National Consumer Disputes Redressal
Inventa Chemicals Ltd. vs United India Insurance Co. Ltd. on 23 February, 2004
Equivalent citations: II(2004)CPJ45(NC)
ORDER
M.B. Shah, J. (President)
1. The complainant is a manufacturer of Trimethoxybenzaldehyde (TMBA) and antibacterial active ingredients since 1989 and as submitted, the same is supplied for the domestic consumption as well as it is exported. On 1.4.1991, the complainant took a fire policy for an amount of Rs. 3,14,11,022/- for the period 30.3.1991 to 29.3.1992 for stocks, stock-in-process, stock of raw-material and other contents.
2. In addition, he took another fire policy on 24.4.1991 for an amount of Rs. 66,10,000/-covering the period 25.4.1991 to 24.4.1992 for building, factory sheds, store room-cum-office building, machinery and accessories. On 29th March, 1992 at about 6.00 p.m. fire took place in the factory premises of the complainant for which intimation was given to the Fire Brigade. On 30th March, 1992 intimation was sent to the Insurance Company. On 1st April, 1992, the Insurance Company appointed M/s. N.V.P. Sharma & Associates as Surveyors to investigate the matter and submit its report. The Surveyors asked the complainant to submit samples from N.R. 1, N.R. 2, N.R. 4, N.R. 25 and N.R. 26 (R is understood as reactor). The complainant was also asked to submit the Chemical Analyst reports and the video tapes. The Surveyors also deputed a Chartered Accountant for verifying the accounts and also assess the loss and damages to the stock-in-process. The complainant submitted all the required documents to the Surveyors and the Chartered Accountant.
3. By letter dated 5th June, 1993, the Surveyors informed the complainant that final assessment of loss under each head, was as under:
"Loss on buildings Rs. 49,467/-
Loss on Plant and Machinery Rs. 2,64,858/-
Loss on work-in-process:
(a) NR-1, NR-3 and NR-4 reactors
located at F-13B shed Rs.10,01,784/-
(b) R-25 and R-26 reactors located
in the shed adjacent to F-13B Rs.13,36,859/-"
4. Thereafter, the complainant entered into correspondence with the Insurance Company as well as also with the Surveyors pointing out that the loss and damage of plant and stock was because of the fire. After a lapse of 20 months, the Insurance Company deputed Shri Madhusudan, Engineer, to visit the factory of the complainant in order to hasten the settlement of the fire claim of the complainant. It is the say of the complainant that they accepted Rs. 12,23,547/- on 9.12.1993 without prejudice to their rights, because of financial hardship.
5. Thereafter, on 27.2.1994, the complainant wrote a letter to the opposite party requesting to release balance amount. That was rejected.
6. Hence, this complaint was filed on 24th March, 1994 for recovering Rs. 47,89,796/-. The claim in the prayer clause is divided as under:
7. At the time of hearing of this complaint, the learned Counsel for the Insurance Company raised the following contentions--
(i) as the complainant has accepted Rs. 12,23,547/- in full and final settlement of its claim, this complaint requires to be dismissed; and
(ii) in any case, rejection of the claim with regard to NR-25 and NR-26 was justified because loss in respect of the goods under process was not on account of fire but was on account of disconnection of electricity supply by the complainant.
Re: Contention No. 1 :
8. In support of the first contention, the learned Counsel for the Insurance Company relied upon the disbursement voucher wherein it has been stated that received from the United India Insurance Co. Ltd. the aforesaid sum in full and final discharge of claim'. Learned Counsel has also referred to two letters dated 16th December, 1993 and 17th December, 1993 written to the complainant wherein it is mentioned that a cheque for a sum of Rs. 12,23,547/- was enclosed on the basis of the voucher duly discharged by the insured and their financier.
