SC: In settlement of insurance claims the surveyors report is not final and conclusive

The Supreme Court has ruled that a surveyor's report is not the final word when settling insurance claims. While it's a necessary document for assessment, neither the insurer nor the insured is bound by its findings. The court emphasised that other evidence, such as investigation reports, can be presented to challenge the surveyor's assessment. Ultimately, the adjudicating forum must decide which evidence is most credible.

• National Insurance Company Ltd. vs. M/s. Hareshwar Enterprises (P) Ltd. & Ors.
• [Civil Appeal No. 7033 of 2009]
• Supreme Court
• Dated: 18.08.2021

HELD THAT

In settlement of insurance claims the surveyors report is not final and conclusive.

BRIEF FACTS

• The respondent No.1 was engaged in the business of manufacture of polyethylene, plastic films and other similar packaging materials. The respondent No.2 had advanced loan to the respondent No.1 against security of its building, plant and machinery. The respondent No.3 had also advanced money to the respondent No.1 for procurement of stock in trade, which was accordingly hypothecated to them.
• In order to cover the risk of fire, flood and earthquake to the factory building and also the plant and machinery, the respondent No.1 secured insurance policies from the appellant.
• One policy was to cover the risk during the period 05.02.1999 to 04.02.2000. Another policy in respect of the risk to the stock in trade was also secured which was for the period of 17.09.1999 to 16.09.2000.
• The respondent No.1 was accordingly carrying on its business in the factory premises while on 06.11.1999 fire broke out causing total destruction of the plant and machinery, raw material as also finished and unfinished goods. The respondent No.1 intimated the appellant regarding the fire incident on 07.11.1999.
• The appellant accordingly appointed M/s. H. Manna and Company and Virendra Padmasi Shah jointly as surveyors to assess the loss.
• The surveyors visited the site on 09.11.1999. On having obtained the documents and records submitted their interim report on 23.03.2000 and the final report on 13.03.2001 to the insurer. The surveyors through the said report had assessed the loss at Rs.1,06,00,000/- excluding the loss of business and other losses.
• The insurer, however, did not settle the claim nor repudiate the same. Instead, the insurer through their letter dated 22.06.2001 informed the respondent No.1 regarding appointment of Om Nityanand Enterprises as investigators to look into the claim. It is in that view, since the repeated request and demand ultimately made through the legal notice had not been complied with by the appellant, the respondent No.1 filed the complaint before the NCDRC.
• As already noted, the NCDRC after considering the matter in detail has arrived at its conclusion and has passed the order allowing part of the claim.
• Through the order dated 27.03.2009 impugned herein, the NCDRC has allowed the complaint in part and directed the insurer to pay the sum of Rs.79,34,703/- with interest at 12 % per annum. Out of the said amount, a sum of Rs.49,56,897/- is ordered to be apportioned in favour of respondent No.2 (Maharashtra State Financial Corporation) and the balance amount of Rs.29,77,806/- is ordered to be paid to the respondent No.3 (Thane Jan Sahakari Bank Limited). The total amount awarded is against the claim of Rs.1,25,25,319/- made by the respondent No.1 (Insured).

CASE BEFORE SUPREME COURT OF INDIA

• The appellant (insurer) who was arrayed as respondent No.1 in the complaint filed before the National Consumer Disputes Redressal Commission, New Delhi ("NCDRC" for short) in O.P. No.102/2003 is before this Court in this appeal being aggrieved by the order dated 27.03.2009. The respondent No.1 (insured) was the claimant before NCDRC. The plant and machinery in the factory owned by respondent No.1 was charged in favour of respondent No.2 as security, while the stock in trade was hypothecated in favour of respondent No.3 (Thane Jan Sahakari Bank) for discharge of loan obtained from them. Since the respondent No. 2 and 3 are entitled to adjust the claim towards their outstanding dues, they are arrayed as parties to the proceedings.

OBSERVATIONS AND DECISION OF THE APEX COURT

• Mr. Vishnu Mehra, learned counsel for the appellant(Insurance Company)  at the outset contended that very proceedings before the NCDRC was not sustainable since the claim was filed beyond limitation. In this regard, the learned counsel has referred to Section 24A of the Consumer Protection Act, 1986 ('Act 1986' for short) which provides the limitation to file the complaint within two years from the date on which the cause of action has arisen. In that light, it is contended that the fire incident had taken place on 06.11.1999, but the respondent No. 1 had filed the complaint before the NCDRC on 26.03.2003 which is way beyond the period of two years provided under the said provision. In order to buttress his submission the learned counsel has relied on the decision reported in the case, State Bank of India vs. B.S. Agriculture Industries (I) (2009) 5 SCC 121 with specific reference to paragraphs 11 and 12. A perusal of the said decision no doubt would indicate that it has been held by this Court that the provision is peremptory in nature and requires the consumer forum to see before it admits the complaint that it has been filed within two years from the date of accrual of cause of action.
• Having noted the contention, on the provision as contained, there is no ambiguity whatsoever. However what is required to be taken note is that the provision indicates that the complaint is required to be filed within two years from the date on which the 'cause of action' has arisen. In that context, another decision relied on by the learned counsel for the appellant in the case,

Kandimalla Raghavaiah and Company vs. National Insurance Company and Another (2009) 7 SCC 768 with specific reference to para 18 would indicate that the term 'cause of action' though not defined in the Act, but it is of wide import and it would have different meaning in different context while considering limitation. It has been held therein that pithily stated 'cause of action' means, cause of action for which the suit is brought and which gives occasion for and forms the foundation of the suit. Reliance is placed on this case by the learned counsel since in the said case, which was also in respect of a fire incident it was held that the date of accrual of cause of action has to be a date on which the fire breaks out.

