CASE NAME: NEW INDIA ASSURANCE COMPANY LTD. & ORS. VS. M/S. MUDIT ROADWAYS ON 24 NOVEMBER, 2023.
INTRODUCTION
Mudit Roadways, the insured party in this appeal, submitted a claim to the insurer, New India Assurance Company, on their behalf. The insurer rejected the claim because the area affected by the fire was not covered by the policy and the renovations made to the property increased the risk. Moreover, the insurance company stated that the fire that started on the property was caused by the insured party’s negligence. The NCDRC ruled in favour of the complaint when Mudit Roadways took the matter to court, pointing to the interval in time between the welding project and the fire event. The NCDRC further stated that other reports that suggested an electrical short circuit as the fire’s cause were judged to be more believable, while the investigation report was determined to be inconclusive.In a Supreme Court appeal, the insurance firm contested the NCDRC’s decision.
FACTS
The facts of the case are as follows:
- Four insurance policies covering 106750 square feet of covered area and 15000 square feet of open land at Survey No. 09, Hissa No. 03, Village Veshvi, Taluka Uran, District Raigad, Maharashtra, were given to Mutit Roadways by the New India Assurance Company.
- Mudit Roadways secured the custom-bonded items and covered the risk against fire and other dangers by paying New India Assurance Rs. 44,02,562/-.
- On March 14, 2018, a fire started at the warehouse of Mudit Roadways.
- The insurance company did many surveys after learning about the occurrence and denied the insured’s claim, claiming increased risk, the insured’s carelessness, and the exclusion of the site from the policy.
- Following a complaint from Mudit Roadways, the NCDRC ruled in favour of the company, citing a delay between the welding job and the short circuit as well as the inconclusive nature of the insurance company’s survey that implied the complainant was negligent. It was also concluded that the other reports, which claimed that the fire originated from an electrical short circuit, were more reliable.
ISSUES RAISED
- Is the Opposite Party’s insurance covering the Complainant’s warehouse at Survey No. 9 Hissa 3 (9/3) Village Veshvi, Tal-Uran, District – Raigad?
- What caused the fire incident that happened on March 14, 2018?
CONTENTIONS
Contentions made by Appellant:
- Mr. Aditya Kumar, the appellants’ competent counsel, contended that the fire was caused by the insured’s negligence. The reports from M/s Screen Facts Services Pvt. Ltd.’s forensic investigator, dated 10.12.2018 (Annexure A-10), were reviewed in order to conclude that an electrical short circuit was not the cause of the fire occurrence. Alternatively, the fire might have started when sparks from the welding struck combustible substances stored in the adjacent space. According to Annexure A-12, the surveyor’s report (M/s Bhansali & Co.), dated April 15, 2019, was used to bolster the claim that the insured was irresponsible for neglecting to take the required safety precautions during the roof repair work, which led to the fire. Furthermore, it was neglectful to store dangerous chemicals during construction or repair work, which was a violation of policy.
- The respondent lodged Complaint No. 765 of 2020 under the Consumer Protection Act, 1986, stating unfair trade practices and service shortcomings by New India Assurance Co. Ltd., after being dissatisfied with the aforementioned repudiation of claim. The Insurance Company cited the Final Survey Report (15.04.2019) from M/s. J.C. Bhansali & Co. and the Investigation Report (11.04.2019) from M/s. J. Basheer & Associates in their answer. They argued that the insured failed to take the necessary safety procedures when performing roof welding work, which resulted in the fire. Additionally, it was mentioned that the fire had no effect on the insured warehouse located at Survey No. 9/3. Moreover, the repudiation was justified because the roof work in the warehouse raised the risk and violated general condition 3 of the insurance policy.
- Despite the fact that Rs. 2,15,18,802.45/-was claimed towards custom duty liability, the appellants argue that it is incorrect to compensate the insured warehouse for custom duty liability because only the importer is responsible for custom duty under Sections 12 and 46 of the Customs Act, 1962. The lawyer cites Section 23 of the Customs Act, 1962 as support for his argument that it is unjust to compensate for damaged import commodities stored in the warehouse. Furthermore, it is maintained that there is no legal basis for the Customs Department’s demand letter. It is therefore maintained that because receiving indemnification for the fire damage would constitute unfair enrichment, the insured is not entitled to it.
