United India Insurance Co. Ltd vs M/S. Shital International

Anup K. Thakur, J

This F.A. No.167 of 2012 has been filed by the appellant-OP-United India Insurance Company Ltd. (hereinafter, 'OP') against the impugned order dated 21.11.2011 of the Punjab State Consumer Disputes Redressal Commission, Chandigarh (hereinafter, 'State Commission') passed in C.C. No.9 of 2008.

Briefly, the complaint under section 12 of the Consumer Protection Act, 1986 was filed by the respondent-M/s. Shital International (hereinafter, 'Complainant'), a proprietary concern incorporated in 1978, engaged in the business of manufacturing artificial fur lining, hosiery cloth/fabrics and allied products manufactured from fibers and yarn and thereafter exporting the finished products to destinations abroad. The primary raw materials used in manufacturing of the fabric are acrylic fiber, polyester fiber, yarn etc. The complainant company had insured its plant, machinery, accessories, electrical installations and stocks lying in the factory premises under a Standard Fire and Perils Policy, Extension of Earthquake (Fire and Shock) bearing policy no.201302/11/05/11/00000124 for the period from 31.08.2005 to midnight of 30.08.2006. Besides, factory premises had also been insured for a sum of Rs.35,00,000/- (Rupees Thirty Five Lakh only), plant and machinery for a sum of Rs.29,57,000/- (Rupees Twenty Nine Lakh Fifty Seven Thousand only) and furniture and fittings for Rs.10,00,000/- (Rupees Ten Lakh only) with National Insurance Company Ltd. vide policy No.401112/05/3100000584 for the period from 25.1.2006 to 24.1.2007. Thus, the plant/machinery and accessories were insured for a total sum of Rs.1,79,57,000/- (Rupees One Crore Seventy Nine Lakh Fifty Seven Thousand only) under the above mentioned two policies.

On 23.06.2006, a major fire broke out in the factory premises at 3.50 A.M.Despite efforts by two employees present, the intense fire spread rapidly.Fire Brigade was informed and fire tenders arrived immediately; fire tenders from Kapurthala and Hoshiarpur were also called.Finally, the fire was brought under control after almost five hours.The category of the fire was Class 'A' i.e. a major fire as per certificate of the Fire Department.Extensive damage was caused to the building, plant, machinery, fixtures, fittings and the stocks lying within the factory premises comprising mainly acrylic and polyester material, both highly combustible and therefore completely gutted.

The incident of fire was immediately informed in the morning hours of 23.6.2006 to the office of the OP, the SHO, PS, Division No.1, Distt. Jallandhar, Fire Brigade Office and other concerned authorities.

The OP, on receipt of information, immediately visited the site for inspection.The OP appointed Mr. D. K. Taneja & Associates as the surveyor to investigate and assess the loss suffered by the complainant.The said surveyor appointed by the OP as well as the surveyor appointed by NICL conducted detailed investigations, made inquiries, took samples etc.The investigations of the surveyors found the cause of fire to be electrical short circuit which occurred in one of the electrical motors of carding machine and which then ignited the acrylic fiber lying near the machine.

As per the complaint, the approximate loss suffered by the complainant in respect of the loss of stock viz. finished, semi-finished and raw material was Rs.50,00,000/- (Rupees Fifty Lakh only).Similarly, the loss on account of severe damage of plant and machinery was estimated at Rs.30,00,000/- (Rupees Thirty Lakh only).

Despite full cooperation with the surveyor and despite follow up with the OP, when no relief was forthcoming, the complainant sent a legal notice dated 20.6.2007, inter-alia, calling upon the OP to settle the claim.However, there was no reply.As per the complaint, this non-settlement of the claim amounted to unfair trade practice and gross deficiency in service and caused loss to the complainant on day to day basis, besides immense financial hardship and distress resulting in the unit lying closed.

The complaint thus filed before the State Commission sought directions to the OP to pay Rs.96, 69, 655/- (Rupees Ninety Six Lakh Sixty Nine Thousand Six Hundred Fifty Five only) with pendentelite and future interest @ 18% p.a..

