DR.INDER JIT SINGH, MEMBER

1.       The present Consumer Complaint (CC) has been filed by the Complainant against Opposite Party (OP) as detailed above, inter alia praying for directions to the OP(s) to pay:-

1. the principal sum of Rs.1,60,00,000/-,
2. the interest amounting to a sum of Rs.22,63,000/- till the date of filing the instant Complaint calculated at the banker’s lending rate of 14.5% per annum and further interest at the same rate till the date of payment by the OP.
3. the cost of instant proceedings and
4. legal expense in the sum of Rs.11 lakh incurred prior to and upon the institution of the instant proceedings.

2.       Notice was issued to the OP.  Parties filed Written Statement/Reply, Rejoinder, Evidence by way of an Affidavit and Written Arguments/Synopsis etc. as per details given in the Table at Annexure-A. 

3.       It is averred/stated in the Complaint that: -

1. The complainant is a private limited company incorporated under the Companies Act. The complainant company is conducting the business, inter alia, of the manufacturing of sugar. The sugar is manufactured from the crushing of sugarcane.  During the processing of the sugarcane into sugar, a thick syrupy by-product called molasses is produced.  Sugar is crystalized from a concentrated juice in three stages and at each stage crystalized sugar fraction is produced besides the said by-product in the form of non-crystalline fraction or molasses fraction.  The said by-product of molasses is stored in large cement storage tanks and is to be later fermented in a distillery in order to yield extra neutral alcohol, rectified spirit and ethanol. The Complainant had taken out the following Insurance Policy:-

“STANDARD FIRE AND SPECIAL PERILS POLICY” paying a premium of Rs.40,500/- for the sum insured of Rs.5.0 crore and had paid, on the Insurer’s demand, further premiums of Rs.7,875/- Rs.9,375/- and Rs.6,000/-, thus aggregating a sum of Rs.23,250/-, on the same insured sum towards “ADD ON COVERS” OF (i) SPONTANEOUS COMBUSTION AND (ii) STFI Cover and (iii) EARTHQUAKE respectively. 

2. It had been the practice of the OP over the past 20 years to depute its Representative to inspect the building and the plant and machinery and the nature of the goods stored in order to prescribe the most appropriate Standard Fire and Special Perils Policy that the Complainant should take. It is also contended by the Complainant that the OP was apprised of the special phenomenon of internal heating of spontaneous combustion that products like grains, seeds, molasses, etc., were prone to in storage in large quantities. That mindful of the said phenomenon the OP advised a particular kind of Fire and Special Perils Policy and issued the same.

3. On 23.04.2018, the complainant bought an Insurance Policy from the OP covering the perils of fire and spontaneous combustion of the goods comprising sugar and molasses stored in its sugar manufacturing factory for Rs.50.00 crores. The period covered under the Policy was 23.04.2018 to 22.04.2019.  

4. On 06.08.2018 and again on 09.08.2018 there was explosion in the Complainant’s molasses tanks Nos. 15 and 6 respectively resulting in short duration fires and an exothermic reaction raising the temperature of the molasses to such high levels that it foamed and frothed and overflowed out the tank burning into charcoal solid material resulting in an estimated loss of Rs.150 lac, as reported in the Complainant’s letter dated 09.08.2018.  It was also informed vide above said letter to the Insurer/OP that the Complainant feared further damage to the molasses stored in Tank No. 8 as well as it was showing symptoms of the commencement of spontaneous combustion.

5. The complainant’s employees made all efforts for controlling the fire by pouring water and ice slabs on the burning molasses but they failed.  It was reported that 1786 MT molasses in Tank No. 15 and 1065 MT molasses in Tank No.6 priced at Rs.4,000/- per MT and valued at a sum of Rs.114 lakhs had been destroyed. As the complainant feared as stated in its letter dated 09.08.2018, the molasses stored in Tank No. 8 also burnt out.  The quantity involved was 1147 MT, priced at Rs.46 lac.  The Insurer was duly informed vide letter dated 28.09.2018.  Claim for a sum of Rs.46 Lakhs was filed.  The complainant also submitted copies of contemporaneous invoices of molasses to evidence the prevailing market rate of the said product in order to calculate the loss suffered by the Complainant. 

