National Consumer Disputes Redressal
M/S Hadimba International Ltd vs United India Assurance Company Ltd. on 15 December, 2009
NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION NEW DELHI CONSUMER COMPLAINT No. 58 OF 2001 M/s Hadimba International Ltd No. MF 6, Developed Plots T. V. K. Industrial Estate Complainant Ekkattuthangal, Chennai 600 097 (Represented by Mr. Vijay Kumar Dar, Managing Director) versus 1. United India Assurance Company Ltd. Periament Branch A. R. Complex (2nd Floor) 1090, P. H. Road, Chennai 600 084 2. M/s COMTECH Opposite Parties Surveyors, Valuers and Assessors 23/23, Sarojini Street, T. Nagar, Chennai 600 017 3. State Bank of India Overseas Branch, Chennai (Represented by its Branch Manager) BEFORE: Honble Mr. Justice R. C. Jain Presiding Member Honble Mr. Anupam Dasgupta Member For the Complainant Ms. Nanita Sharma, Advocate For the Opposite Party Mr. Vishnu Mehra, Advocate with Ms. Sakshi Gupta, Advocate Dated the 15th December 2009 ORDER
Anupam Dasgupta The complainant, an importer-cum-manufacturer-cum-exporter of leather goods, obtained an insurance policy from opposite party (OP) 1 for the sum of Rs. 7 crore for the period 06.10.1997-05.10.1998. The policy covered machinery, building as well as stocks of raw material, works-in-progress and finished goods, stored in designated premises, against fire and allied perils. The stocks were hypothecated to OP 3, which is a pro forma party in these proceedings.
2. In December 1997, during the currency of the insurance policy, there were very heavy rains and consequent flooding in Chennai and adjoining areas. As a result, the raw material imported leather of four different types stored in the basement of the leather shoes factory of a sister concern of the complainants at Guduvancherry at 27, G. S. T. Road, Vallancherry Village (premises covered by the insurance policy) was submerged in the flood waters and damaged, despite attempts to salvage the stock, because the flood waters did not recede for a couple of days. The value of the damaged stocks of imported leather was, according the complainant, Rs. 32.55 lakh (rounded off).
3. The complainant informed OP 1 about the incident of damage to the insured stocks by its letter dated 10.12.1997 and forwarded the insurance claim by another letter dated 19.12.1997. (Though there is reference to the appointment of a preliminary surveyor who apparently expired without submitting any report), OP 1 appointed OP 2 as the final surveyor to assess this reported loss. Between December 1997 and August 2000, there was prolonged correspondence between the surveyor and the complainant and also between OP 1 and the complainant. The complainant, claiming that it had furnished all the information sought by OP 2 from time to time, also sent two legal notices, in March 2000 and August 2000, to OP 1 requiring the latter to settle the insurance claim with interest @ 18% per annum. Finally, the complainant filed this consumer complaint with this Commission on 16.02.2001, alleging gross deficiency in service on the part of OP 1 in not settling its insurance claim and seeking an award of Rs. 52.55 lakh (rounded off), including Rs. 32.55 lakh on account of the claimed value of the damaged insured stocks of imported leather, Rs. 8.5 lakh on account of loss of profit, Rs. 1 lakh towards loss of reputation and goodwill, Rs. 10 lakh because of mental agony and trauma caused by OP 1 and Rs. 50,000/- towards costs.
4. OP 1 filed its detailed written version and evidence affidavit in response to the complaint and the complainants evidence affidavit, along with copies of the surveyors final report and various related documents. The complainant, in turn, filed a rejoinder to the written version/evidence affidavit of OP 1 and its own set of documents, consisting of copies of correspondence with the surveyor and some documents relating to import of the damaged leather.
5. Before this Commission, there was no appearance on behalf of OP 2 though the main surveyor of the company filed a detailed affidavit in response to the complaint. As it was later stated by Ms. Sharma, learned counsel for the complainant that the issues between the complainant and OP 3 had since been settled, OP 3 was allowed to be deleted from the array of parties on her request. In the course of hearing, we also directed the complainant to produce the original records underlying a specific extract/statement of the imported leather stocks in question that the complainant sought to rely on. In this context, it was stated on affidavit by the complainants representative (Mr. Dar) that the complainants Guduvancherry unit had been taken over sometime in 2005 by the J & K Bank as a result of debt recovery proceedings and in that process the Bank had also seized all original documents and records stored at that unit. The Manager of the relevant Branch of the J & K Bank was then summoned to produce the said records. However, Mr. G. M. Kawoosa, learned counsel for the J & K Bank stated that while taking over the unit, the said Bank did not seize any original documents or books of account as alleged by the complainant. Later, the Banks officer concerned filed an affidavit to that effect, enclosing a copy of the list of moveables taken over. It is in these circumstances that we have heard Ms. Nanita Sharma, learned counsel for the complainant and Mr. Vishnu Mehra and Ms. Sakshi Gupta, learned counsel for OP 1 and considered the evidence and documents produced on record, including the survey report. The counsel for the parties have also submitted synopses of their written arguments.
