National Consumer Disputes Redressal
M/S. Murli Agro Products Ltd. vs M/S. Oriental Insurance Co. Ltd. on 10 December, 2004
NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION
NATIONAL CONSUMER DISPUTES
REDRESSAL COMMISSION
NEW DELHI
ORIGINAL PETITION NO. 253 OF 1999
M/s. Murli
Agro Products Ltd. Complainant
Versus
M/s.
Oriental Insurance Co. Ltd. Opposite
Party
BEFORE :
HONBLE MR. JUSTICE M.B.
SHAH, PRESIDENT
MRS. RAJYALAKSHMI RAO,
MEMBER
MR. B.K. TAIMNI, MEMBER
HONBLE MR. JUSTICE K.S. GUPTA, MEMBER
HONBLE MR. JUSTICE S.N. KAPOOR,
MEMBER
For the Complainant : Mr.
Arun Khosla, Advocate.
For the Opp. Party : Mr. S.M.Tripathi & Mr. Kishore
Rawat,
Advocates
10.12.2004
O R D E
R
M.B. SHAH, J., PRESIDENT
The
question which requires decision in this complaint is whether coverage under
the insurance policy for the peril of its own fermentation, natural heating or
spontaneous combustion stands excluded if there is no flame or fire?
Admittedly the
complainant took the insurance policy for a sum of Rs.7 crores by paying a
premium of Rs.1,78,054/- for the stock stored in the godowns, namely, stock of
all kinds of soya seeds/DOC/DORB.
In
addition, Item 8 of the policy provides for properties required to be insured
specifically, inter alia, covers spontaneous combustion. The said term is
quoted above:
Building construction warranty, agreed bank clause,
spontaneous combustion warranty, earthquake warranty, godown warranty, C
& D as per form attached h/w. The
Insurance under this policy is subject to warranties and clauses (as per forms
attached) and extended to cover risks (as per forms attached). The total sum
assured Rs. 7 crores only on item(s) above bearing No. 4 only.
The
slip attached to the policy provides as under:
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.
From a bare reading
of the aforesaid term, it is apparent that it is vague.
Further,
relevant part of the insurance contract is as under:
FIRE POLICY C
In
consideration of the Insured named in the schedule hereto having paid to THE
ORIENTAL INSURANCE COMPANY LIMITED (hereinafter called the Company) the premium
mentioned in the said schedule, THE COMPANY AGREES, (subject to the Conditions
and Exclusions contained herein or endorsed or otherwise expressed hereon) that
if after payment of the premium the property insured described in the sale
schedule or any part of such Property, be destroyed or damaged by :-
.1. Fire
.2. Lighting
.3. Explosion/Implosion
but excluding Loss or damage:
(a). To boilers
(other than domestic boilers) economizers or other vessels, machinery or
apparatus in which steam is generated or their contents resulting from their
own explosion/implosion.
(b). Caused by
centrifugal forces.
.4. Impact by any Rail/Road vehicle 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 devices.
.6. Riot,
strike Malicious and terrorise Damages as per clause printed hereon during the
period of insurance named in the said schedule or of any subsequent period in
respect of which the insured shall have paid and the Company shall have
accepted the premium required for the renewal of the policy, the company will
pay to the insured the value of the property at the time of the happening of
its destruction or the amount of such damage or as its option reinstate or
replace such property or any part thereof.
PROVIDED
that the liability of the Company shall in no case exceed in respect of each
item the sum expressed in the said schedule to be insurance thereon or in the
whole the total sum insured hereby, or such other sums or sums as may be
substituted there for by memorandum hereon of attached hereto signed by or on
behalf of the company.
EXCLUSIONS
This
insurance does not cover
(a). The first
Rs. 2,500/- of each and every loss in respect which the insured indemnified by
this policy. This exercise is
applicable per event per insured.
(b). Loss by
theft during or after the occurrence of any insured peril except as provided
for in Riot, Strike and Malicious Damage Clause.
(c). Loss or
damage to property occasioned by its own termination natural heating or
spontaneous combustion or by its undergoing any heating or drying process.
(d). Loss or
damage occasioned by or through or in consequence of
(i)
The burning of property or order of any Public Authority
(ii)
Subterranean Fire
(e). Loss or
damage directly or indirect caused by or arising from or in consequence of or
contributed to by nuclear weapons material.
