in the container, on 5.04.2002 consignment arrived at Port Side Egypt and the goods were cleared on 02.05.2002 at Egypt, on 03.05.2002 M/s. Rank Associates were appointed by the Appellant to conduct a spot Survey, estimating the loss of Rs. 35,00,000/-. A final Survey was conducted by M/s. Comtec, Surveyor, who submitted a report on 10.12.2002 and the repudiation took place only on 24.12.2003, which is one year and ten months after the date of incident. Regulation 9 (2) and (5) of Insurance Regulatory and Development Authority (Protection of Policyholders' Interests) Regulations, 2002, are reproduced as hereunder:

"9. Claim procedure in respect of a general insurance policy

(2) Where the insured is unable to furnish all the particulars required by the surveyor or where the surveyor does not receive the full cooperation of the insured, the insurer or the surveyor as the case may be, shall inform in writing the insured about the delay that may result in the assessment of the claim. The surveyor shall be subjected to the code of conduct laid down by the Authority while assessing the loss, and shall communicate his findings to the insurer within 30 days of his appointment with a copy of the report being furnished to the insured, if he so desires. Where, in special circumstances of the case, either due to its special and complicated nature, the surveyor shall under intimation to the insured, seek an extension from the insurer for submission of his report. In no case shall a surveyor take more than six months from the date of his appointment to furnish his report.

(5) On receipt of the survey report or the additional survey report, as the case may be, an insurer shall within a period of 30 days offer a settlement of the claim to the insured. If the insurer, for any reasons to be recorded in writing and communicated to the insured, decides to reject a claim under the policy, it shall do so within a period of 30 days from the receipt of the survey report or the additional survey report, as the case may be."

As per the aforenoted Clauses, the Surveyor should conduct the Survey and submit the report within thirty days of his appointment and the Insurance Company to decide whether to repudiate or settle the claim within 30 days of submission of Survey Report. In the instant case, not only has the Insurance Company not replied to the notice of the Complainant Company dated 10.03.2002 and legal notice dated 24.06.2003. They further chose to repudiate the claim only three months after the filing of the Complaint, which is in violation of Regulation 9 Insurance Regulatory and Development Authority (Protection of Policyholders' Interests) Regulations, 2002.

It is pertinent to mention that nowhere in the Policy, it is mentioned that packing should be done in a particular manner. It is significant to note that the Policy was issued only after a pre-inspection was done by G. Christy Devadoss, Swiss Trained Technician. For better understanding of the same, the pre-inspection report is reproduced as herein:

"Quantity : 16 Nos

Inspection Report: the above looms are thoroughly inspected by me as per the specifications and accessories mentioned in the Proforma Invoice No. 1037 dated 05.11.2001 and found correct and the quantities of accessories per weaving loom mentioned are tallied with the quantity of the same available with each loom.

The loom are in perfect working condition and all the looms are kept standing in the mill floor as they were in operation.

The looms will be re-erected in India and can be put in operation without any additional investment.

Dismantling: After my inspection the looms were dismantled by experienced loading crew for loading. The warp beams bearings were removed from the looms. The heald frames were removed from the looms. The removed parts were kept separately loaded in the fifth container NO: GATU 8031136-Seal No : 1345393.

Packing: These Sulzer looms by themselves are heavy by their self weight. Being second hand loom, they as per the practice are packed one above the other usually and shipped. As there are suitable provisions given by the loom manufacturer able to load one loom above the other loom and secured with heavy bolts and nuts the crews were with proper bushes. All four corners of the looms were secured by the above bolts with their legs.

Each bottom loom was skidded with two heavy wooden blocks (6"X6"X20' length) on both the legs and secured with heavy bolts and nuts.

These heavy wooden blocks are provided for every one set of looms before loading in to the containers. These wooden blocks are provided for smooth loading of the looms in each container besides to arrest the movements of the looms inside the containers.

After the riggers have completed the wooden skidding and loading of one loom above the other, we have started the loading.

Before we start loading the looms, each container was inspected by me thoroughly and found that they are in good condition and no oil or water spilled over the floor of each container. The containers were properly washed and kept clean.

The looms were inside the container by using heavy fork trucks by well experienced Rigging Crew.

First tow looms were kept positioned in the center position of the container and were loaded. After loading first set of two looms, the wooden blocks were strongly arrested with container floor by using heavy nails to arrest the movement of the looms to avoid oscillation movements of the looms, while sailing.

Then further two looms were loaded next to first two set of loom as per the same way with proper care.