This complaint was contested. Maintainability of the complaint was challenged on the ground that the insurance had been obtained for commercial purpose and the complainant was therefore not a consumer within the meaning of Section 2(1) (d) of the Consumer Protection Act, 1986. It was further contended that the complainant was manipulated, forged and fictitious and had concealed material facts, not disclosing that another fire had also broken out in their other firm namely M/s. Shital Fabric Ltd. on 12.06.2006 at about 04.10 A.M. ie. 11 days before the alleged fire took place. As the Investigator deputed by the OP found that the fire incident had been stage managed, records had been manipulated etc., the claim was repudiated. It was argued that withholding information about another complaint no.47 of 2007 filed before the National Commission regarding the fire of 12.06.2006, was, by itself, sufficient to make the complaint liable for dismissal. Both the fires i.e. one on 12.6.2006 and second on 23.06.2006 were alleged to be stage managed. In this regard, the OP, referred to a complaint from one Shri K. K. Kharbanda who alleged collusion with the surveyors in respect of claims making them fraudulent. This led the OP to appoint Mr. Harjit Singh, a retired IPS Officer, to investigate the case, who investigated and submitted his report on 21.03.2007. Based on his findings, the OP repudiated the claim alleging collusion, mischief and concoction, and further contending that the fire was due not to short circuit but appeared to be a well managed stage show. Further, the OP also contended that since the matter involved serious questions of facts, the complaint was perhaps not maintainable before the consumer forum.

The State Commission, based upon a perusal of the complaint, reply to the complaint, facts, documents produced by both the parties and arguments, vide its impugned order dated 21.11.2011, allowed the complaint, and directed the OP to pay the claim as assessed by Shri D.K. Taneja, the Surveyor vide his final assessment report dated 28.11.2006. It also directed that interest @ 9% p.a. be paid from 29.12.2006 i.e. after one month from the receipt of final survey report. Rs.25,000/- as litigation expenses to the complainant was also directed. All these payments were to be made within 30 days of the receipt of a copy of the impugned order. The State Commission reasoned that in so far as maintainability of the complaint was concerned, the order of the National Commission in the case "Harsolia Motors vs. National Insurance Co. Ltd. I (2005) CPJ 27 (NC) wherein it was held that a contract of insurance is contract of indemnify and therefore there is no question of commerce in obtaining insurance coverage, left no doubt that the complaint was maintainable. To the argument of the OP that the complaint was concocted and concealed material fact, the State Commission reasoned that OP had not produced any evidence nor any fact in it's reply in this regard; whereas, the complainant had pleaded the entire version including the claim, policies, the incident of fire, appointment of surveyor as well as the Investigator in the complaint, and as such, there was no concealment of any material fact. The State Commission noted that the surveyor's report was very exhaustive and that it therefore relied upon it. It noted that there was no dispute between the parties that the complainant also owned another factory i.e. M/s Shital Fabric Ltd., Focal Point, Ext. Jallandhar, where an incident of fire had occurred on 12.6.2006, and which was also investigated and assessed for loss by Shri D.K. Taneja, the surveyor. As for the investigation report of Mr. Harjit Singh, IPS, the investigator appointed by the OP, the State Commission perused the same and concluded that the facts narrated therein were not corroborated by any evidence. For instance, how did the investigator conclude that the fire was managed? In this regard, the State Commission noted that in para 1 of his findings, he mentions that Mr. Rajesh Gupta, Spot Surveyor and Branch Manager, United India Insurance Co. Ltd. Jallandhar were the first to reach the factory on 23.6.2006 immediately after the fire. They were told by the insured that the factory was closed at night and that the fire was observed by the Security Personnel posted near the Carding Machine, who informed the Fire Brigade, immediately. However, no report of fire brigade Jallandhar was attached by the investigator with his report. A perusal of the report of fire brigade did not reveal the name of the person who gave intimation of the fire incident; only the time was mentioned as 3.55 a.m. dated 23.6.2006 and the telephone number as 2291676. Thus, the finding of the investigator that security personnel had informed the fire brigade was without any basis. In this way, the State Commission found that the report of the investigator did not have any evidence attached to support it. It also perused the report of the fire station officer which mentions that intimation of fire was received from police control room and not from Mr. Rana as mentioned by investigator in his report. On the other hand, the State Commission noted that the report of Shri D.K. Taneja, the surveyor was very detailed and inter alia, had substantiated it's conclusion that the fire occurred due to short circuit. This was not the case in the Investigator's report which while mentioning an electrical expert to question short circuit as the cause of fire, failed to annex any report to this effect. The State Commission also referred to two letters written by Shri Harjit Singh dated 11.4.2007 and dated 8.5.2007, extracts of which have been reproduced in the impugned order, which show essentially that upon the OP pointing out some lacunae in his report, instead of rectifying the same, he requested the OP to treat his investigation report dated 21.3.2007 as withdrawn and thereby he disassociated himself from any further developments in respect of the claims.

