National Consumer Disputes Redressal
M/S. Npp Energy Limited vs National Insurance Company & Anr. on 10 September, 2024
NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION NEW DELHI CONSUMER CASE NO. 1264 OF 2016 1. M/S. NPP ENERGY LIMITED THROUGH ITS DIRECTOR.
1961/3, ARYA SAMAJ ROAD, NEAR HDFC BANK, NARELA, NEW DELHI-110040. ...........Complainant(s) Versus 1. NATIONAL INSURANCE COMPANY & ANR. 3, MIDDLETOWN STREET, KOLKATA-700071. 2. MACK INSURANCE SURVEYORS AND ASSESSORS (P) LTSD. 14 A, FACTORY ROAD, D-BLOCK BASEMENT, NEAR SAFDARJUNG HOSPITAL, RING ROAD, NEW DELHI-110029. NEW DELHI-110029. ...........Opp.Party(s)
BEFORE: HON'BLE MR. JUSTICE A. P. SAHI,PRESIDENT HON'BLE DR. INDER JIT SINGH,MEMBER
FOR THE COMPLAINANT : MR. BHARAT GARG, ADVOCATE
MR. AAKASH MITTAL, ADVOCATE
MS. SURABHI PANDEY, ADVOCATE
MR. LAKSHMIKANT GARG, ADVOCATE
MS. ARCHANA GARG, ADVOCATE FOR THE OPP. PARTY : MS. MEENAKSHI MIDHA, ADVOCATE
MS. SAMIKSHA GUPTA, ADVOCATE FOR OP-1
OP-2 -EX-PARTE VIDE ORDER DATED 07.02.2017.
Dated : 10 September 2024 ORDER
DR. INDER JIT SINGH, MEMBER
1. The present Consumer Complaint (CC) has been filed by the Complainant against Opposite Parties (OPs) as detailed above, inter alia praying for the following directions:-
(i) direct the OP no.1, the Insurance Company to pay to the complainant a sum of Rs.3,43,43,818/- within the time as may be fixed by this Commission.
(ii) direction the OP No.1 to pay to the complainant interest to the amount of Rs.3,43,43,818/- @24% p.a. w.e.f. 01.09.2014 till the date of payment.
(iii) direct the OPs to pay to the complainant compensation of Rs.10,00,000/- on account of harassment, mental agony etc. caused to the complainant on account of denial of the claim of the complainant by the respondents along with interest @24% p.a. w.e.f. 01.09.2014 till the date of payment.
(iv) cost of the petition/original complaint at the rate of such amount as this Commission deem fit and proper may also be awarded against the respondents.
2. Notice was issued to the OPs on 18.10.2016 giving them 30 days' time to file their written statement. OP-1 filed their written statement on 14.12.2016. OP-2 was proceeded ex-parte vide order dated 07.02.2017.
3. It is averred/stated in the complaint that:-
The complainant took a Fire and Special perils Policy. The duration whereof was from 03.05.2014 to 02.05.2015.The sum insured under the said policy was Rs.2.5 crores in respect of the manufacturing unit at Village Moginand, Kala Amb, District Sirmaur, Himachal Pradesh. This unit was set up approximately in 2004-2005 in addition to a factory which was already in production at Samalkha (Haryana). The unit had a comfortable running business with a substantial turnover. In the year 2012, the Company had a tie-up with M/s. V. Guard and the business was continuing accordingly. The Complainant shifted and transferred its stocks from its Samalkha Unit in Haryana to Kala Amb unit, for which intimation was sent to the Insurance Company on 21.07.2014 for making an endorsement and further increasing the sum insured by Rs.1 Crore. The Insurance Company, accordingly, endorsed the said sum as an additional coverage on 21.07.2014 and issued a cover-note to that effect. During the intervening night of 31.08.2014/01.09.2014, fire occurred in the factory of complainant, located in Village Moginand, Nahan Road, Kala Amb, District Sirmour, Himachal Pradesh. Upon the said incident having occurred, intimation was sent to the Insurance Company and also an FIR was lodged. It is admitted that the First Information Report was lodged on 01.09.2014. The Insurance Company had immediately appointed a preliminary surveyor Mr. Sanjay Gupta, who submitted his report on 08.09.2014. The Insurance Company also intimated and appointed M/s. Mack Insurance Surveyors & Loss Assessors (P) Ltd. through its surveyor Mr. A.K. Govil for conducting final survey. Queries were raised by the surveyor from the Complainant on 13.09.2014. The Opposite Party also appointed an investigator M/s. Royal Associates on 14.09.2014. M/s. Royal Associates received the said intimation on 16.09.2014. After having received the Reply of the Complainant, the final surveyor Mr. A.K. Govil submitted a status report on 17.09.2014 awaiting further documents. All the documents were submitted by the Complainants to the surveyor, yet some documents were still being asked for. Since the cause of the fire was not ascertained, a request was made by the surveyor to the Insurance Company for getting a forensic test conducted through the State Forensic Laboratory. This request was made on 08.01.2015 and a letter was sent to the Senior Superintendent of Police for getting the report of the said test. The laboratory tendered a report on 02.03.2015 clearly stating therein that from the samples collected and sent, no inflammable material was found. With this report also, it was confirmed that there were no external causes or any reason for a suspicion about the fire being deliberate or non-accidental. The unascertained status of the source of fire, therefore, stood clarified with the report of the State Forensic Laboratory. This stand further confirmed with the police report that was submitted on 26.05.2015 that there was no human negligence found for the cause of fire and that there was no short-circuit. The final survey report was submitted on 14.12.2015. The claim was repudiated by the Insurance Company on 31.03.2016. Hence, the complainant filed complaint before this Commission.
4. OP-1 in their written statement/reply stated that:-
The complaint filed by the complainants is not maintainable as there is no deficiency on the part of the OP within the meaning of Section 2(1) (g) of the Consumer Protection Act, 1986. The claim of the complainants has rightly been repudiated by the OP in terms of the policy conditions and the same does not suffer from any infirmity. The said Standard Fire and Special Perils Policy was issued in the name of the complainant-M/s NPP Energy Ltd. covering building, plant, machinery and stocks at the location at Vill. Moginand Teh. Nahan Dist. Simaur, Himachal Pradesh-173001 for a sum of Rs.2,50,00,000/-for the period from 3rd May 2014 to midnight of 2nd May, 2015. Vide endorsement dated 12.08.2014, the complainant requested OP-1 for enhancement of the sum insured by Rs.1 Crore. The fire broke out on the intervening night between 31st August, 2014 and 1st September, 2014. Upon receipt of intimation on 6th September, 2014, the OP-1 immediately appointed Preliminary Surveyor for conducting the preliminary assessment of the alleged loss. The preliminary surveyor submitted its report on 22.09.2014 observing that there were certain unexplained things pertaining to the loss which needed to be thoroughly investigated. In pursuance thereto, the OP-1 appointed OP-2 as Surveyor to survey and assess the loss, who submitted its report on 17.09.2014 observing that despite their detailed inspection, they could not conclude into the cause of fire and therefore advised the OP-1 to get the said aspect thoroughly investigated by a professional investigator. Thereafter, OP-1, on 08.01.2015 requested the Asstt. Director Chemistry and Toxicology Division, HP State Forensic Science Lab. Junga, Simla to investigate thoroughly through forensic examination into the cause of fire. The State Forensic Lab. submitted its report dated 2nd March, 2015 observing that the contents of the parcel was subjected to physical and chemical analysis and no inflammable material was detected in the contents of parcel. On 26th May, 2015, the Station House Officer submitted his enquiry report observing that (i) The SFSL report could not prove any human negligence as no inflammable material is detected from the samples seized, (2) the electric short circuit could not be established as there was no electricity supply available in the factory at the time of fire incident. So at this stage due to long time gap it is not possible to establish the exact cause of fire as requested by the insurance company. In view of the said position with respect to non-establishment of the cause of loss, on 16.09.2014, the OP-1 appointed M/s Royal Associates, Kurukshetra as an Investigator to investigate into the cause of loss alongwith other aspects of the claim, who submitted its report on 4th August, 2015, concluding that from documentary evidence and their investigation that it seems that Moral Hazard of insured is not good. Insured tried to show excess loss of stock to increase claim amount (as they shifted dead stock/old stock from Samalakha to Kala Amb), insurer may deal with claim as per terms and conditions of policy, keeping in view of above said findings. The complainant has not placed on record the Stock Register showing the position of stock lying in the factory. In normal parlance, in the manufacturing units to keep firstly, a record of the incoming material as per the purchase invoice, secondly, the material issued register for using the material in manufacturing and thirdly, the stock register of various items on the daily basis. No stock register of the raw material or the finished material has been annexed by the complainant. In view of the above findings, the OP-1 repudiated the claim. In support of its contentions, in its written version, the Opposite Party-I, relied upon the following judgments:
1) Venkateswara Syndicate v. Oriental Insurance Company Ltd. & Anr. Reported as III (2009) CPJ 81 (SC).
2) New India Assurance Co. Ltd. Vs. Pradeep Kumar reported as 2009 (7) SCC 787.
It is also submitted by the OP-1 that this Commission has no jurisdiction to entertain the present complaint since the amount claimed by the complainant is highly exaggerated, inflated and unsubstantiated with the sole intention of the complainant being to fall within the pecuniary jurisdiction of this Commission. The complainant is seeking monetary reliefs without any justification or evidence of any nature as to what is the actual loss suffered by them, what they actually incurred, what steps they took to mitigate etc. The complainant has not stated the correct and complete facts in the complaint and is guilty of concealment of facts. The policy in question was subject to terms & conditions attached to the policy. Vide letter dated 21.07.2014 the complainant informed the OP-1 that he had shifted his stock from samalkha which was insured under policy No. 46/14/7500000008 against burglary to Moginand Teh. Nahan which was insured under policy No.420201/11/14/3100000020 against fire. Upon request of the complainant dated 12th August, 2014, vide endorsement of the same date, the OP-1 enhanced the sum insured by Rs.1 crore qua the said policy. The case of the complainant is that the entire stock was purported to be damaged by the alleged fire. The Fire Brigade also reported that the cause of fire and the extent of fire cannot be explained. The factory was closed for last more than one month. The insured recently closed their factory at Samalkha and shifted the material to the affected site. The conditions of the material before shifting is also questionable. There is no evidence to suggest presence of batteries or material like plastic shells, which are normally flame proof. The insured is running arrears on electricity bills. The insured could not confirm if the LPG cylinders were authorized and when they were last re-filled. In view of the above findings, the claim was repudiated. On 09.08.2016, the OP-1 received a letter from Punjab National Bank stating that the complainant had taken various credit facilities from the PNB and all the facilities were lying in the NPA Category. In response to the said letter, the OP-1 informed the PNB that the claim of the complainant has already been repudiated by the OP-1 on 31.03.2016.
5. The complainant filed Rejoinder to the written version on 05.06.2017. Evidence by way of affidavit was filed by the complainant on 16.11.2017 and affidavit of evidence was filed by the OP-1 on 27.03.2019 broadly on the lines of averments made in the complaint.
6. The claim of Complainant was repudiated by the Insurance Company mainly on the ground that the fire was not accidental, rather it may have been intentionally caused by the Complainant or their representatives, and that since cause of the loss itself is suspicions and the claim has been advanced by fraudulent means and is grossly exaggerated. Before issuing the formal repudiation letter dated 31.03.2016 read with letter dated 25.04.2016, a show cause notice dated 22.03.2016 was issued by the Insurance Company, contents of which are reproduced below:
Show cause notice dated 22.03.2016
"1. This refers to your letter dated 02/09/2016[1] intimating us about the loss due to fire under the above mentioned insurance policy. On receipt of the intimation the surveyor was deputed to assess the loss and the investigation was also got conducted through the investigator M/S Royal Associates, Kurukshetra.
2. That on going through the survey report and the investigation report, it was found that you could not explain the cause of fire. As per the Standard Fire & Special Perils Insurance Policy, only accidental fire is covered and the fire caused to your unit is not accidental one rather it may have been intentionally caused by you or your representatives and foul play in causing the loss cannot be ruled out. It has been observed that the unit was non-functional for months as the electric connection was disconnected due to non-payment of bills by you which has also been confirmed by electricity deptt.. As the electric supply was not there, the cause of loss cannot be electric short circuit and because there was no manufacturing activity. The cause of loss itself is suspicious and you have failed to explain as to how fire could have occurred.
3. That it is also observed that there was no major fire and some discarded and waste material was damaged in the alleged fire. It is also observed that you used to manufacture batteries only that too for V-Guard only and that too only on the order. It is observed that no manufacturing activity was going on for the last two months prior to loss because the electric connection of the unit was disconnected. It also indicates that there was no stock of raw material or finished goods as when there was no manufacturing activity, hence there was no purpose of keeping the huge raw materials at the time of loss. It may be some junk, waste material and some packing material which was lying at the time of the alleged occurrence of fire.
4. That you have submitted the claim bill for Rs.3,43,43,818/- which is highly exaggerated and the claim has been advanced by fraudulent means and as per condition No. 8 of the insurance policy, all benefits under the policy stands forfeited if the claim is advanced by the fraudulent means, the condition No.8 of the insurance policy reads as under.
"If the claim be in any respect fraudulent, or if any false declarations be made or used in support thereof or if any fraudulent means or devices are used by the insured or anyone acting on his behalf to obtain any benefit under the policy or if the loss of damage be occasioned by the wilful act or the connivance of the insured, all benefits under policy shall be forfeited."
Since the fire has been caused intentionally and the claim has been advance by fraudulent means and is grossly exaggerated. In view of above explained facts, why your claim should not be repudiated. You are hereby given an opportunity to explain your position on above stated fact within period of 7 days from today i.e., 22/03/2016 failing which we will not be left with any other option but to repudiate your claim."
Repudiation letter dated 31.03.2016
"Kindly refer to our letter dated 22/03/2016 vide which we had given you an opportunity to explain your position on the issues mentioned in the said letter. However, we have not received any response from your side.
1. This refers to your letter dated 02/09/2014, intimating us about the loss due to fire under the above mentioned insurance policy. On receipt of the intimation the surveyor was deputed to assess the loss and an investigation was also got conducted through the investigator M/S Royal Associates, Kurukshetra.
2. That on going through the survey report and the investigation report, it was found that you could not explain the cause of fire. As per the Standard Fire & Special Perils Insurance Policy, only accidental fire is covered and the fire caused to your unit is not accidental one rather it may have been intentionally caused by you or your representatives and foul play in causing the loss cannot be ruled out. It has been observed that the unit was non-functional for months as the electric connection was disconnected due to non-payment of bills by you which has also been confirmed by electricity department. As the electric supply was not there, the cause of loss cannot be electric short circuit. Since there was no electric supply available to your unit, there could not have been manufacturing activity at all. The cause of loss itself is suspicious and you have failed to explain as to how fire could have occurred.
3. That it is also observed that there was no major fire and some discarded and waste material was damaged in the alleged fire. It is also observed that you used to manufacture batteries only that too for V-Guard only and that too only on the order. It is observed that no manufacturing activity was going on for the last two months prior to loss because the electric connection of the unit was disconnected. It also indicates that there was no stock of raw material or finished goods as when there was no manufacturing activity, hence there was no purpose of keeping the huge raw materials at the time of loss. It may be some junk, waste material and some packing material which was lying at the time of the alleged occurrence of fire.
4. That you have submitted the claim bill for Rs.3,43,43,818/- which is highly exaggerated and the claim has been advanced by fraudulent means and as per condition No.8 of the insurance policy, all benefits under the policy stands forfeited if the claim is advanced by the fraudulent means, the condition No.8 of the insurance policy reads as under:
"If the claim be in any respect fraudulent, or if any false declarations be made or used in support thereof or if any fraudulent means or devices are used by the insured or anyone acting on his behalf to obtain any benefit under the policy or if the loss of damage be occasioned by the wilful act or the connivance of the insured, all benefits under policy shall be forfeited."
Since you have not responded to our letter dated 22/03/2016, we presume that you have no explanation to offer on the issues raised in the said letter. In the absence of any rebuttal to the contrary from your side, it is presumed that you admit the correctness of the issues raised by us.
5. Since you had not explained the cause of fire and the claim may be advanced by fraudulent means and is grossly exaggerated, your claim stands repudiated as per Condition No. 8 of the insurance policy, which please note."
Letter dated 25.04.2016
"This refers to the letter dated 07-04-2016 sent by Sh. L.K. Garg, Advocate, sent on your behalf, in response to our letter dated 22-03-2016 addressed to you. We wish to inform you that you were requested to reply within 7 days from 22-03-2016 but we did not receive any response from your side and hence your claim was repudiated vide our letter dated 31-03-2016, copy enclosed.
