National Consumer Disputes Redressal
Roshan Lal Oils Mills Ltd. vs United India Insurance Co. Ltd. on 14 May, 2008
ORDER
M.B. Shah, J. (President)
1. Undisputedly, the Complainant had taken a fire insurance policy from the Opposite Party (OP) covering the risks mentioned therein in respect of the stocks of mustard seeds and/or toria and/or soybean and goods of all seeds of like nature during their storage in the silo installed near the oil mill inside the factory premises of the insured, situated at Mansa Road, Bathinda. The relevant details are mentioned in the policy. The sum assured in the policy was Rs. 1.10 crore and premium was charged for covering the perils specified in the policy, including "basic spontaneous combustion, T.A."
2. During the currency of the insurance cover a fire was noticed on 3.8.1990 at 2.00 pm. The workers in the complex reportedly observed flames emanating from the top of the silo in which mustard seeds were stored. Hence, the Insurance Company was informed.
3. The surveyors of the OP, after verification, arrived at the conclusion that though the insured stocks were damaged due to spontaneous combustion, there was no "fire". On the ground that there was no "fire" due to the spontaneous combustion, the Insurance Company repudiated the claim. Hence, the Complainant filed this complaint (No. 89 of 1991). This Commission allowed it vide judgment and order dated 26.03.1992, by holding that the repudiation of the claim by the Insurance Company was totally unjustified because the Insurance Company had charged additional premium for covering the risk of spontaneous combustion. On that basis as well as the joint survey report submitted by the Surveyors, this Commission directed the Insurance Company to reimburse the Complainant a sum of Rs. 61,65,902/- along with interest @ 18% p.a. from 03.11.1990 (three months after the date of incident). The Insurance Company was also directed to pay a sum of Rs. 50,000/- as compensation for the delay in settling the claim.
4. Against that order, the Insurance Company preferred an Appeal (No. 2339 of 1992) before the Apex Court. The appeal was allowed and the matter was remitted for fresh hearing in accordance with law in the light of the observations made by the Apex Court in its judgment dated 27.7.1999. The Complainant was also directed to refund the amount withdrawn by it in terms of the order dated 14.07.1992 of the Apex Court, along with interest @ 18% p.a. for the whole period it had retained the money. The Apex Court further directed this Commission to consider the joint survey report dated 14.06.1991 submitted by M/s Mehta and Padamsey Surveyors Pvt. Ltd. and M/s Thapar, Srinivasan and Kapoor (Pvt.) Ltd.
Surveyors' Report:
5. In view of the aforesaid direction we would first refer to the relevant parts of the surveyors' report:
The relevant paragraph nos. 5, 6 and 7 of the said survey report are as under:
5.0 THE OCCURRENCE The factory was functioning normally on Friday 3rd August 1990. At approximately 1400 hours the workers in the complex reportedly observed fumes emanating from the top of the silo in which mustard seeds were stored.
As an initial step, the workers went to the top of the silo and removed the lid cover with a view to releasing the pungent fumes from the silo. Simultaneously, the air circulation fan was reportedly switched off. Thereafter the outlet hatch at the bottom of the silo was opened, with a view to letting out the stocks of mustard seeds. It was reported that the initial seeds that came out were undamaged but thereafter heat - affected mustard seeds started pouring out.
The insured reportedly informed the insurers on the 3rd August itself that 9860 quintals of mustard seeds stored in the silo had been affected due to self "spontaneous combustion". The letter reads as under:
ROM/147-4/1859 3rd August, 1990 Sr. Divisional Manager, United India Insurance Co. Ltd., The Mall, Bathinda Re.: Policy No. 200400/03/1/00020/89 dated 29.11.89 Madam,
Please refer to above policy regarding storage of oil seeds. It is for your information that about 9860 qtl Mustard Seed stored in Silo has been affected due to self spontaneous combustion.
You are requested to please register our claim and arrange to depute the surveyor to assess the loss and to avoid any further loss to goods.
The insured did not report the matter to the fire brigade on the ground that the fire brigade would have increased the loss by pouring water into the silo and cause further damage to the stocks. In their letter No. ROM/895-A/90 dated 7.8.1990 addressed to preliminary surveyor, Mr. Devender Kumar Garg, the insured have stated as under:
This is in continuation to our statement dated 6.8.90; we have to inform you that we did not report the matter to the Fire Brigade authorities since this would have increased the loss manifolds, as the Fire Brigade would have put considerable water from the top hold of the Silo and we got the fire extinguished with our own men and means. However, we have reported the matter to the Police.
