M/s. XX is a registered partnership firm. Their line of activity is trading in cotton. For the purpose of their business, they had taken M/s JJ Traders Cotton Ginning Mill on lease. The claim of M/s XX firm is that, an a

CS Professional · Insurance - Law and Practice · PYQS · June 2021
M/s. XX is a registered partnership firm. Their line of activity is trading in cotton. For the purpose of their business, they had taken M/s JJ Traders Cotton Ginning Mill on lease. The claim of M/s XX firm is that, an accidental fire took place in the godown of M/s JJ Traders, leased by them where its cotton stocks were stored and insured, at about 2.10 a.m. in the morning hours of 24.08.1999 and according to the Firm, the estimated loss was of ₹ 1.90 crore. The cotton stocks in question were covered by seven insurance policies issued by M/s. OPQ Insurance Company Ltd. for a total sum of ₹ 1.98 Crore during the period when the fire accident took place. The firm made a claim of ₹ 1.90 crore towards loss of stock due to accidental fire in its business premises, with the insurer. Pursuant to the claim so made, the insurance company appointed Mr. K a licensed surveyor for preliminary investigation and for submitting a preliminary report, about the cause of fire and the probable loss said to have been suffered by the insured. The surveyor having examined the place of fire accident gave preliminary report dated 09.09.1999 to the insurance company estimating the loss of stock at ₹ 1,73,92,310/- however, had noticed in his report that the number of bales and borahs lying in the Godown and the actual quantity of lint damaged by fire has to be got confirmed from the accounts of the insured and also by physical verification of bale hoops. The insurer after receipt of the preliminary report of Mr. K, had appointed Joint Surveyors M/s. M & K in terms of Section 64 UM (2) of the Insurance Act to give a joint report. Section '64- UM(2)' specifically states that - No claim in respect of a loss which has occurred in India and requiring to be paid or settled in India equal to or exceeding twenty thousand rupees in value on any policy of insurance, arising or intimated to an insurer at any time after the expiry of a period of one year from the commencement of the Insurance (Amendment) Act, 1968, shall unless otherwise directed by the Authority, be admitted for payment or settled by the insurer unless he has obtained a report, on the loss that has occurred, from a person who holds a licence issued under this section to act as a surveyor or loss assessor (hereafter referred to as 'approved surveyor or loss assessors'): Provided that nothing in this sub-section shall be deemed to take away or abridge the right of the insurer to pay or settle any claim at any amount different from the amount assessed by the approved surveyor or loss assessor. Sub-section (2) mandates that no claim in respect of a loss which has occurred in India and requiring to be paid in India equal to or exceeding twenty thousand rupees in value on any policy of insurance be admitted for payment, unless insurer obtains a report on the loss that has occurred from a person who holds a license issued under sub-section (1) of Section 64 UM of the Act as a Surveyor or loss assessor. As entrusted, the Joint Surveyors conducted a joint survey and in that, had estimated the loss of stock insured at ₹ 1,67,80,925/- and gave a report to that effect to the insurer. The insurer being of the view that the report is perfunctory had appointed yet another Surveyor viz. M/s. DG & Co. who, in turn appointed one Mr. P, former DIG (Fire) to investigate and submit a report, who in turn after investigation and survey submitted his report dated 07.05 2000, confirming the quantification made by the Joint Surveyor. Since the insurer was not satisfied with the aforesaid report also, again appointed M/s. RS & Co., Chartered Accountant to give a fresh report by estimating the loss of stock insured due to accidental fire incident. After inspection of the godown and verifying the books of accounts, he estimated the loss of stock at ₹ 1,05,00,817/-. The insurance company had placed the aforesaid report before the Joint Surveyor viz. M/s. M & K for their opinion. The joint surveyors in their clarificatory report dated 06.01.2000 did not agree with the findings of the Chartered Accountant, on the ground that the chartered accountant had based his report only after verifying the books of accounts for the period 01.10.1998 to 31.03.1999 and not till the date of fire accident. Since there was inordinate delay in settling the lawful claim under the fire insurance policy, the appellant Firm