National Consumer Disputes Redressal
M/S. Maja Industries vs United India Insurance Co. Ltd. on 3 November, 2023
NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION NEW DELHI CONSUMER CASE NO. 614 OF 2017 1. M/S. MAJA INDUSTRIES G-59, MEZZANINE FLOOR, RADISSON MARINE ARCADE, MIDDLE CIRCLE, CONNAUGHT PLACE, NEW DELHI-110001 DELHI DELHI ...........Complainant(s) Versus 1. UNITED INDIA INSURANCE CO. LTD. A-1, KIRTI PLACE, TAGORE MARKET, KIRTI NAGAR, NEW DELHI-110015 DELHI DELHI ...........Opp.Party(s)
BEFORE: HON'BLE MR. SUBHASH CHANDRA,PRESIDING MEMBER
FOR THE COMPLAINANT : MR NEERAJ GROVER, MR KASHISH SETHI,
MS SUNIDHI GUPTA, MS AYUSHI CHANDRA,
ADVOCATES FOR THE OPP. PARTY : MR ANIMESH SINHA, MR SHUBHAM BUDHIRAJA
ADVOCATES
Dated : 03 November 2023 ORDER
1.This consumer complaint under section 21(A) of the Consumer Protection Act, 1986 (in short, the 'Act') alleges deficiency in service in delay in repudiation of a claim under the Standard Fire and Special Perils Policy (in short, the 'Policy') issued by the opposite party and seeks settlement of the claim preferred with compensation and other costs.
2. The facts, according to the complainant, are that it is engaged in the manufacture of mosquito repellants called "Allout Mosquito Coils" at its factory located in Kathua which was covered under the said Policy (No. 2216001115P104918835) which was valid from 18.07.2015 to 17.07.2016. The Policy covered Buildings for Rs 2,36,57,000/-, Plant & Machinery for Rs 2,50,54,000/-. Furniture, fixtures and fittings (FFF) for Rs 1,00,000/-, Office Equipment for Rs 3,12,000/-, Computers for Rs 1,00,000/- and Stocks for Rs 1,40,00,000/- and was subject to (a) Reinstatement Value and (b) Designation of Policy clauses. On 07.11.2015 a fire broke out in the factory around 3 am as a consequence of which the stocks, raw material, building, plant and machinery were extensively burnt/damaged. The cause of the fire was ascertained to be a short circuit in the electrical panel of dryer from where the sparks led to a fire in the heat exchanger of the tunnel dryer and spread to the packed material and finished goods near it. Efforts were made to control the fire and the fire brigade and police were informed. Fire tenders from Kathua, Samba, Hira Nagar and Pathankot were deployed but due to the heat generated one side of the building collapsed followed by the other side. The fire was controlled in less than 24 hours. The cause of the fire according to the Fire Brigade and the Police vide letters dated 10.12.2015 was electrical short circuit.
3. Opposite party deputed M/s Unik Insurance Surveyors & Loss Assessors Pvt. Ltd., Mumbai on 10.11.2015 who sought various documents on 14.11.2015 and thereafter on 20.11.2015 for a structural engineer's report to assess why the building collapsed during the fire. The complainant approached the Testing & Consultancy Cell of Guru Nanak Dev Engineering College, Ludhiana, a Government aided institution who after inspection on 02.12.2015 furnished a report that the structural design conformed to the relevant Indian Codes, the tested values met the code specifications for reinforcement steel for Grade Fe 415 (IS 1786:2008) and in the basis of structural designs/drawings, observations, on-site tests and Lab Tests it could be concluded that the capacity of structural material (concrete and reinforcement steel) was badly affected due to extreme heat on account of fire which led to the collapse of the structure. Complainant requested the Surveyor on 01.12.2015 and the opposite party on 16.12.2015 to approve removal of debris to recommence restoration. Change of surveyors was also requested as there was lack of cooperation from them.
4. On 22.12.2015 the surveyor informed about appointment of a Structural Engineer for an expert opinion who took samples from the site on 01.01.2016, with identical samples handed over to the complainant. Tests were conducted at Shraddha Analytical Services, Mumbai who detected smell of kerosene in one sample as per Ash Sample Analysis report no 02976416 dated 23.02.2016. No copy of the test report was shared with the complainant; however, based on the independent surveyor's report dated 02.07.2016, that the presence of hydrocarbon and smell of kerosene in the sample indicated that the building might have been deliberately set on fire and that the building collapsed due to non-compliance with necessary IS building codes. It was also held that the building suffered damage due to an earthquake in the region on 26.10.2015 which was not a covered risk.