6.0 CAUSE ANALYSIS It is the Insured's contention that there must have been a fire within the silo, caused by spontaneous combustion. While we do not dispute the fact that spontaneous heating had occurred, we could not observe any evidence of fire within the meaning of the policy having occurred inside the silo.
There was no visible heat effect whatsoever on the steel body of the silo. Its welded joints had not been affected at all; the silver paint on the external surfaces had not been blistered or blackened anywhere; there was no bulging or distortion on the silo body. All these indicated that there could not have been any fire or ignition of the Mustard Seeds giving rise to high temperature inside the silo, which was also inspected by the Divisional and Regional Managers of the Insurers. We understand that an Engineer of the Delhi Regional Committee had also inspected the silo and come to the conclusion that there was no fire in the silo. If the mustard seeds had really caught fire, the fumes containing oil would cause deposit of oil smear on the inner surfaces of the silo body and the manholes/vents through which the fumes come out. We did not observe any such oil smear.
When the workers climbed on top of the silo, if they had seen a fire inside, the insured would certainly have called the Fire Brigade, as they had no means to fight such a fire, which would have been dangerous to the surroundings property, which was very close of the Silo.
The Insured had not claimed any loss for damage to the silo, covered for Rs. 10,00,000, which confirms the position that there was no damage whatsoever to the silo body.
6. For assessment of loss, the Surveyors stated as under:
9.0 Assessment of Loss When an oil seed gets heated up and gets damaged due to spontaneous heating as in this case, the following factors are to be taken into account while assessing the Insured's financial loss:
a) The reduction in the net yield of oil, against the normal net yield.
b) The normal quality of edible oil has a certain color, flavour and low FFA content. Due to changes in these characteristics and high increase in FFA, the oil extracted out of the damaged seeds will not be edible and will have to be sold for soap manufacture, at about 50% of the value of the normal edible oil.
c) Under the Prevention of Food Adulteration Act, 1954, if the FFA goes up beyond 3%, the material cannot be used for edible purposes. For the same reason, raw oil with more than 3% FFA cannot be used for refining also.
(d) The oil cake that comes out will not be usable as cattle feed and will have to be sold either as fertilizer at throwaway prices of about 0.50 per kg or burnt in the boiler as fuel.
7. Thereafter, the Surveyors assessed the net loss at Rs. 56,07,992/-. They also specifically observed that there was no breach of warranties.
Findings:
8. From the aforesaid survey report, it is apparent that the Surveyors did not doubt the fact that spontaneous combustion had occurred and mustard seeds were damaged. But they did not observe any evidence of fire. The schedule to the insurance policy specifically provides that the Insurance Company had taken premium for covering risk due to 'Basic Spontaneous Combustion, T.A.' That means there was insurance cover for damage due to spontaneous combustion of the stocks.
9. It is to be highlighted that there is a specific mention in the insurance cover itself that risk due to spontaneous combustion was covered. That would mean that apart from other perils, namely, fire, etc., the insurance policy was for spontaneous combustion and the said insurance cover did not depend upon the so-called endorsement which is normally given in other policies. Further, no exception was carved out while covering the risk due to spontaneous combustion.
10. In support of the fact that there was spontaneous combustion and some fire learned Counsel for the Complainant has further relied upon the minutes of the meeting held at 5.00 pm on 26.12.91 at the office of M/s Mehta and Padamsey Surveyors Pvt. Ltd. to discuss the claim of the Complainant relating to damages caused to mustard seeds in silo by the reported spontaneous combustion on 3.8.90. The meeting was attended by the representatives of the Insured, Surveyors and Mr. S. L. Mohan, Regional Manager, United India Insurance Co. Ltd. In para 3 of the said minutes it has been mentioned, "...the second point she stressed was that the preliminary Surveyor, Mr.D.K.Garg, was the first Surveyor, who has seen the affected site, in the company of Insured's representative, closest to the date of the loss and his observations to the effect that he had seen the fire in the silo on 4th August, 1990, should be taken as conclusive evidence of fire having taken place in the Silo and no further proof of fire is required."
11. As against this, Ld. Counsel for the Insurance Company, Mr.Vishnu Mehra submits that even though there was a spontaneous combustion but as no fire has occurred, the Insurance Company is not liable to reimburse the Complainant. For this purpose, he relied upon the Surveyor's report wherein it was stated that the mustard seeds were damaged due to spontaneous combustion but no fire had occurred and, therefore, the insurance Company is not liable to reimburse the insured.