preferred original complaint before the National Consumer Forum against the insurer, inter-alia, alleging that there was deficiency in service and, therefore, they are entitled for a sum of ₹ 1,67,80,925/- being the value of loss assessed by the Joint Surveyors and, therefore, sought a direction to the insurer for payment of the aforesaid amount with interest at 18% from the date of fire accident till its realization and for payment of a sum of ₹ 6,91,155/- being the value of the salvage as assessed by the Surveyors and also to award damages in causing unnecessary and unwarranted delay in settling the claim under the insurance policy. The National Consumer Disputes Redressal Commission, on the concession made by the insurance company based on the report of Chartered Accountant has passed the impugned order, directing the insurer to pay a sum of ₹ 1,05,00,817/- with interest at 6% per annum from 01.03.2001 till the date of payment within two months from the date of receipt of the order. As regards the quantum of loss, it was observed that due weightage is to be given to the estimates made by various Investigators appointed by the Insurance Co. The first three Investigators assessed the loss at about the same figures i.e. the loss is of 1350 fully pressed bales of cotton and 88 boras of lint valued that about ₹ 1.73 to ₹ 1.74 crores. However, the Insurance Co. having noticed that these Investigators had not gone into the details of transactions and stocks in a thorough manner, asked another Chartered Accountant, M/s R & Co. to specially ascertain the quantum of loss caused by the fire. M/s R & Co. submitted a 'Accounts Verification Report' on 22.11.2000 and assessed the loss at ₹ 1,05,00,817/-. They also furnished subsequent clarification on 22.12.2000, 22.01.2001 and 09.09.2002 pointing out the lacunae in the reports of the previous Investigators'. Finally, the opposite party themselves, while disputing their liability to pay, have however agreed that the loss is only ₹ 1,05,00,817/- and not ₹ 1.90 crore, as claimed by the appellant. It was also observed by the Senior counsel for the appellant that, despite the surveyors having consistently given a specific finding that the claim was bonafide and the fire was accidental had assessed the loss at ₹ 1.70 crore, the insurance company has repudiated the claim on frivolous ground, that too after a period of three years from the date of fire incident. It is further contended that the company had appointed several surveyors, which they could not have done in terms of Section 64-UM of the Insurance Act, 1938. To justify the rejection of the claim, the insurance company in their letter to the Joint Surveyors made the following observations: The cause of the accident is mentioned as electrical short circuit because of voltage fluctuations. When the stocks were kept in a locked godown and when there was no kind of activity for months together, we wonder as to why the lights in the godown were kept switched on round the clock. Had the lights been switched off the short circuit causing the fire accident could not have occurred. Please let us have your comments. From the balance sheet of insured as on 31st March, 1999 nearly 50% of the purchases i.e. ₹ 1.07 crore out of ₹ 2.27 crore were from individual village ryots on credit basis. We felt in a claim of such a magnitude some random investigation is required on the credit purchases to confirm their genuinity. As per the preliminary survey report there were two varieties of bales/borahs viz. MCU-5 @ ₹ 7,140/- per quintal in bales and ₹ 7,040/- per quintal in borahs and LK variety @ ₹ 5,650/- per quintal in bales and ₹ 5,550/- in borahs. But in your assessment you have taken the entire quantity as a single variety i.e. MCU-5 @ ₹ 7,193/- per quintal in FP bales and ₹ 7,084-19 per quintal in borahs and assessed the loss @ ₹ 1,74,82,080/-. Whereas, when we have applied the different rating the assessment is ₹ 1,72,57,305/-. Please clarify. Finally, the Supreme Court, in view of the above discussion, directed the Insurance Company, to pay ₹ 1,05,00,817/- with interest at the rate of 9% as compensation from the date of assessment done by the Chartered Accountant, within two months from the date of this order i.e. from 01.03.2001 as against the claim of the appellant at 18% from the date of the fire accident, viz. 24.08.1999. As cited in the facts of the case, justify whether the insurance company can repeatedly appoint Surveyors after Surveyors for getting the loss/damage assessed before settling the claim of the insured? Cite the provisions of Section 64 UM of the Insurance Act, 1938, to justify your answer.