Further, we wish to inform you that the letter 31-03-2016 has been received back to us undelivered though the same was also sent on the same address as the letter dated 22-03-2016. Anyway, the claim is now stands repudiated and a copy of this letter is being sent to your advocate for information, along with the repudiation letter."
7. The claim has been repudiated by the Insurance Co. on account of various reasons/grounds mentioned in their letter dated 31.03.2016 read with show cause notice dated 22.03.2016 and letter dated 25.04.2016, thrust of which is that possibly the fire was not accidental. Hon'ble Supreme Court in a catena of cases (Galada power & Tele Communications Ltd. Vs. United India Insurance Co. Ltd., (2016) 14 SCC 161, Saurashtra Chemicals Ltd. Vs. National Insurance Co. ltd. (2019) 19 SCC 70, JSK Industries (P) Ltd. Vs. Oriental Insurance Co. Ltd. (2022) 17 SCC 340), New India Assurance Co. Ltd. Vs. Mudit Roadways (2014) 3 SCC 193) have held that Insurance Company cannot travel beyond the grounds mentioned in the repudiation letter. In Mudit Roadways (Supra) Hon'ble Supreme Court observed:
"34. Canvassing supplementary arguments during the hearing, (beyond those in the insurer's repudiation letter), is explicitly prohibited. Consequently, it is held that the insurer cannot introduce additional reasoning beyond those detailed in their letter, to justify the repudiation."
Hence, in the paras that follow, we will examine, whether the Insurance Company was justified in repudiating the claim on the grounds mentioned in the repudiation letter dated 31.03.2016 read with show cause notice dated 22.03.2016 and letter dated 25.04.2016.
8. Cause of Fire - Accidental or Intentionally caused by the Complainant/their representatives
The main reasons for repudiation of the claim are that
Complainant could not explain the cause of fire.
The fire was not accidental one rather it may have been intentionally caused by the Complainant/their representatives.
Foul play in causing the loss cannot be ruled out the cause of loss itself is suspicious.
There was no major fire and some discarded and waste material was damaged in the alleged fire.
Claim of Rs.3,43,43,818/- is highly exaggerated and the claim has been advanced by fraudulent means.
9. Cause of Fire - Accidental or Arson
The main reason for repudiation of claim is that the fire was not accidental. If the goods insured are covered under a fire policy, what the insured have to demonstrate is that there was a fire and goods got damaged in such a fire. While he may indicate the probable cause of fire, he may not be in a position to indicate the exact cause of fire, and in our considered opinion, he is under no obligation to establish the exact cause of fire. No doubt, the Insurance Company can ask the insured or on its own, engage any expert agency/experts to ascertain the exact cause of fire, but if despite such efforts, the cause of fire remains unestablished, the Insurance Company cannot deny its liability under the policy on the grounds that exact cause of fire could not be ascertained. If the Insurance Company alleges that the cause of fire was not accidental and the insured was in way responsible/instrumental for such fire, directly or indirectly, the burden of proving so is squarely on the Insurance Company. As was held by Hon'ble Supreme Court in "Bhagwati Prasad Sah & Ors. Vs. Dulhin Rameshwari Kuer & Anr. 1955 SCC 486 the burden of proving a fact is on the party who asserts existence of a particular state of things. Hence, we will also see whether Insurance Company has adduced cogent and reliable evidence in support of the reasons of repudiation mentioned in the letter dated 31.03.2016. In the absence of any cogent and reliable evidence that the fire was not accidental, but caused by the insured himself, the Insurance Company, merely on the basis of suspicion, cannot repudiate the claim. In the absence of evidence to the contrary, the fire is to be treated as accidental only and claim of Insured need to be processed and passed on merits.
10. In Canara Bank Vs. United India Insurance Co. Ltd. (2020) 3 SCC 455, it was held by Hon'ble Supreme Court that the Insurance Company cannot escape its liability if there is nothing to prove that the fire was caused by the insured itself, irrespective of what the cause of fire was. In New India Insurance Co. ltd. Vs. Mudit Roadways (2024) 3 SCC 193, Hon'ble Supreme Court observed.
"50. On the above aspect, Ncdrc has rightly placed reliance on Canara Bank v. United India Insurance Co. Ltd. [Canara Bank v. United India Insurance Co. Ltd., (2020) 3 SCC 455 : (2020) 2 SCC (Civ) 126] , wherein the Court decided to not place reliance on the surveyor's report conducted by M/s Truth Labs, for lack of sufficient analysis and held that : (SCC p. 466, para 17)
"17. In any event, neither in the report of M/s Truth Labs nor in the other reports by the Insurance Company is there anything to show that the insured had set the cold store on fire. Whether the fire took place by a short-circuit or any other reason, as long as insured is not the person who caused the fire, the Insurance Company cannot escape its liability in terms of the insurance policy. We reject the contention of the Insurance Company that the fire was ignited by the use of kerosene and hence it is not liable."
51. Therefore, it was unequivocally declared that the precise cause of a fire, whether attributed to a short-circuit or any alternative factor, remains immaterial, provided the claimant is not the instigator of the fire. This case underscored the fundamental principle that an Insurance Company's obligation to the insured is of much greater import. Ncdrc's judicious application of this binding precedent appears to be well-merited."
(Emphasis Supplied)
11. We heard the learned counsels for both sides at length on various dates and have carefully gone through all the relevant documents, in particular the reports of the Surveyors/Investigators/Forensic Science Laboratory, correspondence of Complainant with Surveyors/Investigator/Insurance Company and other relevant records. A brief analysis of these and the rival contentions of the parties are discussed in the succeeding paras.
11.1 Learned Counsel for the Complainant advanced his submissions contending that the Complainant was not privy at all to the cause of fire and one of the first indications given was in the police report about the fire having been caused due to a electrical short circuit. He however points out that the cause of fire remained unascertained in spite of the fact that a preliminary survey was conducted by Mr. Sanjay Gupta, thereafter by Mr. Harish Chopra then an investigation by Mr. Kashmira Singh and then the submissions of the final survey report by M/s. Mack Insurance Surveyors & Loss Assessors (P) Ltd.
11.2 The submission is that in view of this clear indication about the cause of fire not having been ascertained by the Insurance Company and its surveyors and investigators, the only possibility of the same that can be gathered from the surrounding circumstances is that the fire was accidental but in view of the indications given in the survey report as also in the repudiation letter, the Insurance Company has incorrectly assumed the fire to be not accidental, and has gone further to conclude without any basis that it was intentional.
11.3 The contention is that with the entire material on record, the Insurance Company has been unable to establish that the fire was intentional and was caused on account of any act or omission on the part of the Complainant. The submissions that this assumption is based on surmises and conjectures in the absence of proof worth the name, and consequently the repudiation on this ground cannot be sustained. He therefore submitted that the repudiation clearly amounts to a deficiency in service and hence the complaint deserves to be allowed at least on this issue where the cause of fire has not been established to be intentional. The submission is that the onus lay on the Insurance Company to prove the same but the material which has been relied on by the Insurance Company is neither any evidence nor any proof of the fact that the fire was intentional.
11.4 Learned Counsel has taken the Commission through the terms of the policy to further contend that the repudiation letter incorrectly describes indemnification only in the case of accidental fire. The word accidental has not been used in the policy and therefore except for the exclusions part, the claim could not have been repudiated. The sum and substance of the argument is that invoking clause 8 and labelling the claim as being fraudulent, and not acceptable, is clearly contrary to the weight of evidence on record and as a matter of fact the surveyors and investigators between themselves have also not arrived at identical findings on the investigations carried out. He therefore submits these contradictions also enure to the advantage of the Complainant.
11.5 Learned Counsel has particularly pointed out that the letter of repudiation dated 31.03.2016 that was served on the Complainant, a copy whereof has been brought on record in paragraph 5 thereof states that "the claim may be advanced by fraudulent means" whereas the said phrase is in a substituted form in the copy which has been filed by the Opposite Parties along with their written version where the aforesaid phrase reads as "the claim has been advanced by fraudulent means". What he intends to say is that the word 'has' occurs in the copy of the letter which has been relied on by the Opposite Parties and this difference also indicates that the Insurance Company was determined not to allow the claim and repudiate it on erroneous considerations.
11.6 Learned Counsel for the Complainant has also drawn our attention to the final survey report to contend that the grave and extensive nature of the loss was sought to be diluted through the repudiation letter even though the preliminary and final survey reports indicate an intensive and huge damage/loss having been caused due to the fire.
11.7 Learned Counsel for the Complainant submitted that the policy was a Fire and Special perils Policy. The duration whereof was from 03.05.2014 to 02.05.2015. The sum insured under the said policy was Rs.2.5 crores in respect of the manufacturing unit at Village Moginand, Kala Amb, District Sirmaur, Himachal Pradesh. This unit was set up approximately in 2004-2005 in addition to a factory which was already in production at Samalkha (Haryana). The present dispute is covered by the policy referred to hereinabove.
11.8 According to the learned Counsel, the unit had a comfortable running business with a substantial turnover. It is also submitted that in the year 2012, the Company had a tie-up with M/s. V. Guard and the business was continuing accordingly.
11.9 It is stated that the Complainant shifted and transferred its stocks from its Samalkha Unit in Haryana to Kala Amb unit, for which an intimation was sent to the Insurance Company on 21.07.2014 for making an endorsement and further increasing the sum insured by Rs.1 Crore. The Insurance Company, accordingly, endorsed the said sum as an additional coverage on 21.07.2014 and a cover-note to that effect was issued. The said endorsement of an additional assured sum of Rs.1 Crore is admitted in Para-10.2 of the Written Statement.
11.10 Learned Counsel for the Complainant has urged that it is, thereafter that the unfortunate of fire occurred in the intervening night of 31.08.2014/01.09.2014. The contention of the Complainant is that the source of fire and the cause of fire remained unascertained which was probably for natural or other reasons.
11.11 Upon the said incident having occurred, an intimation was sent to the Insurance Company and also an FIR was lodged. It is admitted that the First Information Report was lodged on 01.09.2014. The Insurance Company acknowledges having received the information on 06.09.2014 and had immediately appointed a preliminary surveyor Mr. Sanjay Gupta who submitted his report on 08.09.2014. The Insurance Company also intimated and appointed M/s. Mack Insurance Surveyors & Loss Assessors (P) Ltd. through its surveyor Mr. A.K. Govil for conducting final survey. Queries were raised by the surveyor from the Complainant on 13.09.2014.
11.12 The Opposite Parties also appointed an investigator M/s. Royal Associates on 14.09.2014. M/s. Royal Associates received the said intimation on 16.09.2014.
11.13 After having received the Reply of the Complainant, the final surveyor Mr. A.K. Govil submitted a status report on 17.09.2014 awaiting further documents. The contention of the Complainant is that all documents have been submitted to the surveyor yet some documents were still being asked for.
11.14 Since the cause of the fire was not ascertained on 08.01.2015, a request was made by the surveyor to the Insurance Company for getting a forensic test conducted through the State Forensic Laboratory. This request was made on 08.01.2015 and a letter was sent to the Senior Superintendent of Police for getting the report of the said test. The laboratory tendered a report on 02.03.2015 clearly stating therein that from the samples collected and sent, no inflammable material was found. Learned Counsel submits that with this report also it was confirmed that there were no external causes nor any reason for a suspicion about the fire being deliberate or non-accidental. The contention of the learned Counsel is that this unascertained status of the source of fire therefore stood clarified with the report of the State Forensic Laboratory. Learned Counsel submits that this stands further confirmed with the police report that was submitted on 26.05.2015 that there was no human negligence found for the cause of fire and that there was no short-circuit either.
11.15 It is in the said background that the final survey report was submitted on 14.12.2015. The Insurance Company forwarded an internal claim-note for consideration by the competent authority on 31.03.2016.
11.16 In the meantime, the Complainant had also been issued notice on 22.03.2016 to show-cause as to why the claim should not be decided and then the claim was finally repudiated on 31.03.2016.
11.17 Learned Counsel for the Complainant submits that the repudiation is on erroneous grounds firstly because all documents pertaining to the loss, the stock statement, the documents of the bank as well as the statement of the stock balance were all sent to the Insurance Company at least before the final repudiation which is on record. He submits that the said documents have been totally ignored in as much as the Complainant had been running the business comfortably and it was only just a month back that the factory had to be shut down and production was slow due to labour unrest. It is submitted that there was no other cause for the factory having been closed for a month prior to the date of the accident and as such no adverse inference could be drawn merely because the factory had not been functioning for the past one month.
11.18 Learned Counsel then submits that successive investigations and appointments of surveyor were contrary to the law laid down by the Apex Court in as much as the investigator was a surveyor and no second surveyor could have been appointed. The submission is that once the Insurance Company had appointed a surveyor who was yet to submit his report, there was no occasion for appointing another investigator who in essence was the second surveyor. This was a procedural violation and contrary to the IRDA 2002 Regulations. For this also, the repudiation is invalid as reliance has been placed by the Insurance Company on the said report which otherwise is also incorrect.
11.19 It was then urged that even the survey report to a great extent supports the cause of the Petitioner. The allegation that the stocks from Samalkha to Kala Amb was neither delivered or was part of any sinister design is not borne out from records. The stocks were transferred with intimation to the Opposite Party Insurance Company and further an additional amount of sum insured was also endorsed by the Insurance Company upon receipt of such information. The submission is that this was in order to secure interests of the assets of the Company and therefore, to cast a doubt or suspicion to treat the said transaction as a deliberate move is incorrect. There was no reason to doubt the said movement of the stocks as part of some alleged conspiracy on the part of the Complainant. The assumption of the investigator and the surveyor, therefore, has no legs to stand.
11.20 The Company is dealing with lead and other materials, the stocks whereof were clearly verifiable from the sale & purchase invoices that were on record. Learned Counsel submits that a couple of receipts were picked-up selectively which is nothing short of cherry picking by the investigator to disbelieve the other transactions. Even otherwise, the other bills relating to sale and purchase of batteries were all genuine and which were all substantiated by subsequent information that was provided to the Insurance Company and was available with it before the date of repudiation.
11.21 Merely because the unit was not operational for the past one month does not dilute the insurable claim in respect of the stocks and other material. Such an inference is also without any foundation and there is no material so as to conclude that the fire was preplanned for any undue benefit.
11.22 He has cited the judgment of the Apex Court in the case of Suraj Mal Ram Niwas Oil Mills Private Limited Vs. Untied India Insurance Company Limited & Anr. (2010) Vol.10 SCC Page-567 and an Order passed by this Commission in the case of Punjab Small Industries & Export Corp. Ltd. Vs. Kanta Jalota & Anr. 2020 SCC OnLine NCDRC Page-1163 Paragraphs-20 & 21.
11.23 Apart from this, a compilation of judgments has also been filed on 15.04.2024 as follows:
S.No.
Cause Title
Citation
Relevant Paras
Tanda Textiles & Processing Mills Pvt. Ltd vs. United India Insurance Co. Ltd & Ors.
(2007) 1 CPR 492 (NC)
Pg.7; 3 Para
United India Insurance Co. Ltd. Vs. Sona Spice Pvt. Ltd.
(2010) 4 CPR 159 (NC)
Pg. 5; Para 10
Oriental Insurance Co. Ltd. Vs Samayanullar Primary Agricultural Coop. Bank
1999 (8) SCC 543
Pg.4; Para 3
New India Assurance Co. Ltd. Vs. Avadh Wood Products (Cold Storage)
[2013] NCDRC 218
Pg.2; Para 5 Pg.3; Para 9
Indraprashta Gas Ltd. Vs. New India Assurance Co. Ltd.
2014 SCC OnLine NCDRC 735
Pg.5; Para 9 Pg.6; Para 10
Saurashtra Chemicals Ltd vs National Insurance Co. Ltd.
(2019) 19 SCC 70
Pg.7; Para 23
Arraycom (India) Ltd. Vs. United India Insurance Co. Ltd.
2014 SCC OnLine NCDRC 795
Pg.2; Para 6,7 Pg.6: Para 19,20
Murli Agro Products Ltd. Vs. Oriental Insurance Co. Ltd.
(2005) 1 CPJ 1 (NC)
Pg.6,7,8
Manager, Legal Deptt. N.A.I.Co., vs. M/s Oswal Plastic Industries
2019 SCC Online NCDRC 645
Pg.3; Para 12
Sri Venkateswara Syndicate v. Oriental Insurance Company Ltd.
