Insurance Company Must Give Cogent Reasons For Not Accepting Surveyor's Report: Supreme Court

The Supreme Court has held that while the Surveyor's Report in a claim for insurance is not final and can be deviated from, it is necessary for the insurer to provide ‘cogent and satisfactory’ reasons for not accepting the report(National Insurance Company Ltd V. Vedic Resorts and Hotels Pvt. Ltd). 

A division bench comprising Justice Ajay Rastogi and Justice Bela M Trivedi also reiterated that when there is an exclusionary clause in an insurance policy, the onus is on the insurer to show that the case is covered under such clause. The Apex Court also reiterated that when there is ambiguity in the insurance contract, it must be construed in favour of the insured.

"Though it is true that the Surveyor’s Report is not the last and final one nor is so sacrosanct as to the incapable of being departed from, however, there has to be some cogent and satisfactory reasons or grounds made out by the insurer for not accepting the Report." the Apex Court held. 

In the matter at hand, the complainant (Respondent) was running a resort in West Bengal and had two insurance policies from the Insurance Company (Appellant) in respect of the hotel buildings at the said resort. The resort property was damaged by a mob of about 200-250 persons that entered the resort premises due to a scuffle with a group that tried to disrupt their football match.

Investigation by the police pursuant to FIRs being registered in relation to the incident showed that one Gaffar Molla and his associates fired and threw bombs at a football match venue adjacent to the resort and on being chased by the mob, hid in the resort of the complainant. The mob then proceeded to damage the insured property. The police also found pipe guns, live bombs and explosive substances within the compound of the resort.

The final report of the surveyor assessed the loss to the complainant to be around Rs. 202.216 lakhs under both the policies. However, the insurance company repudiated the claim of the complainant stating that the loss incurred by the complainant was the result of a malicious act of the management of the resort and that it would fall under one of the exclusions covered under Clause V(d) of the insurance policy.

The complainant then approached the National Consumer Disputes Redressal Commission, which directed the insurance company to pay to the complainant a total of Rs.202.216 lakhs along with interest @ 9% per annum from six months from the date of lodging of the claim till the date on which the payment is made.

Against the order of the Commission, the insurance company filed an appeal before the Apex Court.

Adv. Vishnu Mehra, appearing for the Insurance Company argued that the complainant had harboured a criminal and his associates who used firearms and explosives stored at the resort. Gaffar Molla and his associates had triggered the mob by killing one person and injuring several others at the football match venue before hiding at the resort. Their actions had angered the mob who then proceeded to damage the insured property. The insurance company argued that since the loss suffered by the resort was due to the malicious act on the part of the management of the resort, it was covered by one of the exclusions provided under Clause V(d) of the Insurance Policy.

Adv. Sukumar Pattjoshi appearing for the complainant argued that the rejection of its claim by the Insurance Company was erroneous and the Commission’s order is not to be interfered with.

The insurance company had rejected the claim of the resort on the ground that it was an outcome of the malicious act of the management in harboring persons who used bombs and firearms and caused the death of a person. However, the Apex Court observed that the incident of firing that led to the death of a person took place at the venue of the football match and not at the resort. The Apex Court also observed that there was no material to show that the incident that led to the damage to the resort was caused due to the malicious act of the resort management and hence excluded from coverage due to Clause V(d) of the insurance policy. The Court also observed that when the Final Survey Report stated that the claim was admissible, the insurance company failed to give cogent reasons for rejecting the surveyor's report. 

The Court referred to National Insurance Company Limited vs. Ishar Das Madan Lal (2007) 4 SCC 105 and General Assurance Society Ltd. Vs. Chandumull Jain and Another AIR 1966 SC 1644 while dismissing the appeal and observed that:

“It is trite to say that wherever such an exclusionary clause is contained in a policy, it would be for the insurer to show that the case falls within the purview of such clause. In case of ambiguity, the contract of insurance has to be construed in favour of the insured.”

Related judgments- Rule Of "Contra Proferentem" - Ambiguous Term In Insurance Contracts To Be Interpreted In Favour Of Insured : Supreme Court

Exemption Clauses In Insurance Contracts Are To Be Construed Against Insurer In Case Of Doubt : SC [Read Judgment]

Case Title: National Insurance Company Ltd V. Vedic Resorts and Hotels Pvt. Ltd.

Citation : 2023 LiveLaw (SC) 445

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