1.      These two appeals Nos. FA/442/2019 & FA/443/2019 have been filed under Section 19 of the Consumer Protection Act, 1986, by United India Insurance Co. Ltd. (the “Appellant”/ “Opposite Party”-OP) against (1) HP Latha & (2) KK Kalyan Kumar (“Respondent”/ “Complainant”) challenging the Impugned Order dated 11.10.2018 in CC/43/2017 to CC/44/2017 respectively passed by the learned State Consumer Dispute Redressal Commission, Karnataka (“State Commission”) which had partly allowed both the Complaints.

2.      There is 88 days delay in filing both appeals and for reasons outlined in the Applications IA/4432/2019 and IA/4435/2019 respectively, the same is condoned.

3.      Since the facts and questions of law involved in both Appeals are substantially similar, except for minor variations in dates, events, and policy numbers etc., these two Appeals are being disposed of by this common Order. For ease of reference, FA No. 442 of 2019 shall be taken as the lead case, and the facts drawn from CC No. 43/2017.

4.      For Convenience, the parties in the present Appeal are being referred to as mentioned in the Complaint before the learned State Commission. The Complainant, Smt. H.P. Latha, Proprietor of M/s. KR. Aromatic Oils engaged in oil extraction business at her owned property, employing five laborers. "M/s. United India Insurance Co. Ltd." is referred to as the Opposite Party/Insurer (OP) in this matter.

5.      Brief facts of the case, as per the Complainant, are that she insured her business plant and machinery for Rs.15 Lakhs and stocks for Rs.46,55,000/-, totaling Rs.61,55,000/- with the OP, under Standard Fire and Special Perils Policy No.2414001115P105558503 for the period from 08.08.2015 to 07.08.2016. On 31.08.2015, around 1.00 AM hours, a fire occurred at the factory premises, resulting in complete destruction of the factory, including raw materials, machinery, and finished goods. The incident was reported to the fire brigade, police and the OP Insurance Company.

6.      The OP's surveyor conducted an investigation and assessed the loss at Rs.30,74,629/-. Subsequently, the OP paid insurance benefits of Rs.30,50,146/- to the Complainant on 03.03.2016, while the Complainant suffered a total loss of Rs.96 lakhs. Despite the surveyor assessing the total loss at 100%, the OP's payment of Rs.30,50,146/- fell significantly short of the actual loss suffered. Consequently, the OP is liable to pay the remaining amount of Rs.31,04,854/-. The failure to pay this sum constitutes a deficiency on the part of the OP. Despite requests, demands, and notice, the OP has not fulfilled its obligation. As a result, the Complainant suffered significant mental pressure, agony, and financial loss, which constitutes unfair trade practice by the OP. Hence, aggrieved by this, she, through a General Power of Attorney (GPA), filed a Consumer Complaint (CC/43/2017) before the State Commission, seeking a direction for the OP to pay Rs.31,04,854/- along with interest at 21% p.a., compensation for mental agony, and costs.

7.      Despite several notices the OP Insurer failed to appear before the State Commission. As a result, the OP proceeded ex-parte.

8.      The learned State Commission vide order dated 11.10.2018, allowed the complaint with the following findings: -

 “7. As against which the advocate for complainant submits that by considering the value of the stock and the loss which is assessed by the Surveyor to an extent of Rs.60,25,375/- reveals that most of the items covered under the policy were burnt. Therefore, the advocate for the complainant places reliance on a decision rendered by the Hon’ble Supreme Court of India in case of IA. Sharma v/s Oriental Insurance Co., Ltd., reported in I (2018) CPJ 6 (SC) is applicable. In the said decision at Para 11 it is observed as hereunder;

"11. To clarify the matter further, we may give another example. Supposing, the insurer owns two paintings of Rs.5,00,000/- each but pays premium for insurance cover of Rs. 1,00,000/- for both the paintings, if one painting is lost, even though the value of the painting may Rs.5,00,000/- he will not get Rs. 1,00,000/- but will get only Rs.50,000/ -, as proportionate amount. Therefore, when a group of items is insured under one heading and only some of the items and not all items are lost/stolen then the principle of under-insurance will apply. However, if all or most of the items of value covered under the policy are stolen, then the insurance company is bound to pay the value of the goods insured."