6. The disputed issues in this case are limited, for OP 1 has not contested any of the basic facts, e.g., insurance coverage of the damaged stocks in question, occurrence of the insured peril leading to the claim etc. 6.1 The arguments of Ms. Sharma, learned counsel for the complainant in alleging deficiency in service on the part of OP 1 are that OP 2, the surveyor appointed by OP 1 repeatedly sought information and documents not germane to the assessment of the loss and often the same information/document even after its submission; deliberately delayed the assessment on one ground or the other; and assessed the loss at an arbitrarily low value discarding altogether the complainants assertion that the damaged stock of imported leather could not be reprocessed and, therefore, ought to be treated as total loss, to be valued at the import cost (less salvage value as per market rates). Towards the fag end of the process of assessment, the surveyor also raised questions relating to slow-moving nature of the imported leather and adequacy of the insurance coverage, which, though irrelevant in the given circumstances and the nature of the business of export of leather garments, were still explained adequately by the complainant. The delay in assessment of the loss and settlement of the claim caused serious financial hardship to the complainant at a stage when its leather garment manufacturing business was going through a rough patch.
6.2 On the other hand, the case of OP 1 in refuting the allegations of deficiency in service, i.e., not admitting the claim is based on what is detailed in the surveyors report.
6.2.1 In his detailed report, the surveyor raised four main points:
(i) The stock of the four types of imported leather, meant for manufacture of leather garments and claimed to have been totally damaged by the flood waters, was imported in 1994 and, based on the documents subsequently furnished by the complainant, appeared to have remained unused to a significant extent, thus making its value at the time of the peril less than the cost at which each type was stated to have been imported and on which the claim amount was based.
(ii) Despite repeated requests, the complainant failed to produce any reliable accounts/books of the stocks of each of these four varieties of leather to show how each variety was processed, the cost incurred on such processing, utilisation of each type of leather over the years since import and the balance quantities, so that the claimed quantity of damaged imported leather of each type could be related to the stock thereof in balance on the date of the peril.
(iii) Though the leather, meant for use in manufacturing leather garments and stated to have been stored in the basement of the complainants (leather shoe) factory at Guduvancherry, was claimed to have been completely damaged due to soaking in the flood waters, technical opinion on the subject (obtained by the surveyor) showed that the said wet/soaked leather (by virtue of having been processed earlier) could have been reprocessed. In that case, the value of the damage admissible for indemnification under the insurance policy would be equal to the reprocessing cost. Therefore, on the basis of his own estimate of the reprocessing cost, the surveyor proceeded to assess the loss at Rs. 8,88,627/- and further pointed out that this would be reducible by Rs. 1 lakh on account of the excess clause of the insurance policy. This was, however, subject to the overriding point noted below.
(iv) The complainant did not produce any documents to enable the surveyor to assess the extent of under-insurance, if any, vis a vis the sum assured (namely, Rs. 1,48,16,768/-) for the unit in question; this point being based on clause 10 of the insurance policy, viz.:
If the property hereby insured shall at the breaking out of any insured peril be collectively of greater value than the sum insured thereon, then the insured shall be considered as being his own insurer for the difference and shall bear a rateable proportion of the loss accordingly. Every item, if more than one, of the policy shall be separately subject to this condition.
The surveyor, therefore, observed as follows:
To confirm the adequacy of the sum insured, the submission of stock records assumed vital significance. Failure of the insured to submit such records meant inability to assess the sum insured. Shoe manufacture was the sole/primary activity at the location on the date of loss. Hence, records/documents would alone reveal the stock position. In its absence, we could not conclude the adequacy of the sum insured, which is a vital cog for the insurer to arrive at the admissible sum under the policy of insurance. If records were furnished and the stock position revealed adequacy of the sum insured, the insurer may be liable for the assessed sum subject to policy excess. If, however, records were produced and they revealed a larger stock position at the location and the sum insured at Rs. 1,48,16,768/- was found to be inadequate, then the admissible sum would be subject to concept of under-insurance as per Condition no. 10 of the Policy of Insurance.
(v) The surveyor finally concluded:
It is apparent that the insured has not complied with a basic policy condition of giving adequate information and records: The insured shall also at all times at his own expense produce, procure and give to the Company all such further particulars, plans, specifications, books, vouchers, invoices, duplicates or copies thereof, documents, inspection reports (internal and external) proofs and information with respect to the claim and the origin and cause of the insured perils and the circumstances under which the loss or damage occurred, and any matter touching the liability or the amount of the liability of the Company a may be reasonably required by or on behalf of the company as may be required by or on behalf of the Company together with a declaration on oath or in other legal form of th truth of the claim or any matters connected therewith.
No claim under this policy shall be payable unless the terms of this condition have been complied with.
6.2.2 In other words, the surveyor did not recommend the claim, even on the basis of the very conservatively assessed loss, viz., Rs. 8,88,627/- as against the claim of Rs. 32.55 lakh on this count alone. Notably, OP 1 did not repudiate the claim at any stage.