(2009) 8 SCC 507
Pg.11; Para 32
It was also pointed out that an explanation has given by the Opposite Party in respect of the word 'has' being used in the repudiation letter dated 31.03.2016, that the word 'has' has been used inadvertently and in effect the word is 'may'. It is, therefore, urged that none of the grounds of repudiation were available and the evidence with regard to the stocks was already on record and there was no reason to deny the claim on a mere suspicion which had no foundation. It is urged that there was no material to demonstrate that the Complainant was responsible for the fire which has been wrongly described as non-accidental.
12. On the other hand, it is contended by the OP-1 that the services of OP does not suffer from any deficiency. The OP have rightly repudiated the claim of the Complainant in terms of the Policy conditions and the same does not suffer from any infirmity. The relevant terms and conditions contained in the policy have been violated by the Complainant, and based upon which OP repudiated the claim. It is contended that a contract of uberrima fides and there must be complete good faith on the part of the insured. The insured, is thus, under the obligation to maintain good faith. It is also a settled position that if the claim of the insured, in any respect fraudulent, or if any false declaration is made on the part of the insured, the same is a sufficient ground for rescission of the contract, and therefore, the claim of the Complainant has rightly been repudiated by the OP-1 in terms of the policy. The present complaint is frivolous, untenable and is an abuse of the process of this Commission. The Consumer Courts are constituted for redressal of disputes of bonafide consumer and not for the cases where the claim is manipulated, fabricated and bogus. It is well settled law by this Commission that where there are allegations of misrepresentation and fraud, the complaint is not maintainable under the provisions of Consumer Protection Act. In this regard, OP relies upon the decision of this Commission in the case of M/s R.S. Metals Pvt. Ltd. Vs. New India Assurance Co. Ltd. reported as 1(1993) CPJ 1 (NC). As such, the complaint is liable to be dismissed with costs. It is further contended that it is a well settled proposition of law that the matters of complex nature requiring detailed and critical examination of the evidence and cross examination cannot be resorted to under the summary jurisdiction of Consumer Forums and all such complex issues should be relegated to Civil Court for proper and detailed examination. It has been held by the Hon'ble Supreme Court as well as this Commission, in a catena of judgments, that where complicated question of facts are involved, the Consumer Forums will not entertain the Complaint and relegate the parties to the Civil Court. In these circumstances, the complaint be dismissed and returned to the Complainant for filing before the appropriate Forum. It is further contended that with regard to the Surveyor's report and repudiation of claim, the OP relied upon the decision of the Hon'ble Supreme Court in the matter of Venkateswara Syndicate v. Oriental Insurance Company Ltd. & Anr reported as III (2009) CPJ 81 (SC) and the OP further relied upon the decision of the Hon'ble Supreme Court in the matter of New India Assurance Co. Ltd. v. Pradeep Kumar reported as 2009 (7) SCC 787. It is also contended that since the amount claimed by the Complainant is highly exaggerated, this Commission has no jurisdiction to entertain the present Complaint inflated and unsubstantiated with the sole intention of the Complainant being to fall within the pecuniary jurisdiction of this Commission, therefore, the complaint deserves to be dismissed on this ground alone. The Complainant has not stated the correct and complete facts in the complaint and is guilty of concealment of facts. The relevant facts of this case are that on 3rd May, 2014, the OP-1 issued a "Standard Fire & Special Perils Policy" bearing Policy No. 420201/11/14/3100000020 in the name of M/s NPP Energy Ltd. i.e. the Complainant herein covering building, plant, machinery and stock at the location at Village Moginand Teh. Nahan Dist. Sirmaur, Himachal Pradesh for a total sum insured of Rs.2,50,00,000/- for the period from 3rd May, 2014 to 2nd May, 2015. It is important to state that the aforesaid policy was subject to terms & conditions attached to the policy. The OP relied upon General Condition No.1 and General Condition No.8. The Complainant vide letter dated 21st July, 2014 informed the OP-1 that he had shifted his stock from Samalkha which was insured under policy No. 46/14/7500000008 against burglary to Moginand Teh. Nahan which was insured under policy No. 420201/11/14/3100000020 against fire. Upon request of the Complainant dated 12th August, 2014 vide endorsement of the same date, the OP-1 enhanced the sum insured by Rs.1 Crore qua policy bearing No. 420201/11/14/3100000020. The case of the complainant is that the entire stock was purported to be damaged by the alleged fire which broke out on the intervening night between 31st August, 2014 and 1st September, 2014 which was reported on 1st September, 2014 at Police Station Kala Amb. District Sirmaur vide diary No. 47 dated 1st September, 2014. Upon receipt of intimation, on 6th September, 2014, the Opposite Party No.1 immediately appointed Mr. Sanjay Gupta as the Preliminary Surveyor for conducting the preliminary assessment of the alleged loss. Upon conducting the preliminary assessment of the alleged loss, Mr. Sanjay Gupta vide his Preliminary Survey Report dated 22nd September, 2014 observed that there were certain unexplained things pertaining to the loss which needs to be thoroughly investigated. In view of the aforesaid findings arrived at by the Preliminary Surveyor and due to the reason that cause of fire and extent of fire could not be explained, on 9th September, 2014, the OP-1 appointed Shri A. K. Govil of M/s. Mack Insurance Surveyors & Loss Assessors Pvt. Ltd. to survey and assess the loss. On 11th September, 2014, OP-2, Shri A. K. Govil of M/s. Mack Insurance Surveyors & Loss Assessors (P) Ltd. visited the factory and vide his letter dated 13th September, 2014, asked the Complainant to provide certain documents/ information to proceed further with processing of the claim. Thereafter, OP-2 again vide email dated 14th September, 2014 informed the Complainant that further investigation was required into the cause of fire and nothing should be disturbed till such time the investigator has inspected the premises and drawn samples for further investigation. The Surveyor categorically concluded that the cause of fire could not be concluded and therefore, the matter needs to be investigated by a professional investigator. Even though the Complainant failed to provide the documents as sought by the Surveyor, OP-2, vide his report assessed the loss to be in the vicinity of Rs.2.5 crores to 3.00 crores without any basis or justification. In view of the aforesaid position with respect to non-establishment of the cause of loss, on 16th September, 2014 the OP-1 appointed M/s Royal Associates, Kurukshetra as an Investigator to investigate into the cause of loss alongwith other aspects of the claim. In the meanwhile, OP-2 vide email dated 30th September, 2014 requested the Complainant to organize inspection by CFSL (Central Forensic Science Laboratory) in order to determine the cause of fire wherein CFSL will draw samples and provide their findings. The Surveyor further requested the Complainant to cooperate and act promptly in the matter. Thereafter, on 27th October, 2014, OP-2, once again sent an email to the Complainant stating that since the Complainant did not take any action with regard to inspection by CFSL (Central Forensic Science Laboratory), it is presumed that the Complainant was not interested in pursuing the claim any further. The Surveyor further stated that the Complainant also did not provide any document/ information to the OP-1, hence, they closed the claim as "No Claim". It is further contended that a meeting was held on 31st October, 2014 with the Complainant wherein his statement was recorded and the factory was inspected. It is also contended that during inspection, it was found that no stock was lying in the factory and only one small machine was lying. It was further stated that the factory was closed for the last 2-3 years and no work was carried out for the said period. On the same day i.e. 11th November, 2014 M/s Royal Associates sent an email to the Complainant seeking certain documents/information. The OP-2 vide email dated 15th December, 2014, informed the Complainant that the representative of the Complainant visited the office of the OP-2 about 10 days back wherein they submitted the copy of the balance sheet and stock statements. No other documents were presented including the claim bill and another opportunity was granted to the Complainant to submit the said documents and vide email dated 27th October, 2014, 15 days' time was provided to him to submit the same however, since the Complainant failed to submit the same, it showed that the Complainant was not interested in pursuing the claim and therefore, sought approval from the underwriters to close the file. Thereafter, on the same day 15th December, 2014, the OP-1 vide email informed the Complainant that despite several requests of Surveyors to provide documents, the Complainant failed to do so and therefore, again requested to provide the same and co- operate with the Surveyor otherwise it would be presumed that the Complainant is not interested in the claim. The OP-2, Shri A. K. Govil of M/s. Mack Insurance Surveyors & Loss Assessors (P) Ltd. once again sent an email dated 17th December, 2014, to the Complainant stating that in reference to the meeting with Mr. Ved Prakash Sharma on 16th December, 2014, the documents were still pending and that there was an inordinate delay on the part of the Complainant without any reason. The OP-2 sent an email dated 22 December, 2014 to the Complainant stating that a meeting was held with the Complainant on 16th December, 2014 and subsequent email dated 17th December, 2014 was sent thereby requesting to provide certain documents, however, the Complainant failed to provide the same. Thereafter, the OP-1 sent a letter dated 8th January, 2015 requested Asst. Director Chemistry and Toxicology Division, HP State Forensic Science Lab, Junga, Simla to investigate thoroughly through forensic examination in order to determine the cause of fire. The OP-2 again sent an email dated 20th January, 2015 to the Complainant stating that the documents were still pending despite several reminders. On 6th February, 2015 the OP-1 sent a letter to the Punjab National Bank stating that despite several reminders and requests, the Complainant did not provide information sought by the OP-2. The OP-1, thereafter, sent a letter dated 23rd February, 2015 to the Senior Superintendent of Police, District Head Quarters, Distt. Simour, at Nahan H.P. seeking confirmation of the date on which the sample had been collected and when it had been sent to forensic science lab for examination. The State Forensic Science Laboratory vide report dated 2nd March, 2015 observed that the contents of the parcel was subjected to physical and chemical analysis and no inflammable material was detected in the contents of parcel. On 26th May, 2015, the Station House Officer submitted his enquiry report to the Senior Superintendent of Police, District Head Quarters, Distt. Simour, at Nahan H.P. In the meanwhile, on 26th May, 2015, i.e. on the same day the Complainant submitted the Fire Claim Form to the OP-1 claiming an amount of Rs.3,43,43,818/-. The Complainant submitted a highly exaggerated claim bill of Rs.3,43,43,818/- without any basis and justification and since the same was advanced by fraudulent means, it was hit by the condition No.8 of the insurance policy. On 4th August, 2015, M/s Royal Associates issued its investigation report concluding that "From documentary evidence and our investigation it seems that Moral Hazard of insured is not good. Insured tried to shows excess loss of stock to increase claim amount. (As they shifted dead stock/old stock from Samalakha to Kala Amb) Insurer may deal with claim as per terms and conditions of policy, keeping in view of above said findings. This report is issued without prejudice." On 30th January, 2016, a legal notice was sent on behalf of the Complainant to the OP-1 raising false and frivolous allegations calling upon them to release the entire claim amount of Rs. 3,43,43,818/-. On 23rd February, 2016, the OP-1 sent a letter to the Complainant categorically denying that the fire was major or natural or accidental in nature and had caused major damage to the plant and machinery, stock etc. as alleged. It was stated that only some discarded and waste material was damaged in the alleged fire. It was further stated that the Complainant only used to manufacture batteries only for V-Guard and that too only on order. It was further stated that as per record, there was no manufacturing activity for the last two months prior to loss because the electric connection of the unit was disconnected due to non-payment of electricity bills for many months, which only indicates that there was no stock of raw material or finished goods and only junk/ discarded/ waste material was lying at the factory. It is further contended by OP-1 that the raw materials like lead, plates, acids, thinner, plastic, painted fronts, painted cabinets, packing materials such as thermocols, polythenes, jute boxes were lying at the time of fire as alleged. It was further contended that the amount claimed by the Complainant for a sum of Rs.3,43,43,818/- is exaggerated and without any basis and as per the survey report and the investigation, the unit was not functional for months as the electric connection was disconnected due to non-payment of bills and since the electric supply was not there and no manufacturing and the cause of loss cannot be electric short circuit and the cause of loss itself is suspicious. It is further contended that on 22nd March, 2016, the OP-1 issued a show cause notice to the Complainant as to why the claim should not be repudiated. Since the Complainant failed to reply to the show cause notice within the time frame, therefore, vide letter dated 31st March, 2016 the OP- 1 repudiated the claim of the Complainant. On 9th August, 2016 Punjab National Bank sent a letter to the OP-1 stating that the Complainant had taken various credit facilities from the Punjab National Bank and all the facilities were lying in the NPA Category. In response to the aforesaid, OP-1 sent a letter dated 12th August, 2016 to the Punjab National Bank informing that the claim of the Complainant has already been repudiated by the OP-1 on 31st March, 2016. With regard to the claim repudiation, the OP-1 relies upon the following judgments:
1) R.S. Metals Pvt. Ltd. vs. The New India Assurance Co. Ltd. 1(1993) CPJ 1 (NC).
2) Venkateswara Syndicate v. Oriental Insurance Company Ltd. & Anr. III (2009) CPJ 81 (SC).
3) New India Assurance Co. Ltd. v. Pradeep Kumar reported as 2009 (7) SCC 787.
13. As regards contentions of the Insurance Company for relegating the complaint to Civil Court on the grounds of it involving disputed and complicated facts, Hon'ble Supreme Court in J.J. Merchant and Ors. Vs. Shrinath Chaturvedi (2002) 6SC 635 observed that "the object and purpose of enacting the Act (Consumer Protection Act) is to render simple, inexpensive and speedy remedy to the consumers with complaints against defective goods and deficient services........... delay in disposal of the complaint would not be a ground for rejecting the complaint and directing the complainant to approach the Civil Court for appropriate relief in case the complaint involves complicated issues requiring recording of evidence of experts, which may delay the proceeding." Regarding contention that questions of facts cannot be decided in summary proceedings, Hon'ble court observed that "under the Act, for summary or speedy trial, exhaustive procedure in conformity with the principles of natural justice is provided......... the legislature has provided alternative, efficacious, simple, inexpensive and speedy remedy to the consumers and that should not be curtailed on such ground. It would also be totally wrong assumption that because summary trial is provided, justice cannot be done when some questions of facts are required to be dealt with or decided. The Act provides sufficient safeguards." It was observed by Hon'ble Supreme Court in this case that Procedure under Section 13,18 - 22 is adequate vis-à-vis Civil Suit to decide complaints involving complicated questions of law and fact. In the present case, what we would be looking into is whether there is a deficiency in service on the part of OPs under the provisions of Consumer Protection Act in a summary proceedings and not any disputed or complicated facts or tortious acts or criminality like fraud or cheating requiring adjudication by a Civil Court. Hence, we see no merit in these contentions of the Insurance Company.
14. Before we discuss and analyse reports of various Surveyors and Investigators, it is essential to take note of the relevant provisions of the Insurance Act 1938, and Judgements of Hon'ble Supreme Court on the subject. Insurance Regulatory and Development Authority (The Insurance Surveyors and Loss Assessors (Licensing, Professional Requirements and Code of Conduct) Regulations, 2000, IRDA (Protection of Policyholders-Interest) Regulations, 2002.
The Insurance Act, 1938
64 UM Surveyor or Loss Assessors - (1) Save as otherwise provided in this section, no person shall act as a surveyor or loss assessor in respect of general insurance business after the expiry of a period of one year from the commencement of the Insurance Laws (Amendment) Act, 2015, unless he-
Possesses such academic qualifications as may be specified by the regulations made under this Act,
is a member of a professional body of surveyors and loss assessors, namely, the Indian Institute of Insurance Surveyors and Loss Assessors.
xxxx
(2) Every surveyor and loss assessor shall comply with the code of conduct in respect of his duties, responsibilities and other professional requirements, as may be specified by the regulations made under the Act.
xxxx
(4) No claim in respect of a loss which has occurred in India and requiring to be paid or settled in India equal to or exceeding an amount specified in the regulations by the Authority in value on any policy of insurance, arising or intimated to an insurer at any time after the expiry of a period of one year from the commencement of the Insurance Laws (Amendment) Act, 2015, shall, unless otherwise directed by the Authority, be admitted for payment or settled by the insurer unless he has obtained a report, on the loss that has occurred, from a person who holds a licence issued under this section to act as a surveyor or loss assessor (hereafter referred to as "approved surveyor or loss assessor"):
Provided that nothing in this sub-section shall be deemed to take away or abridge the right of the insurer to pay or settle any claim at any amount different from the amount assessed by the approved surveyor or loss assessor.
xxxx
(7) No insurer shall, after the expiry of a period of one year from the commencement of the Insurance Laws (Amendment) Act, 2015 pay to any person any fee or remuneration for surveying, verifying or reporting on a claim of loss under a policy of insurance unless the person making such survey, verification or report is an approved surveyor or loss assessor.
