'Fire Doesn't Seem Accidental' : Supreme Court Upholds Repudiation Of Rs 2.4 Crore Fire Insurance Claim

A bench of Justice Sanjay Kumar Justice Sanjeev Sachdeva allowed the insurer's appeal, holding that the insured had made false declarations in support of its claims, in breach of the policy conditions.

The respondent manufactured paper boards and had an open yard and three godowns. It held two fire policies from New India Assurance, out of which one was for stocks (Rs 13 Crore, from December 30, 2008 to December 29, 2009) and another for buildings, plant and machinery (Rs 14 Crore, from February 28, 2009 to February 27, 2010). In May 2007, a fire broke out in the waste paper yard inside the factory and damaged raw material and tin shed. The respondent claimed about Rs 7.31 Crore with 18% interest per annum before the NCDRC.

The insurer appointed a preliminary surveyor who stated in his report that the case needed a meticulous investigation to rule out deliberate fire and hypothetical loss. It then engaged an investigation agency. The final surveyor computed the net loss at Rs 46,09,722 and said that the insured had manipulated its books to inflate the claim. Subsequent to this, the insurer repudiated the claim, citing breach of Policy Conditions 6 and 8.

The NCDRC held that since the cause of the fire was not known, the insurer did not have to prove the cause or the genuineness of the fire. It found no deliberate delay in informing the fire brigade and no reason to doubt the claim. It, thus, directed payment of Rs 2.4 Crore with interest within 45 days, failing which interest at 12% per annum would apply. Additionally, it awarded Rs 3 Lakh for deficiency in service and Rs 1 Lakh as costs.

Aggrieved by the NCDRC's order, the insurer appealed before the Supreme Court. The insured also filed a cross-appeal on the quantum. In May 2025 the Supreme Court had stayed the NCDRC order on the insurer depositing Rs 50 Lakh.

The Supreme Court said that the first question was “whether the appellant was justified in repudiating the respondent's claim at the threshold in its entirety.” Only if the insurer failed on this would the Court need to examine the NCDRC's assessment of the loss. The bench found that the facts weigh heavily against the respondent.

The Court referred to Section 64UM of the Insurance Act, 1938, which requires a claim of Rs 20,000 or more to be assessed by an approved surveyor. It relied on New India Assurance Company Limited v Pradeep Kumar and Khatema Fibres Limited v New India Assurance Company Limited, which held that a surveyor's report is not a sacrosanct or binding on either party, but the insurer's discretion to reject it cannot be exercised arbitrarily.

With regards to the appointment of more than one surveyor, the Court referred to Sri Venkateswara Syndicate v Oriental Insurance Company Limited, which requires cogent reasons for appointing a second surveyor. It noted that here the first surveyor had advocated for further investigation in clear terms.

It also relied on United India Insurance Co Ltd v Roshan Lal Oil Mills Ltd which held that the NCDRC was not justified in ignoring a detailed survey report. It, thus observed that, “except for baldly stating that the surveyors and the investigator gave negative reports and asserting its innocence in the context of the maintenance of the stock taking and books of accounts, the respondent did not point out any specific deficiency on the part of the surveyors, in terms of the statutory requirement. Despite the same, the NCDRC simply brushed aside both the surveyors' reports, wherein the genuineness of the respondent's claims was negated on facts.”

The bench noted its decisions in New India Assurance Company Limited v Mudit Roadways, Canara Bank v United India Insurance Company Limited, and Orion Conmerx Private Limited v National Insurance Company Limited, which held that where the cause of a fire cannot be ascertained, it is immaterial as long as the insured was not its instigator. “Except for baldly stating that the surveyors and the investigator gave negative reports and asserting its innocence in the context of the maintenance of the stock taking and books of accounts, the respondent did not point out any specific deficiency on the part of the surveyors, in terms of the statutory requirement. Despite the same, the NCDRC simply brushed aside both the surveyors' reports, wherein the genuineness of the respondent's claims was negated on facts,” the bench explained.

The insurer had relied on a police report and an affidavit suggesting that a spark from a fire lit in a neighbouring sugarcane field could have reached the yard. The Court said that there was no evidence of the distance between that field and the factory. It added that the photographs showed “a patch of burnt grass surrounded by green grass” and the magnitude of that fire “does not appear to be significant.”

The Court observed that the reports recorded that the fire brigade was informed 50 minutes after the fire was detected, though the fire station was only six to seven km away and could reach within 11 minutes. No explanation was offered why the Vice President did not send someone despite having a vehicle at the factory. The reports also recorded that employees merely sprinkled water on the roof or the ground and not on the fire. The Court said that these are important factors weighing against the respondent in the context of the fire being a genuine one and sincere efforts being made to fight the fire. It also added that the insured took about 20 minutes to act on the insurer's branch manager's request to raise the water pressure and use more hydrants.

The Court also noted that the tin sheets and the main structure of the shed showed little damage, which speaks of the nature of the fire and its extent. The fire was concentrated where bags were stored. The bench said this adds to the suspicion of arson, as there was no account of such bags having been bought as raw material in those quantities, and the material was very old, with cobwebs.

On the tin sheet, the insured's Vice President and General Manager had said it fell in the fire and a JCB was called to lift the sheets. The owner of the JCB said he sent it to break down the shed before the fire. Workers and nearby shopkeepers supported this.

The bench observed that apart from the possibility of arson or lack of sincerity in fighting the fire, there were other factors which decisively tilt the balance against it, such as, the breach of the policy conditions. Condition 6 required the insured to give full particulars and information on the origin and cause of the loss. Condition 8 provides that if a claim is fraudulent or false declaration is used in support of it, all benefits under the policy are forfeited.

The Court held that both conditions were breached. The insured's Vice President and General Manager had said usable raw material was stocked in the burnt tin shed. A supervisor, workers, and two accountants said that only unusable segregated waste paper was stored there. The bench noted that this evidence was not even challenged by the respondent in the complaint case. It concluded that it was beyond the pale of doubt that a false claim was sought to be projected.

Further, the bench recorded the final surveyor's findings on the insured's accounts. No stock register or stock movement register was maintained. Yield rose from 87% to 95% from May 2008. The raw material to sales percentage fell from 32.30% in 2007-08 to 19.29% in 2008-09. The consumption recorded in the books was found to be arbitrary and the reported yield imaginary, as observed by the Court.

“In the light of above facts, leaving aside the strong possibility that this was not an accidental fire or, at the very least, it was not a fire that the respondent genuinely tried to put out, the repudiation of the respondent's claim by the appellant, on the ground that Policy Condition Nos. 6 and 8 stood violated, was clearly sustainable,” the bench held.

It further stated that the NCDRC was not justified in brushing aside the findings recorded in the two surveyors' reports and in holding that there was no delay on the part of the respondent in informing the fire station. Allowing the insurer's appeal, the Supreme Court dismissed the insured's appeal on quantum.

Case: M/s New India Assurance Company Ltd v M/s Hemkund Duplex and Board Pvt Ltd.

Citation : 2026 LiveLaw (SC) 969