Advantage Consumer

Insurance Company directed to pay the compensation after adjusting for under Insurance

NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION, NEW DELHI

FIRST APPEAL NO. 572 OF 2012
(Against the Order dated 10/07/2012 in Complaint No. 21/2009 of the State Commission Bihar)

ORIENTAL INSURANCE CO. LTD.
THROUGH CHIEF MANAGER, HEAD OFFICE,
88, JANPATH,
NEW DELHI-110001 ...........Appellant(s)
Versus
HANSRAJ BAFNA & ANR.
S/O. LATE KALU RAM BAFNA, PROPRIETOR OF M/S. SHREE RAJHANS INDUSTRIES, MURLIGANJ
DISTRICT- MADHEPURA. BIHAR    ...........Respondent(s)

BEFORE:
    HON'BLE MR. JUSTICE V.K. JAIN,PRESIDING MEMBER

Dated : 13 Jul 2018

ORDER

JUSTICE V.K. JAIN, PRESDING MEMBER (ORAL)

          The complainant/respondent, which is trading in fertilizers, seeds and pesticides, obtained an insurance policy to the extent of Rs.70,00,000/- in respect of the goods kept in its godown. The case of the complainant is that on 23.08.2008, flood water entered godowns no. 3 & 4 which it had taken on rent in the campus of Vyapar Mandal Sahyog Samiti, Murliganj. Both the godowns were adjoining each other. According to the complainant, one wall broke and fell down on account of flood water having entered the godowns, as a result of which the entire stock kept in the godowns, was swept away. The incident having been informed to the insurer, a surveyor was appointed to assess the loss suffered by the complainant. The surveyor M/s Beacon Assessors & Service Manager Pvt. Ltd. assessed the net loss at Rs.15,04,441/-. The aforesaid amount was later revised to Rs.14,38,719/- after applying the policy excess. The claim having not been paid, the complainant approached the concerned State Commission by way of a Consumer Complaint.

The complaint was resisted by the insurer primarily on the ground that the Godown Book was not provided to the surveyor and the Sale Register which the complainant provided to the surveyor, was not believable. The insurer also relied upon a letter from the President, Murliganj Vyapar Mandal Sahyog Samiti where it was alleged that the complainant had taken away all the goods except 100-200 bags of fertilizers from the godowns before the alleged flood.

2.      The State Commission, vide impugned order dated 10.07.2012, directed the insurer to pay a sum of Rs.28,34,456/- to the complainant along with interest @ 14% per annum w.e.f. three months from the date of survey and compensation as well as cost of litigation quantified at Rs.50,000/-. Being aggrieved from the order passed by the State Commission, the insurer is before this Commission.

3.      As far as the allegations of removal of the goods before the onset of flood contained in the letter of Murliganj Vyapar Mandal Sahyog Samiti are concerned, no reliance on the said allegations can be placed in the absence of any legally admissible evidence of the complainant having actually removed fertilizers from the godowns before the onset of the floods.

4.      The bone of contention between the parties is the deduction of 25% on account of what the surveyor termed as irregularity on the part of the insured/complainant and the under-insurance applied by the surveyor.

5.      The report of the surveyor does not disclose what precisely was the irregularity referred by him in para 11 of the survey report. He noticed that the bags in godown no.3 were lying scattered on the floor and there was no damage to the godown building. He also noted that the godown was locked from the outside. However, simultaneously, he also said that contents in the bags, fully or partly, might have dissolved. This was not the finding of the surveyor that there was no loss of the goods kept in godown no. 3 or that the whole of the stock kept in godown no.3 had not been washed away. Therefore, I am unable to uphold the deduction of 25% of Rs.20,19,255/-, referred in para 11 of the survey report. The order passed by the State Commission to the extent it disallowed the aforesaid deduction therefore, does not call for any interference by this Commission.

6.      As far as under-insurance is concerned, a perusal of the survey report shows that after adding, to the stock statement submitted by the complainant to its banker, the purchases made from 01.08.2008 to 22.08.2008 and deducting the sales made during the aforesaid period, the surveyor found that the stock on the date of the alleged loss was Rs.98,64,132/-. Since the insurance policy had been obtained only for Rs.70,00,000/-, the surveyor rightly applied the under-insurance to the extent of Rs.28,45,456.82p and arrived at the gross amount of Rs.20,19,255/- before making a further deduction of 25% in para 11 of the surveyor report.

