ABC Insurance Limited received a proposal on 1st April, 2019 from M/s MC Pvt. Co. Ltd., a proprietary firm to take a fire and allied insurance policy. The proposer was a chemical manufacturer and their plant was commissi

CS Professional · Insurance - Law & Practice · PYQS · June 2021
ABC Insurance Limited received a proposal on 1st April, 2019 from M/s MC Pvt. Co. Ltd., a proprietary firm to take a fire and allied insurance policy. The proposer was a chemical manufacturer and their plant was commissioned in November, 2017. The proposal required coverage for: Building: ₹ 80 lakhs Plant and Machinery: ₹ 95 lakhs Stocks: ₹ 1.6 crores The insurance company issued fire and allied perils policy without carrying out any inspection. M/s. MC Co. Ltd. sent a communication on 24th September, 2019 intimating about a major fire accident in the factory in the early morning hours of 24th September. This intimation though email received by the insurance company on 24th September was followed by a detailed letter and claim form claiming full loss of the stocks of ₹ 1.4 crores in stock on that day and also damage to the Plant and Machinery estimated at ₹ 20 lakhs. The stocks were all hazardous chemicals. The claim form stated that the Fire originated in the control room and spread to the machinery and stocks. The fire brigade report also stated the probable cause of the fire also as accidental. ABC Insurance Limited deputed XYZ Surveyors to survey and assess the loss. The surveyors submitted the report assessing the losses as under: Particular | Assessed loss Plant and Machinery | ₹ 22 lakhs Stocks | ₹ 1.3 crores The insurance company immediately on receipt of the first intimation from the insured deputed its claim officer R an engineer to the factory at about 11 am of 24th September, 2019. R could meet S son of the proprietor of the firm G who was out of the factory during that time. R observed that the fire had been extinguished by that time. He also observed that the electrical wiring on the wall was at a safe distance from the machinery and stock. The insurance company while processing the claim asked for various documents from the insured which included copies of invoices, bank statements, books of accounts, electricity bills and other relevant papers from the date of inception to the date of fire. On the scrutiny of the documents submitted it was found that the purchases of the raw materials and sales of finished goods were quite high but the bank transactions were too small not justifying the volume of sales and purchases and stocks. The electricity bills were also too small as compared to the level of operations claimed by sales and purchases. Even one of the electricity bills had a remark 'premises closed'. These facts aroused suspicion in the minds of officials of the insurance company. The insurance company deputed N, a Chartered Accountant to investigate the claim. N submitted the investigation report on 5th December, 2019. The main observations from her report were: (i) Most of the purchases invoices were from non-existent parties. (ii) The GST registration numbers mentioned on the invoices were fake. (iii) The GST authorities confirmed that the numbers were fake. (iv) One of the customers mentioned in the sales invoices confirmed that he never purchased any goods from M/s MC Co. Pvt. Ltd. and he showed a letter from M/s MC Co. Ltd. that their plant was closed and not in operation, so no supplies could be made due to non-production for long. Copy of the letter was submitted with the report. ABC Insurance Limited sent a letter to M/s MC Pvt. Co. Ltd. on 8th December, 2019 repudiating the claim. The insurance company also complained to IRDAI for alleged misconduct on the part of the surveyors. However it did not lodge any police complaint against M/s MC Co. Ltd. for the alleged or attempted fraud. It however, confidentially circulated brief particulars of the claim among members of the general insurers' association. As an insurance expert you are required to comment on the following with reasons: Comment on the role of surveyor in this case. Did he discharge his duty? What in your opinion should be the Regulation action for such surveyors?

Answer & Explanation:

The primary responsibility of a Surveyor or a Loss Assessor is to estimate the liability of the loss incurred by the Policyholder who has taken the insurance cover, to enable the insurance company to arrive at the amount to be indemnified to the Policyholders under the terms of the insurance contract. The following are the specific duties and responsibilities as enshrined in the regulations: Declaration of conflicts of interest: In case the surveyor is interested in the subject matter under loss assessment or in the policyholder whose subject matter is being assessed, he must declare the conflict to the insurer and stay away from the assessment exercise. For example, if the Surveyor is the son of Policyholder whose car has been damaged in a fire accident, such a Surveyor cannot assess the loss of the car of his father, in view of the conflict of interest. He must declare the relationship to the insurer concerned and not conduct the survey proceedings in such cases. Maintenance of confidentiality and neutrality in the loss assessment exercise. He has to keep the interests of both the insurer and the policyholder in mind. He must investigate the cause and circumstances of the loss in question. He must personally conduct a spot survey and comment upon excess insurance or under insurance. Advise the insurer about loss minimization or loss control efforts or security and safety measures which can be adopted to ensure that the incident of loss is reduced or avoided in future. Pointing out discrepancy in policy wordings, if any. Satisfying the queries of the insured or the insurer in connection with the claim or loss. Recommending applicability of depreciation and the percentage and quantum. Commenting on salvage and its disposal. In the case cited, the surveyor has assessed the loss of stock as claimed by the insured. However, looking at the facts of the case, there were many discrepancies in the documents submitted by the Insured. Prima facie, it was evident that the insured has falsified the claim and the loss was too negligible as compared to the amount of claim. However, the report submitted by the surveyor to the insurance company shows the amount of loss as the amount claimed, which shows that the surveyor has not carried out his responsibilities properly. It looks like that the surveyor has erred in fulfilling his duties in a proper manner. The Regulator, Insurance Regulatory Development Authority of India (IRDAI), has all the right to cancel the licence of the surveyor and as an example, restrict or debar the surveyor from any professional work for a period of 3 years. But the regulator, in many cases of intermediaries, has undertaken such action in the cases of agents and brokers. The licence of these agents and brokers are cancelled in case they are involved in malpractices. The licence of the surveyor should also be cancelled.

Topics: Fire Insurance

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