6. The Insurer’s Surveyors given three Final Survey Reports dated 28.09.2018, 12.02.2019 and 14.03.2019 opining that the loss of the quantities claimed has indeed taken place but the loss having been caused by the peril of spontaneous combustion without the occurrence of fire was not covered under the policy, no liability can be fastened upon the Insurer.

7. On 09.05.2019, The OP/Insurance Company repudiated the claim of Complainant for Rs.114 Lakhs and Rs.46 Lakhs, despite the Policy specifically providing for spontaneous combustion as an included peril regardless of whether flames occurred or not.

8. Hence, this Complaint.

4.       The OP in their written statement/reply stated that the complainant obtained standard fire special perils policy bearing No. 19130331118P101192468.  The policy was valid from 23.04.2018 to 22.04.2019.  On 06.08.2018 during the evening hours, they noticed smoke coming out of the molasses tank No. 15 located at the open yard within the factory premises.  The OP further stated that within the next few days it was noticed that the level of molasses rising in the tank due to increase in volume and eventually it started to boil/bubbling on account of spontaneous combustion.  The complainant tried to bring down the temperature of the molasses by adding water.  It did not, however, help, and the molasses continued to vent out.  This process continued for the next two days despite taking all possible measures, the molasses could not be saved.  The entire mass of molasses got crystalized and turned into a solid charred mass of black sugar.  The OP appointed a surveyor.  On detail examination of the site and other material information, the surveyor concluded the following:

1. Peril "Fire," in general parlance is referred to existence of flame with glow and heat.

2. However, as already stated above, there was no existence of fire - flame in the subject molasses tank at any time - during the course of spontaneous combustion taking place.

3. The instance of spontaneous combustion in the molasses took place due to its own properties and building of CO2 in the material and its rise in temperature causing the boiling/combustion to start in the material on its own and damaged the material completely.

4. Strictly adhering to the wording of "Add-on Cover" for spontaneous combustion given under the policy, as inserted above, the policy covers damage to the insured material/property due to spontaneous combustion by FIRE only, as mentioned above.

5. In view of the all above and strictly adhering to the policy terms and conditions, liability for the loss/damage caused to the insured, due to spontaneous combustion; without existence of fire flame would not fall within the scope of the SFSP policy, in our opinion."

5.       Heard counsels of both sides.  Contentions/pleas of the parties, on various issues raised in the Complaint, based on their Complaint/Reply, Rejoinder, Evidence, Written Arguments, and Oral Arguments advanced during the hearing, are summed up below.

6.       Relying on the judgment of this Commission in Murli Agro Products Ltd. Vs. Oriental Insurance Co. Ltd. (Original Petition No. 253 of 1999, decided on 10.12.2004) [I (2005) CPJ 1 NC] the Complainant argued that in Para 6 of the Written Statement the O.P. admits the contents of Para 9 of the Complaint wherein it is averred that the OP’s Surveyors have opined that the loss of goods complained of by the Complainant is on account of spontaneous combustion, but then takes a view that although spontaneous combustion is a covered peril under the Fire Policy issued by the OP the Claim is to be repudiated because fire per se had not taken place despite the Complainant having paid additional premium specifically to cover the peril of spontaneous combustion. Such dishonest contention by insurer has been repeatedly dealt with by this Hon’ble Commission which has rejected the false arguments to hold that once the insured has paid additional premium for the peril of spontaneous combustion in the Fire Policy it has bought, the question of repudiation on the ground of fire not accompanying the burning of the insured goods does not arise.  Complainant contended that surveyors have confirmed the quantum of goods lost by the complainant in the fires but have wrongly opined that the cost price of the goods will be considered for the purpose of evaluating the loss, when, it is a well settled principle of law that the value of the loss is to be worked out on the basis of the market price of goods, which the complainant has proved on record by documents that have not been denied.  The OP on the other hand has argued that the combustion has not been accompanied by any fire-flame.  The claim of complainant has been repudiated by the OP vide letter dated 09.05.2019 stating that liability of the loss/damage caused to insured, due to spontaneous combustion without existence of fire flame would not fall within the scope of SFSP policy.

