National Consumer Disputes Redressal
M/S Chandigarh Distillers & Bottlers ... vs New India Assurance Co. Ltd. on 9 February, 2010
NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION NEW DELHI ORIGINAL PETITION NO. 316 OF 1999 M/s Chandigarh Distillers & Bottlers Ltd. SCO 140-141, Sector- 34 A CHANDIGARH- 160 022. Complainant Versus 1. New India Assurance Co. Ltd. Regd. & H.O. at: New India Assurance Building 87, M.G. Road, Fort MUMBAI- 400 001. 2. New India Assurance Co. Ltd. Divisional Office (350200) SCO 104-106 Sector- 34 A CHANDIGARH- 160 002. 3. New India Assurance Co. Ltd. Direct Agent Branch (350 204) SCO 104-106 Sector- 34 A CHANDIGARH- 160 02. Opposite Parties BEFORE : HONBLE MR.JUSTICE K. S. GUPTA, PRESIDING MEMBER MRS. RAJYALAKSHMI RAO, MEMBER For the Complainant : Mr. S. M. Suri, Advocate For the Opp. Party : Mr. Pramod Dayal, Advocate PRONOUNCED ON : 09 February 2010 ORDER
PER MRS. RAJYALAKSHMI RAO, MEMBER This complaint has been filed by M/s Chandigarh Distillers & Bottlers Ltd. against New India Assurance Co. Ltd. alleging deficiency in service regarding non-payment of the insurance claim.
The complainant M/s Chandigarh Distillers & Bottlers Ltd. is a company engaged in business of dealing/manufacturing IMFL Brands, country liquor, rectified spirit, extra neutral alcohol and de-natured spirit. Complainant had insured the Building, Plant and Machinery, stocks of raw material, finished goods, stock in process, packing materials, stocks of husk/buggasses/sarkanda and several civil construction works with the opposite party under fire policy C covering flood and allied perils, subjected to agreed bank clause, reinstatement value clause FSTI Endorsement and also the perils of spontaneous combustion. Insurance Company issued following policies:
Policy No. Period Coverage Sum Insured Premium 113502000 01.01.98 - plant and Rs.1,983.86 Rs.12,07,101/-
2735 31.12.98 Machinery, Industrial Binding, Plinth Foundations Boundary wallas, Electrical Fittings etc. 113502000 01.01.98 Stocks of raw Rs.460 lacs Rs.3,29,873/-
2736 31.12.98 material, finished goods, stock in process, packing material etc. 113502000 01.01.98 Stocks of husk, Rs.5 lacs Rs.27,730/-
2737 beggas, sarkanda 113502000 15.07.97 Civil construction Rs.38 lacs Rs.10,804/-
2574 14.07.98 works Due to continuous heavy rain on 10.7.1998, around 10:30 a.m. water entered into the factory premises, godown, administrative blocks of the complainant and the entire premises were submerged in 4 to 5 ft. water. Water remained in the factory premises for about 24 hours and then, started receding on 11.7.1998. Despite the best efforts by the complainant to control the water flow by keeping sand bags, extensive damage was caused to the factory, machinery and the raw material.
On intimation, opposite party appointed M/s Thapar, Srinivasan & Kapoor Pvt. Ltd. Surveyors to assess the loss. After the survey, opposite party communicated a settlement of the claim at Rs.28,58,777/- against the claimed amount of Rs.48,83,473/- vide their letter dated 12.7.1999. At the same time, opposite party asked the complainant to submit short charged premium along with penalty for three years, vide letter dated 12.7.1999, amounting to Rs.43,82,384/-. In the letter, it was further stated that the amount be deposited at the earliest to enable them to settle the claim. complainant vide letter dated 19.7.1999 requested the opposite party to provide full details of the aforesaid amount to which opposite party furnished the details vide letter dated 27.7.1999 as under:
Policy No. Amt.