5. According to the complainant, all necessary papers had been provided to the surveyors on 17.03.2016 and the matter raised with the opposite party on 04.04.2016 regarding deliberate delay by the surveyors. The assessment of loss on 10.05.2016 by the surveyors was Rs 5,88,53,622/-. Opposite party requested for additional documents on 20.07.2016 and 25.07.2016 which was complied on 26.07.2016. However, the opposite party repudiated the claim on 29.09.2016. No findings were shared with the complainants including the basis of repudiation. Details were obtained through RTI applications and several representations were made to the opposite party to review the matter which were turned down vide mail dated 18.12.2016. The opposite party was informed that since thermic oil was used for heating in the drying furnace, the presence of hydrocarbons was not unusual. According to the complainant, damage due to the earthquake was a presumption by the structural engineer since the earthquake was located in Afghanistan and Pakistan in October, 2015 without any damage in Jammu & Kashmir. There was no provision in the Fire Policy that the building should conform to IS Code for building construction according to the complainant and therefore there was no violation of any policy condition. No concealment of facts had also been done and a ledger of fixed assets had been provided on 19.11.2015 to the surveyors. All required papers had been made available to the surveyors as per the complainant and hence the alleged violation of condition no. 6 of the Policy is denied. The delay in finalizing the claim by the surveyors, on the contrary, is alleged to be a violation of IRDA guidelines. The complainant is before this Commission with the prayer to direct the opposite party to:
(i) pay Rs 5,88,53,622/- with interest @ 18% towards loss due to the fire; (ii) pay Rs 2,00,00,000/- towards damages due to deficiency of services including damages towards loss of profits due to no-restoration of factory operations on account of delay in permission to remove debris; (iii) pay Rs 5,00,000/- towards litigation fees; (iv) pass any other order as may be deemed fit and proper.
6. Upon notice, the complaint was resisted by the opposite party by way of a written statement. Averments of the complainant were denied. Preliminary submissions were made that there was no deficiency in service and the repudiation was based on violation of condition no. 1 (material misrepresentation), condition no. 3 (alteration of risks to the insured property), condition no. 6 (not providing required information and documents), condition no. 8 (adopting fraudulent means and false declarations to receive insurance benefits) and general exclusion no. 12 regarding exclusion of cover due to earthquakes. The repudiation letter is based upon the conclusions of the surveyor which relies upon the report of the structural engineer who concluded the damage to the building due to the earthquake in view of poor construction. The presence of hydrocarbons in the samples according to the surveyor indicate that the fire was deliberately started. It is stated that the complainant delayed in furnishing documents including layout plans of the building. The complainant is stated to not be a 'consumer' under the purview of the Act and therefore the complaint not maintainable. The report of the Guru Nanak Dev Engineering College, Ludhiana is stated to suffer from several deficiencies and hence not relevant. It is contended that the building was dilapidated and needed props and hence a qualified person to oversee debris removal was required and therefore there was no delay or harassment. No reason is found to doubt the findings of the surveyors and the delay in processing the claim is attributable to the complainant according to the opposite party, including the delay in providing structural drawings. Estimation of loss to machinery could not be done as they were crushed by the collapsed debris. The complaint is therefore stated to be mala fide and is stated to have been rightly rejected with reasons in the repudiation letter.
7. Parties led their evidence and filed rejoinder, affidavit, and evidence as well as short synopsis of arguments. I have heard the learned counsel for the parties and carefully considered the material on record.
8. On behalf of the complainant, learned counsel argued that the complainant is a 'consumer' under the Act as per the judgment of the Hon'ble Supreme Court in Regional Provident Fund Commissioner Vs. Shiv Kumar Joshi, (MANU/SC/0774/1999). The complainant had been manufacturing mosquito coils since 2013 and had achieved increasing sales turnover year on year from Rs 6.71 crore to Rs 16.62 in 2014-15. The Policy was on reinstatement basis and required the insurer to make good the entire loss. It was argued that thermic oil was a hydrocarbon and its presence in one out of 3 samples was not unusual since it was used for heating purposes and is a known hydrocarbon. It is alleged that the surveyor had been charge sheeted by the Anti-Corruption Branch, CBI, Mumbai and the adverse report was due to the complainant not acceding to his demands. The structural engineer is stated to have based his report of presumption about the damage to the building by the earthquake in October 2015. Concealment regarding machinery is denied and it is stated that the details had been provided along with the account ledger of fixed assets on 19.11.2015. Debris removal was based on a technical report from M/s HS Build & Suntrack Energy System on 22.12.2015 since the surveyors were delaying the reconstruction of the plant. Claim papers are stated to have been submitted on 17.03.2016. Violation of Policy conditions as contended by the opposite party are denied. The complaint also relies upon various case laws in support of his assertions.