However, what cannot be lost sight is that, such conclusion was reached in the cited case since the fire in tobacco godown took place 22/23.03.1988 and the bank in whose favour the stocks had been hypothecated was informed about it by the appellant on 23.03.1988 itself, but insofar as the claim, the matter had rested there till 06.11.1992 when for the first time the appellant addressed the letter to the insurance company and sought for claim form. The facts therein, if noted would indicate the reason for which this court had indicated that the date on which the fire broke out is the date of accrual of cause of action since it did not move forward in any other manner. It has not been laid in strait jacket. The cause of action will remain flexible to be gathered from the bundle of facts arising in each case.

i) In contradistinction, in the instant case as noted the fire incident had occurred on 06.11.1999. The appellant had informed the insurer on 07.11.1999, where after the joint surveyors were appointed and on verification had submitted their final report on 13.03.2001.

ii) Despite said report, the insurer through their letter dated 22.06.2001 had appointed an investigator but did not proceed to either accept the claim or repudiate the same. In that background, a perusal of the complaint filed by the respondent No.1 before the NCDRC would indicate that the cause of action has been mentioned in para 21 as follows:-

"21. CAUSE OF ACTION The cause of Action arose for the first time when property belonging to the Complainant was destroyed in the fire on 6.11.1999. Then it continued from time to time when the survey was complete and the Complainant was not paid the claim amount. It arose when the legal notice on behalf of Complaint was issued and same was replied by advocate on behalf of the Opponent No. 1. Hence the present Original Petition is in limitation.

The Advocate for the complainant issued legal notice on 5.1.2003 demanding money from opposite party No. The copy of the said letter is annexed hereto and marked as Annexure P/13."

Further, in the reply filed on behalf of the insurer before the NCDRC reference is contained that correspondence was exchanged between the investigator appointed by the insurer and the respondent No.1 through the letters dated 07.03.2002, 05.04.2002, 03.05.2002, 03.06.2002 and 13.07.2002.

On the merits of the claim, a perusal of the impugned order dated 27.03.2009 passed by the NCDRC indicates that the NCDRC has made detailed reference to the report submitted by the joint surveyors, dated 13.03.2001 and has ultimately allowed the claim, in part. In the surveyor report dated 13.03.2001 consideration was made to two parts;

• Firstly, the assessment of loss relating to the stock of LDPE plastic, powder, granules, tubings and films as contained in clause 8.1 of the report.
• Next, the loss caused due to the destruction of plant and machinery is assessed in clause 8.2 and the sum of Rs.46,60,459/- being the depreciated value has been awarded for loss of plant and machinery.

In respect of the said claim the respondent No.2 (Maharashtra State Financial Corporation) is appellant, as also the learned counsel for respondent No. 1 and 2 are agreed that there is no serious dispute with regard to the consideration made either by the surveyors or the NCDRC on the aspect of plant and machinery. The same having not been a major issue before the NCDRC, need not be gone into in these proceedings.

• The court observed that , it is no doubt held that though the assessment of loss by an approved surveyor is a prerequisite for payment or settlement of the claim, the surveyor report is not the last and final word. It is not that sacrosanct that it cannot be departed from and it is not conclusive. The approved surveyor's report may be the basis or foundation for settlement of a claim by the insurer in respect of loss suffered by insured but such report is neither binding upon the insurer nor insured.
• On the said proposition, we are certain that there can be no quarrel. The surveyor's report certainly can be taken note as a piece of evidence until more reliable evidence is brought on record to rebut the contents of the surveyor's report.
• The Insurer had however sought to rely on the investigation report. The State Commission refused to look into report of the private investigator. In that circumstance, this court was of the view that the State Commission should have given an opportunity to the insurer to prove the investigation report. In the said case, the very nature of the fire incident was in dispute from the very inception.

The claimant had contended that the fire was caused by a short circuit, which was seriously disputed by the insurer and an investigation in that regard had been held. It is in that light, a conclusion was to be reached by the forum adjudicating the claim as to whether any fraud was committed in making the claim with reference to the very nature of the incident. In that circumstance, even though at the first instance, there was an investigation held by the police, the private investigation held by the insurer would have been relevant to decide the question. As such, in the said circumstance it was imperative that the investigator's report was to be considered threadbare and a decision ought to have been arrived at.

CONCLUSION

The court held that the assessment of loss by an approved surveyor is a prerequisite for the settlement of insurance claims. A surveyor report is statutorily recognized and is a basic document in determining claims. However, the surveyor report is not the final word and is not conclusive. The surveyor report is not binding on the insurer or the insured. Any contrary evidence, including the investigation report, can be produced to rebut the surveyor report. It is for the adjudicating forum to assess which evidence is credible and can be relied upon. A surveyor report can be relied upon if it inspires confidence, and there is no need to place reliance on any other material. A surveyor report can be relied upon if it is not perfunctory and refers to all aspects.

DISCLAIMER: The case law presented is only for sharing information and knowledge with the readers. The views expressed are personal and shall not be considered as professional advice. In case of necessity do consult with professionals.