Claimed Adjusted Excess net 11/2735 ----- ---- ----- ---
11/2736 molasses 5,49,668 5,49,668 2,00,000 3,49,668 finished goods 11,54.320 95,900 9,590 86,310 packing etc. 23,76,698 22,82,730 2,28,273 20,54,457 11/2737 5,89,158 4,18,342 50,000 3,63,342
----------------
28,58,777/-
Regarding penalty, policy-wise details were given hereasunder:
Policy No.11/2737 was in order with excess premium of Rs.1915/- ( in lieu of 15% FSR discount). However, revised premium rating details of Pol. No.11/2736 and 11/2735 are as per Annexure. The excess premium of Rs.1,38,482/- under Pol. No.11/2735 is in lieu of FSR discount of 15%.
Finally, for the year 1998, the net premium deficit under Pol No.11/2735, 11/2736 & 11/2737 works out as under:-
Rs.12,35,993-Rs.1,915-Rs.1,38,482 = Rs.10,95,596/-.
As per guidelines, to regularize the policy, penalty has to be collected for the past three years which works about to be Rs.10,95,596 X 3 = Rs.32,86,788/-. Total short charged premium is Rs.32,86,788 + Rs.10,95,596 =Rs.43,82,3843/-.
Learned counsel for the complainant stated that they having the insurance cover from the insurance company since 1989, opposite party, at no stage, took the objection regarding payment of premium.
It is also stated that it was after one year of loss, opposite party suddenly mentioned about the deficiency in payment of premium at the time of settlement of claim. Opposite party instead of settling the claim within three months from the date of loss for delaying the payment, raised the issue of short charged premium along with penalty which shows Unequal Bargaining Capacity of the opposite party. Complainant prayed for the payment of full claim Rs.28,58,777/- with interest at the rate of 24% per annum from 10.10.1998 along with costs of litigation of Rs.50,000/-, other costs of Rs.50,000/- and compensation against mental agony and harassment Rs.3 Lacs.
REPLY OF OPPOSITE PARTY As against this, learned counsel for the opposite party submitted that they deputed M/s Duggal Gupta & Associates for preliminary survey. Later on M/s Thapar Srinivasan & Kapoor Pvt. Ltd. were deputed to conduct the final survey of the loss. M/s Duggal Gupta & Associates issued the preliminary survey report No.DGA/SLA/98/1037 dated 16.7.1998 and M/s Thapar Srinivasan & Kapoor Pvt. Ltd. issued the final survey report no. NIA/98-032/98-99 dated 11.01.1999. Opposite party admitted the claim for Rs.28,58,777/- as per the Surveyors report but during the course of meeting with R.O. and D.O. officials, the rating was found improper in light of the physical situations of various items under the policies as was found at the time of claim giving parawise details and the policy numbers 11/2636 and 11/2735. The Regional Office had already granted 15% fire special rating discount on fire premium rate to the aforesaid risk due to good claim experience, the same had not been passed on to the insured by the concerned Divisional Office. The same had been included in the calculation. In the single year short collection worked out to Rs.12,35,993/- - Rs.1,915/- - Rs.1,38,482 = Rs.10,95,596/-. As per the guidelines to regularize the policy, penalty had to be collected for the past three years, which worked out to be Rs.32,86,788/-.
Therefore, the Total short charged premium came to Rs.43,82,384/-. It is stated that the premium was charged as per information provided by the complainant on the principle of utmost good faith. It was informed at the time of Survey, it was found that on the spot situation was different than what was covered under the policy and hence, short charged premium was raised for the first time. Opposite party has stated that there is no deficiency in service on their part as they were always ready to pay Rs.28,58,777/- subject to correct or short charged premium of Rs.43,82,384/-.
It is stated that the stocks of different types were lying in open at godowns and as such floater @ 25% was chargeable under the tariff. In fire policy the rate for molasses chargeable was 4.80% and the rate for building for fire peril and FS peril was 4.80% and 5.25% respectively as per the tariff. The fire tariff provided that if the insured made any changes affecting the risk, the insurer must be intimated to for the necessary charges in the policy. In such case, an additional premium is chargeable. If at the time of loss it is found that the alteration is effected without being ratified by the insurer it amounts to breach of warranty and conditions of the policy. In such case, the penalty for different of premium for three years will be charged for regularizing the policy and for settlement of the claim. When the inspection was carried out, it was found that certain changes made by the complainant were not informed to the opposite party at any stage and hence the extra premium and the penalty thereon is payable by the insured.