- The knowledgeable attorney contends that the waiver theory’s application in United India Insurance Co. Ltd. v. Galada Power & Telecommunication Ltd. has been invalidated. Moreover, a legal filing can be done at any stage of the legal procedure. Consequently, the grounds of unjust enrichment and customs tax may still be raised in court even when they were not previously raised.
- The experienced lawyer points out that the forensic inspector and surveyors were specifically appointed to investigate the fire incident. Mr. Kumar argues that since the short-circuit theory was ruled out as the cause of the fire, the insured should be held accountable for their carelessness in constructing a roof close to combustible goods that were stored.
Contentions made by Respondent:
- The appellants hired J. Basheer & Associates to conduct an investigation, and the report concluded—in opposition to the Forensic Examiner’s findings—that an electrical short circuit caused the fire. The petitioner’s attorney highlighted this study. They further emphasised that the warehouse at Survey No. 9/3 was not covered by the insurance coverage because it was undamaged by the fire.
- It was argued that roof repair was being done to address the issue of water seeping through the warehouse roof, which related to the infringement of insurance policy terms. As a result, nothing was done to the insured property that would have increased the risk of a fire. The insured never violated the general condition as a result.
- The astute lawyer for the plaintiffs referenced Canara Bank v. United India Insurance Company to bolster his contention that, in the absence of any proof connecting the insured party to the fire, the insurance company cannot escape liability. For further evidence that the surveyor’s report was not perfect and may be altered as needed, Khatema Fibres Ltd. vs. New India Assurance Co. Ltd. & Anr. was cited.
- Mr. Parthiv K. Goswami, the knowledgeable senior attorney representing the claimant, contends that the insurance company is limited to bringing up the grounds listed in the letter of repudiation. Consequently, the appellants are limited to presenting arguments on the reasons specified in the repudiation letter.
RATIONALE
The Supreme Court denied New India Assurance Company Limited’s appeal in favour of the claimant, ruling that the insurer-insuree relationship is based on the principle of “uberrimae fidei,” or good faith. In this case, the insured’s sole objectives were to repair the warehouse and reduce the likelihood of a water leak from the damaged roof. Nine inspections were also carried out, and seven out of the nine survey reports suggested that the fire might have been caused by a short circuit. This suggests that the insurance company was still obligated to pay the insured even if they concluded that a short circuit was not the cause of the fire. This is because it was very likely that the insured was not the cause of the fire. Consequently, the claimants prevailed in their Supreme Court challenge, suggesting that the NCDRC was correct to exercise discretion in applying this legally binding precedent.
DEFECTS OF LAW
The law established in Galada Power & Telecommunication Ltd. V. United India Insurance Co. Ltd. (2016) was cited by the Honourable Supreme Court in its ruling that the insurance company’s options are restricted to the grounds mentioned in the repudiation letter. It was therefore determined that the insurer could provide no more rationale for the repudiation in their letter than what was mentioned in this specific detail. Consequently, the NCDRC’s decision in favour of the insured was upheld by the supreme court, which also dismissed the appeal.
INFERENCE
The importance of conducting business with honesty and transparency is one of the main conclusions that can be taken from all of the arguments and supporting data in this case. Despite the fact that short circuit was identified as a possible cause in seven out of nine studies, New India Assurance Company chose to reject Mudit Roadways’ claim based only on the two surveys that did not include short circuit as a contributing factor. This choice may be seen as demonstrating ill faith, which is the cornerstone of any insurer-insuree relationship and is immoral. Another indication of bad faith is the length of time the insurance company took to provide the claim—more than five years—since the claimant paid for the security to be shielded from possible risk. For cases that are comparable to this one in the future, a high bar has been set.
Author:Falak Hussain, a Student of Amity University Kolkata.
