National Consumer Disputes Redressal
M/S. Bihari Ganga Hydro Power Ltd. vs New India Assurance Co. Ltd. & Anr. on 8 July, 2020
NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION NEW DELHI CONSUMER CASE NO. 1426 OF 2016 1. M/S. BIHARI GANGA HYDRO POWER LTD. Regd. Off. 32/33, Nehru Place, New Delhi ...........Complainant(s) Versus 1. NEW INDIA ASSURANCE CO. LTD. & ANR. Regd. Off. New India Assurance Building 87, M.G.Road, Fort, Mumbai 400001 2. The New India Assurance Co. Ltd. Through its Divisional Manager, New India Centre, Ground Floor, 17-A, Cooperage Road, Mumbai 400039 ...........Opp.Party(s) BEFORE: HON'BLE MR. PREM NARAIN,PRESIDING MEMBER For the Complainant : Mr. Jawahar Narang, Advocate with Mr. Prashant, Advocate For the Opp.Party : Mr. K.K.Bhat, Advocate Dated : 08 Jul 2020 ORDER This consumer complaint has been filed by the complainant M/s. Birahi Ganga Hydro Power Ltd., against the opposite parties New India Assurance Company Ltd.
2. Brief facts of the case are that the complainant is engaged in the business of generation of power by utilizing the water, had 3 hydro power turbine units of 2.4 MW each at their station. Complainant has purchased an industrial all risk insurance policy for all turbines from the broker of OP to the tune of Rs.70 Crores as material damage & Rs.18 Crores for machinery loss of profit for the period from 11.7.2012 to 10.7.2013 which was issued on 26.7.2012. On 14.7.2012 project manager after hearing abnormal sound dismantled turbine no. 3 & found it damaged due to entry of foreign material. The same was informed to OP & surveyor investigated. Meanwhile, complainant sent the turbine for repair several times but the issue of rise in the temperature kept occurring. Surveyor appointed after prolonged discussion assessed the loss of gross profit of Rs.1,21,43,861/- after applying the rate of gross profit i.e. 89.338% on loss of turnover Rs.1,35,93,165/- & has assessed the net adjusted loss of Rs.81,32,998/-. During the pendency of report, turbine no.2 broke down on 2.9.2012 for similar reason, however, the same was repaired on 22.09.2012. It again got damaged for same reason on 10.10.2012. Another surveyor was appointed who visited the site on 10.11.2012. Surveyor assessed the loss of Rs.55,44,871/- for the period from 2.9.2012 to 22.9.2012 & Rs.65,09,329/- for the period from 10.10.2012 to 31.3.2013 for which the complainant gave its consent. But the surveyor in his report deducted 14 days gross profit which amounted to Rs.94,60,588/- & 38,11,476/-. Thus, the surveyor assessed net loss for these two periods as Nil and Rs.26,97,853/-. Surveyor in his report denied the claim by stating that breakdown was caused due to entry of foreign object, but those defects occurred repeatedly time & again & opined that it indicates about the possibility of faulty or defective design on the part of the manufacturer. Even the first surveyor who assessed the damage to unit no.3, also sent a supplementary report stating that the claim is not payable as there is no claim for material damage. The complainant preferred two insurance claims mainly for loss of business due to breakdown of the two turbines. The first claim in respect of unit No.3 was repudiated by the Insurance Company vide its e-mail dated 15.09.2015 and the second claim has been repudiated vide its letter dated 24.02.2015.
3. Aggrieved by the repudiation, the complainant has filed the present complaint. The complainant has alleged that the turbines were repaired by the supplier of these turbines as they were in the warranty period, hence there was no question of filing any claim for material damage, but the fact is that the loss of business has resulted on account of damage to machinery. The surveyors and the Insurance Company have wrongly interpreted this clause. It has further been alleged that the second surveyor has not correctly assessed the loss, though the first surveyor has assessed the loss in a correct manner. On the advice of the Insurance company, the first surveyor also wrote to the Insurance Company that the claim was not payable as the breakdown of the machinery was due to manufacturing defect and not due to any accident as the units were getting damaged due to same reason i.e. entry of foreign material in the turbines. A surveyor is supposed to survey the site as soon as possible to assess the reason and loss under the incident. A surveyor cannot modify his report on the basis of any other incident, howsoever, similar the incident may be.
4. Both the parties filed their evidence by way of affidavits which have been taken on record. The complainant has in short made the following prayers:
a. To direct OP to pay a sum of Rs.2,41,98,061 [1,21,43,861 + 55,44,871 + 65,09,329] as loss suffered with 18% interest.
b. To direct OP to pay 10 lakh as compensation with 18% interest.