VERSION OF THE COMPLAINANT Learned Counsel for the Complainant, Mr. S.M. Suri, submitted that
1.
Complainant-Co.
had been taking insurance cover since the year 1989 at any stage such objections were raised by the Opposite Party regarding payment of premium.
2. Opposite Party never mentioned about deficiency in payment of premium even after a year of loss but raised it only at the time of settlement of the claim.
3. It is not the case of the Opposite Party that Complainant did not pay the premium or oppose the same with objections.
4. As per the mandate of various judgments of the Supreme Court and also IRDA Rules, the Opposite Party should have settled and paid the claim within a period of three months from the date of loss and thereafter they would be liable to pay interest alongwith miscellaneous expenses.
5. Opposite Party renewed the policy for so many years without carrying risk inspection by their officials. There was not even a whisper or an objection regarding the payment of premium.
6. Massive loss occurred to the Complainant on 10.10.1998 but the Insurance Co. has inadvertently delayed the settlement of claim and then also raised counter claim on the Complainant.
7. Opposite Party is to be held deficiency in service for the actions of omission and commission for not calculating the premium and the Learned Counsel relied on Section 64 VB of the Insurance Act, 1938 which reads as under:
64VB. No risk to be assumed unless premium is received in advance. - (1) No insurer shall assume any risk in India in respect of any insurance business on which premium is not ordinarily payable outside India unless and until the premium payable is received by him or is guaranteed to be paid by such person in such manner and within such time as may be prescribed or unless and until deposit of such amount as may be prescribed, is made in advance in the prescribed manner.
8. Surveyors have estimated the loss which Insurance Co. had accepted and recorded and now they can not take a U turn and impose large amount of penalties and hence entire claim should be paid with interest @ 24%.
Learned Counsel for the Complainant referred to ESYS Information Technologies Ltd. Vs. New India Assurance Co. Ltd., IV(2008) CPJ 20 (NC); New India Assurance Co. Ltd. Vs. HIM Ispat Ltd., IV (2008) CPJ 174 (NC);
United India Insurance Co. Ltd.
Vs. M.K.J. Corporation, III (1986) CPJ 8 (SC); Ginni Filaments Vs. New India Assurance Co. Ltd., I (1998) CPJ 45 (NC).
In the aforesaid judgments, repeatedly it is held that claim should be settled without delay and that while settling the claim, Insurance Co. can not raise the issue of short premium charged.
VERSION OF OPPOSITE PARTY Learned Counsel for the Opposite Party, Mr. Pramod Dayal submitted that-
1. Fire policies are issued in accordance with All India Fire Tariff which had laid Rules and Regulations, rates, advantages, terms & conditions as contained therein, for transaction of Fire Insurance Business in India in accordance with the provisions of part II B of the Insurance Act, 1936. Further, it provided that any breach in the tariff shall be a breach of the Insurance Act. Therefore, a guidelines have been issued imposing duty on the claim settling authority to take of short charge premium if any and penalties to regularize the policy before settlement of claim.
2. Insured had determined the short charged premium and penalty worth Rs. 43,82,384/- taking into consideration the guidelines and any breach of tariff is violation of the Insurance Act.
3. Premium was charged depending upon where the stock was situated; whether inside or outside the premises of the insured.
4. As per the tariff guidelines when an independent surveyor found that the stocks of molasses and husk were situated in open, the premium difference for three years was demanded from the insured.
5. It is mandatory for the claim settling Authority to regularize the policy. The policy has been clear in covering the stocks held within insureds factory built of first class construction whereas insured has left the stock in open which would have attracted higher premium. It is argued that the insured should have informed about the material facts for endorsement/ratification of the policy. Since the Complainant did not inform, the guidelines for collecting short premium penalty becomes binding on the insured.
Learned Counsel for the opposite party has relied upon 64 UA and 64 UB of the Insurance Companies Act 1988.
