Goods kept in cold store are not bailment, insurer must honour claims

Sai Balaji Cold Storage India provided services to 136 farmers to store their agricultural produce in its facilities. These farmers had borrowed money from banks by hypothecating the stored goods, with the cold storage company standing guarantor for the loans. The arrangement was governed by a tripartite agreement, which contained a specific clause requiring the bank to ensure that an insurance policy was taken to cover the goods stored and the cold storage building, plant and machinery. 

This arrangement had been in existence since 2005. On June 2, 2013, a fire broke out. At the time of the incident, three insurance policies issued by Oriental Insurance were in force: One, a policy for 4 crore for building and plant and machinery and 7 crore for stocks of chilies, spices, tamarind and food products to cover loans from State Bank of India; two, a policy for 3 crore for stocks of chilies, spices, tamarind and food products to cover loans from Pragathi Grameen Bank; and three, a policy for 3 crore for stocks of chilies, spices, tamarind and food products to cover loans from Indian Bank. 

The fire was found to have been caused by a short circuit. Insurance claims were lodged for a total amount of 25,34,92,169. Supporting documents such as the stock register, the Fire Report and the Police Report were submitted. The insurer appointed Kausshal Kishore Associates, Chartered Accountants, as surveyors to assess the loss. The surveyor inspected the premises and obtained reports from various government authorities, including the tehsildar, the electrical inspector and the inspector of factories and boilers. He also procured an independent report from the Forensic Science Laboratory in Bengaluru. All reports confirmed that a short circuit had caused the fire. After prolonged correspondence and follow-up, the survey report was submitted on May 23, 2014, assessing the damage to plant and machinery at 3,41,70,908, and the loss of goods at 14,62,98,593 after adjusting 12 lakh towards salvage.  The insurer paid the claim for plant and machinery but refused to pay for the damage to goods, on the ground that the loss was due to the failure of the cold storage plant and machinery, which was excluded under the policy. Consequently, a complaint was filed before the National Consumer Commission. The insurer argued that the claim was not payable as the goods were bailed and held in trust by the cold store (bailment happens when you hand over something to someone temporarily for safekeeping, repair, transport, or any agreed activity, with the expectation that it will be returned). The National Commission disagreed, observing that goods were stored against payment of rent, which could not be termed a bailment.

 

The Commission also considered the tripartite agreement, which contained a specific clause stating that the insurance company would compensate the farmers in the event of any untoward incident resulting in loss or damage to the stock of goods. It observed that the policy had been taken at the cost of the farmers, making it untenable to argue that they were not covered. The Commission further noted that the farmers qualified as consumers under the Consumer Protection Act and were entitled to indemnification in case of loss. 

The Commission concluded that the claim for loss of goods had been wrongly repudiated and ordered the insurer to pay a total amount of 14,88,05,137 under the terms of the policy. Additionally, 6 per cent interest from the date of loss was awarded. 

The writer is a consumer activist