5. The complaint has been resisted by the opposite party by filing the written statement. It has been stated by the opposite party that the complaint is not maintainable in terms of general conditions 5 (ii) of the policy which provides that if a claim is made & rejected & no action is commenced within 12 months, the benefits flowing from the policy shall stand extinguished & any subsequent action would not be maintainable. It has been further submitted that the surveyor has unequivocally stated that even assuming the breakdown by entry of foreign objects but those defects occurred repeatedly time & again & similar defects were also reported in Unit 3. All this was indicative of faulty or defective design or materials. It has been further stated that OEM's carried out the repairs & replacements, free of cost, which proves that they have accepted that the occurrences were caused due to defective design, engineering or materials as provided under the defect liability clause.
6. Heard the Learned counsel for the parties and perused record. Learned counsel for the complainant reiterated the same arguments as mentioned in the complaint. Particularly, the learned counsel mentioned that the first surveyor has clearly recommended the claim for Rs.81,32,998/- and even that claim has not been given by the Insurance Company as the surveyor changed his recommendation later on and stated that the damage has been caused due to design defect in the machine or the material which can be considered as a manufacturing defect. The fact is that the machines worked efficiently for sufficient number of days and therefore it cannot be said that the machine was suffering from any manufacturing defect. There is no such clause in the policy that the loss of profit will not be applicable during the warranty period of machinery given by the supplier. The material damage clause only envisages that there must be some material damage which could be indemnifiable under section A of the policy and in that condition only the loss of profit clause will become applicable and loss will be indemnified under section B of the policy. In fact, the machinery has been repaired by the suppliers under the warranty clause and the burden on the Insurance Company has been reduced and the Insurance Company should be happy to indemnify at least the loss of profit as per section B. Clearly the business interruption has been caused due to damage to the machinery which is the substance of section A of the policy. No claim has been preferred by the complainant on account of loss of profit due to any other reason.
7. It was further stated by the learned counsel for the complainant that the surveyor appointed for the unit number 2 has not correctly assessed the loss. In fact, this surveyor has calculated standard gross profit for the whole plant for calculation purposes whereas this should have been taken for the unit which was damaged as has been done by the surveyor appointed for unit number 3. Learned counsel stated that for the period from 2nd September 2012 to 22nd September 2012, the surveyor has assessed the net loss of profit as nil whereas this seems illogical as the total period of business interruption is for 21 days and the policy deductible is for 14 days. The wrong method adopted by this surveyor is evident from the fact that for 96 days business interruption period, the net loss of profit under section B of the policy for unit number 2 has been assessed as Rs.26,97,853/- whereas the other surveyor assessed net loss of profit for Rs.81,32,998/- for business interruption period of 90 days for unit number 3. It is surprising that two surveyors have adopted two different methods for calculation of loss of profit under section B of the policy and then the Insurance Company should have seen to it that uniform method is applied in both the cases. Clearly the method adopted by this surveyor for assessing the loss of profit in case of unit number 3 seems to be more logical and convincing.
8. On the other hand, the learned counsel for the opposite party Insurance Company reiterated the objections taken in the written statement and stated that when the first damage occurred in unit number 3 on 14th July 2012, it was something new and the surveyor assessed the loss treating the same as an accident, however, when the same thing happened with another unit number 2 twice, it was found that the reason for damage of the machinery was same i.e. entry of a foreign material into the turbine machine therefore, this surveyor and the Insurance Company were bound to apprehend a common defect of design in the machinery or material which was causing damage repeatedly. Hence this surveyor is justified in revising his recommendation.
9. Learned counsel further mentioned that this policy is a combined policy for material damage as well as for loss of profit due to business interruption. It is not only loss of profit due to business interruption policy. Loss of profit due to business interruption is only indemnifiable if reason for business interruption is damage to the machinery indemnifiable under section A of the policy. In fact, the clause reads as under:-
"Section II- Business Interruption Policy No. The Insurers agree that if during the period of insurance the business carried on by the insured at all the premises specified & listed in the Schedule is interrupted or interfered with in consequence of loss destruction or damage indemnifiable under Section I, then the Insurers shall indemnify the Insured for the amount of loss as hereinafter defined resulting from such interruption or interference provided that the liability of the insurers in no case exceeds the total sum insured or such other sum as may hereinafter be substituted therefor by Endorsement signed by or on behalf of the Insurers."