(8) Where, in the case of a claim of less than the amount specified in sub- section (4) in value on any policy of insurance it is not practicable for an insurer to employ an approved surveyor or loss assessor without incurring expenses disproportionate to the amount of the claim, the insurer may employ any other person (not being a person disqualified for the time being for being employed as a surveyor or loss assessor) for surveying such loss and may pay such reasonable fee or remuneration to the person so employed as he may think fit.
xxxx
Insurance Regulatory and Development Authority (The Insurance Surveyors and Loss Assessors (Licensing, Professional Requirements and Code of Conduct) Regulations, 2000
Insurance Surveyors and Loss Assessors (Licensing, Professional Requirements and Code of Conduct) Regulations, 2000 (hereinafter referred to as the 2000 Regulations[2]) issued by Insurance Regulatory and Development Authority (IRDA) in exercise of powers conferred under the Insurance Act, 1938 contain duties and responsibilities of a Surveyor and Loss Assessor and Code of Conduct. Extract of relevant provisions of these Regulations is given below:
"DUTIES AND RESPONSIBILITIES OF A SURVEYOR AND LOSS ASSESSOR
13 (1) A surveyor and loss assessor shall, for a major part of the working time, investigate, manage, quantify, validate and deal with losses (whether insured or not) arising from any contingency, and report thereon, and carry out the work with competence, objectivity and professional integrity by strictly adhering to the code of conduct expected to such surveyor and loss assessor.
(2) The following shall, inter alia, be the duties and responsibilities of a surveyor and loss assessor:-
xxxx
(iv) examining, inquiring, investigating, verifying and checking upon the causes and the circumstances of the loss in question including extent of loss, nature of ownership and insurable interest.
xxxx
(vi) estimating, measuring and determining the quantum and description of the subject under loss;
xxxx
(xv) taking expert opinion, wherever required
xxxx
CODE OF CONDUCT
15. Every surveyor and loss assessor shall-
xxxx
(5) not accept or perform survey works in areas for which he does not hold a licence;
(6) not accept or perform work which he is not competent to undertake, unless he obtains some advice and assistance, as will enable him to carry out the work competently."
Insurance Regulatory and Development Authority (IRDA) established under the provisions of Section 3 of the IRDA Act 1999, in exercise of powers under relevant provisions of the Insurance Act, 1938 and IRDA Act has notified IRDA (Protection of Policyholders Interest) Regulations, 2002. Regulation 9 of these regulations pertain to claim procedure in respect of general insurance policy. As per these regulations, Insured has to intimate the insurer of any loss immediately, insurer has to appoint a surveyor within 72 hours of intimation, surveyor, has to communicate his findings to the Insurer within 30 days of appointment, Insurer has to decide the claim, either accepting or repudiating, within 30 days from the receipt of survey report and in case of acceptance of claim, pay the same within 7 days from the date of acceptance of the offer by the insured, and in case of delay, insurer is liable to pay the interest at the rates prescribed in the regulation. The regulations also contain provisions relating to seeking of additional report by the Insurer from the surveyor in case it finds the report incomplete in any aspect. There are provisions for surveyors seeking an extension of time in submitting his report in cases of special and complicated nature, but in no case surveyor can take more than 6 months from the date of his appointment to furnish his report. Extract of Regulation 9 is reproduced below:
"9. Claim procedure in respect of a general insurance policy
(1) An insured or the claimant shall give notice to the insurer of any loss arising under contract of insurance at the earliest or within such extended time as may be allowed by the insurer. On receipt of such a communication, a general insurer shall respond immediately and give clear indication to the insured on the procedures that he should follow. In cases where a surveyor has to be appointed for assessing a loss/ claim, it shall be so done within 72 hours of the receipt of intimation from the insured.
(2) Where the insured is unable to furnish all the particulars required by the surveyor or where the surveyor does not receive the full cooperation of the insured, the insurer or the surveyor as the case may be, shall inform in writing the insured about the delay that may result in the assessment of the claim. The surveyor shall be subjected to the code of conduct laid down by the Authority while assessing the loss, and shall communicate his findings to the insurer within 30 days of his appointment with a copy of the report being furnished to the insured, if he so desires. Where, in special circumstances of the case, either due to its special and complicated nature, the surveyor shall under intimation to the insured, seek an extension from the insurer for submission of his report. In no case shall a surveyor take more than six months from the date of his appointment to furnish his report.
(3) If an insurer, on the receipt of a survey report, finds that it is incomplete-in any respect, he shall require the surveyor under intimation to the insured, to furnish an additional report on certain specific issues as may be required by the insurer. Such a request may be made by the insurer within 15 days of the receipt of the original survey report. Provided that the facility of calling for an additional report by the insurer shall not be resorted to more than once in the case of a claim.
(4) The surveyor on receipt of this communication shall furnish an additional report within three weeks of the date of receipt of communication from the insurer.
(5) On receipt of the survey report or the additional survey report, as the case may be, an insurer shall within a period of 30 days offer a settlement of the claim to the insured. If the insurer, for any reasons to be recorded in writing and communicated to the insured, decides to reject a claim under the policy, it shall do so within a period of 30 days from the receipt of the survey report or the additional survey report, as the case may be.
(6) Upon acceptance of an offer of settlement as stated in sub-regulation (5) by the insured, the payment of the amount due shall be made within 7 days from the date of acceptance of the offer by the insured. In the cases of delay in the payment, the insurer shall be liable to pay interest at a rate which is 2% above the bank rate prevalent at the beginning of the financial year in which the claim is reviewed by it."
It was held by Hon'ble Supreme Court Sri Venkateswara Syndicate Vs. Oriental Insurance Co. Ltd. (2009) 8 SCC 507 as follows:
"there is no prohibition in the Insurance Act, 1938 for appointment of second surveyor by the insurance company, but while doing so, the insurance company has to give satisfactory reasons for not accepting the report of the first surveyor and the need to appoint second surveyor. Scheme of Section 64-UM particularly, of sub-sections (2), (3) and (4) would show that the insurer cannot appoint a second surveyor just as a matter of course. If for any valid reason the report of the surveyor is not acceptable to the insurer maybe for the reason if there are inherent defects, if it is found to be arbitrary, excessive, exaggerated, etc., it must specify cogent reasons, without which it is not free to appoint the second surveyor or surveyors till it gets a report which would satisfy its interest. There must be sufficient ground to disagree with the findings of surveyor/surveyors. The Insurance Act only mandates that while settling a clam, assistance of a surveyor should be taken but it does not go further and say that the insurer would be bound by whatever the surveyor has assessed or quantified; if for any reason, the insurer is of the view that certain material facts ought to have been taken into consideration while framing a report by the surveyor and if it is not done, it can certainty depute another surveyor for the purpose of conducting a fresh survey, to estimate the loss suffered by the insured.
The proviso to sub-section (2) of Section 64-UM retains the right of the insurer to settle a claim for an amount different from that assessed by the surveyor. This proviso impliedly permits an insurer to obtain a second or further report where considered appropriate or expedient in the circumstances of a case, based upon which the claim could be settled for a different amount than as assessed earlier. Surveyor/surveyors are appointed by the insurance company under the provisions of the Insurance Act and their reports are to be given due importance and one should have sufficient grounds not to agree with the assessment made by them. The insurance company cannot go on appointing surveyors one after another so as to get a tailor-made report to the satisfaction of the officer concerned of the insurance company; if for any reason, the report of the surveyors is not acceptable, the insurer has to give valid reason for not accepting the report. The option to accept or not to accept the report is with the insurer. However, if the rejection of the report is arbitrary and based on no acceptable reasons, the courts or other forums can definitely step in and correct the error committed by the insurer while repudiating the claim of the insured. We hasten to add, if the reports are prepared in good faith, with due application of mind and in the absence of any error or ill motive, the insurance company is not expected to reject the report of the surveyors.
From the above said, it emerges that:
Only licenced/approved Surveyors can be appointed for surveying, verifying and assessing the loss, and his duties include examining, enquiring, investigating, verifying and checking the causes and circumstances of the loss, including the extent of loss.
Although Surveyor is competent to take expert opinion, wherever required, there is no express provision in the Insurance Act or 2000 Regulations empowering the Insurance Company to appoint an unlicenced investigator.
Of course, Insurance Company is competent to appoint a second licenced surveyor, but that too can be done only when conditions laid down in the Act/Rules/Judgement of Hon'ble Supreme Court cited are met.
There are well defined timelines for various steps, any inordinate delay, without any reasonable cause, itself can amount to deficiency in service on the part of Insurance Company.
In the present case, the OP-1 Insurance Company initially appointed one Mr. Harish Kumar Chopra as Spot Surveyor, Mr. Sanjay Gupta to conduct preliminary survey, Mr. Kashmira Singh to investigate the claim from all aspects, particularly the cause of fire, then M/s. Mack Insurance Surveyor & Loss Assessors (P) Ltd. and M/s. Royal Associates, Investigating and Detective Agency. In addition, there are reports of State Forensic Science Laboratory H.P, Police and Fire Reports etc. While perusal of reports of Mr. Sanjay Gupta and M/s. Mack Insurance Surveyors & Loss Assessors (P) Ltd. show that they are the licenced Surveyors and Loss Assessors under the relevant regulations, M/s. Royal Associates are not the licenced ones under the Regulations. Status of Mr. Harish Kumar Chopra and Mr. Kashmira Singh as licenced Surveyor is not known as these reports are not on record, but have been referred to in the report at M/s. Mack Insurance Surveyors & Loss Assessors (P) Ltd. While Mr. Sanjay Gupta submitted his report on 22.09.2014, i.e. within about 18 days of his appointment by the OP-1 Insurance Company, M/s. Mack Insurance Surveyors & Loss Assessors (P) Ltd. submitted its report on 14.12.2015, i.e. after a period of more than 15 months of their engagement. M/s. Royal Associates submitted their report on 04.08.2015 i.e. took about a year's time from their engagement. While M/s. Mack Insurance Surveyors & Loss Assessors (P) Ltd. have taken note of reports of Mr. Harish Kumar Chopra, Mr. Sanjay Gupta and Mr. Kashmira Singh, report of M/s. Royal Associates, though submitted prior to their report, have not been referred to in their report.
From careful perusal of facts and law points in para 14 (a) to (g), it is evident that Insurance Company has not observed the provisions of Insurance Act 1938 and 2000 Regulations in totality and surveyor/investigator have delayed their reports beyond the prescribed timelines. Insurance Company repudiated the claim after a gap of about 19 months.
15. As regards cause of fire and related aspects, important observations/findings of M/s. Mack Insurance Surveyors & Loss Assessors (P) Ltd. are given below:
(a) It appears that the Insured was doing a fairly good business till about the end of financial year 2013-14, wherein they have posted a turnover of ₹ 7 crores.
(b) There were only three directors in the company and the day to day affairs were being managed by Mr. & Mrs. Ved Prakash Sharma. It further appears that during the time of fire both of them fell sick and the factory was getting mismanaged. Workers unrest and all other kind of problems were being faced and the unit came to a virtual standstill. Substantiating these developments Insured have provided their medical records for the period.
(c) Bankers also confirmed that their team of officers used to visit the premises for inspection from time to time and found the factory to be running smoothly.
(d) It may be seen that Insured was holding an ISO certification which is not obtainable, unless standards stipulated by the certifying authority are not adhered to. Regular and uninterrupted supply to V-Guard also suggests that the quality of products were fairly good.
(e) From the table, it may be seen that the performance of the company in the financial years 2011-12 & 2012-13 shows negativity. Insured suffered Net loss during financial year 2011-12 of ₹18,03,697/ and ₹2,81,119/- in the F.Y 2012-13. Further, in the F.Y 2013-14, they have earned a Net Profit of just 2%. As per data given above, it was observed that the company was showing an increasing trend from a loss of ₹18.03 Lacs in 2011-12, the company made marginal profit of ₹17.45 lacs in 2013-14.
(f) They had availed term loan from Punjab National Bank, Nahan which has been almost repaid. The company is availing CC limit of 2.5 Crore from Punjab National Bank. They are submitting stock statement to their banker on monthly basis and are also maintaining stock register which was reported to have been burnt in the subject incident.
(g) The said premises is owned and occupied by the Insured as a storage and manufacturing unit.
(h) The Insured premise is of 1st Class construction with walls made of burnt bricks set in cement mortar and RCC/ACC roofing. No Temporary construction was observed during our survey.
(i) ABOUT THE SUBJECT INCIDENT
It was reported by Insured's representative Mr. Shamsher Sharma that he has been working with M/s NPP Energy for last many years. He was in Samalkha (Haryana) on 31.08.2014. On 01.09.2014 in the early morning he was informed about the fire by a factory worker, who came there at about 9 AM as per their daily schedule. Thereafter, Mr. Shamsher informed to Mrs. Babita Sharma, Director. Mrs. Babita asked him to visit Kala Amb immediately. Mr. Shamsher reached Kala Amb at about 2 PM. But before his arriving, fire brigade and police were already informed by workers of other nearby factories. Mr. Shamsher used to keep the key of main door with him. Therefore, in order to get entry in the premises and to douse the fire, Fire Brigade team had already broken the window glass. Fire Brigade Team entered in the premises through the broken. window and had already doused the fire before his arriving. Mr. Shamsher opened the lock of the factory and found all the material in badly burnt/ damaged condition.
(j) FIRE BRIGADE REPORT:
The fire brigade authorities from Fire Station Nahan (Fire & Emergency Services) attended to the distress call and have issued a letter certifying therein the occurrence of the subject incident. The letter is silent about the cause of fire and the same is reproduced de-novo.
"It is certified that a fire was broken out in the M/s NPP Energy Ltd factory on 01.09.2014 at 04.04 hours. In this fire some batteries, invertors, UPS and raw material have burnt. Machinery has also got damaged. The cement sheet roofing has also broken. The fire crew extinguished the fire."
(k) FIRE FIGHTING FACILITIES IN THE AFFECTED PREMISES:-
During the physical verification of the site, the fire fighting arrangements were found adequate. Moreover, fire occurred when the factory was closed. If there were inadequate equipment, they were hardly of any help because at the time of fire as no person was available there to raise fire alarm or to inform, and who could try to douse the fire with the help of equipment. This caused spread of fire.
(l) FIR
Incident was reported by Mr. Sunil Rana S/o Sh. Bhisham Rana at Police Station Kala Amb Dist. Sirmour on 01.09.2014 vide FIR no. 47 dated 01.09.2014. Mr. Sunil Rana works with neighboring factory M/s Jenosis Pharma, who informed to Fire Brigade too. Police visited the site, investigated the incident and after enquiry they confirmed the happening of incident vide their letter.
(m) POLICE FINAL REPORT:
The incident was registered with Kala Amb Police Station vide application dated 01.09.2014. Insured have furnished us copy of the Police Final Report. Since there were no casualties they have not treated the incident as a cognizable offence.
(n) CAUSE OF FIRE:
AS PER INSURED;
Insured expressed their inability to throw any light on the cause of fire since the factory was closed at the time of incident and they were not present at the time of fire.
AS PER POLICE FINAL REPORT:
It is reported in the Police Final Report that the cause of fire may be electrical short circuiting due to lightning or it may be due to leakage of LPG cylinders which got ignited due to some sparking from any electrical equipment.
AS PER FIRE BRIGADE DEPARTMENT:
Fire Brigade Report is silent about the cause of fire.
(o) AS PER PRELIMINARY INSPECTION REPORT:
We received the Preliminary Inspection Report submitted by Mr. Harish Kumar Chopra. He discussed the cause of loss with Mr. Shamsher Singh and it was told to him that at the time of loss factory was shutoff and it was shut off from last 20 days approx. Production was not going on and no one was in the factory and Mr. Shamsher was in his village and got the information about the incident in the early morning of 01.09.2014 on mobile by a worker. So, Mr. Shamsher does not know the exact cause of loss. The details of main findings of Mr. Harish Kumar are as mentioned below:
Oxygen Cylinders & LPG Cylinders found in busted conditions.
Roof of the factory found damaged.
The stock found damaged and in burnt condition which were lying in the factory.
Factory building found damaged and in burnt conditions.
Machinery was found in damaged and burnt condition.
To summaries the observations of preliminary surveyor, we find that he was not satisfied about the cause of fire being accidental and reported the matter to the underwriters. We have often found that in similar cases of fire loss, the preliminary surveyors observation have significant value, since it is a first person's observations. Taking cognizance of his observations, underwriters deputed another preliminary surveyor and later an investigator to look into all aspects of loss.
It appears from the preliminary survey report that he was neither satisfied about the genuineness of the fire and consequently the moral hazard of the Insured.
Similar to the observation of Mr. Harish Kumar Chopra is the observation of Mr. Sanjay Gupta.
AS PER PRELIMINARY SURVEY REPORT:
It was reported by Sanjay Gupta, Preliminary Surveyor that as regards the cause of loss/ fire, the cause appears to be doubtful. Electrical short circuit is ruled out because the factory was not working for last more than 1 month and there was no production and the meter was supposed to have been shut. He discussed the matter with the Insured, who could not give satisfactory reply. Therefore, Mr. Sanjay Gupta recommended the underwriters to depute a suitable investigator who can investigate the cause of fire and also investigate as to how the fire could attain such a serious proportion.
