Insurer liable to reimburse genuine cash payments

All payments were supported by TDS and GST. Hence, the National Commission concluded that the insurer would have to reimburse these legitimate cash expenses

Sodhi Brothers, originally a limited liability partnership (LLP), was allotted a hydroelectric project by the Himachal Pradesh State Electricity Board (HPSEB) under an agreement executed on April 11, 2007. The project was located across River Bharal in Kangra district of Himachal Pradesh.

Sodhi Brothers obtained finance from the State Bank of India for the project through a term loan of Rs 22.6 crore. It was covered by Oriental Insurance under a Standard Fire & Special Perils Policy which covered the building superstructure for Rs 8.8 crore and the plant and machinery for Rs 22.8 crore.

The project became operational on December 7, 2010. Due to heavy rainfall on September 27, 2011, there was a landslide in the area where the concrete saddle of the penstock had been constructed. As a result, the penstock pipe broke and water gushed out at high pressure. This caused damage to the power house as well as to various sensitive equipment.

The insurer was informed about the incident over the telephone the very same day. A written intimation was also sent the next day. The insurer initially appointed a preliminary surveyor and later a final surveyor. The final surveyor reported that the proximate cause of loss was a landslide, which is covered under the insured perils. It recommended settlement of the claim. However, the surveyor stated that the repairs and reinforcement cost was exaggerated and recommended payment of about Rs 38.46 lakh.

The insurer repudiated the claim on the ground that loss had occurred due to carelessness in compression, resulting in subsidence of the new structure, so the claim fell within the exclusion clause of the policy.

Sodhi Brothers, which later became a private limited company, filed a complaint before the National Commission contending that the actual loss was nearly Rs 1.3 crore but it was incorrectly assessed at Rs 38.46 lakh. The insurer contested the case.

The National Commission observed that both the surveyors had attributed the loss to landslide caused by abnormally heavy rains. The Commission noted that the surveyor had recommended sanctioning Rs 38.46 lakh towards settlement of the claim since the landslide was covered under the policy.

The Commission castigated the insurer for repudiating the claim on the false presumption of negligence in proper compression of concrete during construction. It held that the claim would be payable under the terms of the policy.

On the quantum of the claim amount, the Commission noted that the surveyor had disregarded cash payments. It observed that Sodhi Brothers was required to make payments in cash considering the remote location of the project and lack of banking facilities. But all payments were supported by corresponding tax deduction at source (TDS) payments as well as GST payments, which proved the legitimacy of the cash transactions. Hence, the Commission concluded that the insurer would have to reimburse even the expenses incurred in cash.

Accordingly, by its order of December 9, 2022, delivered by Subhash Chandra for the Bench headed by C. Viswanath, the National Commission directed National Insurance to pay Rs 1.29 crore towards settlement of the claim. It granted a period of eight weeks for complying with the order.

The writer is a consumer activist