9. It is to be stated that the object of taking insurance policy is frustrated if the assured is not reimbursed for the loss suffered in case of risk covered by the insurance within a reasonable time. In this case, admittedly, the fire broke out on 29.3.1992, intimation thereof was given to the Insurance Company on 30th March, 1992, and the Surveyor was appointed on 1.4.1992. Thereafter, for months together, even the undisputed amount as assessed by the Surveyor was not released. In some cases, because of the delay in settling the claim, insured are placed in financial hardship and on occasions they are required to close their business. In such a circumstance, if the assured is directed to give a receipt bearing endorsement "in full and final settlement", such a receipt, cannot but be considered to be under coercion.
10. It is to be reiterated that insurer could not deny the payment of the amount of compensation to the insured, what itself considered to be right amount of compensation and could not withhold that amount as a pressure tactics requiring the insured to give a receipt of full and final settlement and only then to release the amount of compensation. This is high time for the insurer to stop such practice.
11. It is also to be reiterated that insurer is required to decide the claim promptly and reimburse within a reasonable time. Prompt settlement and payment of the claim is essential part of service by the Insurance Company.
12. In United India Insurance v. Ajmer Singh Cotton & General Mills and Ors., VI (1999) SLT 590=II (1999) CPJ 10 (SC)=(1999) 6 SCC 400, the Apex Court dealt with similar contention and observed that mere execution of the discharge voucher and acceptance of insurance claim would not stop insured from making further claim from the insurer under the circumstances which can be termed as exercise of undue influence or coercion or the like. In case of coercive bargaining compelled by the circumstances, the Consumer Forum is justified in granting appropriate relief.
13. Further, in Central Inland Water Transport Corporation Ltd. and Anr. v. Brojo Nath Ganguly and Anr. & Central Inland Water Transport Corporation Ltd. and Anr. v. Trun Kanti Sengupta and Anr., (1986) 3 SCC 165, the Court discussed at length the concept of coercive bargaining and held that where a man has no choice, or rather no meaningful choice, but to give his consent to a contract or to sign on the dotted line in a prescribed or other form or to accept a set of rules as part of contract, however unfair, unreasonable and unconscionable a clause in that contract may be the Courts will not enforce and will, when called upon to do so, strike down an unfair and unreasonable contract or an unfair or unreasonable clause in a contract entered into between the parties who are not equal in bargaining power. The Court visualised different situations such as where the inequality of bargaining power is the result of the great disparity in the economic strength of the contracting parties or the inequality may be the result of circumstances whether of the creation of the parties or not. Or a situation in which the weaker party is in a position in which he can obtain goods or services or means of livelihood only upon the terms imposed by the stronger party or go without them.
14. For arriving at the aforesaid conclusion the Court referred to Chitty on Contracts (25th Edn., Vol. I). Paragraph 4 which is as under :
"These ideas have to a large extent lost their appeal today. 'Freedom of contract', it has been said, 'is a reasonable social ideal only to the extent that equality of bargaining power between contracting parties can be assumed, and no injury is done to the economic interests of the community at large.' Freedom of contract is of little value when one party has no alternative between accepting a set of terms proposed by the other or doing without the goods or services offered. Many contracts entered into by public utility undertakings and others take the form of a set of terms fixed in advance by one party and not open to discussion by the other. These are called 'contracts d'adhesion' by French lawyers. Traders frequently contract, not on individually negotiated terms, but on those contained in a standard form of contract settled by a trade association. And the terms of an employee's contract of employment may be determined by agreement between his trade union and his employer, or by a statutory scheme of employment. Such transactions are nevertheless contracts notwithstanding that freedom of contract is to a great extent lacking.
Where freedom of contract is absent, the disadvantages to consumers or members of the public have to some extent been offset by administrative procedure for consultation, and by legislation. Many statutes introduce terms into contracts which the parties are forbidden to exclude, or declare that certain provisions in a contract shall be void. And the Courts have developed a number of devices for refusing to implement exemption clauses imposed by the economically stronger party on the weaker, although they have not recognised in themselves any general power (except by statute) to declare broadly that an exemption clause will not be enforced unless it is reasonable. Again, more recently, some of the Judges appear to have recognised the possibility of relief from contractual obligations on the ground of 'inequality of bargaining power'.