His main findings are as under:
"The entire area was filled with slush and debris which appeared to be debris from burnt card board or paper claimed to be forming part of packing material. During survey a number of metal cabinets were seen lying which were reported to be cabinets of manufacturing of inverter/ UPS and batteries of inverters/ UPS. The remains of material like PCBs, electronic components, tape rolls etc being used for manufacturing of the above items were also seen lying in the debris.
Due to condition of the loss and number of items involved the detailed inventory of the identifiable material could not be prepared. Accordingly inventory for safe material and machines was prepared.
The entire area was filled with slush and ash mixed water upto the height of 1 foot. The extent of ash was so high that it was knee deep. Remains of blank PCBs, electronic components and internal battery parts like separators could be seen in the debris. No remain of any finished battery parts, battery shells, plates, stocks lead could be identified. In one of the room 4 cylinders of domestic LPG were found lying. One of them was found to have burst and had cut in the body and one was found deshaped. The machines in the affected sections were badly burnt. The room of the 1st floor was also badly burnt with roof collapsed. This area is reported to be used for assembling of PCBs. Insured have also one unit at Samalkha. Haryana which had been recently closed and the material lying at that place had been shifted at the loss location and accordingly the sum insured was enhanced. Insured took endorsement on the existing policy.
The factory was closed for last more than 1 month following unrest by workers and as on date of loss the factory was locked with no person reported to be staying in the campus. The Insured has defaulted in payment of electricity bills also and as on date is running arrears on electricity bills to the tune of ₹1.67 Lacs.
Given the nature of trade of the Insured it is surprising that there was so much combustible material inside the production area which caused spreading of the fire and fire assumed such a large proportion. The presence of large quantity of paper ash and slush in the factory area was also not explained.
Given the normal trend of the sales the Insured would not require to store huge quantities of packing material. Further there is no explanation as to how such large quantities of packing material were lying in the entire production area.
On going through the list of stocks submitted to the bank on 18.07.2014, it was found that most of the items are not having large volumes and are not highly combustible. The question is what material was present that caused the fire to attain such a proportion. There has to be something to burn and produce the energy. The Insured could not confirm if they had taken official connection for the 4 LPG cylinders and when were they last refilled.
There are some unexplained things pertaining to the loss which need to be thoroughly investigated:
1) The cause of fire and the extent of fire.
2) The factory was closed for last more than 1 month.
3) The Insured recently closed their factory in Samalkha and shifted the material to the affected site. The condition of that material before shifting is also questionable.
4) There is no evidence to suggest presence of batteries or material like plastic shells, which are normally flame proof.
5) The Insured is running arrears on electricity bills.
6) The Insured could not confirm if the LPG Cylinders were authorized and when they were last refilled."
AS PER INVESTIGATION REPORT:
Investigation into the loss has been conducted by Mr. Kashmir Singh, Investigator. The Investigator was appointed to gather eye witness statements, enquiry at Police Station, probing into the cause of fire, about the material having been shifted from Samalkha to Kala Amb and matters related thereto. On his behest, police authorities were requested to requisition in services of CFSL in order to rule out the possibility of foul play. His report dated 04.08.2015 has been made available to us and we find the following:
The investigator Mr. Kashmir Singh has mainly recorded the statement of various persons. His main findings are as under:
He found that the factory has not been working since last 2 months (Point No. 4 where he has stated that after July, 2014, it is not functioning).
Electricity remained disconnected at the time of fire.
There was workers unrest in the factory prior to its closure.
The factory was closed and remained locked. There was no one present in the factory at the time of fire. There was no watchman too.
The last supply to M/s V. Guard was made on 12.08.2014.
All the above findings have been admitted by the Insured and there is no difference in these points. What the investigator has not reported is about the probable or proximate cause of fire and his comments on the report of CFSL, which are most crucial to judge whether the fire was accidental. On the opinion paragraph of the report, the investigator has recorded that the Insured did not cooperate in providing proper address and contact details of the workers. If that be so, how did he record the statement of various workers? It is also to be seen whether the statements were made under oath or else whether such workers can be made a witness, in the event, the underwriters deny liability and the Insured prefers to go to court.
After scrutiny of the Investigation Report, we found that the following information was lacking and sought the details from them as under:
1. Your comments and observations on the CFSL report.
2. Your opinion about the probable cause of fire.
3. Details of verifications carried out by you at the Insured's Samalkha Unit.
4. Verification of purchase bills and ascertaining the genuineness.
Their reply to the above queries was as under:
1. As per the CFSL report no inflammable material was detected in the samples collected by the police department.
2. Cause of fire is not known but it cannot be an electrical short circuit as stated by the insured.
3. During our visit at Samalakha unit, we found that some old machinery parts were lying there. Factory was closed and there was no production.
4. We have verified the Invoice No. 19 Dt. 12/8/2014 issued to V Guard Industries Ltd. by NPP Energy Ltd. found genuine. We have already mentioned this in the finding No. 16 in our report.
Thus it can be safely concluded that investigator could not ascertain the cause of fire. Further his comments on the CFSL report suggest that no, inflammable material was present in the samples.
(p) OUR OPINION ON THE CAUSE OF FIRE:
In order to establish a probable cause for the fire, we looked into the various possibilities and tried to rule them out, so that the cause can be narrowed down to one or two possibilities.
1. Electrical short circuiting which happens to be the most probable cause is ruled out in this case as there was no electricity supply as reported by the investigator and also verified by us during the course of our survey. There was no evidence of short circuiting.
2. Any worker carelessly throwing burning embers of a cigarette or bidi thus causing fire.
This is also ruled out as the factory was closed and locked. There were no workers present in the factory.
3. Any disgruntled employee deliberately setting factory on fire.
This is for once possible as there was labour unrest due to non-payment of wages etc. However, as reported by all concerned there was no evidence of forcible entry into the factory, except that the fire brigade had to break the windows to gain access into the premises to extinguish the fire. Hence this is also an unlikely cause, the onus lies on the Insured to establish so and lodge an FIR against known/ unknown persons, which has not been done. Police have not treated the incident as cognizable offence.
4. The owner either themselves or through their agent setting fire to the premises in order to claim Insurance money.
This is possible as the various circumstances suggest. The directors have provided medical documents to establish their presence in Delhi, but doing this mischief through an agent cannot be totally ruled out for the following reasons.
a. The factory was closed due to labour unrest and there was no production, which shows the state of affairs of the Insured firm.
b. Shifting of old and dead stocks from their Samalkha unit after over 2 years, when it was not warranted. It is possible that Insured needed to shift the stock to this premises to show that stocks have burnt.
c. Enhancing the Sum Insured on stocks just 20 days before the loss by a whopping sum of ₹1 crore. Even if Insured's contention that it was to cover the stocks coming from Samalkha, this kind of enhancement was not required. Samalkha unit had a separate insurance for ₹75 lacs and the risk location on the same could have been got changed by a request made to the underwriters.
d. The CFSL report concludes as under:
The contents of the above said parcel were subjected to physical and chemical analysis. No inflammable material was detected in the contents of parcel.
e. OUR COMMENTS:
However, there were huge quantity of packing material and the same could have been set fire without the need of any fuel. If that be the case the CFSL authorities cannot detect any foul play.
During the course of our survey, we conducted detailed investigation/ enquiries about the cause of fire but despite of our detailed inspection, we could not conclude the exact cause of fire. That is the reason we requested the underwriters to call for the services of a professional investigator. Our findings on investigation report are already spelt out in previous pages. Our final opinion is that the exact cause of fire is not known, as the same could not be established by any of the agencies involved in the case.
16. Important observations/findings of M/s. Royal Associates with respect to cause of fire and related aspects.
"we are of the opinion that batteries for V guard on order only are being manufactured in that factory. No work was carried out in factory after July 2014. Factory was closed and locked. There was no watchmen or worker on duty since July 2014. It is evident from statement of workers that only unusable material like old inverter/UPS some raw material was lying in factory. Unusable material was shifted to this factory from Samalkha Unit. Moreover there are contradiction in the statements. As per the statement given to police by Smt. Babita Sharma Director of the Company that Electricity was there in the factory on 01/09/2014, where as the factory connection was disconnected before fire incidence due to non payment of Electricity Bills, which prove that electricity supply on the day of incident on 01/09/2014 was not available in the factory. She also stated to the police that two days before the fire incidence production was stopped where as factory was not running for the last 1½ months as per statement of various workers. So the director has given wrong statement to the police authority about supply of electricity in the factory and working of the factory. As per the statement given to us by Mr. Ved Prakash Sharma Director of the company that in his opinion cause of loss is electrical short circuit. But when there was no electricity supply in the factory, how the cause of loss can be electrical short circuit, when shows that directors are manipulating things. Insured has not cooperated with us for giving the proper address and Contact number of workers. During investigation it has came out that insured is defaulter of Electricity Department, banks. Lot of outstanding amount is pending toward company. On 1/9/2014 at about 3.45 a.m. Fire was noticed by workers of other factory and fire tenders were called. Fire was put off within three hours, even fire report say that maximum loss can be only 30.00 lacs for building, plant machines and stock. Cause of fire is not known to fire station. Matter was reported to police and DDR was lodged.
Conclusion
From documentary evidence and our investigation it seems that Moral Hazard of insured is not good. Insured tried to shows excess loss of stock to increase claim amount. (As they shifted dead stock/old stock from Samalakha to Kala Amb) Insurer may deal with claim as per terms and conditions of policy, keeping in view of above said findings. This report is issued without prejudice.
17. Report of State Forensic Science Laboratories states as follows:
Received on sealed parcel, cloth packet, plastic jar) for examination bearing three seals of impression 'T'. Seals were intact and tallied with specimen seals. Plastic jar, stated to contain ash of burnt instruments and other articles collected from different places at the spot, marked as P/1.
RESULT
The contents of the above said parcel were subjected to physical and chemical analysis. No inflammation material was detected in the contents of parcel P/1.
18. Analysis of Reports
We have carefully gone through various documents, in particular reports of the Surveyors/investigators, other relevant records and rival contentions of the parties. There is no cogent and reliable evidence on record to establish that the fire in question was not accidental but a result of arson caused by Complainant/his representatives. The whole case of the Insurance Company is based on report of investigator M/s Royal Associates who has concluded in its report that "it seems that Moral hazard of the Insured is not good. Insured had tried to show excess loss of stock to increase claim amount" and preliminary inspection report of Mr. Harish Kumar Chopra who stated that he was not satisfied about the cause of fire being accidental, as well as preliminary surveyor Mr. Sanjay Gupta's report who stated that the cause of fire appears to be doubtful. Here it is to be noted that Mr. Kashmir Singh in his report did not state the probable or proximate cause of fire, the Forensic Science Laboratory report states that no inflammable material was detected in the samples collected by the police. M/s. Mack Insurance Surveyors & Loss Assessors (P) Ltd. examined various possibilities on cause of fire and stated in its report that "during the course of our survey, we conducted detailed investigation/enquiries about the cause of fire but despite of our detailed inspection, we could not conclude the exact cause of fire ....... "our final opinion is that the exact cause of fire is not known, as the same could not be established by any of the agencies involved in the case". The insured expressed their inability to throw any light on the cause of fire. As per police report, the cause of fire may be electrical short circuit due to lightning or it may be due to leakage of LPG cylinder which got ignited due to some sparkling from any electrical equipment. Fire report is silent on the cause of fire. Hence, there is no definite finding by either police or fire Delhi at any of the surveyor or investigator or Insurance Company based on any cogent and reliable evidence. If a licenced Surveyor, who is supposed to investigate the cause of fire also, despite his detailed enquiry/verification is not able to conclude into cause of fire, then it does not mean Insurance Company can keep on appointing investigator. Hence, the findings of Insurance Company in the repudiation letter that fire is not accidental one rather it may have been intentionally caused by Complainant or their representative is without any basis and not based on any evidence. In view of the foregoing we hold that OP-1 Insurance Company was not justified in repudiating the claim of the Complainant on the grounds mentioned in the repudiation letter dated 31.03.2016 read with letter dated 25.04.2016 and show cause notice dated 22.03.2016. Accordingly, we hereby set aside the said repudiation letter dated 31.03.2016 and hold that OP-1 was guilty of deficiency in service in wrongfully rejecting the claim merely on the basis of suspicion that fire was not accidental, and not deciding the claim within the prescribed timeline
19. Assessment of Loss
In view of our findings that repudiation of the claim of the Complainant on account of reasons/grounds related in the repudiation letter dated 31.03.2016 read with letter dated 25.04.2016 and show cause notice dated 22.03.2016 was not justified, and setting aside the said repudiation letter and holding that OP-1 was guilty of deficiency in service to the Complainant, we hold that the complainant is entitled to claim under the policy of the OP-1. As a period of 10 years have lapsed since the date of incident i.e. 31.08.2014, at this stage fresh assessment is neither possible nor desirable. Surveyor appointed by OP-1 Insurance Co. (M/s. Mack Insurance Surveyors & Loss Assessors (P) Ltd. in its final report has done some assessment of the loss. In its report dated 14.12.2015, the Surveyor also observed "It appears that the insured was heavily over insured at the time of fire, particularly, in the case of stocks. Maximum damage due to fire was sustained by stocks, which can more or less be termed as total loss. About 50% of the building had been badly damaged. Majority of the Plant & Machines had also sustained severe damage due to fire. There is no doubt that there was a fire of serious nature. Fire had caused substantial damage to building which was observed in badly burnt/damaged condition due to explosion and direct fire and heat. The entire stock which was kept inside the premises was in badly burnt/damaged condition. The total sound value of the identifiable damaged stocks works out to Rs.1,10,22,699/-. The balance quantity, which was not identifiable, works out to 49% of insured's claim on stock. There seems to be no breach of warranties in the case. We also explored into whether it was a silent risk. Activities having been carried out till 12.08.2014, it was ruled out. In its final conclusion, the Surveyor has stated that it is not denying the fact that there was a major fire in the insured premises and that majority of insured's property was badly damaged/destroyed in the fire. Surveyor has expressed its inability to definitely conclude and express opinion on underwriter's liability and left the matter to be decided by the insurer. A brief extract of relevant paras of report of the M/s. Mack Insurance Surveyors & Loss Assessors (P) Ltd. is reproduced below:
Sum Insured:-
Sr. No.
Description of Property
Sum Insured
Building
50,00,000
Plant & Machinery & Accessories
75,00,000
Stocks
1,25,00,000
Total Sum Insured
2,50,00,000
Note:-
Vide Endorsement No. 420201/11/14/31/83000002 dated 12.08.2014 forming the part of the above policy, sum Insured has been increased as under.
It is hereby agreed & declared that at the request of the Insured vide their letter dated 12.08.2014 the Sum Insured is enhanced by ₹1 Crs. (On stocks under fire policy with burglary policy on first loss basis of 20%). All other terms & condition remain unchanged.
Subject to
Agreed Bank Clause
Excess
5% of claim amount subject to minimum of ₹10,000/-
Total Sum Insured after Endorsement
Building: ₹50,00,000/-
P & M: ₹75,00,000/-
Stocks: ₹2,25,00,000/-
Total: ₹3,50,00,000/-
Since we are concerned more about the affected Kala Amb unit, a tabular form of presenting the Sum Insured will be helpful in understanding the increase if any on various items.
Year
Building (₹)
Plant & Machinery (₹)
Stocks (₹)
Total Amount (₹)
2010-11
0
0
60,00,000
60,00,000
2011-12
50,00,000
75,00,000
1,00,00,000
2,25,00,000
2012-13
0
0
1,25,00,000
1,25,00,000
2013-14
50,00,000
75,00,000
1,25,00,000
2,50,00,000
2014-15
50,00,000
75,00,000
2,25,00,000
3,50,00,000
An analysis of above data of Sum Insured raises some pertinent questions:
1. In the year 2010-11 there was insurance only for stocks. Building and Plant & Machinery were not insured. This leads to the surmise that there was no Building or Plant & Machinery in said year which is not possible. If it is an omission to insured, the same is against agreement with their bankers who have a financial interest in the assets of the company.
2. In the subsequent year's upto 2014-15, the Building and Plant & Machinery have a consistent Sum Insured. Off course in this case also there is a break when there was no Insurance covering Building & Machinery in the year 2012-13.
3. Only the year 2013-14 appears normal, where the Sum Insured on all the items are consistent.
4. In the year 2014-15 (year of loss) there is sudden spurt in the Sum Insured on stocks. The Sum Insured was increased by ₹1 Crore, just 20 days before the loss.