The State Commission also took note of the fire and the claim against the fire in the sister concern M/s Shital Fabric Ltd.It noted that the investigator Shri S. Arunachalam of Mehta and Padamsey Surveyors Pvt. Ltd., Kolkata had carried out his inquiry between 9th and 14th July, 2008, and found that the surveyor report referred to the fact that both Shri D.K. Taneja and Shri Rajiv Gupta had carried out physical verification of the entire stock of raw materials and work in progress and finished goods held etc. with due diligence.The State Commission felt that this also proved that findings of the investigator Harjit Singh was without any substance.The State Commission has also noted in its order that Harjit Singh, the investigator, despite his best effort to contact Shri K.K. Kharbanda including through a public notice published in a daily Tribune dated 5.1.07 asking Sri Kharbanda to contact him within 10 days after the publication, failing which it shall be presumed that the complaints were baseless and allegations were leveled only to harass all concerned, failed to do so.In response to the above said notice, he did receive a call on 14.1.07 but according to him Shri Kharbanda refused to meet him saying that he could not risk his life.No telephone number of Mr. Kharbanda however has been mentioned in the report of the investigator.So, based on this, the State Commission concluded that the complaint of Shri Kharbanda was false. The State Commission held that Shri Harjit Singh's appointment by the OP on 18.12.2006 i.e. after six months from the incident of fire at very belated stage, was hard to justify.

Again, referring to the order of the National Commission in Complaint No.47 of 2007 filed by the same complainant titled as "M/s Shital Fabrics Ltd. Vs. United India Insurance Co. Ltd. in its order dated 8.7.2009, the State Commission noted that the other two insurance companies namely National Insurance Co. Ltd. and Reliance General Ins. Co. Ltd. had made the payments for the loss in the incident of fire that took place on 12.6.2006 after accepting the reports of the surveyor and ignoring the findings of the investigator Shri Harjit Singh, IPS.It therefore basically felt that appointment of Shri Harjit Singh, the investigator at a very belated stage was not justified.Further, referring to Regulation No.9 of IRDA (Protection of Policy Holder's Interests) Regulations, 2002, which came into force w.e.f. 1.10.2002, the State Commission held that post submission of final survey report dt. 28.11.2006 by Sh. D.K. Taneja to the OP, if the OP did not find the said report incomplete in any way and did not therefore ask the surveyor to furnish any additional report on any specific issue(s) etc., the OP was obliged to offer settlement of claim within 30 days.However, noted the State Commission, even a copy of the survey report was not sent to the insured within 30 days. A copy of the same was annexed with the OP's written reply to the complaint and that is when the survey report became known to the complainant.Thus, the OP had violated Regulation 9 of the IRDA Regulations 2002. The State Commission accordingly allowed the complaint and directed OP to pay as per loss assessed by Shri D.K. Taneja, the surveyor.

This appeal has been filed against this order of the State Commission which has been extensively discussed in paras above. Arguments were heard on behalf of both the appellant/OP and the respondent/complainant and order was reserved on 02.04.2019.

Learned counsel for the appellant/OP submitted the basic admitted facts viz. the insurance policy, and the claim on account of fire caused due to short circuit.He argued that the OP had immediately appointed the surveyor who assessed the loss at Rs.47 Lakh and who also found the cause of fire to be an electrical short circuit.In the interim, the counsel submitted, a complaint was received from one Shri K.K. Kharbanda, alleging that the surveyor was complicit and that collusion between the complainant company and the surveyor was manifest.Then, the OP decided to engage Shri Harjit Singh, a retired police officer, as an investigator.In his report, Sri Harjit Singh assailed the surveyor's report , including the quantum of assessed loss.Based on this, the OP repudiated the claim vide letter dated 5.3.2008 of M/s Shital International, the respondentin the present F.A. No.167 of 2012 as well as in the case of M/s. Shital Fibres Ltd., a sister concern which had also suffered loss on account of a fire on 12.6.2006.In this repudiation letter it has been indicated that Shri Harjit Singh, IPS, had been appointed for investigation of loss. Based on his findings, the OP had concluded that the claim stood repudiated on account of "the sharp deception, deliberately practiced on the company in order to secure unfair and unlawful gain by trickery, manipulation, device and concealment".Under the circumstances, the OP held that clause 8 of the insurance policy which basically provides that 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 OP held in the letter of repudiation that even ignoring this clause in the policy, the fraud in any case would vitiate all transactions and deals.The final submission of the counsel for the appellant was that the claim was repudiated on the basis of this investigation report.