9. Per contra, learned counsel for the opposite party argued that repudiation of the complainant's claim was well considered and based on several violations of Policy conditions by the complainant. The Structural Engineer had held vide his report dated 16.04.2016 that the building was already damaged due to the earthquake of a few days prior to the fire and the subsequent shock waves and the building collapsed due to shortcomings in design and use of sub-grade material in construction and not following proper construction norms since the area was in severe earthquake zone. The debris sample tested at the designated lab showed presence of 'petroleum hydrocarbons' with smell of kerosene which clearly indicate that the fire was deliberately started by the complainant. The Building Plan was not provided to the surveyors although it was provided to the Guru Nanak Dev Engineering College, Ludhiana which was an entity appointed by the complainants. The suggestion to appoint a structural engineer from an Indian Institute of Technology was deliberately ignored by the complainant and was contrary to the instructions of the surveyor. Statements regarding the additional machinery purchased and brought to the factory immediately before the fire were constantly changed by the complainant according to the opposite party and were not supported by any invoices though included in the ledger of machinery submitted vide letter 20.04.2016. The clearance of debris by the complainant on 26.12.2015 is stated to be serve his own malicious intent since the quotation and damaged machinery report obtained from M/s HS Build on 22.12.2015 and from M/s Suntract Energy System on 04.12.2015 was not based on authentic estimates as the debris was still lying on the site. The report of Shraddha Analytical Services is justified by the opposite party as it is based upon a report of samples from the site of the complainant. It is stated that the surveyor's report is categorical in mentioning the presence of 'petroleum hydrocarbons' in the samples and not merely 'hydrocarbons' and that the raw materials used by the insured cannot be reduced to 'petroleum hydrocarbons' under exposure to fire or heat. It is averred that the opposite party did not mechanically rely upon the surveyor's report to repudiate the claim but did so after getting further information through two emails dated 20.07.2016 and 25.07.2016. The surveyor's report is stated to be an essential/integral part of the insurance claim process and the surveyor an independent entity under IRDA regulations, apart from the opposite party being a reputed public sector undertaking.
10. The rival contentions of both parties have been considered in detail. The conclusion of the Surveyor's Report states as follows:
Structural Engineer Report - By Mr Karamchand Savla The report dated 16.04.2016 of the Structural Engineer Mr Karamchand Savla engaged by us is clear and informing most of the facts and findings about components of collapsed building. The report clearly states that the building had collapsed due to non-compliance of necessary IS codes for the region. The construction had flouted the rules and guidelines of IS codes. The report also informs that the fire had definitely started after collapsing of structure. A brief write up on IS Codes is annexed with the report.
Earthquake in the Area Yet another prime factor which drew our attention is the occurrence of an earthquake of considerable intensity (Approx. 7.2 richter scale) (copy of the report is enclosed) in the ara on 26.10.2015. The insured building might have suffered damage during EQ or the impact would have resulted in weakening the entire structure than itself resulting in collapse over a period of time. Further the poor design has added to the damage.
For the notice of underwriters, earthquake is not covered in the policy issued to and held by the insured.
Cause of Loss The insured has reportedly suffered a loss due to fire as informed to us. As per report of Mr Karamchand Savla, the building had collapsed due to inherent short comings in the buildings design and usage of substandard materials in the constructions and building would have collapsed before starting of fire. As mentioned in earlier part of our report, there was an earthquake about 15 days before the fire incident and the building would have not have withstood the intensity of his earthquake as the building was not designed properly and was constructed by using inferior material. Also as one may agree there would normally be settling down of bed post EQ following this mild jolts would repeatedly prevail in the Region. This might also be a reason that the building would have lost its available structural strength. To add up, the presence of metal props observed during our inspection, confirms the efforts made by the insured to hold the falling building.
The above circumstances leads to the conclusion that the building had fallen down before the starting of fire and the cause of loss is only due to peril of earthquake which is not covered.
Moreover, the presence of hydrocarbon and the smell of kerosene in the samples indicated that the building might have deliberately set on fire.