While the Insured did not extend an acceptable reason for the anomalies found at point no. 1 & 2, in the case of point-4 they stated that the Sum Insured on stocks was increased because material lying at Samalakha Unit was shifted.
In this two questions remain unanswered.
There was no need to shift the materials as the Kala Amb unit in itself was on the verge of closure. There was no production going on and there was reportedly labour unrest.
Even if it was done for some reasons, the value of material was only in the vicinity of ₹33 Lacs and there was no need to go in for an increase in Insurance to the extent of ₹1 Crore. We have checked up that there was no reason like sudden increase in stocks during this period, which could justify the increase in Sum Insured. This point in particular becomes relevant in the light of the fact that the fire occurred within 20 days after increase in Sum Insured, and there was not much activity during the intervening period. It appears that the Insured was heavily over insured at the time of fire, particularly in the case of stocks.
Further deliberations are made elsewhere in the report.
CLAIM DETAILS:-
Date of Loss
In the intervening night of 31.08.2014 & 01.09.2014
Date of Intimation
09.09.2014
Date of Survey
11.09.2014 and thereafter on several dates to the site.
Various visits to underwriters, Branch Office & Regional office for discussion.
Location of Survey
M/s NPP Energy Limited,
Village-Moginand, Nahan Road, Kala Amb,
Dist-Sirmour, Himachal Pradesh-173001
Items Affected
Stocks, Plant & Machinery, Building & FFF
Cause of Loss
Fire
Claimed Amount
₹3,43,43,818/-
INSURED'INSURED'S CLAIM:
The Insured furnished their claim bill along with duly filled and signed claim form in which the Insured have claimed ₹3,43,43,818/- towards their loss due to fire, details are as under;
S/N
Particular
Claim Amoutn (₹)
1
Stock
2,15,29,717
2
Building
59,30,339
3
Plant & Machinery
62,24,835
4
Furniture, Fixtures and Fittings
6,58,927
Total claim amount
3,43,43,818
A copy of the claim bill along with their claim form is enclosed as Encl: IX.
EXTENT OF DAMAGE & VERIFICATION:
During the course of our enquires, it was revealed that there was a fire at Insured's factory which is located at Village- Moginand, Nahan Road, Kala Amb, Dist Sirmour, Himachal Pradesh in the Intervening night of 31.08.2014 & 01.09.2014.
We inspected the premises in detail and advised the Insured to organize for detailed photography and video coverage in the same state as it existed.
On further inspection we found that maximum damage due to the fire was sustained by stocks, which can more or less be termed as total loss. About 50% of the building had been badly damaged. Majority of the Plant & Machinery had also sustained severe damages due to fire. It appears that due to the presence of flammable material, fire travelled very fast and spread to various areas of the production hall. Adding fuel to the fire was bursting of LPG and oxygen cylinders which were lying and were meant for "Gas Welding" operation. We asked the Insured to provide us the Gas Connection Proof. It was confirmed by the Insured that they had taken official connection for the LPG cylinders and they were last refilled on 13.08.2014. We were provided the photocopy of Commercial Gas Connection, which is enclosed with our report.
We have carried out the detailed inspection of the affected area. There is no doubt that there was a fire of serious nature. We physically verified the nature and extent of loss to the extent possible. While extensive photos have been provided, the following photos, will give a fair idea of the condition of the affected building.
It was evident that fire had caused substantial damages to building which was observed in badly burnt/damaged condition due to explosion and direct fire and heat.
During our visit, we observed that the main fire was at ground floor. The entire stock which was kept inside the premises was in badly burnt/damaged condition.
The roof, floor and pillar/beams of the said premises were also in badly damaged condition. There was heavy damage to first floor where the fire travelled.
Segregation of the damaged stocks was conducted and joint physical inventory of the stocks was taken. These were later valued at their cost as per purchase bills verified by us. These were tabulated in excel format which can be found at Annexure-I. The total sound value of the identifiable damaged stocks works out to ₹1,10,22,699/-. In other words, the balance quantity/ value could not be verified. The balance quantity which was not identifiable works out to 49% of Insured's claim on stocks. Looking into the nature of stocks we are of the considered opinion that these could not easily burn and will leave some remnants as evidence. Hence it is difficult to judge whether or not so much items could have been burnt. Before going into the various aspects of verification of stock claim, we bring details of corroborative evidence that were gathered during the course of survey.
VERIFICATION OF STOCK STATEMENTS SUBMITTED TO BANK:
Insured had been regularly submitting stock statements to their bankers. We have verified the stock statements submitted to bank from 01.06.2012 to 31.06.2014.
It may be seen from the above that since 01.04.2013 to 30.06.2014 the stock has been fluctuating between 2 Cr-3Cr, while the Sum Insured all through this period was only ₹1.25Cr. Then the Insured suddenly decides to increase the Sum Insured by ₹1 Crore reasoning that stocks worth ₹33 lacs are being transferred from Samalkha. Further they also insisted that the bankers wanted the sum insured to be increased. If that be the case, the increase should have been affected long back.
Further, the Insured had the option of transforming the policy for ₹75 lacs available at Samalkha Unit. The reason extended is somehow does not appear to be acceptable.
We asked the Insured to make a month to month reconciliation of the stocks as reflected in the statements made to the bank. An attempt was made towards this direction but in the absence of stock records, issue/consumption of material not being available, this was not possible. Hence the same could not be done. Therefore, it could not be concluded whether the Insured were declaring the correct position or was it made on Ad-hoc basis just to complete the formalities.
ELECTRICITY BILL:
We asked the Insured to submit their electricity bill in order to check their power consumption during the last three years.
xxx
From the table and given information, it may be seen that the above period the electricity consumption has been fluctuating from 10,000 units to 30,000 units or less for which a sanctioned load of 40 KW is not required. Insured explained that higher sanctioned load was obtained keeping in view the future expansion. They said that it is very difficult to get power connection in H.P. and they did not want to go for increasing the load repeatedly. Copies of Electricity bills are enclosed with our report as Encl:-XII.
The table further confirms that there has been no consumption from July, 2014, which doubly confirms that there was no electricity supply at the time of fire. However, it was brought to our knowledge that inspite of seeking information, the authorities at the Electricity Board refused to reveal the amount outstanding. This information was being sought to exactly know the date from which the electricity has been disconnected, but our discrete enquiries reveal that it was on 27.08.2014.
STOCK TRANSFER DETAILS:
Insured have one unit at Samalkha Haryana which had been recently closed and the material lying at that place had been reportedly shifted at the loss location and accordingly the sum insured was enhanced. Insured took endorsement on the existing policy on 12.08.2014.
However, we asked the Insured to provide us the stock transfer notes and bills. It turned out that the materials infact belonged to a sister concern M/s Vedanta which has since been closed. Stocks left therein were transferred to the Insured Company. Hence proper transfer was conducted, raising invoices and completing all road transport formalities. Insured submitted the same and summary of stock transfer is as given below:
Stock Transfer details
Bill No.
Date
Amount ₹
13.06.2014
1,12,450
17.06.2014
2,80,602
19.06.2014
4,28,145
21.06.2014
2,04,065
21.06.2014
2,78,990
23.06.2014
3,34,444
25.06.2014
2,87,890
27.06.2014
5,64,178
27.06.2014
4,69,853
28.06.2014
62,118
30.06.2014
3,66,090
Total
33,88,825
From the above table, it may be seen that total stock amounting to ₹33,88,825/- was transferred by the Insured in June, 2014, while the proposal for the endorsement was given on 12.08.2014. It was also informed by the Insured they wanted to sell the Premises of Samalkha unit; therefore, they transferred the stock.
The transferred stock of ₹33,88,825/- has been declared by the Insured in VAT Returns also. Copies of stock transfer notes are enclosed with our report as Encl:-XIII. Road permit/ transit documents were also verified during survey. The Samalkha unit having been closed in 2012 the material is atleast 2 years old.
If they were of use at Kala Amb, Insured could have utilized them, immediately. It is our further observation that at the time of stock transfer, Insured had a separate policy for ₹75 Lacs covering the stocks at Samalkha. Assuming that they were fully covered, the transfer was effected only to the extent of ₹33,88,825/-. There were no stock records of Samalkha separately to establish that only this much of stocks is available and transferred. However, this is the actual quantity/ value of material as per transfer notes & road permits. There is no stock left out during visit to the site. The investigator has also confirmed in his mail that there were no stocks in the premises, only some old machinery.
SAFE STOCK AT DELHI:
Insured had a storing place at Delhi and the stocks located therein were reflected separately in the books of accounts and valued at 31,50,500/-. During our survey visit, we found various items were lying in the premises, which were not of any use to the Insured's trade. A list was prepared for records purposes though it has no relation to the claim under consideration, as their value is separately reflected in the books.
20. M/s. Mack Insurance Surveyors & Loss Assessors (P) Ltd. has examined the assessed of loss with respect to stocks, buildings and Plant & Machines in great detail in his report, extract of which is given below:
" CLAIM ON STOCK:
SYSTEM OF BOOKS AND RECORDS
The Insured maintain their books and records such as purchase and sales ledger, Party ledger accounts, cash book, bank book etc. in computerized format. The books and records of the firm have been audited every year. Insured used to maintain stock register manually.
VERIFICATION OF RECORDS:
The Insured provided us copy of Audited Balance Sheets for the last three years i.e. for the years 2011-12, 2012-13 and 2013-14, stock statement submitted to bank, VAT Returns etc. We asked the Insured to provide the closing stocks details as on date of loss i.e. 31.08.2014 along with stock register and supporting invoices/supporting documents.
But it was informed by the Insured they used to maintain stock register manually and stock register has been burnt completely in the subject incident.
It was also informed by the Insured that they used to keep sending back up of their account to their CA and from there they could retrieve the data and prepare the books of accounts in order to ascertain the value of closing stock as on date of loss.
During our joint meeting at the Underwriter's Regional Office, various aspects of the claim were discussed. One amongst them was whether the Balance Sheet for the year 2013-14 finalized prior to the loss date or thereafter. The C.A. has shown that the Balance Sheet was signed on 21.05.2014. Normally any balance sheet does not get finalized in such a short time. In the light of the above, it was decided that our scrutiny and verification of records will also include the financial year 2013-14. Therefore, our verification of records was split into two parts viz for the financial year 2013-14 and thereafter for the period 01.04.2014 to 31.08.2014. In the sidelines of our discussion with the Insured, we raised this question as to how and why the balance sheet for the year 2013-14 was so hurriedly finalized. Insured explained that they were in talks with their bankers for enhancement of CC limit and the bank insisted on latest audited balance sheet. The reasoning appears plausible. However ignoring Insured's explanation, we went ahead with verification of records for previous year also.
VERIFICATION OF RECORDS-YEAR 2013-14
OPENING BALANCE:
Insured provided us Audited balance sheet as on 31.03.2012. On verification of the same, we found that the amount of Closing Stock is ₹1,69,61,341/-, which has been considered by the Insured as opening stock in Audited Balance Sheet as on 31.03.2013.
PURCHASES:
As per Audited Balance Sheet as on 31.03.2014, total Purchases works out to ₹6,72,04,273/- and we have been also provided the copy of Purchase Register from 01.04.2013 to 31.03.2014 along with their supporting bills, in which purchases for the same time period are ₹6,72,04,273/-. We have verified the same with their supporting invoices, with VAT Returns & Audited Balance Sheet, and all the entries were found correct. (Ref. Enel: XIV).
SALES
We have been provided with the copy of Sales Register from 01.04.2013 to 31.04.2014 along with their supporting invoices. We have verified the same with their supporting invoices, VAT Returns and Audited Balance Sheet and found it tallying with each other. (Ref. Encl: XV).
G.P.RATIO:
We studied the Profit & Loss A/c for the last three completed years and found that the G.P. Ratio to be consistently maintained through the years. It is also found that the G.P. is on the lower side as compared to industry standard. This may be due to the fact that Insured's supply is to OEM manufacturers rather than retail trade, where there is a higher margin.
G. P. Ratio for the previous year (01.04.2013 to 31.03.2014) works out to 9%. Moreover, average G.P. Ratio for last three financial years also works out to 9%. However, G.P. Ratio as per C.A. certified Provisional Trading A/c provided to us works out to -17.46%. This is because the current year has been very sluggish with erratic production, labour unrest, improper management due to ill health of Directors etc.
CLOSING STOCKS:
This is normally the balancing figure after verification of the expenditure side, However, in big corporate, they have the exact values of closing stock in the books and the derivative figure is the Gross profit. But, since we are in the process of verifying the authenticity of the stock figure, we need to work in reverse direction.
By this method, we kept the G.P. Ratio as constant as per past trend. The closing stock as appearing in the accounts of 2013-14 is found to be correct and acceptable. The figure thus arrived is ₹2,43,10,300/-, which becomes the opening stock for the year 2014-15, reflect a true and fair view of the affairs of the company for the said year.
We are enclosing herewith the following for the year 2013-14:
1. Extracts of Purchase Ledger A/c which matches with figures in the Profit & Loss A/c.
2. Extracts of Sales Ledger A/c which again matches with the figures in the
P&L A/c.
3. VAT Returns filed during the year, which tallies with the books of accounts.
4. Bank A/c statement for the year, reflecting that there has been regular transactions in the account. Copies of purchase/ sales bills being very voluminous, the same has been retained in our records and are not being enclosed with the report. Thus having completed a virtual audit of accounts for the year 2013-14. As a result of the above exercise the following Profit & Loss A/c was drawn up for the year 2013-14:
Sr. No.
PARTICULARS
Amount (in Rs.)
31.03.2014
1
Revenue from operations
7,64,48,655
2
Other Income
11,945
3
Total Income
7,67,60,600
4
Expenses
a
Cost of material consumed
6,58,09,533
b
Purchase of stock in trade
-
c Change in inventories (4,87,160) d Direct Expenses 27,15,309 e Employee Benefit Expenses 14,24,390 Gross Profit 66,86,584 Gross Profit Ration% 9 f Finance Costs 32,57,024 g Depreciation and Amortization Expenses 8,55,160 h Administrative and other Expenses 10,57,054 Payment to auditors 84,270 Total Expenses 7,47,15,579 5 Profit before exceptional and extraordinary items and tax 17,45,021 Net Profit Ratio% 2 With reference from all angles, we are of the opinion that the P&L A/c for the year 2013-14, has been drawn up correctly.
VERIFICATIONS OF CURRENT YEAR:
After verification of previous Financial Year, we proceeded to verify the accounts for the current year i.e. 01.04.2014 to 31.08.2014. As a result the following Provisional Trading A/c was drawn.up:
Particular Delhi Kala Amb Total Particular Delhi Kala Amb Total Amount (₹) Amount (₹) Opening Stock 31,50,500 2,11,59,800 2,43,10,300 Sales 1,05,39,243 1,05,39,243 Purchases 1,29,32,295 1,29,32,295 Closing Stocks 31,50,500 2,19,28,294 2,50,78,794 Direct Expenses 2,15,877 2,15,877 Gross Loss 18,40,435 18,40,435 31,50,500 3,43,07,972 3,74,58,472 31,50,500 3,43,07,972 3,74,58,472 During the period under consideration, Insured could attain a turnover of only ₹1.05 crores during the five months. This is because the unit was not functioning properly due to reasons explained earlier and also recorded hereunder:
1. Poor management due to ill health of the directors.
2. Labour unrest due to nonpayment of salary in time.
3. The last order from V. Gaurd was executed on 12.08.2014.
Thereafter, there were no orders as the unit was not in a position to take further orders as the unit facing labour problems.
These are the main reasons for Insured having incurred a loss in the above period.
OPENING BALANCE:
Insured provided us Audited balance sheet as on 31.03.2014. On verification of the same, we found that the amount of Closing Stock is ₹2,43,10,300/-, which has been considered by the Insured as opening stock in Provisional Trading A/c.
PURCHASES:
Insured has provided us Provisional Trading A/c from 01.04.2014 to 31.08.2014, in which purchases for the same time period are ₹1,29,32,295/-. Insured also provided us the copy of Purchase Ledgers from 01.04.2014 to 31.08.2014 alongwith their supporting invoices.
We have verified the ledger with their supporting invoices & VAT Returns and found it correct. (Ref. Enel: XVI). The last purchase was made on 02.08.2015 of ₹6,70,375/- which goes to show that the factory must be running atleast upto that date. During this period stock of Samalkha were also transferred, which is documented. Whether they could be used in production or not is a different question.
SALES As per Provisional Trading Account as shown earlier, total sales value works out to ₹1,05,39,243/. We have verified the same with the sales ledger provided by the Insured for the same period i.e. 01.04.2014 to 31.08.2014 along with their supporting invoices and VAT returns and found it correct. (Ref. Encl: XVII).
