Case: M/S Flowtex Products vs M/S United India Insurance Co. Ltd.

Case No.: CONSUMER CASE NO. 359 OF 2013

Summary

The National Consumer Dispute Redressal Commission (NCDRC) has ruled that an insurance company cannot avoid liability under a policy if the insured was not at fault for the fire incident. The Complainant Company, a plastic cup and container manufacturer, purchased an insurance policy from the Opposite Party Insurance Company to protect against fire damage. However, the Opposite Party rejected the Complainant Company’s claim due to numerous biases and anomalies. The Complainant Company filed a complaint against the Opposite Party Insurance Company, seeking damages and financial compensation. The Opposite Party claimed the fire was unintentional and uncontrollable, and the company argued that the lab was not equipped with the required tools and the samples taken by the complainant were not collected correctly. 

The NCDRC cited the Supreme Court’s ruling in Canara Bank v. United India Insurance Co. Ltd (2020) and the Insurance (Amendment) Act, 1968, which requires an authorized surveyor to evaluate a claim worth ₹20,000 or more. The insurance company rejected the claim based on the surveyor’s report, resulting in the NCDRC partially granting the complaint. The insurance company was instructed to reimburse the complainant within eight weeks for ₹3,50,98,046 in addition to interest and ₹50,000 towards litigation costs.

About the case

The bench of the National Consumer Dispute Redressal Commission (NCDRC), presided over by Justice R.K. Agrawal, recently decided in a major decision on an insurance claim dispute that an insurance company cannot avoid liability under the terms of the policy if the insured was not at fault for the fire incident. The surveyor’s report of the occurrence can serve as a requirement for the insurance claim, but the Commission noted that it is not legally conclusive or obligatory on the parties. In order to guard against fire damage, the Complainant Company, which manufactures plastic cups and containers, purchased an insurance policy from the Opposite Party Insurance Company. Sadly, a fire started at the factory, destroying a large amount of supplies and machinery. The Opposite Party rejected the damage claim that the Complainant had submitted. Upon obtaining the surveyor reports that resulted in the denial of his claim, the complainant discovered numerous biases and anomalies favoring the insurance company. Subsequently, the Complainant replied in-depth to the Opposite Party, refuting every accusation contained in the reports.

Police collected samples of fire debris and transported them to a lab for analysis. The samples had no signs of fuel, such as petrol or diesel, according to the lab. After receiving this complaint from the complainant, the insurance company received a detailed response from them refuting all of the accusations made against them in earlier reports. The insurance company did not reply to their request for a review of their denial of the claim.

Due to unsatisfactory service and unethical business practices, the Complainant Company filed a complaint against the Opposite Party Insurance Company. In this particular case, the complainant sought damages and losses from the fire that happened on April 16, 2011, as well as financial compensation. He argued that the IRDA (Protection of Policyholders Interests) Regulations 2002 stipulate that the Surveyors should have submitted their report within six months, yet it took them fourteen. In addition, he claimed that the fire that claimed the complainant’s belongings was unintentional and uncontrollable. The fire at the Complainant Company, according to the Opposite Party Insurance Company, was not an accident. According to their claims, the fire was intentionally ignited by someone using accelerants like kerosene. They added that the fire department was contacted too late and that none of the Complainant’s employees attempted to put out the fire using fire extinguishers. The insurance company argued that the lab that tested the samples was not equipped with the required tools, and the samples taken by the complainant were not collected correctly. They added that the Complainant’s claim was rejected because they intentionally started the fire in violation of the rules.

The Hon’ble Supreme Court ruled in Canara Bank v. United India Insurance Co. Ltd (2020) 3 SCC 455 that the insurance firm could not avoid culpability under the provisions of the policy if the insured did not start the fire. This ruling was cited by the NCDRC to begin its proceedings. The panel also decided that the insurance company had to pay the claim because there was no proof the insured started the fire. The Commission cited the ruling of the Supreme Court in New India Assurance Co.Ltd. vs. Pradeep Kumar (2009) 7 SCC 787 and stated that although the Surveyor’s Report might be required before the claim could be paid or settled, it was not legally binding on the insured or the insurer because it was not considered conclusive. According to the Insurance (Amendment) Act, 1968, before the insurer can settle a claim worth ₹20,000 or more, the claim must be evaluated by an authorized surveyor. However, the Commission states that the insurer may agree to settle the claim for a sum that differs from the surveyor’s assessment.

Without taking into account the findings of the Forensic Science Laboratory’s examination, the insurance company rejected the claim on the basis of the surveyor’s report. As a result, the Commission determined that the insurance firm was not providing adequate service and partially granted the complaint. The insurance company was also instructed to reimburse the complainant within eight weeks for ₹3,50,98,046 in addition to interest and ₹50,000 towards litigation costs.

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