Learned counsel for the respondent, after narrating the basic facts which are not in dispute, submitted that it was after the reports submitted by Shri D.K. Taneja, the duly appointed surveyor, on 29.11.2006, that without any consultation with the complainant, an investigator had been appointed by the OP. Counsel submitted that no clarification nor consultation had been deemed necessary by the OP with the complainant in respect of the autonomous letter of Shri K.K. Kharbanda. Counsel further emphasized Regulation 9 of IRDA making the point that once the surveyor had submitted his final report and the insurance company had accepted it, the regulation requires the claim be settled forthwith within 30 days. However, the OP, instead of resorting to the standard procedure under regulation 9, under which they could have asked the existing surveyor for more investigation or at best, could have appointed another surveyor, they instead chose to appoint an investigating officer, Sri Harjit Singh, an ex police officer. Counsel made two points regarding the investigating officer: (i) after his report was questioned by the OP, he chose to withdraw it and allowed the loss estimated by the surveyor; and (ii) throughout his report, there was no whisper about the charges made by the anonymous complainant. Therefore, the investigation report was quite irrelevant to the settlement of the insurance claim. Counsel also cited some cases where the role of investigator such as the one appointed in the instant case has been commented upon as an exercise being taken which basically was beyond the so appointed investigator's competence. The point being made was that if the OP had reason to suspect any fraud or foul play, as per procedure, it could have appointed another surveyor; however, there was simply no reason to appoint Shri Harjit Singh as an investigator to assess the loss or determine the cause of fire, both areas being outside his competence. Thus, the learned counsel held that the report of the investigator had to be ignored.

Learned counsel then drew attention to the assessment of loss in the surveyor's report wherein it has been stated that the insured, due to paucity of funds had requested to settle the claim on 'depreciated value basis' although the policies had been availed on 'reinstatement value basis'.The final submission of the counsel was that having established that the report of the investigation could not be considered, if fraud is alleged, it has been proved, and the OP has clearly failed to do so.

In rebuttal, the counsel for the appellant pointed out that the investigation officer had withdrawn only from National Insurance Company Ltd., not United India Insurance Co. Ltd., the present appellant.He also pointed out that there was occasion to appoint investigation officer if there was some suspicion, and that, by itself, this was not improper or illegal.

Having heard the counsels and gone through the record, it seems clear that the fact of fire having occurred and the extensive damaged caused are not disputed.What is in dispute is whether there was any malafide in the fire incident or whether it was a simple, unforeseen short circuit, leading to the huge devastation because of the imflammable raw materials in stock.This issue boils down to whether reliance be placed on the report of the surveyor or whether account can also be taken of the anonymous complaint of Shri Kharbanda following which an investigation officer was appointed by the OP.

From the record and the arguments made by the counsels, it is clear that the OP relied only on the investigation report, to the exclusion of the surveyor's report.A bare perusal of the discussion on the subject, as found in the order of the State Commission, is sufficient to establish that this was not the proper way to settle the claim.It is well established that insurance claims are to be investigated and assessed by the surveyors who are qualified and duly licensed to perform the task under IRDA. To ignore the surveyor's report merely because it has assessed the loss and found the claim to be valid, on the basis of an anonymous complaint, is to strike at the very root, the very foundation, of the insurance system of loss indemnification through an independent, qualified and empanelled surveyor, and the laid down standard operating procedure under IRDA regulations. To further ignore the provision of asking the existing surveyor to re-address specific issues, or appoint a second surveyor, and instead opt to appoint an Investigatorwho cannot be said to possess the necessary competence to ascertain the cause of fire or assess the loss due to the fire, was indeed improper.

In view of discussion above, no error of fact or of logic is found in the impugned order of the State Commission. Accordingly, this appeal, on contest, is dismissed and the impugned order of the State Commission is upheld.