DIRECT EXPENSES:
As per the Provisional Trading A/c provided by the Insured, total direct expenses works out to ₹2,15,877/-. We have been also provided the ledger a/c thereof. We have verified the same with ledger a/c and found it correct. (Ref. Enel: XVIII).
VERIFICATION OF VAT RETURN:
Insured has also provided the VAT return from 01.01.2011 to 31.08.2014. We verified the same and compared with the Sales & Purchases shown in audited balance sheets and found them to be correctly declared. (Ref. Encl: XIX).
RECONCILIATION OF SALE & PURCHASE:
Reconciliation of Purchases and Sales as declared in VAT Returns with the Purchases and Sales as per records are as under:
SALES:
Period Sales as per VAT Sales as per Balance Sheet Difference 01.04.2014 to 31.08.2014 1,05,39,243 1,05,39,243
-
01.04.2013 to 31.03.2014 7,64,48,655 7,64,48,655
-
01.04.2012 to 31.03.2013 3,76,48,619 3,76,48,619
-
01.04.2011 to 31.03.2012 7,03,36,795 7,03,36,795
-
VALUATION OF CLOSING STOCK AS PER STOCK SUMMARY:
The Insured provided us the copy of item wise stock summary as on date of loss, the closing stock value as on date of loss works out ₹2,19,28,005/-. As per stock summary, detail of the closing stocks is given as per Enclosure-XX.
The above closing stock includes packing material to the extent of ₹10,45,319 Lacs approx which means a huge quantity. In the context, we refer to the observations of the preliminary surveyor, who had reported that there was large quantity of slush which suggests that packing material to large extent have been burnt in the fire.
We confronted the Insured with the preliminary surveyor's observation that there was no need to keep such huge quantity of packing material.
Insured's explanation was as under:
They make various capacities of invertors and UPS and each one requires a different size of carton, similar is the case with batteries which are also made in different sizes. Hence at any point of time there are about 8-10 variety of boxes. Since all of them are 4 colors printed, the manufacturer does not accept quantity anything less than 1000 Pcs, and it was explained. Hence they need to hold large quantity of packing materials. The reason extended by them appears reasonable.
VALUATION OF CLOSING STOCK BASED ON PROVISIONAL TRADING ACCOUNT METHOD:
As per Audited Balance Sheet as on 31.03.2014, Net Profit Ratio works out 2% only, while in the financial years 2012-13 & 2011-12, it works out to -1% & - 3%, which shows Net Loss during these two financial years. Moreover, Insured provided us CA certified Provisional Trading Account for the period 01.04.2014 to 31.08.2014 in which also they declared the Gross Loss of ₹18,40,435/-. Total value of closing stocks as per Provisional Trading A/c works out to ₹2,19,28,294/- (Ref. Encl: XXI). We probed into whether the stock values could have been inflated to reflect higher level of stocks. Having verified the purchases and sales, the only possibility increasing the stock that way is not possible.
Further out of the total stock, we could directly or indirectly verify the existence of stock to the extent of ₹1,14,20,987/. Thus a non-verified stock works out to ₹1,05,07,307/- which is 47% of total stocks. However, the possibility of nearly 50% stocks having been burnt without evidence is not acceptable. Hence we are of opinion that the adjustment of loss should be confined to what has been actually verified, giving a marginal allowance of 10% for stocks that could not be verified, but their existence is possible.
VERIFICATION OF PAYMENTS:
Insured provided us the bank statements along with the major party ledgers from 01.04.2011 to 31.08.2014. We have cross checked the same with the Party Ledger A/c and found them correct. The payments to and from various parties are in order.
COMPUTATION OF SAFE STOCK BASED ON STOCK SUMMARY V/S PHYSICAL VERIFICATION:
We conducted the joint physical inventory of the safe and damaged stock. We also obtained the total stock position as on the date of loss. After the segregation, a list of safe items as on date of loss was prepared and valued at their purchase cost. Total value of saved stocks works out to ₹3,98,288/-. Valuation of safe stocks is enclosed with our report as per Enclosure-XXII.
PHYSICAL VERIFICATION OF DAMAGED STOCKS:
As brought out earlier the damaged stock were also identified and quantified as far as possible. However, it was not possible to make 100% quantification. A comparison of stock as per books was made with the physical quantification and we found that physically verified burnt stocks were to the extent of nearly 50% of the stocks as reflected in the books. Looking into the facts and circumstances and the condition of burnt items, we are of the considered opinion that there could not be such a vast difference between physical and book stocks. Hence, as stated earlier, we have recognized only the physically available stocks, with a marginal allowance of 10% towards burnt stock.
COMPUTATION OF DAMAGED STOCKS AS PER PROVISIONAL TRADING A/C METHOD:
Based on the above calculations, the value of damaged stocks is calculated as under:
Particular Loss as per Provisional Trading Method (₹) Closing Stock 2,19,28,294 Less: Safe Stocks 3,98,288 Damaged Stocks 2,15,30,006 Therefore, total value of damaged stocks comes to ₹2,15,30,006/-.
DEAD STOCK, VARIATION AND SLOW MOVING STOCK FACTOR:
As already discussed above, we are considering only the stock of ₹1,14,20,987/- which was physically verified by us plus/or which we have considered as being uncounted. For stocks shifted from Samalkha which was more than 2 years old, we have not considered them at current market value, we have valued them to the extent of 50%. For the balance stocks, we have considered the dead stock @5%, being fair & reasonable in the present case.
SALVAGE:
Insured initially did not offer any salvage amount against the damaged item. However, as per our past experience and market enquiry, we suggested that they should make an offer. After negotiation, the total scrap value was agreed at 3 lacs. This has been equally divided amongst the three elements of loss, stocks, plant & machinery and building. The scrap may be left with the Insured as the above scrap value appears to be fair & reasonable.
VALUE AT RISK AND UNDER INSURANCE:
Since the loss has been assessed by Physical Verification Method, therefore, we have computed the value at risk on the basis of same method only. As already mentioned above, the Value of closing stock as on date of loss works out as under:
Particulars Amount Total Closing Stock as on date of loss as per our physical 1,14,20,987 Add:10% allowance for stocks available but could not be verified 11,42,099 Total closing stock works out to 1,25,63,086 Less Stock transferred from Samalkha considered to be dead stock to the extent of 50% 16,94,413 Net Stock at Kala Amb 1,08,68,673 Less: Dead Stock @5% 5,43,434 Value at Risk 1,03,25,239 Sum Insured 2,25,00,000 Therefore, No Under Insurance is applicable on stocks on the above basis.
COMPUTATION OF LOSS AS PER PHYSICAL:
The computation of loss as per physical is as under:
Particular Total Closing Stock as on date of loss as per our physical verification 1,14,20,987 Add: 10% allowance for stocks available but could not be verified 11,42,099 Total stocks works out to 1,25,63,086 Less Stock transferred from Samalkha considered to be dead stock 16,94,413 Net Stock at Kala Amb 1,08,68,673 Less: Safe Stock as per Physical verification 3,98,288 Damaged stocks works out to 1,04,70,385 Less Dead Stocks@5% 5,23,519 After deducting Dead Stocks 99,46,865 Less Salvage lump sum amount 1,00,000 Adjusted Loss 98,46,865 COMPUTATION OF LOSS AS PER BOOKS:
Particular Amount Total Closing Stock as on date of loss as per books 2,19,28,294 Less Stock transferred from Samalkha considered to 16,94,413 Net Stock at Kala Amb 2,02,33,881 Less: Safe Stock as per Physical Verification 3,98,288 Damaged stocks works out to 1,98,35,593 Less: Dead Stocks@5% 9,91,780 After deducting Dead Stocks 1,88,43,813 Less Salvage lump sum amount 1,00,000 Adjusted Loss 1,87,43,813 As per above valuation, adjusted loss against the damaged stocks as per physical works out to ₹98,46,865/- while, if we go as per books then the damaged stocks works out to ₹1,87,43,813/-. Since the value of physical stocks are lower, we recommend the loss if be indemnified may be only to the extent of physical verification.
LOSS ASSESSMENT OF BUILDING During our survey, we observed that the subject building got damaged extensively in direct fire and heat. The subject building is owned and occupied by the Insured as a manufacturing & storing unit. It was clearly evident that the fire had caused substantial damages to building and Insured have suffered loss against the damaged premises due to subject incident. The main fire was at ground floor which had been totally engulfed by fire and affected by explosion and the roof had collapsed. Such extensive damage could happen only when there was sufficient quantity of flammable stocks which acted as a fuel to the fire. The electrical wiring, control panels etc were also in badly burnt/damaged condition. Fire and heat also travelled to first floor, which was also in totally burnt/ collapsed condition. Its plastering as well as the flooring was found in burnt/damaged condition.
Insured provided us the Valuation report of damaged building which was prepared by an Approved Building Planner & Builder Mr. Sanjay Kumar Gupta.
The detail of the valuation report is as under:
Foundation & Plinth R.R Stone Masonry in C.M. Super Structure Bricks structure Wood work Local Wood Flooring C.C. Roofing R.C.C Slab Finishing In side Plastering Water supply Yes Electricity Yes Single story or double storey Single Storey/double Plinth area of building RCC Block 564.86 Sq. mtr Shed 378.53 Sq. mtr Year of construction & age 2008 (7 years) Life of building 60 years Net Plinth area rates (RCC Block) 12746/-(2000-09)=0.9=11471.40/sqmtr Capital Cost of RCC block 564.86x11471.40=64,79,735.00 Plinth area rate of shed (Semi Pucca) 12746/- x 0.75=9,559.50 Capital cost of shed 438.6x9559.50=41,92,796/-
Capital cost of RCC Block ₹64,79,735.00 Depreciate value of the RCC Block 6479735.00x7/60=7,55,969/-
Cost of Property (6479735-755969)=57,23,765 Depreciated Value of the shed ₹4192796x7/60=4,89,159/-
Cost of Property (4192796-489159)=37,03,636/-
Total cost of property 5723765+3703636=94,27,401/-
Say= ₹94,27,400/-
As per valuation report, total NRV of the subject premises works out to ₹94,27,400/- only. The valuation was made on basis of the rates envisaged under [H.P.] P.W.D SR-2009 read together with rates prescribed under HP Govt. Notification No. Revenue Stamp (F) 6-1/2009-I dated 26.06.2013. Depreciation has been considered by the valuer considering 60 years of life in the valuation report, which is quite appropriate in accordance to the type of construction year and maintenance of the premises As per above valuation, it may also be noted that valuer have not considered the boundary wall while preparing the said valuation. Therefore, while assessing the Value at risk, we are considering amount of ₹2,57,280/- against the boundary wall also which works out as under:
S/N Particular Amount (₹)/Area 1 Total Area 171.52 Running mtr 2 Average cost of construction per running meter ₹1,500/-3
Total cost of construction of boundary wall ₹2,57,280/-
Thus, total NRV will work out as under:
Particular Amount Total cost of property as per valuation report 94,27,401 Add: Cost of boundary wall 2,57,280 Total NRV of the premises 96,84,681 Therefore, after adding the cost of boundary wall total NRV of the premises works out to ₹96,84,681/-.
The building was jointly measured by us and the consultant appointed by the Insured and the valuation as mutually agreed had been done on basis of the rates envisaged under [H.P.] P.W.D SR-2009 read together with rates prescribed under HP Govt. Notification No. Revenue Stamp (F) 6-1/2009-I dated 26.06.2013. Hence there is no deduction/increase in quantification of loss in valuation of the building. This is a very normal practice adopted by us to minimize the differences and disputes in the assessment of claim. Having verified the quantities, the valuation of building was done based PWD Rates, such rates were verified from the schedule of rates.
In such cases there is no point in calling for quotation from petty contractors. They may quote lower to see the confidence level of the Insured with the particular valuer/ contractor. Hence, there was no point in calling for 2 or more quotation. Further all quotation, if based on PWD rates, will work out the same.
DEPRECIATION:
Depending upon the type and year of construction (2008) and having been well maintained, depreciation at 10.5% for 7 years @ 1.5% per year is considered as fair and reasonable in our opinion. The valuer has taken 60 years of life, which more or less works out to the same. Hence we have considered the current market value of building as ₹94,27,400/-
AVERAGE CLAUSE/VALUE AT RISK OF BUILDING:
For the valuation of Value at Risk of the subject premises we have considered the Valuation Report which is prepared by approved Building Planner and Builder. Total NRV of the building as per valuation report as on 25.07.2014 works out to ₹96,84,681/-(as calculated above), which is just one month before the date of loss. The Value at Risk is calculated as under:
Particular Amount (Rs.) Total Value at Risk of building 96,84,681 Total Sum Insured 50,00,000 Under Insurance % 48.37 As per table given above, 48.37% Under Insurance is applicable.
SALVAGE VALUE OF BUILDING:
As already mentioned, after negotiation, the total scrap value was agreed at ₹3 lacs. This has been equally divided amongst the three elements of loss, Stocks, Plant & Machinery and Building.
COMPUTATION OF LOSS TO BUILDING:
1. Insured have submitted item wise repair/restoration cost for damaged portion of the building Ref. (Encl: XXIII). The specifications of the building taken in the estimate have been verified by us and are in order.
2. Insured have claimed ₹59,30,339/- against the premises for repair cost. The estimate of loss has been made by the same builder, who had done the valuation of the whole building. The quantities/ rates taken in them are commensurate with each other.
3. As discussed above, depreciation applied by the valuer has been considered fair & reasonable.
4. As calculated earlier, 48.37% under insurance is applicable.
5. Insured have claimed ₹6,86,438/- for repair cost of Plinth & Foundation (Ref. Sr. No. 1 to 4 of repair estimate). Since, there were no damages to the Plinth & Foundation; we have not considered the same while assessing the loss.
6. Insured have claimed ₹6,03,029/- against the Sr. No. 5 of the repair estimate which is towards providing mild steel/ or steel reinforcement for RCC work including bending, binding and placing in position complete upto floor two level. But same has been found only damaged condition up to 50%, therefore, the same has been allowed by us only up to 50% i.e. ₹3,15,015/- as per our physical verification. Similarly, Insured have claimed ₹1,23,399/-against the Sr. No. 13 of the repair estimate. But has been allowed by us only up to the 50% i.e. ₹61,699/-only.
7. Insured claimed 35% for cost index premium & 20% for sanitary & electricity, while the same have been considered by us only 20% (for cost index premium and 10% (for sanitary & electricity), being fair & reasonable as per our past experience and market enquiry.
COMPUTATION OF LOSS TO BUILDING:
Particular Amount (Rs.) Total Expenses from Item no. 1 to 20 36,60,703 Less Item Nos. 1 to 4 6,86,438 Less: Item No. 5 3,15,015 Less: Item No. 13 61,699 Total Expenses as per our assessment 25,97,551 Add: 20% Cost Index Premium 5,19,510 Add: 10% Sanitary & Electricity 3,11,706 Total Repair/restoration cost of damage to Building 34,28,768 Less: Depreciation @7/60 of Rs.34,28,768/-
4,00,023 Loss after Depreciation 30,28,745 Less: Salvage 1,00,000 Assessed Loss 29,28,745 Less: Under Insurance @48.37% 14,16,634 Adjusted Loss 15,12,111 PLANT & MACHINERY:
Plant & Machinery have a normal life of 20 years and with good maintenance it can even extend to 25 years. However, in this case Insured's Plant & Machinery comprised of Battery machine, testing meters, conveyors, winding machine, soldering etc had a maximum life of 20 years.
VALUE AT RISK/ADEQUACY OF INSURANCE:
Depreciation @5% is being considered by us taking 20 years as the useful life. We asked the Insured to provide the year-wise original capitalized cost of all machines installed/lying in the affected premises. This cost was escalated by applying suitable factor i.e. RBI Index. Details of which are as under:
AS PER HISTORIAL COST (I) Plant & Machinery S.No. Period Capitalized cost (₹) RBI Index Depreciation Amount Including escalation (₹) (%) Amount (₹) Amount depreciation (₹) 2004-2005 2,61,035 404.48 4,06,693 50 2,03,346 2,03,346 2005-2006 12,86,510 411.19 1,19,71,675 45 8,87,254 10,84,421 2006-2007 2,81,680 439.21 4,04,155 40 1,61,662 2,42,493 2007-2008 27,68,245 465.26 37,49,501 35 13,12,325 24,37,175 2008-2009 20,13,955 479.68 26,45,834 30 7,93,750 18,52,084 2009-2010 38,961 514.64 47,708 25 11,927 35,781 2010-2011 2,00,123 539.58 2,33,725 20 46,745 1,86,980 2011-2012 15,09,190 575.17 16,53,531 15 2,48,030 14,05,501 2012-2013 1,37,220 600.25 1,44,062 10 14,406 1,29,656 2013-2014 1,41,780 620.88 1,43,904 5 7,195 1,36,709 Aug-14
-
630.18
-
-
Total (I) 86,38,699 1,14,00,788 36,86,641 77,14,147 Average Depreciation 32.34 Based on historical cost method, Under Insurance has been calculated as under:
Particular Amount (₹) Value at Risk 77,14,147 Total Sum Insured 75,00,000 Under Insurance % 2.78 AS PER PHYSICAL VERIFICATION:
During our visit, we also prepared a list of saved Plant & Machinery. Insured also provided us a list of saved Plant & Machinery. We verified the same with our list and fount it correct. The list was later valued at their market price. Total value of saved Plant & Machinery works out to ₹16,95,629/- (Encl:XXIV) and value of damaged machinery works out to ₹62,24,835/- (Encl:XXIV). Therefore, total value of Plant & Machinery as on date of loss comes to ₹79,20,464/- as per quotations.