Further, it is submitted that the complainant though sustained a loss of Rs.96 lakhs, the Opposite Parties are liable to pay a sum assured amount of Rs.61,55,000/-. On perusal of the surveyor report, it is opined that whole items were destroyed in the lire accident. Therefore, the number of averaging out cannot be applied in view of the decision referred above. Accordingly, the complainant is entitled for value of goods lost in the fire accident to an extent of goods which were insured considering the report of the surveyor at Ex.C4, the complainant is entitled towards remaining amount of Rs.31,04,854/- since the Opposite Party has paid an amount of Rs.30,50,146/- out of the insured amount of Rs.61,55,000/-. Thus, the Opposite Party is liable to pay the remaining amount to make good the loss to that extent. Hence, the following: -

ORDER

The complaint is hereby allowed in part with a direction to the Opposite Party to pay a sum of Rs.31,04,854/- with interest at 6% p.a. from the date of the complaint, till the date of actual realization along with compensation of Rs. 15,000/- and costs of Rs. 10,000/- within eight weeks from the date of receipt of the copy of this order.”

9.      Being aggrieved by the impugned order, the Appellant /Insurer filed this present Appeal no. 442 of 2019 with the following prayer:

“a) Set aside the impugned judgment and order dated 11/10/2018 passed by the Hon'ble State Commission, Bangalore in consumer complaint no. 43/2017;

b) Stay the operation of the impugned judgment and order dated 11/10/2018 passed by the Hon'ble State Commission, Bangalore in consumer complaint no. 43/2017 pending this appeal;

c) Pass any further order(s) that this Hon'ble Commission may deem fit in the facts and circumstances of this case.”

10.    In the Appeal, the Appellant raised the following key issues:

1. The State Commission erroneously relied on I.C Sharma vs. Oriental Insurance Co. Ltd (2018) 2 SCC 76. Para-11 pertains to underinsurance, while this case is not of underinsurance of stocks and the surveyor correctly calculated Rs. 30,60,000/- towards stocks, which is within the sum insured.
2. The State Commission incorrectly awarded beyond the amount assessed by the surveyor, without assigning any reasons. The Respondent led no evidence for the State Commission to deviate without citing any reasons to dispute the surveyor's assessment.
3. The State Commission failed to consider that the respondent had willingly accepted full settlement and discharged the appellant. While the Impugned order notes payment of Rs.30,60,000/-, no discussion is made she can challenge the acceptance of such an amount as full and final payment, contrary to established law.
4.  No evidence to justify departure from this was brought out. The surveyor correctly deducted underinsurance amount for plant and machinery as, against the sum insured Rs.15 lakhs for plant and machinery, the actual cost was Rs.17,84,530/-.Therefore, she undervalued the plant & machinery and is liable for wrongful disclosure to OP.

11.    Upon the notice on memo of Appeal, the Respondent/ Complainant filed written submissions and reaffirmed the facts and grounds and appreciated the order of learned State Commission.

12.    In his arguments, the learned counsel for the Appellant/OP vehemently contested that the State Commission's decision is patently erroneous because, despite the Respondent's acceptance of Rs.30,60,000/- as full and final settlement of the claim on 02.03.2016, it still ordered the Appellant to pay Rs.31,04,854/- with interest at 6% per annum. The State Commission failed to determine how the full and final settlement of the claim could be set aside, and the defence of duress or protests was not even considered. He further argued that while the surveyor report is not the final and last word, and deviations can be made upon showing contradictory evidence, however, the impugned order does not record any reason to depart from the report dated 22.02.2016. No evidence was led to contradict the assessment or findings of the survey report. Hence, the claim was allowed in a mechanical manner based on the non-application of mind. The, the impugned order dated 11.10.2018 has mechanically relied upon the decision of IC Sharma (Supra) case and the State Commission committed a grave error in allowing the present claim. To support their argument, the counsel relied upon the following judgments: -

a) United India Insurance Company Limited vs Ajmer Singh Cotton and General Mills (1999) 6 SCC, 400; Para 6 and 8.

b) Cauvery Coffee Traders, Mangalore v. Hornor Resource (Intern.) Company Limited. (2011) 10 SCC 420; Para 30.

c) Aradhna Fabrics Pvt, Ltd. v. United Insurance Company Ltd. 2015  SCC OnLine NCDRC, 25 Paar 5.

d) Khatema Fibers Ltd. v. New India Assurance Company, 2021. SCC OnLine SC 18; para 35,36,38, 39

e) National Insurance Co v. Tarvind Sales RP No. 3598/2014

13.    The learned Counsel for the Respondent reiterated the facts of the case and Affidavit of evidence filed before the State Commission. As per him, the impugned order dated 11.10.2018 explicitly reiterated the finding in the report of Surveyor/Loss Assessor dated 22.02.2016 to the extent that the stock of raw materials was completely burnt and reduced to ashes, amounting to total loss of the stock. It is based on the established finding that there is 100% loss and thus the impugned order dated 11.10.2018 held Respondent was entitled to the entire insured amount, i.e., Rs.61,55,000/-. Reliance in this regard is placed on the I.A. Sharma (Supra). Considering the report of the Surveyor and Loss Assessor itself notes a total loss of stock of raw material at Rs.60,25,178/- and hence, there is no question of the impugned order disagreeing with the finding of the report of the Surveyor dated 22.02.2016 but merely reiterates them. The said Surveyor Report, despite recording total loss as Rs.60,25,178/-, valued the final net assessment of loss of stock as Rs.31,42,220/-. Therefore, the impugned order dated 11.10.2018 does not suffer from any infirmity.