12. In our view, if such a contention is accepted then there was no necessity of recovering an additional premium @ 6.30 per Mils. After recovering a total sum of Rs. 68,210/- as premium, if such a stand is taken, it is nothing but an unfair trade practice on the part of the Insurance Company and is totally unjustified.
13. It is to be stated that the Fire Policy "C" given to the Complainant would normally include fire by any means, maybe spontaneous combustion or external ignition. It is difficult for us to protect the consumers from such unfair trade practice adopted by the Insurance Company and supported by all sorts of vehement arguments.
14. In the present case it is an admitted fact that a Fire Policy "C" was issued by the Insurance Company which covered the following risks:
1. Fire
2. Lightning
3. Explosion/Implosion but excluding loss of or damage to boilers (other than domestic boilers) economizers or other vessels, machinery or apparatus in which steam is generated or other contents resulting from their own explosion/implosion.
4. Impact by any Rail/Road vehicles or animal.
5. Aircraft and other aerial and/or space devices and/or articles dropped therefrom, excluding destruction or damage occasioned by pressure waves caused by such devices.
6. Riot, strike and Malicious Damage as per clause printed hereon.
Thereafter, the Schedule specifically provides that premium was taken for Basic Spontaneous Combustion, TA.
15. However, Ld. Counsel, Mr Vishnu Mehra appearing on behalf of the Insurance Company submits that for Spontaneous Combustion an endorsement was also given to the following effect:
In consideration of the payment by the insured to the Company of additional premium the Company agrees notwithstanding what is stated in the printed exclusions of this policy to the contrary that the insurance by this policy shall extend to include loss or damage by fire only of or to the property insured caused by its own fermentation, natural heating or spontaneous combustion.
16. Ld. Counsel for the Complainant has specifically raised the contention that at the time when the policy was given no such condition or endorsement was stated.
17. As against this, Ld. Counsel for the Insurance Company submits that the Insurance Company specifically raised this contention before this Commission and it was not denied.
18. However, Ld. Counsel for the Complainant submits that this contention was specifically denied before this Commission in its written version.
19. Whatever may be the decision, identical contention has been negatived in the case of in the case of O.P. No. 253 of 1999 - Murli Agro Products Ltd. v. Oriental Insurance Co. Ltd. decided on 10.12.2004. In this case, the Commission held that by taking additional premium and giving endorsement for spontaneous combustion the Insurance Company had covered such peril.
20. In that case also the decisions rendered earlier by this Commission were taken into consideration and we recorded the following reasons for the aforesaid judgment:
(a) Firstly, undisputedly, if the damage to the property is because of the 'fire, for any reason', there is insurance coverage. The exclusion clause does not provide that loss or damage caused by fire on account of 'spontaneous combustion' is excluded. Reading the term as it is, it can be held that what is excluded is loss or damage caused by spontaneous combustion, which may or may not cause fire or flame.
(b) Secondly, for the peril, which is excluded, namely, the spontaneous combustion, insurance coverage is given, i.e. to say, if the insured property is destroyed or damaged by spontaneous combustion the Insurance Company is liable to pay to the insured the value of the property. Therefore, it can be stated that it is agreed that insurance coverage is given for spontaneous combustion which could be Item 7, as per the policy which covers damage by such items namely fire, lighting, explosion, etc.
(c) Thirdly, recovery of additional premium indicates the nature of the contract that subsists between the parties. That contract cannot be of giving insurance coverage only in case of damage by fire. If that contention is accepted, the object and purpose of payment of additional premium is frustrated. Recovery of additional premium indicates acceptance of risk by the Insurance Company for the perils contemplated. This aspect, to some extent, is discussed while considering the premium in general in Halsbury's Laws of England, Vol.25 (fourth edition), pg. 440, wherein it has been, inter alia, observed:
In making their assessment insurers normally work on the basis of an average of their previous experience of comparable risks, increasing or perhaps reducing the figure according to their estimate as to whether the graph of the risk is tending or likely to rise or fall. The rate of premium in fact charged may give rise to important inferences. The materiality of a representation, which has been made, may be inferred from a reduced rate of premium being charged. Similarly, ignorance on the part of the insurers of some matter supposed to be well known may be inferred if they charge no more than the ordinary rate of premium, while an exceptionally high rate of premium may be indicative of their acceptance of the risk as hazardous without requiring disclosure of the precise facts making it so.
