DR. SADHNA SHANKER, MEMBER

1.       The complainant has filed the instant complaint under section 21(a)(i) of the Consumer Protection Act, 1986 (hereinafter referred to as the ‘Act’) against the opposite party – The Oriental Insurance Company Ltd. (hereinafter referred to as the ‘insurance company’) alleging deficiency in service on the part of the insurance company for repudiating the claim of the complainant.

2.       The facts of the complaint are that on 22.01.2014, the complainant, who purchased two Derrick Sizers from M/s Derrick Corporation, which were imported from United States for establishment of its pellet plant, obtained an Erection All Risk Policy for the sum insured of Rs. 78.50 crore covering erection of the iron ore plant at Jairam Nagar Bilsapur, from the insurance company. The insurance policy was valid from for the period from 22.01.2014 to 21.07.2014. It is alleged that the insurance company only provided the endorsement schedule and the Erection All Risk Policy Schedule as complete documentation for insurance cover. It is further stated that the complainant engaged erection agencies i.e Prabhat Sales and Services and M/s Sneha Engineering for erection and commissioning of the machinery. During the subsistence of the insurance policy, on 06.05.2014, a fire accident took place at the plant, which caused complete damage to the two derrick screen sizers and a flow divider. The necessary reports i.e. incident report, damage report, fire report were drawn and intimation was given to the police and a written account of the incident was recorded inter alia reporting that during the cold trial, the motor was found running, however it suddenly started taking high current, resulting which the connected cable was heated. The failure to break this high current led to excessive heating leading to emission of smoke and consequently, the PVC Cable was burnt and on which account the connected rubber hose caught fire leading to fire in the Derrick Screen and Flow Divider. On the same date, i.e. on 06.05.2014 an intimation was given to the insurance company. On 07.05.2014, a representative of the Derrick conveyed his opinion via email that the damage to the machinery was irreparable and would be considered as a complete loss. The insurance company appointed a surveyor, who submitted preliminary report concluding that the fire took place due to the flash over in the starter during the process of cold trial of the screens and requested for documents. On 12.05.2014, an inspection was carried out by Thejo Engineering Limited and it was observed in its report that said parts of the equipment required total replacement. It is alleged that on 13.05.2014, the complainant submitted the required documents to the preliminary surveyor. It is further alleged that subsequently, the insurance company appointed another surveyor Mr. Sandeep Bharti. On 28.05.2014, Dr. Srivastava, purportedly representing Derrick i.e. OEM visited the plant and in his report of inspection observed that:

“….As it is mentioned by M/s Rashi Steel and Power Ltd. The main cause of the fire incident is due to Short Circuiting of the power supply cable. This might be possible due to high current drawn by screen motors. High Current may lead to the heating and melting of the cables and cause short circuiting. Over load/high current of motor may be due to so many reasons which cannot be assessed exactly due to the site conditions.

          It is further alleged by the complainant that vide letters dated 20.06.2014, 28.08.2014 and 25.03.2015 the complainant provided all the information and documents as sought by the surveyor. It is also alleged that a fire report dated 06.12.2014 was issued by the Bilaspur Nagar Nigam certifying having undertaken the fire extinguishing task. The certificate dated 08.07.2015 issued by Derrick, New York certifying that the machine could not be repaired and that the Derrick screen were burnt in a fire accident, was also filed by the complainant. It is further alleged that the complainant provided all the information and documentation. The complainant filed its claim with the insurance company on 14.03.2016. It is further alleged that the complainant satisfied the queries raised by the surveyor and provided the report of Mr. Abhishek Shukla and Mr. Rustam Hyatt clarifying that the exact cause of the fire was unknown. It is further alleged that the surveyor, without seeking any expert report into the cause of fire and without appreciating that the General Exclusions were not provided nor communicated to the complainant with the policy and documentation executed with the complainant in the instant case, proceeded to adjudicate upon the complainant’s claim by rejecting the same. The insurance company vide its letter dated 23.08.2017, repudiated the claim of the complainant on the ground of non-supply of requisite documents, failure to comply with the installation procedure as stipulated by Derrick and purported willful negligence in non-removal of brackets.

3.       The insurance company contested the complaint by raising the preliminary objections that the complaint is not maintainable as the services of the insurance company do not suffer from any deficiency. It is further stated that there was a failure on the part of the complainant to adhere to the obligations contained in the terms and conditions of the policy, hence, the insurance company had rightly repudiated the complaint. It is further stated that the surveyor had concluded that the action of not removing the shipping brackets from the stack sizer machines amounted to an act of willful negligence on the part of the complainant and their representative and therefore, the insurance company is not liable for any loss. It is further stated that the inspection report dated 15.06.2016 clearly indicates that the presence of shipping brackets in burnt condition clearly indicated that the installation was not done appropriately by following the procedure and that the equipment was not ready for operation. It is further submitted that the insurance contracts are required to be construed strictly. It is further stated that the matter involves complex matter requiring a detailed and critical examination of the evidence and cross examination, which cannot be resorted to under the summary jurisdiction of the consumer forum and the matter should be looked into by the civil court for proper and detailed examination. ,

4.       The complainant has filed rejoinder to the written statement.

5.       The complainant and the insurance company have filed their respective evidence by way of affidavit.

6.       We have heard the arguments of learned counsel for the parties and have perused the material available on record.