The second set of two looms were also arrested properly with heavy nails to avoid the movements of the looms inside the container. In the same way, the wooden blocks were provided between the side walls and surface of the looms. After loading the four looms, I have thoroughly checked the packing of the looms and then container doors were closed and sealed by using proper seal. The seal number of each container and container number and all particulars of containers were recorded by me.

Similarly all the containers were loaded with looms and all dismantled parts were loaded in the fifth container in my presence and guidance only.

The Proforma Invoice and contract were made for 20 looms. But in my presence, 16 looms were only loaded in to the containers apart from accessories in a separate container."

It is only after the inspection was done that the policy was issued for a sum insured of Rs.76,00,000/-, therefore the contention of the Insurance Company that the manner of packing and loading was deficient, is completely untenable. The material on record evidences that the Complainant was ready and willing to transfer the Cargo to a new Container at Port Side Egypt, but the facilities to do the same was not available and the Cargo was carried in the same Container and even at this point of time the Insurance Company was kept well informed, but there was no objection raised.

The Hon'ble Supreme Court in Sri Venkateswara Syndicate Vs. Oriental Insurance Company Limited and Anr. (2009) 8 SCC 507, has laid down the ratio that Insurance Companies cannot appoint one surveyor after the other without assigning any reasons and has deprecated the practice. The Apex Court has specifically observed that the insurer cannot appoint second surveyor as a matter of course and must specify cogent and satisfactory reasons for not accepting the report of the first surveyor. In the instant case the Insurance Company appointed Surveyor M/s. Comtec, Surveyors and M/s. Rank Associates without assigning any reasons.

Another point raised for consideration is that findings given by M/s. Modern Technical Services, Egypt is contrary to the inspection report given by Mr. Christy Devadoss. The material on record shows that Mr. Christy Devadoss was cross examined as CW-1 by the counsel for the Insurance Company, in which the deponent has deposed that he has carefully inspected the looms and was satisfied with the packing of the looms in the containers prior to the dispatched. A specific mention has been made in the Marine Insurance Certificate dated 08.01.2002 that 'the subject document was issued based on the report' now the Insurance Company cannot take the contrary stand that the Complainant did not pack the looms in a proper manner.

A perusal of the report issued by M/s. Rank Associates dated 03.07.2002 shows that there was a specific observation made that 'since the looms are heavy and massive there could be a little lateral movement and this type of packing for a second hand machinery can be termed as customary. The cause of damage was observed as follows:

"Cause of Damage:

Based on the records produced/ documents produced for verification, we were given to understand that there was a bad storm when the ship was undergoing voyage. Since the containers suffered external damage on the sides of the wall, we are of the opinion that the heavy storm might have titled the containers causing lateral movement to the looms (kept in two tiers) and the looms might have lost their centre of gravity and hit against the walls of the containers thus causing damage to the loom parts. It is quite possible that the containers might have been continuously jolted due to the storm and the looms kept in the top tier might have collapsed and during the collapse many of the parts might have been broken and the bottom wooden block hand also broken due to sudden collapse. The severity of the damage to the parts would clearly indicate how violent the storm had pervaded. "

(Emphasis supplied)

Keeping in view the pre-inspection report, the delay in the repudiation, which is in violation of the Regulations of Insurance Regulatory and Development Authority (Protection of Policyholders' Interests) Regulations, 2002 , the Survey Report and also the fact that the Insurance Company has appointed one surveyor after the other without giving any cogent reasons which is not in accordance with the ratio laid down by the Hon'ble Supreme Court in Sri Venkateswara Syndicate (Supra), we are of the considered opinion that there is deficiency of service on behalf of the Insurance Company in repudiating the claim.

Now, we address ourselves to the quantum awarded by State Commission. While, we are of the opinion that an amount of Rs.59,14,544/- awarded by the State Commission is justified, however, we are of the view that an amount of Rs. 10,00,000/- awarded towards compensation is excessive and as interest @ 9% p.a. has already been awarded by way of damages, this amount of Rs.10,00,000/- is set aside.

In the result, this Appeal is allowed in part modifying the order of the State Commission only to the extent of deleting the compensation of Rs.10,00,000/-, which has been awarded. Time for compliance is four weeks from the date of receipt of a copy of this order failing which the amount shall carry interest @ 12% p.a. for the same period. The statutory amount shall stand transferred to the Complainant with accrued interest, if any.

Needless to add, that the amount of Rs.30,00,000/- deposited by the Appellant in terms of the order dated 06.12.2013, shall stand released to the Complainant/ Respondent with accrued interest, if any, and the same shall be adjusted towards the decretal amount.