In the case of Hanil Era Textiles Ltd. v. Oriental Insurance Co. Ltd. and Ors. (2001) 1 SCC 269, the Apex Court has referred the aforesaid paragraph from the Halsbury's Laws of England and has, inter alia, observed that when the premium is thus demanded and collected at a higher rate, it is an indication regarding the nature of the contract that subsists between the parties, namely, that the insurer was aware of the higher risks involved.
(d) Fourthly, if the contract is vague, the intention of the contracting parties is to be gathered from the surrounding circumstances or the nature of the contract. In the present case, considering nature of contract it is clear that additional premium was taken from the insured so as to cover loss or damage to the property by spontaneous combustion. Therefore, also, Insurance Company is liable to pay the damage suffered by the Complainant because of 'spontaneous combustion'.
Therefore, acceptance of additional premium for spontaneous combustion leaves no doubt that insured accepted to cover the said risk. Otherwise, there was no necessity for taking additional premium.
As against this, the learned Counsel appearing for the Insurance Company vehemently contended that as there was no fire for flame, the Insurance Company is not liable to reimburse the damages. For this purpose, he has also relied upon the slip attached to the policy and also referred to the law of insurance by Raoul Colinvaux wherein the author has stated that:
An insurance policy is a mercantile contract, and the words used in it must be given their plain meaning unless the surrounding circumstances or the nature of the contract make a special construction necessary. Thus, the word 'fire,' in contracts of fire insurance, is taken in its ordinary signification. It is not confined to any technical and restricted meaning, which might be applied to it on a scientific analysis of its nature and properties, nor should it receive that general and extended meaning which, by a kind of figure of speech, is sometimes applied to the term, but it should be construed in its ordinary popular sense.
Actual ignition necessary. So unless there be actual ignition, and the loss be proximately caused by such ignition, the insurers are not liable; for example, where sugar was spoilt by great heat, through a register in the chimney being closed, but where there was no actual ignition, it was held that the assured could not recover.
He also referred to the Insurance Law by John H. Magee (Revised Edition) wherein the author stated that for fire policy 'there must be some evidence in addition, that there was a flame or glow'. The author referred to earlier decision wherein it was observed that combustion or spontaneous combustion may be so rapid as to produce fire but until it does so, combustion cannot be said to be fire. He also referred to Fire Insurance Law by Herbert Taylor wherein the author has observed that:
The meaning of the word 'Fire' for purposes of a policy may be limited by the contract, and the wording chosen by the parties must always be considered in order to ascertain their intentions.
Fire occurs only when there is ignition: spontaneous fermentation or heating without ignition is not a fire. The policy wording, however, usually excludes fire due to spontaneous fermentation or heating of the property actually destroyed or damaged, although it covers any such fire which spreads to any other insured property. Similarly, it expressly excludes the destruction of, or damage to, property by fire caused by it undergoing any process involving the application of heat.
The aforesaid principles laid down by the English Courts would have no bearing on the policy in question. The policy, in the present case, is not a simplicitor 'fire policy', but a comprehensive policy covering various perils including fire. By taking additional premium, risk by one part of the exclusion clause is given insurance coverage, namely, for loss caused by 'its own fermentation, natural heating or spontaneous combustion'. The result is damage due to above causes is given insurance coverage. Therefore, if the insured property is damaged by natural heating, the insurance company is bound to pay the loss suffered by the assured. In this view of the matter, we are not required to consider further scientific or chemical meaning of the word "Fire" and or "Spontaneous Combustion", which, inter alia, in simple words provides that in some articles even at the ambient temperature oxidization process may start and lead to spontaneous heating.
Learned Counsel for the Insurance Company heavily relied upon the slip attached to the policy covering spontaneous combustion and submitted that as per the term even for spontaneous combustion there should be fire.
SPONTANEOUS COMBUSTION In consideration of the payment by the Insured to the Company of additional premium of Rs. _____ the Company agrees notwithstanding what is stated in the printed Exclusion of this policy shall extend to include loss or damage by fire only of or to the property insured caused by its own fermentation, natural heating or spontaneous Combustion.
N.B.:
The expression 'by fire only' in the endorsement above must not be omitted under circumstances.
