Illegal construction can lead to claim denial

Since the insured didn't oppose the illegal addition to the structure, the National Commission held the claim for loss of stock had been rightly repudiated

Nissan Enterprises, a company engaged in the trading of electronic items including cellphones, their accessories, cameras, and other audio-video consumer electronics, had purchased a policy from National Insurance to cover its stock stored in a warehouse in Bhiwandi. The policy was for a sum of Rs 5 crore and was valid from April 18, 2013, to April 17, 2014.

During the tenure of the policy, there were heavy rains and waterlogging due to which the building collapsed. Several people were injured, and some also died.

Nissan Enterprises filed a claim citing subsidence as the cause of the build-ing’s collapse. National Insurance appointed a surveyor to examine the site. However, since the claim was kept pending for long, Nissan Enterprises filed a complaint before the National Consumer Disputes Redressal Commission. The insurer subsequently repudiated the claim.

The insurer contested the case. It stated that it had asked the insured to appoint a specialised agency to carry out a test to ascertain the reason for the collapse of the building. The agency reported that there was no visible sign of subsidence. During inquiries, it came to light that Arihant Developers, the construction firm responsible for the building, had initially erected it as a single-storey structure in 2004. Later, in 2011, the same developer constructed the first floor, on which the insured purchased three galas.

Thereafter, Arihant Developers started constructing the second floor, putting additional pressure on the existing structure. The building’s plans were found to be flawed. Even though the pillars were weak, the builder had constructed another unplanned floor. This made the building legal only up to the first floor. The second floor was found to be illegal. The additional unauthorised construction had weakened the pillars further. The structural report given by the expert after conducting an ultrasonic pulse velocity test revealed that while the building’s construction was of a good standard, it did not meet the specifications prescribed by the Bureau of Indian Standards.

The report concluded that the prolonged exposure to water, due to the failure of drains to function efficiently, likely caused the soil beneath the foundation to soften. It led to loss of strength and finally resulted in the collapse of the building. The report observed that the RCC members ought to have been strengthened prior to undertaking additional construction.

The National Commission noted the report’s conclusion that the collapse was due to faulty structural design, poor construction, violation of ISI standards, as well as heavy corrosion. It further noted that while the policy covered loss due to subsiden-ce and landslide, it excluded settlement due to defective design or workmanship, or the use of defective materials.

The National Commission observed that although the loss was of the stock kept in the building, the insured should have ascertained the structural strength before allowing the builder to raise an additional floor. Since the insured did not oppose the illegal addition to the structure, the National Commission held that the claim for loss of stock had been rightly repudiated by invoking the exclusion clause related to collapse due to subsidence.

Accordingly, by its order of February 16, 2024, delivered by Justice A P Sahi, the National Commission upheld the repudiation and dismissed the complaint, holding that there was no deficiency in service.

The writer is a consumer activist