The repudiation letter dated 26.09.2016 reads as under:
Based on the survey and inspection of the site and the report of scientific test results, Mr K L Savla, Structural Engineer submitted his investigation report on 16.04.2016 and was of the following opinion:
The deficit in quality and execution of construction work of factory building was clearly evidence from the test results;
The factory located at Kathua falls under EQ Zone V. The existing structure was neither executed nor designed as per the norms and guidelines for the EQ zone;
The factory appeared to have suffered damage due to earlier incidents of earthquake prior to the present loss. Structural Beam Column joint had failed due to earthquake shock;
Props were seen before removal of debris. Generally props are provided when structure is already dilapidated;
Concrete being poor conductor of heat does not burn/ support fire. After collapse of structure, the oxygen would have got cut off and fire could not have continued due to scarcity of oxygen supply;
The building collapsed due to shortcoming in design and involvement of sub-graded material in making.
Keeping in view the prevailing circumstances, the fire had definitely started after collapsing of structure.
It will also be pertinent to mention here that the surveyors had drawn samples of debris from the site in the presence of your officials and sent for testing at the designated laboratory. The test report reveals presence of Hydrocarbon (Heptane, Octane, Nonane and Decane). The report also mentions that there was smell of kerosene found in the sample. After completing the survey, verification and scrutiny of records made available by you and based on the findings recorded by the Structural Engineer and the Chemical Test Reports of the samples, the surveyors submitted the final survey report on 02.07.2016. Although the surveyors had assessed the loss for Rs.5,88,53,622/- but they concluded that the claim is not tenable as you have not suffered any loss due to the perils insured under the policy and you have not disclosed complete facts. Copy of the surveyor's report has already been shared with you.
11. Admittedly, the opposite party had extended insurance cover to the complainant for the building, plant and machinery, stocks and other material. The incident of fire at the plant is not disputed. However, although the Fire Brigade and the Police authorities have held the cause of the fire to be an electrical short circuit, the opposite party in the letter of repudiation dated 26.09.2016 held that the fire was caused by the complainant through use of kerosene after the building collapsed due to structural infirmities caused by poor construction not conforming to IS Standards relevant for a high seismic zone and prior damage to the building on account of an earthquake in October, 2015 in the region. The opposite party has relied upon the report of Karamchand Savla, the Structural Engineer engaged by the surveyor and concurred with the surveyor's report that held the report of the Guru Nanak Dev Engineering College, Ludhiana appointed by the complainant to be unreliable. The claim has been repudiated on the ground that the fire was not accidental but caused by the complainant after the building collapsed since it was already propped up using wooden supports and the claim was based on concealment of material information, non-disclosure of information and was fraudulent. From the foregoing, it is apparent that the opposite party has primarily based its conclusions and repudiation is based on the findings of the surveyor and, inter alia, on violations of Policy conditions.
13. While the appointment of a surveyor under section 45 of the Insurance Act, 1938 is an essential requirement to settle claims of insurance as held by the Hon'ble Supreme Court in Sri Venkateswara Syndicate Vs. Oriental Insurance Company Ltd. & Anr. in CA No. 4487 of 2004 dated 24.08.2009 (2009) 8 SCC 507, it has also been held by the Hon'ble Supreme Court in New India Assurance Co. Ltd. Vs. Pradeep Kumar (2009) 7 SCC 787 that a surveyor's report is not the last word and that the insurer can depart from it. In the instant case, the conclusion of the cause of fire as per the Fire Brigade was an electrical short circuit. The report of the Surveyor and Loss Assessor appointed immediately after the incident was also that the likely cause was an electrical short circuit. However, the surveyor appointed by the opposite party has concluded that the fire was deliberately started by the complainant after the building collapsed. The logic for the collapse of the building is stated to be a combination of factors involving damage due to earthquake and poor construction based upon the report of the Structural Engineer appointed by the surveyor on the ground that structural designs were not shared with him. The conclusion is therefore, based on surmise and conjecture and not on any verifiable evidence. Hence, this conclusion is not based on verifiable evidence and is therefore, not acceptable.
14. As to the cause of the fire, the conclusion of the surveyor that it was the handiwork of the complainant is based on the report of the laboratory that there was presence of 'petroleum hydrocarbons' in one of the four samples tested and the smell of kerosene. This evidence is not supported by any other evidence to establish this line of reasoning. No witness or evidence is brought on record. The conclusion is conjectural and based on surmises and presumptions as is evident from the report which reads as under:
Chemical Test Report on samples drawn:
Debris samples were drawn from the site in the presence of the insured's officials and the same was tested at designated labs. The test report reveals the presence of foreign items in it and its parameters are entirely different from that of the original standard items used by the insured in manufacturing. In some of the samples there was presence of Heptane, Octane, Nonane, Decane. Presence of these items indicates the presence of petroleum hydrocarbon. There was smell of kerosene in the samples which is highly objectionable and indicates that that the fire was set deliberately with the help of these. The raw materials used by the insured in their business or pertaining to the insured cannot be reduced to the above petroleum hydrocarbons under exposure to fire or heat. In fact, the samples which were provided by the insured only were tested. Copy of test report is enclosed.