10. It was emphasised by the learned counsel that on the basis of the above, it is clear that the loss of profit due to business interruption is only indemnifiable if there is material damage which is indemnifiable by the Insurance Company. In the present case, there is no material damage indemnifiable under the policy and it is only the loss of profit that has been claimed. In the first case material damage has been claimed for Rs.1,57,250/-, however, due to policy deduction the net claim comes to nil and in the second claim, no material damage has been claimed. Thus, in both the cases, in the absence of indemnifiable material damage, the loss of profit due to business interruption cannot be considered.
11. In respect of the two surveyors adopting different methods for calculating the loss of profit, the learned counsel stated that the calculation of loss has only been done as an exercise for assessing the loss as this assessment is of no use as the claim is not payable under the policy. In fact, the second surveyor has clearly mentioned that the assessment of loss has been done for the record.
12. I have carefully considered the arguments advanced by the learned counsel for the parties and have examined the material on record. The Insurance Company has taken an objection that as per the condition "no. 5(b) of the policy, these claims are not payable. This condition reads as under:-
"5 (b) (ii) In no case whatsoever shall the Company be liable for any loss or damage after the expiration of 12 months from the happening of the loss or damage unless the claim is the subject of pending action or arbitration; it being expressly agreed and declared that if the Company shall disclaim liability for any claim hereunder and such claim shall not within 12 months from the date of the disclaimer have been made the subject matter of a suit in a court of law then the claim shall for all purposes be deemed to have abandoned and shall not thereafter be recoverable hereunder.
13. A larger bench of this Commission in RA No.87 of 2017 in CC/163/2016, Wilhelm Textiles India Pvt. Ltd. Vs. Oriental Insurance Co. Ltd., dated 05.09.2018 has decided that this condition is violative of Section 28 of the Indian Contract Act 1872 and therefore no decision can be taken on the basis of this condition. In fact, the period of limitation of 2 years from the date of cause of action as stipulated in the Consumer Protection Act 1986 is the limitation that will be applicable in the present case. Hence, the claims are not barred by limitation as the same have been filed within two years from the date of repudiation. Though this condition has not been mentioned in the repudiation letter, however, it is necessary to clarify the position as the same has been raised in the written statement of the opposite party.
14. It is seen that the breakdown in unit number 3 occurred on 14th July 2012 and its claim has been repudiated by email dated 15th September 2015. This repudiation reads as under
"As per observations made by the concerned Technical Department, in our Corporate office, the repetitive breakdown of similar nature and in other units leads to conclusion that the machine is of Defective Design and or materials and /or workmanship, which is not covered under the scope of the policy."
15. The breakdown in the machinery has been attributed to the defect in the design of the machinery or in the material or defect in the workmanship. As these defects are not covered under the policy, the claim has not been admitted by the Insurance Company. The concerned clause rates as under:-
"EXCLUSIONS A. EXCLUDED CAUSES
1) This policy does not cover damage to the property insured caused by:
a) i) faulty or defective design materials or workmanship inherent vice latent defect gradual deterioration deformation or distortion or wear and tear."
16. It is seen that the unit number 3 was commissioned on 11th November 2011 as per the report of the surveyor but the insurance policy has been taken on 11th July 2012. It is seen that the proposal for this policy was given on 11th July 2012 and the policy mentions the date of validity from 11th July 2012 to 10th July 2013. It is seen that the policy has been issued on 26th July 2012 and the policy itself mentions receipt number of the premium and the date of receipt which is mentioned as 26th July 2012. If proposal was given on 11th July 2012 and even the premium was not deposited by then and the unit got damaged on 14th July 2012, then it was the duty of the proposer to have informed the Insurance Company about this damage so that the Insurance Company would have refrained from issuing the present policy as the same has only been issued on 26th July 2012. The premium has been received on 26 July 2012 and as per Section 64 VB of the Insurance Act 1938 the risk could not have been accepted by the Insurance Company before the receipt of the premium. As both the parties are at fault in one way or the other, this point has neither been raised in the repudiation letter nor has been raised during the arguments. Here one may argue that the court has only to see the objections taken by the Insurance Company in the repudiation letter. I agree to this proposition, however, if the policy itself is not valid on the date of incident, then, it is the duty of this Commission to examine and go beyond the reason of repudiation because no claim can be supported without a valid insurance policy. Therefore, in my view, it is not necessary to examine the reason of repudiation of this claim as the policy itself was not valid on the day of incident.
17. Now coming to the second claim i.e. for unit number 2, it is seen that the claim is in two parts. The first is for the business interruption period from 2nd September 2012 to 22nd September 2012 and the second is for the business interruption period from 11th October 2012 till 14th January 2013. The claim in respect of unit number 2 has been repudiated wide letter dated 24th February 2015 which reads as under:-
"On receipt of claim intimation we had appointed M/s. Associated Surveyors and Consultants to survey and assess the loss.
