Pay for loss incurred to minimise damage

The National Commission rejected New India's plea, saying the consent had become invalid as the insurer itself had not abided by the claim amount recommended by the surveyor

Mangalam Organics, which was in the business of terpene chemical products such as camphor, had obtained two policies from New India Assurance.

A fire occurred on June 22, 2015 due to short circuit. It started in the resin plant. When it reached the common utilities connected to the camphor plant, all the material under process had to be drained to prevent an explosion which would have escalated the loss. Managalam lodged a claim for Rs 29,26,64,553 under the two policies. It requested for the ad hoc release of Rs 7.5 crore for re-commissioning the resin plant.

The surveyor inspected the damage and issued an interim report assessing the minimum liability at Rs 8,15,57,419. It recommended an on-account adhoc payment of Rs 2 crore towards the claim. This amount was disbursed by the insurer.

The surveyor asked Mangalam to give its consent for settling the claims at Rs 18,02,43,552. Being in a precarious financial condition, Mangalam issued the consent letter. The surveyor then submitted a final report assessing the loss at Rs 18,02,43,552. Mangalam disputed the claim computation, and requested an interim payment of Rs 10 crore. This was ignored.

New India did not dispute the survey report, yet rejected the surveyor's recommendation for payment of claim towards the loss from draining of the material under process in the camphor plant. The insurer unilaterally settled the claim at Rs 10,09,34,774, by adjusting the interim payment of Rs 2 crore and transferring the remaining amount of Rs 8,09,34,774 in full and final settlement.

Mangalam then filed a complaint before the National Commission. This was contested by New India. The National Commission noted that the surveyor's assessment of Rs 18,02,43,552 had not been disputed by the insurer. It also observed that the claim for the loss of material in the camphor plant was not due to damage but due to wilful drainage to prevent an explosion and minimise loss. It held that to disallow this amount was unjustified.

New India argued that the insured could not claim the loss as stated in the claim form because it had accepted the amount as assessed by the surveyor. The National Commission rejected this plea, saying the consent had been rendered invalid as the insurer had not abided by the surveyor’s recommended claim amount. The National Commission further observed that Mangalam had pointed out various discrepancies in the survey report and had substantiated the loss to be Rs 29,26,64,553. So, it held the entire claim to be payable.

Accordingly, by its order of November 12, 2020, delivered by Justice R K Agrawal for the bench along with S M Kantikar, the National Commission ordered New India to pay the entire claim amount after adjusting what had already been paid. It was ordered that this amount of Rs 16,17,21,556 must be paid along with 12 per cent interest with quarterly rests from June 22, 2015, till the date of payment. A period of three months was given for compliance of the order, and if delayed the interest rate would be enhanced to 15 per cent compounded quarterly. In addition, Rs 10 lakh was awarded as litigation cost.

The writer is a consumer activist