Case Analysis: Shivram Chandra Jagarnath Cold Storage & Anr Vs. New India Assurance Company Limited & Ors

IN THE SUPREME COURT OF INDIA
CIVIL APPEAL NO 2371 OF 2019
M/S SHIVRAM CHANDRA JAGARNATH COLD STORAGE & ANR .... APPELLANT(S) VERSUS
NEW INDIA ASSURANCE COMPANY LIMITED & ORS ....RESPONDENT(S)

BRIEF FACTS

1. The appeal arises from a judgement of the National Consumer Disputes Redressal Commission1 dated 14 August 2018 in Consumer Case No 37 of 2010.

2. On 10 October 2008, the appellants furnished intimation to farmers that thestock of potatoes had sprouted while in the cold storage. On 13 October 2008, a claim was submitted to the insurer. Significantly, in the communication of the appellants dated 14 October 2008, it was stated that the loading of the stock was carried out at the normal temperature and that until then, the proper temperature was maintained, which was mentioned in the logbook. The relevant extract from the communication contains the statement that:

"iii. …at the time of loading, the loading was done at the normal temperature and till date the proper temperature was maintained, which is mentioned in the log-book."

3. The claim form which was lodged on 11 November 2008 required a specific disclosure in Clause 12 of what, according to the insured, was the cause for the deterioration of the stock. The query was not filled up. Subsequently, on 17 February 2009, the statement of the representative of the first appellant was recorded by the surveyor in which it was asserted that the main cause for rotting of the potatoes was a rise in the temperature in the months of September and October; and that the appellants had regularly checked the temperature recorded in the logbook which the operator had erroneously recorded. This was a clear departure from the earlier statement that the required temperature had been maintained, as recorded in the log sheets.

4. The log sheets which have been produced by the appellants on the record indicate that the temperature was well within the stipulated range of 4.40 C (400 F) prior to 18 October 2008. The material which has been placed on the record indicates that the case of the appellants, as evidenced in the letter dated 14 October 2008, was that both at the time of loading and until the date of the communication, the proper temperature was maintained. This submission is, in fact, borne out by the log sheet. The exceptions to the Policy made it abundantly clear that the insurer would not be liable for any damage if the temperature in the Refrigeration Chamber did not exceed 4.40 C. Consequently, clause 6 of the warranties required the insurer to ensure that during the period of storage, the temperature did not exceed 400 F (4.40 C). Having regard to the specific terms of the policy, the admission of the appellants that the temperature was maintained at all material times, would clearly attract the exceptions to the policy.

11 In the present case, there is no ambiguity in the terms of the exception. The exception to the DOS Policy clearly provides that the insurer would not be liable for "any damage if the temperature in the Refrigeration chambers does not exceed 4.4 degree Celsius." The surveyor's report indicates that the temperature never exceeded 40 F, which was also accepted by the appellants in their communication dated 14 October 2008. The assertion that the rotting of the potatoes resulted from a higher temperature was only made on 17 February 2009, which the NCDRC in its impugned judgement dated 14 August 2018 has characterised as an "afterthought". Thus, in terms of the insurance policy, the insurer is not liable for damage caused to the potatoes as the temperature of the storage did not rise above 40 F.

Further, unlike in BV Nagaraju (supra), the exception, in this case, is neither too wide nor in conflict with the main purpose of the insurance policy. The insurance policy covers the deterioration of potatoes that have been stocked in cold storage by the appellants. The temperature of the cold storage is fundamental to the health of the potatoes relating to which the policy has been undertaken. This is distinguishable from the exception relating to the number of persons a vehicle can carry, which was the subject matter of the exception in BV Nagaraju (supra). The insurer has identified a temperature of 40 F as the optimum temperature, at which rotting of the potatoes should not occur and thus has exempted itself of any liability resulting from the deterioration of potatoes occurring at a temperature that is below or equivalent to 40 F. There is no reason to read down clause (vi) of exceptions to the DOS Policy because it is not in conflict with the main purpose of the policy.

12. The log sheets which have been produced by the appellants on the recordindicate that the temperature was well within the stipulated range of 4.40 C (40 F)prior to 18 October 2008. The material which has been placed on the recordindicates that the case of the appellants, as evidenced in the letter dated 14October 2008, was that both at the time of loading and until the date of the communication, the proper temperature was maintained. This submission is, infact, borne out by the log sheet. The exceptions to the Policy made it abundantly clear that the insurer would not be liable for any damage if the temperature in the Refrigeration Chamber did not exceed 4.40 C. Consequently, clause 6 of the warranties required the insurer to ensure that during the period of storage, the temperature did not exceed 40 F (4.40 C). Having regard to the specific terms ofthe policy, the admission of the appellants that the temperature was maintained at all material times, would clearly attract the exceptions to the policy.

13. The Survey report contains a specific finding that the temperature had not exceeded 40 F. Further, the surveyor notes that there is acontradiction in the statements of the appellants dated 14 October 2008 and 17February 2009. The appellants had earlier stated on 14 October 2008 that thetemperature of the storage was maintained within permissible limits, but claimedon 17 February 2009 that the sprouting was a result of the rise in the temperature in the months of September and October, and the operator had erroneously recorded the temperature.

The surveyor specifically notes that "there is noevidence in support of rise in temperature…the evidence in the shape oflogbooks and earlier statements of the insured establishes that the temperature never exceeded 40 Deg F till 14 October 2008".

Therefore, the surveyor observed that the claim could not be accepted in view of clause (vi) of the exceptions to the policy. Thus, the insurer accordingly disclaimed any liability.