As per Survey Report the breakdown has occurred during the defect liability period and repairs/reinstatements have been carried out by the OEMS under the terms of warranty on free of cost basis and the insured has not filed any material damage claim. In view of above we regret our inability to entertain your claim and are compelled to, close the file as "No Claim."
18. The claim has been repudiated only on the ground of lack of claim of material damage. In fact, the surveyor has assessed net loss of profit for the first period from 2nd September 2012 to 22nd September 2012 as nil as policy deductible becomes greater than the actual loss of gross profit which is reflected in the following table:
Sr. No. Particulars Amount(Rs.)
i) Standard Generation for 23 days (Refer point No.17.09 1559241.00
ii) Sales Rate 4.15
iii) Total Amount 6470850.00
iv) Gross Profit Ratio (Refer Annexure-I) 85.69%
v) Assessed Loss 5544871.00
vi) Less: Policy deductible (Refer Para 21) 9460588.00
vii) Net Liability NIL
19. Here, it is important to note the following observation of the surveyor for calculating the policy deductible:-
Sr. No. Particulars Amount
i) Standard generation of the power plant for 23 days (point No.17.09) 4370586
ii) Standard Generation for 14 days (4370586/23x14) 2660357
iii) Sales Rate 4.5
iv) Total Amount 11040481
v) Gross Profit Ratio 85.69%
vi) Policy deductible 9460588.00
20. From the above, it is clear that no fault can be found with the assessment of the loss of profit for the period from 2nd September 2012 till 22nd September 2012.
21. Now coming to the second period from 11th October 2012 till 14th January 2013, the surveyor has assessed the net loss of profit as Rs.26,97,85 3/- as per the following table:-
Sr. No. Particulars Amount
i) Standard generation for 96 days (point No.17.10) 1830450
ii) Sales Rate 4.15
iii) Total Amount 7596369.00
iv) Gross Profit Ratio 85.69%
v) Assessed Loss 6509329.00
vi) Less: Policy deductible 3811476.00
vii) Net Liability 2697853.00
22. Policy deductible has been calculated by the surveyor as per the following table on the same basis on which the surveyor calculated the policy deductible for the first period:-
Sr. No. Particulars Amount
i) Standard generation of the power plant for 96 days (point No.17.09) 7349506
ii) Standard Generation for 14 days (7349506/96x14) 1071803
iii) Sales Rate 4.5
iv) Total Amount 4447982.00
v) Gross Profit Ratio 85.69%
vi) Policy deductible 3811476.00
23. The surveyor has further mentioned in his recommendation as follows:-
"22.01 As mentioned in para 13.01 & 13.02 above, we are of the opinion that the material damage proviso is not satisfied and the breakdown has occurred during the defect liability period and repairs/reinstatements have been carried out by the OEMs under the terms of warranty on free of cost basis and the insured has not filed any material damage claim.
22.02. We have worked out the assessment for the sake of record and even on that basis the net liability is working out to be Rs.26,97,853/- (Rs.Twenty Six Lacs Ninety Seven Thousand Eight Hundred & Fifty three only).
24. From the above observation of the surveyor, it is clear that no claim was filed by the complainant before the Insurance Company for the loss under section A of the policy which relates to material damage.