(f). Loss or
damage directly or indirectly caused by or arising from or in consequence of or
contributed to by ionizing radiations or contaminations by radio activity from
any nuclear fuel or from any nuclear waste from the combustion of nuclear
fuel. For the purpose of this Exclusion
only, combustion shall include as self sustaining process of nuclear fission.
(g). Loss of/or
damage to any electrical machine, apparatus, fixture or fitting (including
electric fans, electric household or domestic appliance, Wireless sets,
television sets and radios) or to any portion of the electrical installation
arising from or accessioned by over running excessive pressure, short
circuiting, arcing, selfheating or leakage of electricity from what ever cause
(lighting included, provided that this exemption shall apply to the particular
electrical machine apparatus, fixtures, fittings, or portion of the electrical
installation so affected and not to other machines, apparatus, fixtures,
fittings or portion of the electrical installation which may be destroyed or
damaged by fire so set up.
(h). Any loss
or damage occasioned by or thought or in
consequence directly or indirectly of any of the following occurrence
namely.
(i).
Earthquake, Volcanic Eruption or other
convulsions of nature,
(ii).
Typhoon, Hurricane, Tornado, Cyclone or
other atmospheric disturbance, Flood and inundation.
(iii).
War, invasion, act of foreign enemy,
hostilities or warlike operations (whether war be declared or not) Civil War.
(iv).
Mutiny, Civil commotion assuming the
proportions of or amounting to a popular rising military rising, insurrection,
rebellion, revolution, military or usurped power.
(v).
Acts of Terrorism committed by a person
or person acting on behalf of or in connection with any organization. For the purpose of this exclusion Terrorism
means use of violence for political ends and includes, any use of violence for
the purpose of putting the public or any section of the public in fear.
(vi).
Burning, whether accidental or otherwise,
forest, bush and jungles and the clearing of lands by fire.
In any action suit or other proceeding where the Company
alleges that by reason of the provisions of the above Exclusions any loss or
damages is not covered by this insurance, the burden of proving that such loss
or damage is covered shall be upon the insured.
(i)
Unless otherwise expressly stated in the policy, loss or
damage to
(i). Goods held in
trust or on commission
(ii). Bullion or unset
precious stones
(iii). Any
curios or work of art for an amount exceeding Rs.2500/-
(iv). Manuscripts,
plans, drawings or designs or designs, patterns, models or moulds.
(v). Securities,
obligations or documents of any kind, stamps coins or paper money, cheques,
books of accounts or other business books, computer system record.
(vi). Explosives.
(j). Property
insured if removed to any building or place other than in which it is herein
stated to be insured except Machinery & Equipments temporarily removed for
repairs, cleaning renovation or other similar purposes for a period not
exceeding 60 days.
From the aforesaid
terms of the policy even though the policy is named as fire policy, it is not
restricted only to the damage caused by fire. It covers various perils as
mentioned in Item Nos. 1 to 6. The said insurance coverage, in short, is for
damage to the property by (i) fire; (ii) lightening; (iii) explosion; (iv)
impact by any rail, road vehicle or animal; (v) dropping of any aerial article
(vi) riot, strike, etc.
Thereafter,
there are exhaustive exclusion clauses (a) to (j). We are concerned only with
Clause (c) which provides that
insurance does not cover loss or damage to property occasioned by (i) natural
heating or (ii) spontaneous combustion, or (iii) by its undergoing any
heating or drying process.
At the time of hearing of this matter,
learned counsel for the complainants submitted that the issue involved does not
require much consideration as it is concluded by the decisions rendered by this
Commission in the cases of (i) M/s.Roshanlal Oil Mills Ltd. Vs. M/s. United
India Insurance Co. Ltd. 1(1992) CPJ 2939(NC) and (ii) Saraya Sugar
Mills Ltd. Vs. United India Insurance Co. Ltd. II(1996) CPJ 6 (NC).
In the case of
Saraya Sugar Mills, after considering the similar terms of the policy, this
Commission arrived at the conclusion that if fire was required for giving the
insurance coverage, then there was no necessity of taking an additional premium
for spontaneous combustion.