Based on above value we calculated Under Insurance as under:
Total Value of Plant & Machinery as on date of loss : ₹79,20,464/-
Less: Average Depreciation @32.34% : ₹25,61,478/-
Total Value at Risk works out to : ₹53,58,986/-
Total Sum Insured : ₹75,00,000/-
Under Insurance % : Nil
COMPARISON OF TWO METHODS
Particular
As per Historical cost
As per Market Rate
Cost of Plant and Machinery as on date of loss
1,14,00,788
79,20,464
Less: Average Depreciation @32.34%
36,86,641
25,61,478
Value at Risk
77,14,147
53,58,986
Sum Insured
75,00,000
75,00,000
Under Insurance
2.78
0
From the above table, it may be seen that as per historical method total under insurance works out to 2.78%, while as per physical verification method applicable under insurance is nil.
COMPUTATION OF DAMAGED MACHINERY BY TWO METHODS:
Particular As per Historical cost As per Market Rate Total Cost of Plant & Machinery 1,14,00,788 79,20,464 Less: Saved Machinery as per physical 16,95,629 16,95,629 Value of damaged machinery 97,05,159 62,24,835 Hence, as per above table total value of damaged machinery works out to ₹97,05,159 as per historical cost method and as per physical verification method it works out to ₹62,24,835/-. We are considering the damaged value as per physical verification method which works out to ₹62,24,835/-, being lower of the two.
ASSESSMENT OF LOSS TO PLANT & MACHINERY:
Insured have claimed ₹62,24,835/- towards the cost of damaged Plant & Machinery. Upon scrutiny of the same following observations were made:
As per our physical verification, all the damaged machines were found beyond repair. On going through the claim bill, we observed that machine were the same as verified during our visit. The replacement cost claimed was found fair & reasonable and considered in the assessment of loss. These were duly supported by quotations.
Since we did not have the date of acquisition of each item or other machinery, we had to apply average depreciation of all items @32.34%.
SALVAGE:
As already mentioned lump sum amount of ₹3 lacs was offered by the Insured, which has been considered by us and has been equally divided amongst the three elements of loss, Stocks, Plant & Machinery and Building. Hence a sum of ₹1,00,000/- is being deducted towards Plant & Machinery.
As calculated earlier, no under insurance is applicable.
COMPUTATION OF LOSS:
PARTICULARS Amount (Rs.) Gross Loss of Plant & Machinery 62,24,835 Less: Average Depreciation @32.34% 20,13,112 Loss after depreciation 42,11,723 Less: Estimated Scrap/salvage value 1,00,000 Loss after deducting scrap/salvage value 41,11,723 Less: Under Insurance
-
Adjusted Loss 41,11,723 DEDUCTION OF SOURCE OF FIRE:
We have made a notional deduction of ₹5,000/- towards source of fire and considered as reasonable deduction on this account.
EXCESS CLAUSE:
An excess of 5% of claim amount subject to minimum of ₹10,000/- is applicable as per terms & conditions of the policy.
SUMMARY OF LOSS ASSESSMENT Summary of the loss assessment is as under:
Item Insured's Claim Gross Loss Dead Stock/ Depreciation Salvage Average Clause Amount (Rs) Building 59,30,339 34,28,768 4,00,023 1,00,000 14,16,634 15,12,111 Plant & Machinery 62,24,835 62,24,835 20,13,112 1,00,000 0 40,00,723 Stock 2,15,29,717 1,04,70,385 5,23,519 1,00,000 0 98,46,865 FFF 6,58,927 0 0 0 0 0 Total 3,43,43,818 2,01,23,988 29,36,654 3,00,000 14,16,634 1,54,70,699 Less: Source of Fire Lump sum amount 5,000 Less: Excess Policy Clause 5% 7,73,535 Net Adjusted Loss 1,46,92,164
21. We have carefully considered the report of M/s. Mack Insurance Surveyors & Loss Assessors (P) Ltd. as detailed in para 20 above and observe as follows:
Surveyor confirmed that the books and records of the firm have been audited every year. The insured used to maintain stock register manually, which got burnt completely in the said fire incident, Insured used to keep sending back up of their account to their CA and from there they could retrieve the data and prepare the books of account in order to ascertain the value of closing stock on the date of loss surveyor also confirm having got copy of Audited Balance Sheets for the last three years (2011-12, 2012-13 and 2013-14), stock statement submitted to bank, VAT returns etc. Surveyor has unnecessarily doubted the early finalisation of balance sheet of the year 2013-14. Complainant gave a quite valid explanation for such an action. We are not in agreement with the observations of the surveyor in this regard.
Surveyor, rather than accepting the audited accounts on face value, without giving any valid reasons for suspecting their correctness, has unnecessarily gone to reconstruct the accounts/balance sheet etc., which amounts to doing some sort of super audit of the audited balance sheets prepared by competent Authority. Even after doing such an exercise, the surveyors came to the conclusion that closing stock as appearing in the account of 2013-14 is found to be correct and acceptable. The figure thus arrived was Rs.2,43,10,300/-, was the opening stock for the year 2014-15 and the surveyor admit, reflected a true and fair view of the affairs of the company for the said year. The Surveyor also confirmed that extract of purchase ledger account and sales ledger account matches with the figures of P & L account and that VAT Returns filed during the year tallies with the books of accounts and that bank a/c statements for the year reflect that there has been regular transactions during the year surveyor admit having done a virtual audit of the accounts for the year 2013-14, but could not find any major fault.
Surveyor then goes on to draw the P & L accounts for the year 2014-15 for the period 01.04.2014 to 31.08.2014 i.e. date of loss and concludes that during this period, insured could attain a turn over of only Rs.1.05 crore. Insured had provided item wise summary as on date of loss, according to which closing stock value as on date of loss works out to Rs.2,19,28,205/-. The Surveyor states/confirms in its report that they probed into whether the stock values could have been inflated to reflect higher level of stocks, having verified the purchases and sales, the only possibility increasing the stocks that way is not possible. However, the Surveyor states that out of the total stock, they could directly or indirectly verify the existence of stock to the extent of Rs.1,14,20,987/- and the non-verified stock works out to Rs.1,05,07,307/- which is 47% of total stocks. The Surveyor further gives his opinion that adjustment of loss should be confined to what has been actually verified, giving a marginal allowance of 10% for stocks that could not be verified, but their existence is possible. We are not in agreement with this opinion of the Surveyor, considering that Surveyor itself agrees with the correctness of stocks position as on the date of loss based on his detailed verification of books of account, including opening stock, purchase sales etc. Just because he is not able to verify almost 47% of the stocks, whose existence possibility also he admits, it is unfair to penalise the Complainant on this account. However, considering that no further verification of such portions of the stock is possible at this stage, keeping in view the entire facts and circumstances of the case and figure of stock as per books of accounts, correctness of which have not been disputed by the Surveyor, and according to which the closing stock as on date of loss is Rs.2,19,28,294/-, we hold that taking the value of such unverified stocks at 50%, instead of 10% recommended by the Surveyor would be just and equitable in the given facts and circumstances of the case. Surveyor itself, after taking the value of safe stocks as Rs.3,98,288/- has computed the stock loss value of Rs.2,15,30,006/- as per provisional trading method salvage value of Rs.3 lacs appears to be reasonable. Surveyor has confirmed that no under insurance is applicable on stocks. Surveyor has calculated loss as per physical verification as Rs.98,46,865/- and as per books Rs.1,87,43,813/-, and has recommended indemnification (if to be done) only to the extent of physical verification. However, in view of the foregoing we are not in agreement with such a recommendation of the Surveyor and hold that Complainant is entitled to claim on stock loss item as Rs.1,42,86,840/-, as detailed below.
COMPUTATION OF LOSS OF STOCK (Taking allowance for unverified stocks as 50% instead of 10% taken by the Surveyor, rest of figures/calculations as made by the Surveyor):
Particular Amount (in Rs.) Total Closing Stock as on date of loss as per our physical verification 1,14,20,987 Add: 50% allowance for stocks available but could not be verified 57,10,493 Total stocks works out to 1,71,31,480 Less Stock transferred from Samalkha considered to be dead stock 16,94,413 Net Stock at Kala Amb 1,54,37,067 Less: Safe Stock as per Physical verification 3,98,288 Damaged stocks works out to 1,50,38,779 Less Dead Stocks@5% 7,51,939 After deducting Dead Stocks 1,42,86,840 As regard loss for building, the Surveyor confirm that subject building got damaged extensively in direct fire and heat. As per valuation report of damaged building provided by the insured, which was prepared by an approved Building Planner and Builder, total cost of property comes to Rs.94,27,400. This valuation was made on the basis of rates under H.P, PWD SR 2008 read with rates prescribed under H.P. Govt. notification dated 26.06.2013, and Surveyor has considered the current market value of building as Rs.94,27,400/-. However, the Surveyor states that there is an under insurance of 48.37%, considering that sum insured for building was Rs.50.00 lacs only. Scrap value of building has been taken as Rs.3 lacs. However, after taking the gross loss as Rs.34,28,768/- only (after doing various deductions) and applying depreciation and deducting surveyor value and average clause, the surveyor has arrived at loss assessor for building as Rs.15,12,111/- only as detailed in preceding pages.
It is to be noted that for calculating total repair/restoration cost of damage to building, as Rs.34,28,768/- the surveyor has taken a total expenses (stated to be from item 1 to 20 of the estimate) as Rs.36,60,703/-. However, the insured have claimed Rs.59,30,339/- against the premises for repair cost, which is based on estimate of loss made by same approved building planner, who had done the valuation of whole building, and the surveyor do state that the quantitative/rates taken by them are commensurate with each other. But then why a figure of Rs.36,60,703/- for items 1 to 20 only have been taken, which are the other items not taken into account and why such items have been excluding, there are no details in the report of surveyor in this regard. We have no reason to interfere with deduction towards item 1 to 4, 5 & 13 as stated in the Table given by the Surveyor and applying under insurance @48.37% and depreciation and salvage etc., but there are no details in the surveyors report as to how figure of Rs.36,60,703/- have been arrived at despite the estimated cost as per approved builder's estimate being Rs.59,30,339/-. Although, we are not in agreement with his taking the figures of Rs.36,60,703/-, but at this stage, we think this is the best available assessment to be taken. Hence, we take the loss to building as computed by the Surveyor, i.e. Rs.15,12,111/- only.
As regards Plant & Machinery, against a claim of Rs.62,24,835/- surveyor has calculated the loss of Rs.41,11,723/-. An under insurance of 2.78% has been arrived at by taking the value at risk as Rs.77,14,147/- and sum assured being Rs.50,00,000/-. Surveyor estimated the value of saved P & M as Rs.16,95,629/- (at market price) and value of damaged machines as Rs.62,24,835/-. Adjusted loss has been calculated as Rs.41,11,723/- after applying average depreciation @32.34% and deducting salvage value. We find no reason to change such figures. Surveyor in the summary of loss assessment, has taken loss of plant and machinery as Rs.40,00,723/-. Accordingly, we take the same figure.
In view of foregoing we assess the loss and admitted claim to be paid by OP-1 insurance company to the Complainant as follows.
Sr.No. Item Amount in (Rs.) a.
Building 15,12,111 b.
Plant and Machine 40,00,723 c.
Stock 1,42,86,840 Total 1,97,99,674 Less Rs.5,000 Less Excess policy clause @5% Rs.9,89,983 Net adjusted loss/admitted claim Rs.1,88,04,691
22. FINAL CONCLUSION OF M/S. MACK INSURANCE SURVEYORS & LOSS ASSESSORS (P) LTD.'S REPORT :
It is not denying the fact that there was a major fire in the Insured's premises on the intervening night of 31st August & 1st September, 2014 and that majority of Insured's property was badly damaged/ destroyed in the fire. However, the claim of the Insured is not without flaws.
A. The most important aspect being the cause of fire is not established as accidental. The following findings are noteworthy in this regard.
We have ruled out Electrical Short Circuiting as the probable cause, as there was no supply to the unit.
2. The preliminary surveyor Mr. Harish Kumar Chopra who is the first person to reach the site has observed that he was neither satisfied about the genuineness of the fire and consequently the moral hazard of the Insured.
3. Later another surveyor Mr. Sanjay Gupta visited the site and observed that the cause of fire is doubtful.
4. The Investigator Mr. Kashmir Singh has observed that the cause of fire is not known. His report is full of negativities, which goes against the Insured. In the light of above, we could not find any cause that could lead to a tenable a claim under the policy.
B. The next aspect to be looked into is the more than required Sum Insured particularly on stocks, taken by the Insured. In this regard, our observations are as under: -
In the year 2014-15 (year of loss) there is sudden spurt in the Sum Insured on stocks. The Sum Insured was increased by ₹1 Crore, just 20 days before the loss. While the Insured did not extend an acceptable reason for the anomalies found, they stated that the Sum Insured on stocks was increased because material lying at their Samalkha unit was shifted. In this two questions remain unanswered.
I. There was no need to shift the materials as the Kala Amb unit in itself was on the verge of closure. There was no production going on and there was reportedly labour unrest.
II. Even if it was done for some reasons, the value material was only in the vicinity of ₹33 Lacs and there was no need to go in for an increase in Insurance to the extent of ₹1 Crore. We have checked up that there was no reason like sudden increase in stocks during this period, which could justify the increase in Sum Insured. This point in particular becomes relevant in the light of the fact that the fire occurred within 20 days after increase in Sum Insured, and there was not much activity during the intervening period. It appears that the Insured was heavily over insured at the time of fire, particularly in the case of stocks. This goes to suggest that the sum insured on stocks was deliberately enhanced just 20 days prior to loss, may be with ulterior motive.
C. There were no activities carried out in the factory at the time of fire. There was labour unrest due to no-payment of wages on time. This leads to suspect malicious damage. In that event, a cognizable offence should have been made out against known/ unknown persons, which has not been done.
In the light of the above factors and observations made at various pages of this report, we are unable to definitely conclude and express our opinion on underwriter's liability and leave the matter to be decided by the competent authorities. We have, in the foregoing pages, made a objective assessment of loss, in order to fix underwriters liability if they admit the same or in the event of denial, to let them know their maximum outflow in the event of Insured seeking legal remedy and the court decides in favour of the Insured.
23. Final Orders In view of the foregoing and keeping in view the entire facts and circumstances of the case, Consumer Complaint 1264 of 2016 is allowed and disposed off with the following orders:
(i) OP-1 -Oriental Insurance Co. is directed to pay the assessed loss of Rs.1,88,04,691/- (Rs. One crore eighty eight lakhs four thousand six hundred and ninety one) to the Complainant within 45 days of this order along with interest @9% p.a. w.e.f. date of filing of complaint i.e. 03.08.2016 till the actual date of payment, failing which, amount payable at the end of 45 days shall carry interest @12% p.a. w.e.f. expiry of 45 days of date of this order till the actual date of payment.
(ii) Considering that the Consumer Complaint is being contested by the Complainant since 2016, OP-1 shall also pay an amount of Rs.5 Lakhs towards litigation costs to the Complainant. This amount shall also be payable within 45 days, failing which, it shall carry interest @12% p.a.
(iii) As OP-2 is a licenced Surveyor, who has done survey as per appointment done by the Insurance Company under the IRDA approved Regulations, no liability lies against him for repudiating of claim by the Insurance Company. Hence Consumer Complaint is not maintainable against OP-2 and is dismissed as against OP-2.
24. All the pending IAs in this case, if any, stand disposed of.
[1] Correct date is 02.09.2014 [2] Since replaced with 2015 Regulations .........................J A. P. SAHI PRESIDENT ................................................ DR. INDER JIT SINGH MEMBER