Businesses can claim cover under consumer rules

The National Commission overruled the maintainability objection on the interpretation of the law laid down by the Supreme Court that insurance is for indemnification, not for commercial purpose

Shree Cement, a limited company, had installed a heavy roller press for crushing and grinding raw material required in the manufacture of cement. The roller was insured for Rs 114,87,28,000 under an Industrial All Risk Policy issued by Oriental Insurance. It covered the risk of fire, machinery breakdown and ‘Fire Loss of Profit’.

On May 22, 2007, one of the insured’s engineers noticed an abnormal sound from the fixed roller. The machine was stopped. On inspection, it was observed that there was clinker powder on the side of the roller and also water leakage from the sealed area. After cleaning, cracks were seen on the shaft surface through which water was leaking.

The insured intimated the insurer immediately over telephone, and was advised to lodge a claim. The insurer appointed a surveyor who asked for certain documents. Despite furnishing these, the same as well as additional documents were sought from time to time till October 4, 2011. The claim was finally rejected on October 19, 2012, on the ground that there was a breakdown of the roller machine due to deterioration over a period of time.

The insured challenged the repudiation by filing a consumer complaint before the National Commission. The insurer opposed the maintainability of the complaint on the ground that the policy had been obtained for commercial purpose, which was excluded from the ambit of the Consumer Protection Act. The insurer argued that the claim was not payable as the machine had broken down due to lack of maintenance and fatigue caused by wear and tear, and not due to unforeseen circumstances.

The National Commission overruled the objection on the maintainability of the complaint on the interpretation of the law laid down by the Supreme Court that a contract of insurance is for indemnification and not for commercial purpose. On merits, the National Commission noted that prior to issuing the policy, the insurer had got a pre-insurance survey done through United Technical Services, which had reported that the condition of the roller was apparently good, and that obsolescence was not applicable.

The Commission also observed that the surveyor’s conclusions were not based on his own independent findings but on the opinion obtained from the National Metallurgical Laboratory in Jamshedpur, which had not examined the insured roller, but some other one which has nothing to do with the claim.

The Commission noted that the insured had installed devices like magnetic separator, alarm and tripping limits to safeguard the machine from damage. It further observed that technical experts from KHD Humboldt Wedag GmbH, Germany, who had manufactured the machine, conducted an ultrasonic test which established that the sudden crack was accidental and not due to wear and tear. The Commission also noted that the stipulated life of the machine was 70,000 hours out of which it had worked only for 28,811 hours, which made it evident that the crack was not due to normal wear and tear.

The Commission expressed displeasure over the surveyor’s conduct and termed it inappropriate to keep seeking documents on different dates, and that too over 53 months from the date of the accident. The Commission noted that even though the surveyor had recommended the repudiation of the claim, the quantum of loss suffered was assessed at Rs 1,79,54,382. Even though the insured had claimed a higher amount, the amount of loss computed by the surveyor was proper.

Accordingly, in its judgment of March 27, 2023, delivered by C. Viswanath, the National Commission ordered the Oriental Insurance to pay Rs1,79,54,382 along with 9 per cent interest from the date of repudiation of the claim.

The writer is a consumer activist