Claim not payable if policy conditions are flouted

The National Commission observed that the requirement of first-class construction was mentioned in the cover note and the policy, so stock kept elsewhere wouldn't be covered

Mittal Cot Fab, a private limited company, is a manufacturer and trader of cotton yarns. It had obtained a Standard Fire and Special Perils Policy from New India Assurance for the period June 9, 2002 to June 8, 2003. The policy covered the insured’s building, plant and machinery, and stocks for a total value of about Rs 10.84 crore.

On May 18, 2003, the security guard noticed smoke and flames billowing out from one of the sheds where cotton was stored. The fire brigade summoned from Panipat was unable to control the raging fire, so fire engines from several other neighbouring places were called in to help out.

The insurer was intimated about the fire. The divisional manager of New India Assurance brought a surveyor, but a preliminary survey could not be carried out as the fire brigade was still trying to douse the fire. The survey was conducted subsequently. The surveyor’s report mentioned that the fire had affected two sheds, one of which had brick walls with a cement sheet roof, while the other was a tent on iron pillars.

The insurer also intimated the Loss Prevention Association of India, which submitted its own report. New India also appointed a final surveyor who assessed the net loss at Rs 1,44,68,099.

The insurer repudiated the claim. Mittal Cot Fab made repeated requests to reconsider the claim and settle it. Since New India did not respond, the insured filed a complaint before the National Commission for a direction to settle its claim of Rs 2,12,47,665 along with interest, compensation and costs.

New India contested the case. It pointed out that coverage was restricted to stock stored in a building having first-class construction. It would not include the stock kept in sheds as these did not conform to the prescribed standard of construction.

The insured produced a cover note with the remark “stocks kept in open” hand-written in the margin, and argued that the type of construction was irrelevant. The insurer alleged the cover note was fabricated in order to overcome this impediment in getting the claim. The insurer stated that the copy of the cover note available in its records did not bear any such remark. The insurer denied that there was any deficiency in service on its part, and justified the repudiation on the ground that the stock was not stored at a place having first-class construction, as required under the policy.

Mittal Cot Fab then argued that since the factory was insured, the entire factory premises would be covered, according to the definition under the Factories Act. The National Commission refused to accept this argument, and observed that the definition under the Factories Act was irrelevant, as the claim would be governed by the terms of the contract of insurance specified in the policy.

The National Commission also observed that the requirement of “building built of first-class construction” was mentioned both in the cover note as well as the policy and it was not deleted from either of the documents. So, it concluded that a claim for stocks kept in any place which did not have first-class construction would not be payable under the contract of insurance.

Accordingly, by its order of March 15, 2022, the Bench of C. Viswanath and Justice Ram Surat Ram Maurya dismissed the complaint, holding that the claim had been rightly repudiated.

The writer is a consumer activist