Firstly, it is to be stated that under Item No. 8 of the policy spontaneous combustion is covered for which additional premium is recovered. Secondly, the aforesaid term is apparently vague. It provides that for consideration of additional premium the Company agrees, "notwithstanding what is stated in the printed exclusion of this policy shall extend to include loss or damage by fire only of or to the property insured caused by its own fermentation, natural heating or spontaneous combustion."
By a bare reading of this clause, it would be difficult to conclude what it exactly conveys. It is required to be read down as -
'This policy shall extend to include loss or damage by fire only', or 'loss or damage to the property insured caused by its own fermentation, natural heating or spontaneous combustion'.
In any case, if it was intended to cover only loss or damage by fire, there is no question of taking additional premium, because the first part of the policy itself provides that it gives coverage by loss or damage by fire.
Further, it makes it clear that there is insurance coverage in case of damage caused by its own fermentation, natural heating or spontaneous combustion.
Therefore, this condition apart from fire covers damage caused by the aforesaid three causes. In the report submitted by the surveyor, he has quoted the opinion given by National Chemical Laboratory (Council of Scientific and Industrial Research), which, inter alia, provides that the damage was caused by natural heating. The relevant part of the report is as under:
Now after careful consideration of weather conditions on March 17, 1997 at 12.30 p.m. it is concluded the main cause of damage is temperature due to the sum which burn the soya seed contained in galvanized iron corrugated (GIC) silo. Due to high temperature at daytime the soya material most have absorbed heat and transferred towards central portion. Thus creating high temperature at the middle portion of silo, which could burn the volatile oil content of soya seeds. After considering all the data on damaged seeds and fresh seeds it is the rise in temperature of silo has damaged the seeds which have turned black with loss in oil content Further, it is settled law that contract of insurance is based upon good faith. It is the duty of the insurers and their agents to disclose all material facts within their knowledge since obligation of good faith applies to them equally with the assured [Re. United India Insurance Co. Ltd. v. M.K.J. Corporation ]. If the insurance coverage was not extended even by taking additional premium for the damage caused by spontaneous combustion/natural heating which may not result in fire, it ought to have been clearly stated.
Secondly, if the contract is vague, benefit should be given to the insured. The exclusion term of the insurance policy must be read down so as to serve the main purpose of the policy that is to indemnify the damage caused due to fire. [B.V. Nagaraju v. Oriental Insurance Co. Ltd. (1996) 4 SCC 648].
Finally, it is to state that it is high time for the Insurance Company to have terms clearly defined in the insurance policy with a reasonable clarity and not to continue with the old forms which terms are vague.
19. Apart from the aforesaid reasons stated in the said judgment, the policy cover in the present case specifically provides insurance cover for spontaneous combustion. In any case, the alleged endorsement provides that notwithstanding what is stated in the printed exclusions of this policy to the contrary, the insurance cover by this policy shall extend to loss or damage by fire only of or to the property insured caused by its own fermentation, natural heating or spontaneous combustion. So loss due to fire is one part and the second part covers loss due to fermentation, natural heating or spontaneous combustion.
20. In this view of the matter, this complaint is allowed because the Joint Surveyors have specifically arrived at the conclusion that the mustard seeds were damaged due to spontaneous combustion and they assessed the loss accordingly.
21. Considering the assessment of the net loss by the Joint Surveyors, we direct the Insurance Company to pay a sum of Rs. 56,08,000/- to the Complainant with interest @ 18% p.a. because at the relevant time, i.e., the year 1990, the prevalent rate of interest was much more than what it is now. The interest shall be payable from 3.11.1990 (three months after the date of incident) till the date of deposit of the amount with this Commission. The Insurance Company shall also pay to the Complainant the amount of Rs. 50,000/-, awarded earlier, towards compensation for delay in settling the claim. We further direct the Insurance Company to pay Rs. 1 lakh towards litigation expenses.
22. The Complainant has to also refund some amount to the Insurance Company because we have modified the earlier order directing the Insurance Company to reimburse a sum of Rs. 61,65,902/-. The Complainant shall refund the balance amount with interest @ 12% p.a.
23. The Original Petition is disposed of accordingly.
24. Parties to file calculation sheets of the exact amount payable by the Insurance Company as well as refundable by the Complainant, along with relevant documents, on or before 26.5.2008.
25. Registry is directed to place the matter for directions with regard to the exact amount payable by the Insurance Company or the amount refundable by the Complainant, on 26.05.2008.