14.    I have examined the pleadings and associated documents placed on record and rendered thoughtful consideration to the arguments advanced by the learned Counsels for both the Parties.

15.   The primary issues to be determined is the actual liability of the insurer with respect to the loss occasioned and whether the Complainant is entitled for the compensation as allowed by the State Commission? In this regard it is undisputed that the Complainant had insured her Plant and Machinery for Rs.15 Lakhs; and Stocks for Rs.46,55,000/-, totaling Rs.61,55,000/- with the OP, under Standard Fire and Special Perils Policy No.2414001115P 105558503 from 08.08.2015 to 07.08.2016. During its validity, on 31.08.2015 a fire accident occurred at the factory, resulting in destruction of the factory, including raw materials, machinery, and finished goods. The incident was duly reported to all concerned, including the OP Insurer. The OP appointed surveyor conducted investigation and assessed the loss at Rs.30,74,629/- as a sequel OP paid Rs.30,50,146/- on 03.03.2016 to her towards insurance liability. It is the grievance of the Complainant that she suffered a total loss of Rs.96 Lakhs. Despite the surveyor assessing the total loss at 100%, the OP paid only Rs.30,50,146/-. She, therefore, asserted the liability of the OP to pay the remaining amount due and the learned State Commission ordered the payment of the balance of Rs.31,04,854/- by the OP to the Complainant.

16.    The scope of insurance is Rs.15 lakhs for Plant and Machinery and Rs.46,55,000/- towards Stocks, totaling Rs.61,55,000/-. Plants & Machinery and Stocks are distinct components under the policy, with ceiling of liability as obtained by her. It is undisputed that Machinery in question was purchased for Rs.1784530 while the insurance cover obtained for it was for Rs.15 Lakhs. Thus, there was underinsurance. Accordingly, the surveyor vide report dated 22.06.2016 applied the necessary average clause algorithm and determined the liability of the OP towards the Plant and Machinery as Rs.92387.91.

17.    As regards the Stocks insured under the policy, it is an admitted position that there was total loss and the insured submitted necessary bills. With due regard to the way the entire stock was burnt into ashes, the surveyor considered necessary to obtain an expert opinion and laboratory report was obtained and it is assessed that the value of raw material was Rs.6025375/-. Intriguingly, however, the surveyor considered the total value of stocks at the process block as Rs.50,65,280/-. Of which the surveyor took the value of Pathouli Oil for Rs.15,12,780 as Nil because, in the lab report examining the gutted material mixed in water and mud did not specifically comment about oil mix up details. Such consideration itself is untenable when once the quantity and value of the stocks, including Patchouli Oil of Rs.15,12,780 was specifically established by records. Further, the lab report was merely silent and did not state its specific absence. Therefore, its deduction from the total sum insured of Rs.46,55,000/- is untenable. As this is a case of total loss and admitted in the report itself, average clause does not apply with respect to stocks and she is entitled for compensation accordingly. Therefore, she is entitled to be paid Rs.92,387.90 for Machinery and Rs.46,55,000/- towards the stocks as per limit if insurance. The total is Rs.47,47,387/-. Of this 5% is liable to be deducted towards policy excess. Thus, the net claim is Rs.45,10,018/-. Of this, Rs.30,50,146/- is already paid. Therefore, the net payment due is Rs.14,59,872/-

18.    The present case is fit to put reliance on the Order of Hon’ble Supreme Court in Sri Venkateswara Syndicate Vs. Oriental Insurance Company Limited and Another, (2009) 8 SCC 507, decided on 24.08.2009, wherein it was held that:

"32. There is no disputing the fact that the surveyor / surveyors are appointed by the insurance company under the provisions of the insurance Act and their reports are to be given due importance and one should have sufficient grounds not to agree with the assessment made by them...