7. We have carefully considered the surveyors report and all other documents on record as well as the submissions of the learned counsel for the parties.
7.1 There is some substance in the complainants allegation that the surveyor, instead of seeking all information/clarifications in one go, kept on raising some new questions in each successive communication to the complainant. It is also true that he sought information some of which was not relevant to the claim, e.g., loss to the building(s) and plant and machinery. He also did not acknowledge, at least on one occasion, the information already furnished by the complainant and went on to ask for the same. However, the fact remains that the complainant did not produce any stock books in respect of the imported leather a part of which was damaged and continued to insist that the leather affected by the floodwaters must be held to have been completely damaged. There was no explanation as to why the leather, meant for manufacturing garments, was stored in the basement of the unit to manufacture leather shoes. Nor was it clarified why the damaged leather, semi-processed as it was at the time of import, could not be reprocessed at all after getting soaked in the floodwaters.
7.2.1 On the other hand, the insurance policy itself was very vague. Thus, in the policy covering perils like fire, flood, etc., affecting building, machinery and accessories, stocks and stocks in process, stocks in godown, furniture and other contents, etc., spread over various locations and in the names of various sister concerns of the complainant, all that the underwriter specified in the policy was a schedule stating only the name and address and sum insured in respect of six sister concerns, two of them mentioned twice. To clarify the point, a photocopy of this schedule, the most important component of the insurance policy, is attached as an Annex to this order. In other words, the schedule did not clearly state the break-up of the insured sum in respect of each of the categories of items covered (i.e., building, machinery and accessories, stocks and stocks in process, stocks in godown, furniture and other contents) at each of the locations. How the sum assured or the premium to be paid was arrived at is thus a mystery.
7.2.2 In his report, the surveyor adopted the sum assured as Rs. 1,48,16,768/- in respect of the Guduvancherry unit of Hadimba Creations Private Ltd., based on the description in the said schedule. Whether this sum was in respect of the leather stocks alone or the entire range of items mentioned above? In our view, therefore, the deficiency of OP 1 is writ large ab initio, in the way it underwrote the insurance policy itself. Somehow, Ms Sharma, the learned counsel for the complainant had nothing at all to say on this point. More important, even if the insured/complainant were to produce the stock books demanded by the surveyor, it is absolutely unclear how the surveyor would have been able to assess the adequacy of the sum insured only in respect of the damaged stocks of imported leather, on the basis of such a grossly defective schedule.
7.3 The surveyor based his conclusion that the wet/flood water-soaked stock of imported leather could have been reprocessed, on the strength of the written advice of one Mr. R. Muralidharan, B. Sc Tech (Leather). First of all, there is no evidence that the letter was brought to the notice of the complainant and an opportunity was given to it to comment on the feasibility of this advice. Secondly, all that Mr. Muralidharan stated in his letter on this crucial question was, Therefore, it is difficult for me to accept without reservations when stated that a (sic) full chrome crust leather when soaked in water cannot be reprocessed. It offers very good scope to recover its value by reprocessing, at least partly if not fully under normal conditions. In our view, there could not be a more uncertain technical advice on the feasibility/viability of reprocessing of the damaged leather in this case, particularly because of the fact that the so-called technical expert had not even seen the condition of the water-soaked leather before giving his opinion. Thirdly, the surveyors estimate of the cost of reprocessing had no basis whatsoever he did not seek the per unit estimated cost of reprocessing even from Mr. Muralidharan.
7.4 In conclusion, therefore, in assessing the loss at the rates he did, the surveyor had no justifiable basis of estimating the reprocessing costs of the damaged leather, even if the equivocal technical opinion of Mr. Muralidharan on the feasibility of reprocessing were to be accepted as gospel truth. Secondly, while the surveyor was theoretically right in expressing inability to ascertain the extent of adequacy of the sum insured in view of the non-production of the stock records by the complainant, he could not have done so even if the stock books were produced. This was for the simple reason that the underwriting of the insurance policy, particularly the schedule to the policy, was ab initio grossly defective in not providing the item-wise amounts insured at each location, for which the insurance company alone was responsible. Moreover, it is not clear from the record or pleadings if OP 1 actually repudiated the claim any time before or during the complaint proceedings. In these circumstances, it would not be equitable to deny the complainant indemnification of the loss, at least at the assessed amount, which in any case was conservatively estimated by the surveyor.
8. Thus, after considering all the facts and circumstances discussed above, we are of the view that the complaint deserves to be allowed, at least partly. Accordingly, we direct OP 1 to pay to the complainant the assessed sum of loss, viz., Rs. 8,88,627/-, along with interest @ 9 per cent per annum from the date of the complaint to the date of payment within four weeks of this order. In addition, OP 1 shall pay Rs. 10,000/- as costs to the complainant. Per our direction, OP 1 had deposited the sum of Rs. 8,88,627/- in the course of these proceedings. On making payment as directed above, OP 1 shall be entitled to withdraw the said deposit.
.
[R. C. JAIN, J] [ANUPAM DASGUPTA]