When the French call 'contracts d' adhesion', the American call 'adhesion contract' or 'contracts of adhesion'. An 'adhesion contract' is defined in Black's Law Dictionary, Fifth Edition, at page 38, as follows:
Adhesion contract--Standardized contract form offered to consumers of goods and services on essentially 'take it or leave it' basis without affording consumer realistic opportunity to bargain and under such conditions that consumer cannot obtain desired product or services except by acquiescing in form contract. Distinctive feature of adhesion contract is that weaker party has no realistic choice as to its terms. Not every such contract is unconscionable."
The Court, inter alia, further observed in Paragraph 81, thus:
"It would appear from certain recent English cases that the Courts in that country have also begun to recognise the possibility of an unconscionable bargain which could be brought about by economic duress even between parties who may not in econmonic terms be situated differently."
15. Apart from this legal aspect, in the present case, the complainant has not accepted the amount unconditionally. Before accepting the amount, the complainant has written various letters requesting the Insurance Company to reimburse in full. Finally, on 9th December, 1993, i.e. before signing voucher, the complainant wrote a letter dated 9th December, 2003, wherein it has been, inter alia, stated as under:
"Fee : We have used the FFE to contain the loss, thereby reducing the liability of the insurers. We are sure you will appreciate that any expenses incurred by us to contain the loss, prevent it from spreading further fall under the scope assessed loss. You are, therefore, requested to accept the FFE as a part of the claim amount and do the needful.
Stock-in-process (Reactor R-25 and R-26) As explained and established, the actual instrument of destruction is the consequence of insured peril. We honestly fail to understand as to how such a proximate cause could be considered as a consequential loss by your authorities.
You are, therefore, requested to reconsider the loss sustained in our R-25 and R-26 Reactors and indemnify the loss."
After mentioning the other facts, finally it has been stated as under:
"However, we are enclosing the disbursement voucher conditionally signed by our financiers to enable you to release Rs. 12,23,547/- immediately to mitigate our hardships faced since the accident."
16. The last portion of the letter leaves no doubt that complainant had not accepted the amount offered by the Insurance Company voluntarily, but has accepted it conditionally, i.e., to say, without prejudice to its rights to recover the remaining loss suffered by it. Therefore, learned Counsel for the complainant rightly submitted that before sending the voucher complainant has written letter dated 9th December, 1993 wherein it is stated that disbursement was conditionally signed by the financiers only to enable the Insurance Company to release the amount. This was to mitigate the hardship faced by the complainant because of the fire and demand by the financiers, Therefore, it could not be held that complainant has accepted the amount in full and final settlement of its claim.
Re : Contention No. 2 :
17. For deciding the second contention, we would refer to the relevant part of Fire Policy-C which is as under:
"In consideration of the insured named in the schedule hereto having paid to United India 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 the premium the property insured described in the said schedule or any part of the such property be destroyed or damaged by 'Fire'.
The question is whether the damage caused in Reactors 25 and 26 is because of fire.
18. It is settled that to the terms of the policy purposeful interpretation is required to be given and not to frustrate the intention of the insured to have insurance coverage.
19. In the present case policy covers stocks, stocks in process. For this, the sum insured is Rs. 3,14,11,022/, and for buildings and plant machinery the sum insured is Rs. 66,10,000/-.
20. It is contended that the fire has not destroyed or damaged the stock which was in the process. It was destroyed because machine could not be operated because of fire and thereby material was damaged.
21. It is no doubt true that Reactors 25 and 26 were not burnt or damaged because of the fire. But, at the same time, because of the fire electric supply was required to be disconnected so that fire may not spread in the premises where R-25 and R-26 are located. Once there is fire in the premises it would be irrational to suggest that electricity supply should be continued, so that fire may spread in the other premises. If electricity supply is disconnected because of the fire, then fire is the proximate cause for damaging or destroying the stock which was in process in R-25 and R-26. Cause for damage is fire.