7.      The learned counsel for the complainant submits that there was no justification for applying the under-insurance. In support of his contention, he relied upon the decision of the Hon’ble Supreme Court in I.C. Sharma Vs. Oriental Insurance Company Limited (2018) 2 SCC 76 decided on 10.01.2018. I have perused the judgment relief upon by the learned counsel for the complainant. In the above referred case, the complainant had obtained a householders insurance policy in respect of several household articles kept in his house and there was a burglary in his house resulting in theft of several articles. The claim submitted by him was partly allowed by this Commission. Being aggrieved, he approached the Hon’ble Supreme Court by way of a Special Leave Petition. Partly allowing the appeal filed by him, the Hon’ble Supreme Court inter-alia observed and held as under:

“8. The only legal issue which arises for consideration is “what is under-insurance – and the effect thereof?”. Under-insurance basically means that the insured has taken out an insurance policy in which he has valued the insured items for a sum which is less than the actual value of the insured item. In a country like India this is normally done to pay a lesser premium. This is, in fact, harmful to the policy holder and not to the Insurance Company because even if the entire insured property is lost, the policy holder will only get the maximum sum for which the property has been insured and not a paisa more than the sum insured. To give an example, in case a person takes out the householder policy covering fire insurance and gives the value of the structure of his house and goods stored therein at Rs.50,00,000/- even though the value of the same is Rs.1,00,00,000/- then even if the entire house and goods are completely lost in a fire, he cannot get an amount above Rs.50,00,000/- even though the value may be more.

9. If all the insured goods are lost then there is no problem. The insured is entitled to the amount for which the goods were insured even if that be less than the actual value of the goods. In case a person gets a painting insured for Rs.1,00,000/- though the value of the same is Rs.10,00,000/- if the painting is lost the insured is entitled to Rs.1,00,000/- only. If all the insured goods falling under one head are stolen or lost then the insurance company cannot apply the principle of averaging out because, though the loss may be Rs.10,00,000/-, the claimant will get only one Rs.1,00,000/- as per the value assessed and the insurance premium paid by him.

10. The Insurance Company can however apply the principle of averaging out when all the goods are not destroyed. Supposing the entire house was insured for Rs.50,00,000/-, but on valuation it is found that the value of the structure and the goods was Rs.1,00,00,000/- and if the policy holder claims that he has suffered loss of Rs.40,00,000/- then he will be entitled to only Rs.20,00,000/-, by applying the principle of averaging out. What this means is that if the value of the goods is more than the sum for which they are insured then it is presumed that the policy holder has not taken out insurance policy for the un-insured value of the goods. The claim is allowed by applying the principle of averaging out, i.e. the insured is paid an amount proportionate to the extent of insurance as compared to the actual value of the goods insured.

11. To clarify the matter further, we may give another example. Supposing, the insurer owns two paintings of Rs.5,00,000/- each but pays premium for insurance cover of Rs.1,00,000/- for both the paintings. If one painting is lost, even though the value of the painting may Rs.5,00,000/- he will not get Rs.1,00,000/- but will get only Rs.50,000/-, as proportionate amount. Therefore, when a group of items is insured under one heading and only some of the items and not all items are lost/stolen then the principle of under-insurance will apply. However, if all or most of the items of value covered under the policy are stolen, then the insurance company is bound to pay the value of the goods insured.”

8.      The aforesaid decision in my view is of no help to the complainant since neither a policy in respect of different articles giving different valuation to those articles was obtained nor it is a case of total loss of the goods kept in the godown. The surveyor found that the value of the goods on the date of the loss, was more than Rs.98,00,000/- whereas the claim itself was for Rs.30,00,000/-. The reliance on the aforesaid decision is therefore, wholly misplaced.

9.      For the reasons stated hereinabove, I hold that the complainant is entitled to a sum of Rs.19,18,292/- which has been arrived at after deducting the policy excess to the extent of 5% from the gross amount of Rs.20,19,255/-. As far as interest is concerned, the State Commission in my view, has awarded the same at a very high rate which cannot be said to be fair and reasonable. Considering all the facts and circumstances of the case, including the interest rates prevalent at the relevant time, the appellant, in my view, should pay simple interest on the aforesaid amount of Rs.19,18,292/- @ 10% per annum w.e.f. six months from the date of submission of the claim till the date of payment. The learned counsel for the complainant states that pursuant to the order of this Commission dated 10.04.2013, they have withdrawn a sum of Rs.14,38,719/-.

Therefore, the complainant shall be entitled to interest at 10% p.a. on Rs.14,38,719/- upto that date. The interest on the balance amount shall be payable to the complainant till the date on which the appellant had deposited a sum of Rs.28,44,456/- with this Commission. It would be pertinent to note here that the complainant had liberty to withdraw the balance amount on furnishing a continuous bank guarantee but according to its counsel, the continuous bank guarantee was not furnished and therefore, the balance amount was not withdrawn. No other amount, in the facts and circumstances of the case, shall be payable to the complainant. The appeal stands disposed of accordingly.

          The balance amount if any, after making the payment to the complainant in terms of this order, shall be released to the appellant, along with the amount of the statutory deposit and interest which may have accrued on it.

	advantageconsumer.com Consumer Protection Council, Rourkela