It is submitted that under this section Advisory Committee would have the power to make rules. These rules are binding upon the insurance company. According to the guidelines of the Insurance Company, the claim which do not qualify as standard claims for various reasons, the following procedure is to be strictly followed:
Compromised claims:
(a) Breach of warranty and / or conditions:
(i) Technical Breach:
For Breach of warranty conditions of technical nature and / or beyond the control of the insured and/ or breaches which are not material to the loss or cause of the occurrences, the policy may rectified by charging correct/ additional premium for the period commencing on the date after the date of the loss.
The claim amount to be paid may be determined on the basis of the assessed claim amount less deduction equivalent to the additional premium chargeable for three years. A part of the amount representing the additional premium payable for un-expired portion of the policy will go towards endorsing the policy for rectifying the position in future and the balance will be adjusted against the claim amount.
Learned Counsel urged that the complaint be dismissed as there is no merit in the same.
FINDINGS Heard the Counsel for both the parties and perused the affidavits and also the surveyors report. In our view, the opposite parties are deficient in service for the following reasons:-
Crux of this case is regarding payment of short charged premium for three years demanded by opposite parties for regularization the policy, and this amount was further subjected to penalty. The insurance company preferred to settle the claim only if the amount is paid by the insured. The Insurance Company cannot demand such exorbitant amount to be paid to them when the policy has already lapsed and after the claim is filed by the Complainant. Admittedly, both the parties have no dispute regarding claim amount of Rs.28,58,777/- based on the surveyors report. The claim has not been settled only because of the difference of the premium short charged for the past three years with penalty which has been calculated to Rs.43,82,384/-.
In this context, we refer to the 199th Report given by Law Commission-
For grant of equitable relief, consumer for a shall take into consideration the following guidelines.
The consumer, a weaker party, has no bargaining power with big insurance companies, big service providers or well-known hospitals. In a contract with such companies many terms or exclusions are added so as to deprive the consumer from getting relief of the reimbursement in case of contemplated peril. Further, as a matter of course, the insurance companies have adopted a practice of not releasing the amount payable to the consumer unless the consumer signs a voucher stating that the amount received is in full and final settlement of the claim. The consumer is compelled to sign the same for various financial constraints including pressure from the person from whom he has taken the loan.
Further, it gave Guidelines for purposes of determining procedural unfairness in the contract The Consumer Fora shall take into account the following circumstances, namely:-
(l) the knowledge and understanding of the promisee in relation to the meaning of the terms thereof or their effect;
(m) the bargaining strength of the parties to the contract relative to each other;
(n) reasonable standards of fair dealing or commonly accepted standards of dealing;
(o) whether, or not, prior to or at the time of entering into the contract, the terms were subject to negotiation or were part of a standard terms contract;
(p) whether or not it was reasonably practicable for the party seeking relief to negotiate for the alteration of the contract or a term thereof or to reject the contract or a term thereof;
(q) whether expressions contained in the contract are in fine print or are difficult to read or understand;
(r) whether or not, even if he or she had the competency to enter into the contract based on his or her capacity and soundness of mind, he or she
(i) was not reasonably able to protect his or her own interests or of those whom he or she represented at the time the contract was entered;
(ii) suffered serious disadvantages in relation to other parties because he or she was unable to appreciate adequately the contract or a term thereof or their implications by reason of age, sickness, physical, mental, educational or linguistic disability, emotional distress or ignorance of business affairs
(s) whether or not independent legal or other expert advice was obtained by the party seeking relief under this Act;
(t) the extent (if any) to which the provisions of the contract or a term thereof or their legal or practical effect were accurately explained by any person, to the party seeking relief under this Act;
(u) the conduct of the parties to the contract in relation to similar contracts or courses of dealing to which any of them had been party; or
(v) whether a party relied on the skill, care or advice of the other party or a person connected with the other party in entering into the contract.
This kind of post mortem evaluation made by Insurance Co. reflects unfair terms of contract between the parties where Complainant does not have equal bargaining power.