The
relevant part of discussion is as under:
We have heard the parties and gone through the
records. The relevant facts are not in
dispute. The molasses of the
complainant in Tank No.1 were burnt and solidised due to auto heating and
spontaneous combustion. The Insurance
Companys case is that as there was no fire due to spontaneous combustion
therefore the loss was not covered under the policy. Thus the fate of the case entirely hangs upon the definition of
combustion, spontaneous combustion and fire.
The definition of combustion and spontaneous combustion was considered
by this Commission in M/s.Roshanlal Oil Mills Ltd. Vs. M/s.United India
Insurance Co. Ltd., 1(1992)CPJ 293(NC).
It was observed :
In scientific literature combustion is defined as under :
The
burning of any substance, whether it be gaseous, liquid or solid. In combustion, a fuel is oxidized evolving
heat and often light.
The
combustion of solids such as coal and wood occurs in stages. First, volatile matter is driven out of the
solid by thermal decomposition of the fuel and burns in the air. At usual combustion temperature, the burning
of the hot, solid residue is controlled by the rate at which oxygen of the air
diffuses to its surface.(Mc-Graw Hill Encyclopaedia of Science &
Technology, New York, Vol.3 1982).
Another
test defines combustion as under :
The
term combustion signifies the process of burning associated generally with
fire, flame, the generation of heat, and certain products of reaction. (Encyclopaedia Dictionary of Physics Chief
Editor Thewlis, Pergamon Press, Oxford, 1961).
As
noticed above, the case of the insurance company is that auto
combustion/spontaneous combustion did not cause fire. Therefore, the loss is not covered under the policy. Fire had been defined in Chambers 20th
Century Dictionary as follows :
the
heat and light of burning : a mass of burning matter, as of fuel in a grate :
flame or incandescence : a conflagration : firing : fuel : a heating apparatus
: heat or light due to other causes than burning.
In
the Concise Oxford Dictionary the meaning of fire has been given as follows :
Active
principle operative in combustion in which substances join chemically with
oxygen in air and usu. give out bright light and heat ; flame, incandescence.
From
the above definition of fire given in the two dictionaries, it is clear that
fire need not necessarily be accompanied by flame. Fire is a form of heat energy which cause smouldering, burning,
heating, melting and perhaps some few more words.
The
complainant wrote a letter dated 6th February 1991 to the opposite
party stating :
We
would like to inform you that molasses season 1990-91 stored in covered Pucca
Tank No.1 is overflowing due to high temperature and excess foaming in spite of
taking best precautions.
A
Telegram was sent by the complainant to Excise Commissioner and Controller of
Molasses, U.P. and Collector, Central Excise, Allahabad and its copy was also
sent to the opposite party. The
telegram reads as follows :
Temperature
of Molasses Tank Number One reached eighty five degree centigrade despite all
efforts of cooling and controlling it () Auto combustion appears to have
started
This
telegram was followed by the complainant by means of letter dated February
12/15, 1991 addressed to the Excise Commissioner & Controller of Molasses,
U.P., Allahabad and its copy was sent to opposite party. Thus the case of the complainant is that
temperature of the molasses tank had risen due to auto combustion by which the
molasses stored in Tank No.1 was burnt and solidised. While repudiating the claim the opposite party attributed the
damage to spontaneous combustion without fire.
From the definitions of terms
combustion and spontaneous combustion and the dictionary meaning of Fire,
it would only be natural to presume that the damage to the stock of molasses
has been caused by fire arising from spontaneous combustion.
The
complainant has paid additional premium at the rate of 0.25 per thousand for
spontaneous combustion over and above the basic rate. If the basic rate for the damage by fire simpliciter covered the
risk there was no precise purpose of charging additional premium for
spontaneous combustion. As remarked in
Roshan Lals case (supra) by this Commission if the contention of the insurance
company is to be accepted it would mean that the risk spontaneous combustion
is merely tautological inasmuch as it already falls under Fire for which
basic premium has been prescribed. We
have not been able to understand why the additional premium for spontaneous
combustion was charged if the loss was payable only if it leads to fire.
Against that judgement, Civil Appeal
No.15376 of 1996 was filed before the
Supreme Court. That appeal was
dismissed on 17th February 1997.