This conclusion itself is based upon the surmise that the factory building was damaged by an earthquake measuring 7.2 on the Richter scale but whose epicenter was located in Afghanistan as per the evidence filed by the opposite party in the form of a Wikipedia Report. The surveyor's report that the earthquake and aftershocks damaged the building cannot be accepted in the absence of the production of any evidence of the seismicity of the earthquake in Kathua, the number and intensity of aftershocks experienced, their duration and frequency and the impact on other buildings in the vicinity. No evidence of any local resident to support the averment that the earthquake caused damage in Kathua and details of such buildings has been brought on record.
15. It is evident from the record that the complainant sought a change in the surveyor. As per IRDA Guidelines this is permissible. No reason for not considering this request has been provided by the opposite party. In its short synopsis of arguments, the opposite party has defended the credentials and the independence of the surveyor and stated that allegations have been levelled without any proof. However, a serious aspersion on the integrity of the surveyor supported by a document in support of a charge sheet by the Anti-Corruption Branch of the Central Bureau of Investigation has not been refuted by it.
16. As there were two Expert Reports regarding the structural stability of the building, and the findings were at variance, the opposite party which claims to have considered the surveyor's report objectively, did not choose to either have these reports reviewed independently or appoint another expert. The opposite party has also not brought on record whether the Structural Engineer was a designated laboratory as required under the Act. Its reasoning for rejecting a report by an academic institution approved by the Government over the report of an individual expert has also not been brought on record to establish its contentions of a bona fide and objective assessment of the findings of the surveyor.
17. From an examination of the material on the record and submissions made, it is apparent from the report of the surveyor that the fire was started on the first floor and that the Fire Brigade controlled the fire within a short while as it reached within approximately half an hour and that the operations of fire control cooled the concrete structure. It is also stated that the fire could not have persisted for long thereafter since the collapsed structure would have shut off oxygen to the fire. However, it is also evident from the report of the Structural Engineer Karamachand Savla on 16.04.2016 that the fire was extinguished after 24 hours. The cause of the fire to be a deliberate act by the complainant on the basis of presence of 'petroleum hydrocarbons' in one of the three samples when use of the Thermic Oil in the manufacturing process is admitted by the complainant has not been considered and a generic statement is made that hydrocarbons used in the process cannot be converted to 'petroleum hydrocarbons' due to heat. The conclusion that this, coupled with the smell of kerosene, was evidence that the fire was deliberately lighted by the complainant is difficult to accept in light of the fact that there is no evidence for the presence of kerosene. The surveyor's conclusion with regard to the duration of the fire, therefore, needs to be viewed cautiously. In the absence of any evidentiary basis for these conclusions, they need to be dismissed as conjectural and hypothetical and not based on any verifiable evidence.
18. For the aforesaid reasons, in the facts and circumstances of this case, the reasons for the repudiation of the claim cannot be appreciated. There is merit in the complaint and the same is liable to succeed. Accordingly, this complaint is allowed in part. The assessment by the surveyor, although made without prejudice, is taken to be the basis for allowing the claim. This complaint is disposed of with the following directions:
(i) opposite party no. 1 shall repay the complainant the sum of Rs.5,88,53,622/- with simple interest @ 9% p.a. compensation for till the date of payment;
(ii) this order shall be complied with in 8 weeks failing which the applicable rate of interest shall be 12% p.a.
19. All pending IAs shall stand disposed of with this order.
20. Before parting with this case, it would be appropriate to record that it raises some moot issues regarding the process of insurance by the insurance companies. The grounds of repudiation of the claim indicate that several requirements of approval of the Policy were ignored by the opposite party itself, including the structural stability of the building. Repudiation on the basis of fraud, concealment of material information and misrepresentation are serious allegations which verge on criminal offences. However, neither any evidence of initiating criminal charges against the complainant by the opposite party are brought on record nor any steps to establish liability for such acts of omissions and commissions which have obviously persisted over time since the Policy was in force from earlier. Such steps would also enable potential policy seekers to become aware of the likely outcomes of their policies. The opposite party would be well advised to consider the same.
...................................... SUBHASH CHANDRA PRESIDING MEMBER