35. In our considered view, the Insurance Act only mandates that while settling a claim, assistance of a surveyor should be taken but it does not go further and say that the insurer would be bound by whatever the surveyor has assessed or quantified; if for any reason, the insurer is of the view that certain material facts ought to have been taken into consideration while framing a report by the surveyor and if it is not done, it can certainly depute another surveyor for the purpose of conducting a fresh survey to estimate the loss suffered by the insured."

37. The option to accept or not to accept the report is with the insurer. However, if the rejection of the report is arbitrary and based on no acceptable reasons, the courts or other forums can definitely step in and correct the error committed by the insurer while repudiating the claim of the insured. We hasten to add, if the reports are prepared in good faith, with due application of mind and in the absence of any error or ill motive, the insurance company is not expected to reject the report of the surveyors."

19.    In Narsingh Ispat Ltd. Versus Oriental Insurance Company Ltd. & Anr., 2022 SCC OnLine SC 535, the Hon’ble Supreme Court has held as under:

“13. In paragraph 8 in the case of Ishar Das Madan Lal1 , this Court held thus:

“8. However, there may be an express clause excluding the applicability of insurance cover. Wherever such an exclusionary clause is contained in a policy, it would be for the insurer to show that the case falls within the purview thereof. In a case of ambiguity, it is trite, the contract of insurance shall be construed in favour of the insured. [See United India Insurance Co. Ltd. v. Pushpalaya Printers (2004) 3 SCC 694, 5 Peacock Plywood (P) Ltd. v. Oriental Insurance Co. Ltd. (2006) 12 SCC 673 and United India Insurance Co. Ltd. v. Kiran Combers & Spinners (2007) 1 SCC 368]”

20.    In view of the foregoing deliberations, in F.A. No.442 of 2019 the order of the learned State Commission in CC NO. 43 of 2017 dated 11.10.2018 is modified as under:

ORDER

I.      The Opposite Party is directed to pay Rs.14,59,872 to the Complainant along with simple interest at 6% per annum from the date of the complaint till the date of actual realization of complete amount, within a period of one month from the date of this order. In the event of delay beyond one month, the rate of simple interest applicable shall be 9% per annum.

II.     The Opposite Party shall pay the Complainant Rs. 15,000/- towards cost of litigation.

III.   The order with respect to award of Rs.15,000 to the Complainant as compensation is set aside.

21.    As regards in F.A. No.443 of 2019, it is matter of record that the plant and machinery were completely gutted and the insurer had appropriately determined the loss and liability of the insurer to be Rs.2,77,105. However, as regards the stocks, the surveyor brought out that the insured had claimed that the finished products burnt in the mishap.  The surveyor report reveals that Charcoal, Bamboo Sticks, Oil, Perfume etc. were used to manufacture the Incense Sticks. These were purchased from different stockiest and the records were produced. The surveyor, after discussing with the insured along with investigator had taken only stock statement shown items and crossed verified with Police FIR and found the value to be Rs.34,83,166/-. He, on physical verification and assessment, found it to be Rs.8,68,520/-. It is, however, an admitted position of the surveyor’s itself that this is a case of total loss as the entire stocks and finished products were gutted. Therefore, clearly, the stand of the surveyor as regards valuation of the stock destroyed is untenable. It is also an established position that necessary records were brought out to the notice of the surveyor establishing that the value of the stocks at the premises which were burnt down to ashes was Rs.34,83,166/-. Therefore, there is no reason for the surveyor to limit the loss to only Rs.8,66,520/-. At the same time, the Complainant had obtained the insurance cover only to the extent of Rs.19,75,000/- towards the stocks. Thus, after deducting the excess clause of 5%, the net total assessment for loss of machinery and stocks is Rs.21,39,499.75. Therefore, the insurer is liable to pay Complainant Rs.21,39,499.75. Of this amount the Insurer had already paid Rs.10,85,000/-. Therefore, the balance due to be paid is Rs.10,54,500/- (rounded of). In view of the foregoing deliberations, the order of the learned State Commission in CC NO. 44 of 2017 dated 11.10.2018 is modified as under:

ORDER

I.      The Opposite Party is directed to pay Rs.10,54,500 to the Complainant along with simple interest at 6% per annum from the date of the complaint till the date of actual realization of complete amount, within a period of one month from the date of this order. In the event of delay beyond one month, the rate of simple interest applicable shall be 9% per annum.

II.     The Opposite Party shall pay the Complainant Rs. 15,000/- towards cost of litigation.

III.   The order with respect to award of Rs.15,000/- to the Complainant as compensation is set aside.

22.    All Pending applications, if any, stand disposed of accordingly.

23.    The Registry may release the Statutory deposit amount, if any due, in favour of the Appellant after compliance of this order.