NCDRC: Fire Insurance Claim Can't Be Repudiated On Mere Suspicion Without Proof Of Fraud
The National Consumer Disputes Redressal Commission (NCDRC), New Delhi, comprising AVM J. Rajendra (Retd.), Presiding Member and Justice Anoop Kumar Mendiratta, Member, has held that an insurance claim cannot be repudiated solely on the basis of suspicion regarding the cause of fire in the absence of cogent evidence. The Commission, holding the repudiation of the claim to be unjustified, observed that once the occurrence of fire is established and there is no evidence of wilful act or fraud on the part of the insured, the insurer cannot deny liability.
Brief Facts:
The complainant, M/s Shri Hira Industries, a proprietary firm engaged in manufacturing cottonseed oil and cotton cake, had availed a loan facility from Axis Bank Ltd. (Opposite Party No. 3) against pledge of cotton bales and cotton oil cake.
A Collateral Management Agreement was executed with Star Agriwarehousing and Collateral Management Ltd. (Opposite Party No. 2) for supervision and inventory of the pledged goods. The complainant had obtained a Standard Fire and Special Perils Policy from United India Insurance Co. Ltd. (Opposite Party No. 1) for the period from 30.04.2018 to 29.07.2018.
On 22.07.2018, a fire broke out at the warehouse where the goods were stored. The complainant claimed that the entire stock of 1,800 cotton bales was destroyed, resulting in a loss of ₹3,89,86,650. The insurer appointed a surveyor and investigator, and subsequently repudiated the claim on 25.03.2019 on grounds of misrepresentation and fraud.
Aggrieved, the complainant approached the Commission.
Arguments by Opposite Parties
United India Insurance Co. Ltd. (OP-1) contended that the claim was not genuine and relied on the surveyor and investigator reports, which suggested that the fire was deliberately caused. It was argued that 1,800 cotton bales could not have been completely reduced to ashes within a short duration, particularly when fire-fighting operations had commenced shortly after the incident. The insurer further submitted that there was no electrical connection in the godown, ruling out the possibility of a short circuit, and that the fire was observed to have spread across the premises in a manner not consistent with normal progression.
It was also pointed out that while a large quantity of iron strips would have been used to secure the cotton bales, only about 15.7 kg was recovered from the site. Further reliance was placed on forensic reports indicating low cotton content in the debris, suggesting that the material burnt was of inferior quality.
Star Agriwarehousing and Collateral Management Ltd. (OP-2) submitted that its role was limited to supervision and inspection of the pledged goods, and that no negligence could be attributed to it in view of the police investigation.
Axis Bank Ltd. (OP-3) denied any deficiency in service and contended that it had a first charge over the pledged goods and any compensation arising therefrom.
Observations & Decision
The Commission observed that the insurer's conclusion regarding a staged fire was based on presumptions and was not supported by cogent evidence. It noted that the police investigation indicated the possibility of fire due to friction between iron strips, and no material was placed on record to attribute any deliberate act to the complainant. The Commission further observed that forensic examination did not detect any hydrocarbons or external inflammable substances in the debris.
It was also observed that cotton and cotton bales are highly inflammable, and complete destruction of stock in a severe fire cannot be ruled out merely on the basis of assumptions. With regard to the iron strips, the Commission accepted the explanation that they could have been removed along with debris or affected during the fire.
However, on the issue of quantum, the Commission relied upon the surveyor's assessment. It noted that laboratory reports indicated low cotton content in the debris and found no sufficient ground to disregard the valuation based on such findings.
Accordingly, while holding the repudiation of the claim to be unjustified, the Commission partly allowed the complaint and directed United India Insurance Co. Ltd. to pay ₹98,68,302 with interest at 7% per annum from the date of the final survey report (24.12.2018), along with ₹20,000 towards litigation costs, subject to adjustment of any dues payable to Axis Bank Ltd.
Case Details
Case Title: M/s Shri Hira Industries v. United India Insurance Co. Ltd. & Ors.
Case No.: Consumer Complaint No. 1470 of 2019
Appearance
- For the Complainant: Ms. Ishita Singh, Mr. Rajiv Sancheti, Ms. Sumbul Ismail and Ms. Khushi Singhal, Advocates
- For Opposite Party No. 1: Mr. Animesh Sinha, Mr. Shubham Budhiraja and Ms. Ishita P., Advocate
- For Opposite Party No. 2: Mr. Varun Shankar, Advocate