7.       We have gone through the policy dated 23.04.2018 for sum insured of Rs.50.00 crore, for which a premium of Rs.40,500/- has been paid.  In addition, certain additional risks have been covered for which additional premiums amounting to Rs.22,250/- has been paid as per following details:-

                        Total Add-on Premium: (Rs.)                     22,250.00

The policy covers risks for building, stock(s), content(s), stock of molasses and/or like with following details:-

The Policy clause on spontaneous combustion is reproduced is reproduced below:-

“Spontaneous Combustion

Policy may be extended to cover the above subject to following endorsement wordings-

“In consideration of the payment by the insured to the company of additional premium of Rs.7875.00 the company agrees notwithstanding what is stated in the printed exclusions of this policy to the contrary that the insurance by (items) of this policy shall extend to include loss or damage by fire only of or to the property insured caused by its own fermentation, natural healing or spontaneous combustion.”

N.B.The expression “by fire only” in the endorsement above must not be omitted under any circumstances.”

8.       In Murli Agro Products Ltd. Case (supra) also, the question which arose for decision was whether coverage under the insurance policy for the peril of ‘its own fermentation, natural heating or spontaneous combustion’ stands excluded if there is no flame or fire? In this case also, the policy had a similar add own covering spontaneous combustion, and the relevant clause was worded exactly in the same manner as in the present case.  Reference has also been made to earlier decisions of this Commission in M/s Roshan Lal Oil Mills Ltd. Vs. M/s United India Insurance Co. Ltd. 1(1992) CPJ 293 (NC) and Saraya Sugar Mills Ltd. Vs. United India Insurance Co. Ltd. II (1996) CPJ 9 (NC).  Relevant extract of which is given below:-

     “8. In the case of Saraya Sugar Mills, after considering the similar terms of the policy, this Commission arrived at the conclusion that if fire was required for giving the insurance coverage, then there was no necessity of taking an additional premium for spontaneous combustion.

       The relevant part of discussion is as under-

        “We have heard the parties and gone through the records. The relevant facts are not in dispute. The molasses of the complainant in Tank No.1 were burnt and solidised due to auto heating and spontaneous combustion. The Insurance Company’s case is that as there was no fire due to spontaneous combustion therefore the loss was not covered under the policy. Thus the fate of the case entirely hangs upon the definition of “combustion, spontaneous combustion and fire”. The definition of combustion and spontaneous combustion was considered by this Commission in M/s.Roshanlal Oil Mills Ltd. Vs. M/s. United India           Insurance Co. Ltd., 1 (1992) CPJ  293 (NC). It was observed :

           In scientific literature combustion is defined as under :

‘The burning of any substance, whether it be gaseous, liquid or solid. In combustion, a fuel is oxidized evolving heat and often light ……’

 The combustion of solids such as coal and wood occurs in stages. First, volatile matter is driven out of the solid by thermal decomposition of the fuel and burns in the air. At usual combustion temperature, the burning of the hot, solid residue is controlled by the rate at which oxygen of the air diffuses to its surface…..(Mc-Graw Hill Encyclopaedia of Science & Technology, New York, Vol.3 1982).

       Another test defines combustion as under :

‘The term combustion signifies the process of burning associated generally with fire, flame, the generation of heat, and certain products of reaction. (Encyclopaedia Dictionary of Physics Chief Editor Thewlis, Pergamon Press, Oxford, 1961)’.

