The Supreme Court has upheld the rejection of a ₹2.4 crore fire insurance claim, finding that the insured’s own records and declarations raised substantial questions about the genuineness of the claim and compliance with the policy terms.
A bench comprising Justice Sanjay Kumar and Justice Sanjeev Sachdeva set aside an order of the National Consumer Disputes Redressal Commission (NCDRC), which had directed New India Assurance Company Ltd. to pay compensation to the insured.
The dispute arose from a fire that broke out in May 2007 in the waste-paper yard of a factory manufacturing paper boards. The fire damaged raw material and a tin shed.
The company maintained an open yard and three godowns and had obtained two separate fire insurance policies from New India Assurance. One policy covered stocks up to ₹13 crore for the period from December 30, 2008 to December 29, 2009, while another covered buildings, plant and machinery up to ₹14 crore from February 28, 2009 to February 27, 2010.
Following the fire, the insured eventually raised a claim of around ₹7.31 crore, along with interest at 18% per annum, before the NCDRC.
The insurer, however, did not accept the claim at face value. A preliminary surveyor was appointed and recommended a detailed investigation, particularly to determine whether the fire could have been deliberately caused and whether the losses claimed were genuine.
An investigation agency was subsequently engaged.
The final surveyor assessed the net loss at only ₹46.09 lakh. The report also alleged that the insured’s books and records had been manipulated to inflate the amount claimed.
Based on these findings, New India Assurance repudiated the claim, relying upon breaches of policy conditions relating to the insured’s declarations and maintenance of records.
The NCDRC took a different view. It held that since the exact cause of the fire had not been established, the insurer was not required to prove how the fire started or establish that the fire itself was not genuine. It also found no sufficient basis to conclude that there had been a deliberate delay in informing the fire brigade.
The consumer commission consequently ordered payment of ₹2.4 crore with interest. It further awarded ₹3 lakh for deficiency in service and ₹1 lakh towards costs, directing payment within 45 days and stipulating 12% annual interest in case of default.
The insurer challenged this decision before the Supreme Court, while the insured filed a cross-appeal disputing the amount assessed.
The Supreme Court first narrowed the controversy to a fundamental question: whether the insurer had valid grounds to reject the claim altogether. Only if the repudiation failed would it become necessary to examine the amount of loss determined by the NCDRC.
The Court found that the circumstances surrounding the claim substantially favoured the insurer.
Referring to Section 64UM of the Insurance Act, 1938, the bench noted the statutory requirement for claims above the prescribed threshold to be assessed by an approved surveyor.
The Court reiterated that a surveyor’s report is not automatically binding on either the insurer or the insured. At the same time, an insurer cannot discard or reject a surveyor’s assessment arbitrarily.
The bench also considered the legal position governing the appointment of more than one surveyor. A second surveyor may be appointed where there are cogent reasons for doing so. In the present case, the Court found such circumstances existed because the initial surveyor had expressly recommended further investigation into the circumstances of the fire and the claimed losses.
The Court was particularly critical of the NCDRC for setting aside the survey reports without identifying specific shortcomings in their assessment.
The bench observed that the insured had largely responded by asserting that the surveyors and investigator had submitted adverse reports, while maintaining that its stock records and accounts were properly maintained. According to the Court, that was not sufficient to displace the detailed factual findings recorded during the survey and investigation.
The Court also considered its earlier rulings concerning fire insurance claims where the precise cause of a fire remains unknown. Those decisions establish that uncertainty over the exact cause of a fire does not by itself defeat an insurance claim, provided there is no material showing that the insured was responsible for starting it.
However, the bench held that this principle could not assist the insured in the present case because the dispute was not confined to the unidentified cause of the fire. There were also findings concerning the accuracy of the insured’s records, the declarations made in support of the claim and alleged inflation of the loss.
The Court therefore concluded that the insurer had sufficient grounds to repudiate the claim and that the NCDRC had erred in brushing aside the surveyors’ findings.
The NCDRC’s order directing New India Assurance to pay ₹2.4 crore was accordingly set aside, and the insurer’s appeal was allowed.