25. The material damage clause mentioned under the heading "business interruption" only envisages that the loss of profit due to business interruption will only be indemnified if the business interruption is due to any breakdown or damage to machinery which is indemnifiable under section A of the policy. It only means that if the business interruption is caused due to any other factor say employees strike, then the loss of profit due to business interruption would not be indemnifiable. In the present case, it is not the case of the Insurance Company that there was no damage to the machinery. It has also been asserted by the surveyor that the turbines were repaired by the suppliers/manufacturers under the warranty clause. Clearly under the circumstances, there was no need for the complainant company to submit any claim under section A of the policy. In a way, this has lessened the burden on the Insurance Company. So long as the business interruption is due to breakdown of the machinery which is indemnifiable under section A of the policy, the claim under section B of the policy for business interruption cannot be denied. In fact, the material damage clause does not specify that a claim for material damage is a must or precondition for consideration of a claim under loss of profit due to business interruption. The spirit behind the material damage clause seems to be that under an industrial all risk policy loss of profit due to business interruption should only be allowed if there is any breakdown of the machinery and not otherwise. Although a clause in the policy cannot be independently interpreted by any forum, yet if the clause is liable to be interpreted in more than one ways due to its ambiguity, then the interpretation in favour of the insured may be considered for deciding the Insurance claim. In the present case, the clause does not say that submission of a claim under section A is a precondition for considering the claim under business interruption clause. The only criterion is that the business interruption should have been as a result of breakdown or damage to a machinery for which a claim may be indemnifiable under section A of the policy. In the present case, had the complainant submitted a claim for repairs of turbines under section A of the policy to the Insurance Company instead of getting it repaired under the warranty clause with the help of the supplier/manufacturer, then the Insurance Company would have been liable to pay the Insurance claim for the business interruption. Only the indemnifiability of the material damage is to be seen and whether it is indemnified or not is not material. The indemnifiability will only be there if there is a machinery breakdown eligible under section A of the policy. Neither the surveyor nor the Insurance Company has stated that there was no breakdown. In fact, the breakdown of the machinery has been accepted by this surveyor as well as by the Insurance Company. In taking the interpretation which is beneficial to the complainant, I am supported by the judgment of the Hon'ble Supreme Court in United India Insurance Co. Ltd. Vs. Pushpalaya Printers, 2004 CTJ 421 (Supreme Court) (CP) as under:-
"6. ........ It is also settled position in law that if there is any ambiguity or a term is capable of two possible interpretations one beneficial to the insured should be accepted consistent with the purpose for which the policy is taken, namely, to cover the risk on the happening of certain event. Although there is no ambiguity in the expression "impact", even otherwise applying the rule of contra proferentem, the use of the word "impact" in Clause 5 in the instant policy must be construed against the appellant. Where the words of a document are ambiguous, they shall be construed against the party who prepared the document. This rule applies to contract of insurance and Clause 5 of the insurance policy even after reading the entire policy in the present case should be construed against the insurer. A Constitution Bench of this Court in General Assurance Society Ltd. V. Chandumull Jain & Anr. 1966 (3) SCR 500, has expressed that "in a contract of insurance, there is requirement of uberrima fides i.e. good faith on the part of the assured and the contract is likely to be construed contra proferentem i.e. against the company in case of ambiguity or doubt."
26. Based on the above discussion, in my view, the material damage clause does not disentitle the complainant to get its claim for loss of profit due to business interruption on account of breakdown of machinery. For unit No.2, the surveyor has assessed the loss for Rs.26,97,853/- and the details have already been examined in the preceding paragraphs. In fact, the objection of the complainant has already been taken into consideration by the surveyor and the surveyor has not agreed with the objection of the complainant that the loss of gross profit should be calculated unit wise rather than on the basis of the performance of the whole plant. In fact, this surveyor has stated that the policy under consideration does not have departmental clause and the deductible is defined as 14 days of standard gross profit and the gross profit is on overall basis and not on machine basis and thus, this surveyor has worked out the generation loss on the basis of overall standard generation of the plant as a whole and then has worked out the policy deductible. I agree with the stand taken by the surveyor because all the machines are covered under the same policy and there is no such provision in the policy so as to consider the standard gross profit for each machinery. In fact, the surveyor who assessed the loss in unit number 3 has done this mistake and has assessed loss on the basis of half baked accounts and on the basis of loss due to damage to unit number 3. In assessing the loss for unit number 3, the surveyor has considered the audited profit and loss account from 1st April 2012 to 31st July 2012 only whereas the 2nd surveyor has considered the full year profit and loss account which seems to be more logical because in any case, standard gross profit can only be calculated on the basis of the actual profit and loss account which is for the full year. This Commission is not examining the claim for unit number 3 because the policy itself is not valid on the day of damage, otherwise the claim would have been only considered on the basis of the method adopted by the surveyor for assessing the loss of profit for unit number 2 which would have also come to about the same figure as the net loss of profit for unit number 2.
27. On the basis of the above discussion, it is clear that the claim for unit number 3 is not payable mainly on account of the fact that the policy itself was not valid on the day of damage. I have also found that the lack of submission of claim under section A of the policy would not disentitle the complainant for its claim under section B of the policy in the present set of facts and circumstances in respect of unit number 2. Objections raised by the complainant in respect of the assessment done by the surveyor in respect of loss for unit number 2 are not sustainable and the report of the surveyor in respect of unit number 2 seems to be quite reasonable and logical.
28. On the basis of the above examination, the consumer complaint no.1426 of 2016 is partly allowed and the opposite party Insurance Company is directed to pay Rs.26,97,853/- to the complainant along with interest @ 6% p.a. from the date of filing of the complaint i.e. from 1st September 2016 till actual payment. The order be complied by the Insurance Company within a period of 45 days from the date of receipt of the order.
...................... PREM NARAIN PRESIDING MEMBER