Take business insurance against all perils

Kishan Cold Storage, a partnership firm, used to charge farmers to preserve their foodstuff. It was set up by obtaining a cash credit loan and working capital from United Bank of India by mortgaging its entire assets. The loan was granted subject to taking a comprehensive insurance covering all possible risks in the business. The firm requested the bank to obtain suitable policy on its behalf.

During the initial three years from 2005 to 2007, the bank obtained coverage from New India Insurance. The premium was debited from the firm's account, and the policy retained by the bank. For 2008, the bank changed the insurer and obtained a policy from Bajaj Allianz General Insurance, on the same terms.

Unfortunately, after buying this policy, the firm's generator failed during load-shedding, and an attempt to promptly repair it was unsuccessful. This led to a rise in temperature and potatoes stored were damaged, resulting in a loss of approximately Rs 1.4 crore.

The firm lodged a claim but the insurer repudiated it on the basis of the survey report, saying the loss was not within the scope of the perils covered. The firm sent representations to the insurer and the Insurance Regulatory and Development Authority of India (Irdai), alleging the surveyor had not conducted the survey properly. The firm also requested the bank to support it. Since the grievance remained unresolved, it filed a consumer complaint against the insurer and bank. The complaint was contested by the insurance company, which pointed out that while obtaining the policy, the bank had acted as the agent of the firm. The policy had been issued to the bank. The risks covered would have to be construed according to the terms of the policy. The risk covered was deterioration of stock due to accident or breakdown of plant and machinery. It did not extend to loss due to electric failure but, on the contrary, stated the insurer would not be liable for any damage due to rise or fall in temperature caused by failure of electric supply for any reason. The company stated the surveyor had observed the power supply in Bhagalpur town of Bihar was erratic. So, the firm ought to have opted for coverage under an FOES (Failure of Electric Supply) Policy. As regards loss due to breakdown of the generator set, the insurer said a machinery breakdown policy had not been obtained.

When the firm attempted to blame the bank for not having taken the appropriate policy, the latter questioned the maintainability of the complaint, contending its services were provided for a commercial purpose, which was beyond the purview of the Consumer Protection Act. The bank also said it had asked the firm to obtain appropriate coverage, but the firm had instead asked it to do so on its behalf. Hence the bank, in consultation with the firm, obtained coverage which covered deterioration of stocks due to breakdown of plant and machinery. The bank argued that in case the policy obtained did not meet its requirements, the firm should have objected and taken steps to obtain the right policy. Having failed to do so, the bank could not be held responsible for deficiency in service.

The Commission observed the firm had not produced the log book showing the temperatures maintained during the month of April 2008 when the incident occurred but the log for the previous and subsequent months showed the temperature was more than what was required for operation of the cold storage. The Commission agreed the risk due to breakdown of power supply was excluded under the policy. It held that breakdown of power supply and failure of the generator set would not constitute an 'accident', and concluded the claim had been rightly rejected. Also, the claim against the bank fell beyond the scope of the Consumer Protection Act. The claim against the bank was not adjudicated on merits and the firm was granted liberty to proceed against the bank before a competent court. The National Commission dismissed the complaint on April 21, 2016.

The author is a consumer activist