Answer & Explanation:

As rightly observed by the learned senior counsel appearing for the appellant Firm that the action of the insurance company in appointing several surveyors till it got a favourable report to suit its estimation of loss of stock in the fire incident is illegal and shatters the confidence and trust of the people on the very purpose of insurance. From the facts of the case, it is further observed that the National Commission despite upholding the report of the Joint Surveyors which assessed the loss at ₹ 1,64,70,407.00 should not have accepted the concession made by the insurer and directed the insurance company to pay only the amount as quantified by the chartered accountant. It can be also seen that the National Commission despite giving a finding that there is gross deficiency in service has only granted interest at 6% per annum from 01.03.2001 and not from the date of fire accident, which, according to learned counsel is improper and illegal. However, in response to the submission made by learned senior counsel for the appellant, the learned counsel of the insurer in the counter affidavit filed by them before this Court in justification of the order passed by National Consumer Commission and then submits that the provisions of Section 64-UM of Insurance Act, 1938 does authorize the insurer to appoint surveyor or surveyors, may be for the second time for the purpose of getting a fair report of the actual loss suffered by the insured. The learned counsel also submitted several reasons for not accepting the report of Joint Surveyors in view of the lacuna pointed out by the Chartered Accountant, who was asked to verify the Books of Accounts maintained by the insured to ascertain the actual loss incurred due to the fire accident by the insured in its place of business and therefore, there is no illegality committed by the National Consumer Commission in accepting the report of Chartered Accountant and directing the insurance company to pay as assessed and quantified by an independent agency. The learned counsel also submits that keeping in view the facts and circumstances of the case. The National Consumer Commission was justified in awarding interest at the rate of 6% per annum from 01.03.2001, though a claim was made for awarding interest at the rate of 18% from the date of fire incident till the date of payment. As per section 64 UM (2) of the Insurance Act, 1938, no claim in respect of a loss to which has occurred in India and requiring to be paid or settled in India equal to or exceeding twenty thousand rupees in value on any policy of insurance, arising or intimated to an insurer at any time after the expiry of a period of one year from the commencement of the Insurance (Amendment) Act, 1968, shall, unless otherwise directed by the Authority be admitted for payment or settled by the insurer unless he has obtained a report, on the loss that has occurred, from a person who holds a licence issued under this section to act as a surveyor or loss assessor 'approved surveyor or loss assessors'. Provided that nothing in this sub-section shall be deemed to take away or abridge the right of the insurer to pay or settle any claim at any amount different from the amount assessed by the approved surveyor or loss assessor. Sub-section (2) mandates that no claim in respect of a loss which has occurred in India and requiring to be paid in India equal to or exceeding twenty thousand rupees in value on any policy of insurance be admitted for payment, unless insurer obtains a report on the loss that has occurred from a person who holds a license issued under sub-section (1) of Section 64 UM of the Act as a Surveyor or loss assessor. The proviso to sub-section (2) however, retains the right of the insurer to settle a claim for an amount different from that assessed by the surveyor. Therefore, this provision impliedly permits an insurer to obtain a second or further report where considered appropriate or expedient in the circumstances of a case based upon which the claim could be settled for a different amount than as assessed earlier. The Supreme Court however, very clearly observed that the insurance company cannot go on appointing Surveyors one after another so as to get a tailor made report to the satisfaction of the concerned officer of the insurance company, if for any reason, the report of the Surveyors is not acceptable, the insurer has to give valid reason for not accepting the report. Scheme of Section 64-UM particularly, or sub-section (2), (3) and (4) would show that the insurer cannot appoint a second surveyor just as a matter of course. If for any valid reason the report of the Surveyor is not acceptable to the insurer may be for the reason if there are inherent defects if it is found to be arbitrary, excessive, exaggerated etc., it must specify cogent reasons without which it is not free to appoint second Surveyor or Surveyors till it gets a report which would satisfy its interest. Alternatively, it can be stated that there must be sufficient ground to disagree with the findings of Surveyor/Surveyors. There is no prohibition in the Insurance Act for appointment of second Surveyor by the Insurance Company, but while doing so, the insurance company has to give satisfactory reasons for not accepting the report of the first Surveyor and the need to appoint second Surveyor. In our considered view, the Insurance Act only mandates that while settling a claim, assistance of surveyor should be taken but it does not go further and say that the insurer would be bound whatever the surveyor has assessed or quantified, if for any reason, the insurer is of the view that certain material facts ought to have been taken into consideration while framing a report by the surveyor and if it is not done, it can certainly depute another surveyor for the purpose of conducting a fresh survey to estimate the loss suffered by the insured.

Topics: Insurance Claims

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