SUPREME COURT HOLDS INSURER DEFICIENT IN SERVICES FOR WRONGFUL REPUDIATION OF CLAIM

A Two Judge Bench of the Supreme Court comprising of Justice A S. Bopanna and Dipankar Datta passed a Judgment dated 08-08-2023 in the matter of Civil Appeal No. 2042/2012, S.S. Cold Storage India Pvt. Ltd.  Vs. National Insurance Company Limited and held that the Respondent-Insurer wrongly repudiated the insurance claim of the Appellant by relying on the Surveyor’s Report that lacked any scientific investigation.

Facts

1) That the Appeal filed before the Supreme Court by one, S.S. Cold Storage India Pvt. Ltd. (Appellant) against the National Insurance Company Limited (Respondent) under Section 23 of the Consumer Protection Act of 1986 (Appeal), challenged the decision of the National Consumer Disputes Redressal Commission (NCDRC) that dismissed the Complaint filed by the Appellant in Original Petition No. 80/1999 vide Order dated 13.01.2011.

2) The Appellant was in charge of managing a cold storage facility, which included equipment, machinery, and inventory. All of these items were insured by the Respondent, who issued multiple insurance policies to the Appellant in 1997 and 1998. These Policies covered various aspects, such as refrigeration systems (and their contents), machinery, inventory, and fire damage.

3) Subsequently, there was a gas leakage of ammonia in Chambers 1 and 2 of the Facility, causing a rise in temperature and a shutdown of operations. The Appellant notified the Respondent and the District Horticulture Officer for inspection on 04.10.1997.

4) Thereafter, the Appellant filed a Claim of Rs. 1,03,15,080/- for damage caused to 85,956 bags of potatoes under the Refrigeration Policy on 14.10.1997. The Respondent first sent a Surveyor, Mr. S.K. Agarwal, who couldn’t assess due to extensive damage. Later on, other Surveyors, M/s Mehta and Padamsey Surveyors Pvt. Ltd., were appointed. Mr. A. Banerjee was sent by the Surveyors to inspect the Facility on 18.10.1997.

5) The Surveyor conducted an inspection and concluded that the incident was caused due to wear and tear, resulting in a leakage of ammonia gas on 17.01.1998 which was not covered under the Refrigeration Policy. Thus, the Respondent repudiated the Appellant’s Claim on 22.01.1999.

6) Thereafter, the Appellant filed a Complaint bearing Original Petition No. 80 of 1999 before NCDRC claiming Rs. 1,03,15,680/- and other amounts, thereby, challenging the Insurer’s repudiation.

7) The Respondent responded by presenting the Surveyor’s Report on 07.08.2000., wherein the Appellant introduced a Report by Mr. S.K. Ahuja, a Loss Assessor on 19.04.2008. Thus, NCDRC granted permission to technical experts for inspection of removed pipes vide Order dated 11.05.2009.

8) Accordingly, the Experts, Dr. Manohar Prasad and Mr. K.K. Gupta inspected the pipes on 25.07.2009. As per Dr. Prasad’s Report of 04.11.2009, the leakage seemed accidental, and Mr. Gupta’s Report on 06.11.2009, ruled out wear and tear. However, the Complainant claimed that the damage occurred due to leakage of ammonia gas, for which the Respondent-Insurance Company ought to settle the claim under the Refrigeration Policy.

NCDRC:

The NCDRC analysed the evidence, including Expert Opinions, and made the following findings:

i) According to the NCDRC analysis, the gas leakage issue was not caused by bursting pipes, but rather by thin cracks occurring at the pipe joints. This was supported by the fact that the dictionary definition of “burst” did not align with the ammonia leak scenario.

ii) Further, the NCDRC considered the Surveyor’s Report which indicated that wear and tear, rather than sudden bursting, caused the ammonia leakage due to openings and welding joint issues. Mr. Gupta’s Report also supported this perspective, attributing the cracks to gradual wear and inadequate welding joint fusion. It was found that the pipes used were different from the claimed “C Class” pipes, lacking unbroken properties.

iii) The NCDRC analysed evidence, including expert opinions, and concluded that the hairline cracks were more likely a result of wear and tear than sudden bursting, which falls under Exception Clause 3’s coverage exemption.

iv) The NCDRC further noted that the Appellant failed to make payments to potato growers, substantiating that no loss had occurred in that aspect.

v) That the damage was not as a result of gas leakage accident but because the Facility was not maintained properly and that it was a case of normal wear and tear, which is not covered under the Refrigeration Policy. Hence, the Appellant failed to prove the Insurer’s deficiency, leading to the dismissal of the Complaint by NCDRC vide Order dated 13.09.2011.

SUPREME COURT:

Aggrieved by the Order dated 13.09.2011 of the NCDRC in Original Petition No. 80/1999, the Appellant filed Civil Appeal No. 2042 / 2012 before the Hon’ble Supreme Court. The Apex Court, vide Order dated 08.08.2023, made the following observations:

(a) The Supreme Court thoroughly analysed the Surveyor’s Report and Expert Opinions, and relied upon a series of precedents to determine the appropriate approach to be followed in cases involving multiple reports and expert analyses. The Apex Court referred to the Expert Reports to find out the liability of Insurance Company and point out the loopholes in the observation made by the NCDRC. The NCDRC did not consider the Expert Report rather relied upon the Surveyor’s Report.

(b) The Supreme Court emphasized on a crucial point i.e. the Insurance Company’s repudiation of claim was based on a Surveyor’s Report that lacked any scientific investigation. The Court noted that the Surveyor’s report did not discuss the possible causes of wear and tear and lacked expert examination of the damaged pipes. Consequently, there is no strong evidence to support the theory of wear and tear. Furthermore, the Respondent did not provide any clear reasons for concluding that ammonia gas leaked due to wear and tear.

(c) Further, the Bench pointed out that the facility had undergone a thorough check for policy renewal not long before the incident. Upon comparing the detailed Expert Reports with the Surveyor’s Report, the Court found that the Surveyor’s Report failed to address critical factors and was therefore unreliable in supporting the Respondent’s position.

(d) Further, the ammonia gas leak was an unexpected accident beyond the control of the Appellant. Consequently, the denial of the Insurance Claim due to this incident showed a clear lack of proper service by the Respondent. Therefore, the Apex Court held that the Appellant is entitled to get the Insurance Claim amounts.

CONCLUSION:

Thus, based on the aforesaid observations, the Supreme Court allowed the Appeal and held that the Respondent failed to provide proper services to the Appellant, and as a result, the Appellant was granted a lump sum amount of Rs. 2,25,00,000/- as full compensation for the Insurance Claim. The Respondent was directed to release payment to the Appellant within 2 months, and failure to do so would result in an annual rate of interest of 10%.

 

Sakshi Raghuvanshi

Associate

The Indian Lawyer