The Hindu : New Delhi News : Insurance firm asked to pay damages

Online edition of India's National Newspaper
Wednesday, Apr 07, 2004

New Delhi

New Delhi

Insurance firm asked to pay damages

By Mandira Nayar

NEW DELHI, APRIL 6. This was one aftermath of the cyclone that this insurance policy did not cater for. While the policy covered damages caused by cyclones, the insurance company claimed that it did not include the obvious `earthly' effects of the aftermath - like an electricity failure. A `limitation' that took the sufferers S.K Exports to the doors of the National Consumer Redressal Commission for justice.

A bench of the National Consumer Redressal Commission, ruled that the insurance company had "illegally repudiated" the claim and directed it to pay Rs. 1,45,00,000 at an interest of 12 per cent from six months after the occurrence of the peril till the date of the payment. In addition, the insurance company was asked to pay Rs. 10,000 as costs.

An export unit of processed sea-foods (prawns), S.K Exports had insured its processing plant in Bhubaneshwar with New India Assurance Company in 1995 with extra peril coverage. In its case before the National Consumer Redressal Commission, it stated that the company initially took a policy covering the risk for Rs. 1 crore, but later enhanced the cover to Rs. 2, 70,00,000 by paying an additional premium. It also claimed that the insurance policy also included words "deterioration of stocks due to failure of electricity from feeding point, FST''.

The export firm further argued that there is no dispute that a "super cyclone'' hit the area, which caused wide-spread damage. Shops were shut and life came to a standstill in Bhubaneswar for 15 days. The executive engineer of the electricity company certified that the power supply was affected by the cyclone. However, surveyors observed the loss as "deterioration of stock'', which resulted in the claim being rejected.

For its part, the insurance company submitted that the policy for peril did not include the deterioration of stocks due to the disruption of power supply. The insurance company further argued that the deterioration to the stocks was caused by the power failure and not the cyclone and therefore the claim was rightly repudiated. The company also pointed out that the freezing plant was not damaged or destroyed by the cyclone.

After going through all the evidence, a bench of the National Consumer Redressal Commission stated that nothing was clearly mentioned in the relevant clauses of the policies which clarified which risk is covered and which is not covered or exceptions thereof or exclusionary clause. "It was the duty of insurers and their agents to disclose and draw attention to the materials facts within their knowledge, particularly that policy would cover only specified risks,'' the bench observed.

Citing example of a previous case against the same insurance company, the bench observed that in that case the company was liable to compensate the loss of goods for the machinery cold storage developing a leak, even though the cover did not specifically provide for that. Therefore, the bench observed that it is apparent that the cyclone is the cause for deterioration of the fish in the cold storage.

"In the present case, the cover note specifically provides that insurance cover is for stock of prawns and other fishes kept at the cold storage if the cold storage becomes non-functional because of non-supply of electricity it cannot be said that there is no insurance coverage. However, it was contended that policy covers deterioration of stock in case there is breakdown of machinery or plant of the cold storage. In our view, non-supply of electricity by the `Gridco' would result in breakdown in functioning of the cold storage and therefore, also there would be insurance coverage to such peril,'' the bench stated.

Ruling that the insurance company illegally repudiated the claim, the bench directed it to the assessment of damages made by the surveyors.

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