In
Roshan Lal Oil Mills Ltd. Vs. M/s. United India Insurance Co. Ltd., I(1992) CPJ
293 (NC) this Commission has also observed:
We may,
further, observe that if it was the intention to exclude damage by spontaneous
combustion in the pre-ignition stage i.e. combustion without fire as contended by the Respondent, this
ought to have been stated much more clearly and directly. In any case, it has
already been observed that the language used in the insurance policy is unqualified
and the rejection of the insurance claim by the respondent was not justified in
terms of the insurance policy.
Similar
views are taken by the State Commissions.
It
is to be stated that against the judgment rendered by this Commission in
Roshanlal Oil Mills Ltd. the Insurance Company has preferred an appeal before the Supreme Court. The Apex Court has
allowed the same and remanded to this Commission for fresh hearing in
accordance with law, in the light of the observations made in previously, the
said observation deals with only non-consideration of the Surveyors report.
[(Re. M/s. United India Insurance Co. Ltd Vs. Roshanlal Oil Mills Ltd. (2000)
10 SCC 19].
Hence,
we have to decide as to whether there is any justifiable ground for taking a
different view?
For the reasons
stated hereinafter we are not inclined to take any different view:
(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 Halsburys Laws of England, Vol.25 (fourth edition), pr.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. Vs. Oriental Insurance Co. Ltd. & Ors.
(2001) 1 SCC 269, the Apex Court has referred the aforesaid paragraph from the
Halsburys 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 has stated that for fire
policy there must be some evidence in addition, that there was a flame or
glow. Author has referred to earlier
decision wherein it is 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 to
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 terms 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 that what it exactly conveys. It is required
to 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 day time 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. M/s.
United India Insurance Co. Ltd Vs. M.K.J. Corporation, (1996) 6 SCC 428)]. 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 Vs. M/s.
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.
In
view of the above discussion, we hold the Insurance Company deficient in
service and is liable to pay damages suffered by the Complainant.
Quantum of
Damages:
The Complainant has claimed a
compensation of Rs.28,70,747 together with interest at the rate of 18% p.a. from 17.6.1997 till its realisation
with costs.
This
claim is supported by Surveyors report and there is no other evidence. The
loss assessed by the Surveyors of the Insurance Company is as under:
Loss:
The
insureds loss, being the value of badly damaged
Yellow
Soay seeds weighing 266.503 mt.
(Rs.33,44,612/65)
and of partially damaged
Yellow
Soya seeds weighing 43.106 mt.
(Rs.5,40,980/30)
i.e. totally Rs. 38,85,592.95
Less
: Value of salvage Rs. 5,82,838.94
_________________
The Insureds net loss Rs. 33,02,754.01
Less: Under insurance Rs. 4,29,496.87
_________________
The insureds claim Rs. 28,73,257.14
Less: Deductible franchise Rs. 2,500.00
_________________
The Insureds net claim Rs. 28,70,757.14
_________________
i.e. to say Rs.28,70,757/-
===============
The Surveyors have excluded, as per the insureds contention, as under:
16.3 :For considering the values at risk under the policy, the following have been excluded:
The values of the following items have been excluded as per the insureds contention that stocks in the open were not covered under their policy and that stocks of DOC were separately covered:
Rs. Rs.
Rape seeds (in open) 302.360 MT 12,200 36,88,792 Yellow DOC (in godown) 182.951 MT 10,200 18,66,100 Yellow DOC (in godown) 82.155 MT 8,200 6,73,671 ________ Total 62,28,563 _________ Hence, in this matter the loss assessed by the Surveyor could only be the basis for grant of damages suffered by the Complainant.
In the result, the complaint is allowed. The Insurance Company is directed to pay the aforesaid amount of Rs.28,70,757/- to the Complainant with interest at the rate of 10% p.a. from two months from the date of the report of the surveyor, i.e. from 15.11.1998 till the date of payment.
There shall be no order as to costs.
.J. ( M.B. SHAH) PRESIDENT (RAJYALAKSHMI RAO) MEMBER (B.K. TAIMNI) MEMBER .J. (K.S. GUPTA) MEMBER .J. (S.N. KAPOOR) MEMBER