        As noticed above, the case of the insurance company is that auto combustion/spontaneous combustion did not cause fire. Therefore, the loss is not covered under the policy. ‘Fire’ had been defined in Chambers 20^th Century Dictionary as follows :

‘the heat and light of burning : a mass of burning matter, as of fuel in a grate : flame or incandescence : a conflagration : firing : fuel : a  heating apparatus :  heat or light due to other causes than burning’.

             In the Concise Oxford Dictionary the meaning of fire has been

              given as follows :

‘Active principle operative in combustion in which substances join chemically with oxygen in air and usu. give out bright light and heat ; flame, incandescence.’

 From the above definition of fire given in the two dictionaries,  it is clear that fire need not necessarily be accompanied by flame. Fire is a form of heat energy which cause smouldering, burning, heating, melting and perhaps some few more words.”

xxxx

“From the definitions of terms ‘combustion’ and ‘spontaneous  combustion’ and the dictionary meaning of “Fire”, it would only be natural to presume that the damage to the stock of molasses has been caused by fire arising from spontaneous combustion.”

9.       The present case is squarely covered under the earlier decisions of this Commission detailed in the preceding para.  Hence, the action of OP in repudiating the claim of complainant as per its letter dated 09.05.2019 cannot be sustained and is hereby set aside.

10.     As regards assessment of loss on cost price basis or market price basis, the complainant argued that value of property destroyed should be measured on the basis of market value since payment of market value will enable the insured to go to the market and by the purchase of similar property, be restored to his original position.  The surveyor has assessed the stock of burnt molasses as 1147MT and unit cost of molasses has been taken as Rs.259.20/qtl. The basis of arriving this value has been explained in para 23.1 of the report, which is reproduced below.  Surveyor has also stated that as the stock of molasses is kept in open storage tank, there is always a possibility of dead stock/wastage and surveyor has considered 5% for the same and deducted from the assessed loss.

“The total quantity of molasses in the factory premise as on 28/08/2018 was 86177.21 Qtls, as per stock register. As per manufacturing cost sheet, the manufacturing cost per qtl. was Rs.453.68 while the sale price of molasses was Rs.300/Qtls on 21/08/2018 and Rs.325/qtls on 29/08/2018, as per sale invoices provided by insured. As the molasses is a byproduct and the company as a whole is in profit, thus we have considered the cost price of molasses as Rs.300/- per qtl. less average % GP, which is 13.60%. Thus the cost price of molasses comes to Rs.259.20/- per qtl. As such the total value of molasses stock as on date of loss was Rs.2,23,37,133/- as against sum insured of Rs.50 crores, hence stock is adequately insured and not underinsurance is applicable. On this we have considered that 15% more may be for packing material stored.”

11.     We are of the view that complainant is entitled to have the loss assessed at prevailing market price as on the ‘date of incident or his sale price on the date of incident (or any date nearest to the date of incident as no sale might have taken place exactly on the date of incident). From such loss, OP is entitled to subtract the salvage value, if any, subject to actual assessment. Surveyor has merely estimated the dead stock/wastage as 5% based on possibility only due to molasses being kept in open storage tank without actually measuring/assessing the dead stock/wastage.  This also needs re-consideration by the OP.

12.     For the reasons stated hereinabove and after giving a thoughtful consideration to the entire facts and circumstances of the case, various pleas raised by the learned Counsel for the Parties, the Consumer Complaint is allowed/disposed off with the following directions/reliefs: -

(i)      Claim is found admissible under the policy.  Repudiation order dated 09.05.2019 of OP is set aside and case is remanded back for fresh assessment of loss keeping in view the observations contained in this order.  The fresh assessment shall be done by OP within 45 days of this order, after giving an opportunity to complainant of filing detailed calculation on loss and of being heard in the matter.  In case OP needs any further details from the complainant, it shall issue a written communication to complainant within one week of this order, giving two weeks’ to complainant to submit required details/documents.  Entire processing of claim and payment of eligible assessed loss will be done by OP within two months from the date of this order.

          (ii)     OP shall pay litigation cost of Rs.50,000/- to the complainant.

13.     The pending IAs, in the Consumer Complaint, if any, also stand disposed off.