The complainant has been taking insurance cover since 1989 onwards. The opposite parties has never raised any objection regarding payment of premium or calculation of the premium when the loss has occurred to the complainant at the time of settlement of the claim, suddenly the opposite parties woke up from their deep slumber and started raising objections regarding calculation error or mistake in charging the premium. If, it is contended that the error or mistake was by oversight, they have to suffer for their act of omission and commission and they cannot wrongfully gain. The complainant has complied with whatever terms and conditions of the contract under the Insurance Act and paid the premium amount. The opposite parties are bound to pay the claimed amount without calling upon the short premium amount along with penalty. This clearly comes under unfair terms of the contract.
Complainants factory was submerged in four to five feet water. It is exactly after one year latter a letter dated 12.07.1999 has been communicated by the opposite party for settlement of the claim at Rs.28,58,777/- as per the surveyors report.. Now, we are in 2010 which is nearly 12 years has elapsed, the opposite parties are still harping on payment of short charged premium for three year along with penalty.
If the insured had filed the claim at admission of the loss itself as the complainant had suffered tremendous financial loss, the only option for the insured is to close the factory and then claim sum from the insurance company. This is an extraordinary case where; both the parties did not dispute the claim amount; there is no dispute regarding surveyors report; there is no dispute regarding continuity of the policy; admittedly, the complainant has been taking the insurance from 1989 from the same opposite party. Every effort made by the complainant to get the claim amount fell on deaf ears of the opposite parties.
We refer to the judgment decided by the Honble Apex Court in Hanil Era Textiles Ltd., vs Oriental Insurance Co. Ltd., and Ors O (2001) I SCC 269 VIII (2000) SLT 500 = (2001) 1 SCC 269 wherein the Insurance Company contended that it had every right to claim any shortage of premium at a later date even after the issue of the policies, if it was found due and recoverable subsequently under the TAC Regulations. The said argument was negated on merits. For this purpose, the Apex Court relied upon the Halsburys Laws of England, Vol. 25, para 458, wherein the following observations are made:
The rate of premium in fact charged may give rise to important inference. The materiality of a representations which has been made may be inferred from a reduced rate of premium being charged. Similarly, ignorance on the part of the insurers of some matter supposed to be well known may be inferred if they charge no more than the ordinary rate of premium, while an exceptionally high rate of premium may be indicative of their acceptance of the risk as hazardous without requiring disclosure of the precise facts making it so.
This case was originally decided by the National Commission and in Appeal, Supreme Court held that additional premium cannot be charged even if it is based on the recommendation of the Tariff Advisory Committee. The Insurance Company cannot charge at a higher rate of premium after the policy has lapsed and the relevant information should have been brought to the notice of the insured before the policy was issued. Apex Court held that - The Insurance Company cannot recover the amount payable under the policy after the validity of the policy as elapsed with short premium. Suffice to say that the matter is squarely covered by the aforesaid judgment.
Apex Court deprecated this practice of recovery of short premium after the policy is lapsed. Law Commission in its 199th Report gave clear guidelines for the purposes of determining procedural unfairness in the contract in Consumer Fora.
The complainant who diligently paid premium from 1989 to 1998, in the hope that the Insurance Co. would indemnify the loss in a reasonable time, instead of getting some relief from the opposite party at the time of dire need he was shocked to receive the letter from the Insurance Co. that the insured in turn needs to pay Rs.43,82,384/- which is more than the double as the settled amount was only Rs.28 lakhs.
Taking clue from the same, we impose cost of Rs. 50,000/- on the Insurance Co. who withheld relevant information regarding premium to be paid to the insured at the time of concluding the contract. In our view, the principle of Uberrima Fides i.e. utmost good faith is equally applicable to Insurance Co. which has flouted this principle themselves and in our view, it is clearly deficiency in service. Their endless delay tactics of nine years caused endless financial loss and agony to the helpless complaint who is on the receiving end.
In view of the aforesaid discussions, we allow the complaint and direct the opposite parties to pay Rs.28,58,777/- from 12.07.1999 till the date of payment with interest at the rate of 10 per cent and Rs. 50,000/- as cost and the order be complied within six weeks from the date of pronouncement of the order.
...J. ( K.S. GUPTA) PRESIDING MEMBER ...
( RAJYALAKSHMI RAO) MEMBER Mk/