InSikka Papers Ltd. v. National Insurance Company Ltd. &Ors., this Courtobserved that although the surveyor's report is not the last word, there must be a legitimate reason to depart from it. In the present case, the appellants have not advanced any legitimate reasons to depart from the surveyor's report and in facthave relied on a portion of the report to buttress the submission that the temperature of the cold storage had arisen over 40 F, which as we have highlighted above is a partial reading of the report.

THE APEX COURT FURTHER CONSIDERED THE BELOW DETAILS

12. The insurance claim of the appellants arose under a Deterioration of Stock Policy which covered the stock of potatoes stored by the appellant in cold storage. The relevant terms of the DOS Policy indicated that:

"...THIS POLICY OF INSURANCE WITNEESETHthat in consideration of the insured having paid to the company the premium mentioned in the schedule hereon the company hereby agrees with the insured that at any time during the period of insurance stated in the Schedule II or during any subsequent period for which the insured pays and the company may accept the premium for the renewal of this policy the company will indemnify the insured in the manner and to the extent hereinafter provided for damage to the stocks described in schedule II by contamination and/or deterioration, putrefaction as a result of rise in temperature in the Refrigeration Chamberscaused by any loss of or damage due to anaccident, as defined hereinafter to the Plant and Machinery specified in schedule I and indemnifiable under the Machinery insurance policy in force. The total liability of the Company under this policy shall be limited to the suminsured specified in Schedule II."

13. The proviso to the above provision stipulated that:

"Provided always that:

(i) During the entire period of this insurance the Insured shall be in possession of a qualified permission in writing of the competent Licensing Authority to operate the Cold Storage.

(ii) At the time of loss or damage the said stocks are contained in the said Refrigeration Chambers.

(iii) The Plant and Machinery specified in schedule I is insured under the Machinery Insurance Policy in force and the payment shall have been made or liability admitted under such insurance; if no payment shall have been made under such insurance solely as a result of operation of any 'Excess' thereunder Liability of the company under this Policy shall not be affected.

(iv) The Insured maintains, on a daily basis, a stock book in the Proforma prescribed by the company, in which the type, quantity and value of the stocks stored and the beginning and end of the storage period are entered for each Refrigeration chambers separately.

(v) During the entire period of storage the Insured records in Log Book as per the Proforma supplied by the company the reading of the temperature and relative humidity of the Refrigeration Chambers as also the suction discharge and oil pressure on four hourly basis throughout the day.

(vi) Stock Book, Log Book and all other records of the Insured relating to the stocks stored shall at all reasonable times be open to inspections by duly authorized representatives of the company."

14. The expression "accident" was defined in clause (a) of the definitions as follows:
"a) Any sudden or unforeseen loss or damage to thePlant and Machinery described in schedule of thisPolicy due to an accident caused covered by themachinery insurance policy specified in schedule Iand not hereinafter excluded."

15. Among the exceptions to the DOS Policy, clause (vi) stipulated that the insurer would not be liable for:
"(vi) Any damage if the temperature in theRefrigeration chambers does not exceed 4.4degree Celsius."

16. Similarly, clause (viii) provided the following exception to the liability of the insurer in the case of:
"(viii) Any loss arising from improper storage insufficientcirculation of air/non-uniformity of temperature for whatsoever reasons."

17. The warranties to the DOS Policy, inter alia, stipulated as follows:
"6. The Insured shall take care to see that:
i) the temperature inside the cold Chambers arebrought down to 34 Degree F (1.1. Degree C) inall floors of all the chambers before loading commences and;

ii) Further ensure that the temperature in all thechambers does not exceed 59 Degree F (10Degree C) during the entire period of loading and40 Degree F (4.4 Degree C) during thesubsequent period of storage."

18. MN Srinivasan and K Kannan in Principles of Insurance Law haveexplained the role of exceptions in an insurance policy.

The insurer seeks toindemnify the insured only against such losses that are "caused by certain perils arising under normal conditions whose effects are statistically estimated." Theinsurer may not wish to accept liability for other perils that may result in lossesthat are of great magnitude. Thus, exceptions are inserted to exempt the liabilityof the insurer for which it would be otherwise liable.

Likewise, AW Baker in TheLaw Relating to Accidental Insurance states that 'excepted clauses' are insertedex abundanti cautela in insurance policies to inform the insured that lossesattributable to excepted causes will not be indemnifiable.

In New India Assurance Company Ltd. v. Rajeshwar Sharma &Anr., the following extractfrom The Law Relating to Accidental Insurance:
"The object of exceptions is to define with greaterprecision the scope of the policy by making clearwhat is intended to be excluded and contrastingwith what is intended to be included.Since exceptions are inserted in the policy mainlyfor the purpose of exempting the insurers fromliability for a loss which, but for the exception,would be covered by the policy, they areconstrued against the insurers with utmoststrictness and it is the duty of the insurers toexcept their liability in clean and unambiguousterms.
The onus of proving that the loss fallswithin the exception lies upon the insurers, unlessby proving the language of the exception, theassured is expressly required to prove that, in thecircumstances, the exception does not apply."

CONCLUSION

The present case falls Clause (vi) of Exceptions mentioned in the insurance policy i.e."(vi) Any damage if the temperature in the Refrigeration chambers does not exceed 4.4degree Celsius." Since the Report of the Surveyor shown discrepancies in the maintenance of Logbook and the statement of the representatives at different dates are different. The insurance company was right in repudiating the claim.