22. This Commission also, in case of New India Assurances Co. Ltd. v. Vivek Cold Storage, decided on 15.4.1999, dealt with similar contention. In that case, the policy covered fire risk as well as other risks to the building, machineries, etc. and also deterioration of stock of potatoes in a cold storage run by the complainant. The accident clause covered the breakdown of machinery of cold storage due to unforeseen circumstances. As there was leakage of ammonia gas the plant was closed and there was damage to the stock of potatoes in the godown. It was contended by the Insurance Company that as there was no breakdown of plant and machinery, the claim made by the insured could not be allowed. This contention was negatived and it was held that as plant and machinery of a cold storage developed leakage and ammonia gas escaped, the plant had to be shut down for repairing the leak. This led to the damage of potatoes stored. This would not have happened if cold storage functioned properly. And, therefore, the Insurance Company was liable under the policy to compensate the insured for the loss suffered.
23. Further the terms of the policy quoted above, specifically provides that it covers damage by fire. "Damage by fire" in such a case would mean damage as a result of fire or in consequence of fire. Phrase, 'by means of transfer of assets' used in Section 44-D(1) of the Income tax Act was interpreted to mean nothing more than "as a result or by virtue or in consequence of the transfer" by the Apex Court in M.C.T.M. Chidambaram Chettiar v. Commissioner of Income Tax, Madras, (1996) 2 SCR 761.
24. On similar question, in Singh's New Insurance Law, the learned Author has quoted at page 175, thus:
"Similarly, damage which would result naturally and directly from a bona fide attempt to put out a fire would be a loss within the meaning of the policy, Stanley v. Western Insurance Co., (1868) 37 LJ Ex. 73. Where the loss is the necessary consequence of fire, in the sense that the loss could not have happened but for fire, the fire is the cause of the loss for the purposes of the policy. Hence, loss caused by smoke arising out of the fire, or damage caused by water escaping from pipes, melted in the course of fire, is covered by the policy. In such like cases the connection between the fire and the loss is so close that the relation of cause and effect is established. It is immaterial if the loss arises in an adjacent building, which does not itself catch fire. [Ahmadbhay Habibbhoy v. Bombay Fire and Marine Insurance Co., (1912) 40 Ind App 10 and Standy v. Western Insurance Co.]. Further, where the assured removes the property from the building in which the fire is raging with the intention of removing it to a safer place and thereby minimises the risk of loss, any loss occasioned to such property by reason of such removal is covered by policy, provided the removal is justified, reasonable and bona fide [Philips on Insurance, Section 1098; Stanley v. Western Insurance Etc., and also Marsden v. City and County Assurance Co., (1865) 35 LJCP 60].
25. In this view of the matter, the Insurance Company illegally repudiated the claim for the damage caused to the stock-in-process in Reactors 25 and 26. For the complainant there was no option but to disconnect the electric power because of the fire so as to minimise spreading of fire. In this case, the connection between the fire and the loss is so close that the relation of cause and effect is established. It is immaterial that loss for stock-in-process in the reactors has arisen which did not catch fire. That is to say, loss could not have happened but for fire.
26. For the other losses claimed in the prayer clause, in our view, there is no sufficient evidence and Surveyor has assessed the same. If the complainant has any grievance on that score, it would be open to it to approach the Civil Court for the same.
27. In the result, the Insurance Company is directed to pay loss as assessed by the Surveyors for the stock-in-process in Reactors 25 and 26 amounting to Rs. 13,36,859/-. The fire took place on 29.3.1992. Information was given to the Insurance Company and Surveyors were appointed on 1.4.1992. Normally, the Insurance Company is required to settle the claim within a reasonable time, i.e., at least six months after occurrence of the incident. Hence, we direct that the Insurance Company shall pay the amount of Rs. 13,36,859/- with interest at the rate of 12% p.a. from 1.9.1992 till its payment. Interest at the rate of 12% is awarded because the complainant was required to pay much higher rate of interest to the Bank.
The complaint stands disposed of accordingly with costs of Rs. 10,000/- to be paid by the opposite party to the complainant.