7.       The main issue for consideration before us is as to whether the repudiation of the claim by the insurance company is justified or not.

8.       It is apposite to quote the repudiation letter 23.08.2017, which reads as under:

“Sub. : Repudiation of your claim No. 193300/44/2015/000001 arise under an erection all risk Insurance Policy No. 193300/44/2014/15 (period of insurance claim from 22.01.14 to 21.07.14 including one month testing period, date of loss/fire 06.05.14 name of insured M/s Rashi Steel & Power Limited Jairam Nagar, Bilaspur.

          Respected Sir,

With due respect we have to inform herewith that your above mentioned fire claim has been finally adjudicated by the companies competent authority and on conclusion we are going to repudiate your this fire claim on the following grounds:-

1. That insptie of several written damand you have not provided the requisite documents / information to the deputed surveyor till preparation of final survey and assessment report dated 08.06.2017.
2. That, you have failed to provide/furnish a confirmation from M/s Derrick, Corporation (the manufacturer) in respect of appropriate following the installation procedure as prescribed by M/s Derric Corporation in the installation manual of said machine, not only this much you also not followed the strict instructions of M/s Derric Corporation in respect of installation work and also yourself, your enginers and representatives did not remove the shipping brackets of the captioined 2 nos. Stack Sizer Screening Machines therefore, it caused electrical short circuit resulting fire to these machines. Your said action was found to be a willful act / willful negligence which is committed yourself as well as your engineers and responsible representatives who had performed their duties under your instruction as well as employment.
3. As per insurance policy condition, especially General Exclusion © which says that the company will not indemnify the insured in respect of loss, damage, or liability directly or indirectly caused by or arising out of or aggravated by willful act or willful negligence of insured or his responsible representative.

So you are hereby informed that your above mentioned fire claim has been repudiated on the ground as mentioned above, which is well supported with the final assessment report and also are squarely covered under the terms and conditions of insurance policy. This repudiation letter is being issued without any prejudice or without any illwill or malafide intention. We assure our best possible services which are likely to be provided under the terms and conditions of insurance policy to you in future.”

9.       Learned counsel for the complainant has challenged the repudiation letter dated 23.08.2017 mainly on three counts, firstly, that the claim has been repudiated by invoking General Exclusion Policy, which was never provided to the insured. It was submitted that only the endorsement schedule and the Erection All Risk Policy Schedule was provided to the complainant. The General Exclusion clause of the policy being relied upon for the repudiation was never provided to it. It was further argued that the insurance company had not filed any evidence to prove that the General Exclusion Clause of the policy was supplied to the complainant and in the absence of the General Exclusion Clause of the policy not being provided, the same cannot be invoked to repudiate the claim. Secondly, with regard to first ground of repudiation regarding non submission of documents by the complainant, the complainant had provided all the information asked for by the surveyor, vide letters dated 20.06.2014, 28.08.2014, 25.03.2015, 10.11.2015, 20.07.2015, 14.03.2016, 31.08.2016 and 19.01.2017. Each and every query of the surveyor has been responded as is evident from the record and therefore, non-furnishing the documents cannot be a ground for repudiation. Thirdly, even if the General Exclusion Clause of the policy is applicable in this case, it is to be noted that the nature of the policy that was taken was specific to insure against any untoward incident that may occur during the installment / commission and testing of the machinery. Further, it was argued that the insured had hired the services of a specialized third party for installment of the machinery and the non-removal of bracket cannot amount to negligence (much less ‘willful negligence’) of the insured as the removal of bracket was the responsibility of the third party agency and not the complainant. It was also argued that any general exclusion clause of the policy has to be interpreted in order to give meaning to the purpose of the policy and not render it illusory. It is also submitted that for insurance cover against fire, a detailed scrutiny of the cause of incident, just for the purpose of avoiding any liability cannot and should not be done unless it appears that the incident was orchestrated by the insured deliberately. The General Exclusion Clauses, therefore, has to be operated only in an exceptional circumstances. In support of this contention, he relied on the decisions in the cases of T. Appu vs. The Divisional Manager, National Insurance Limited (2011) SCC Online NCDRC 1697 and Canara Bank vs. M/s United India Assurance (2020) 3 SCC 455.

10.     Learned counsel elaborated on the General Exclusion Clause of the policy, which relates to ‘willful negligence’. The term ‘willful negligence’ does not include in its ambit every error or lapse. He relied on the decision in the case of DCW Ltd. Nirmal vs. United India Assurance Co. Ltd. 2023 SCC Online NCDRC 1370 on the concept of willful negligence. It was also submitted that as per the General Exclusion clause, it is only the willful negligence of “responsible representative” of the complainant that is excluded and not that of any employee. The employees, who were trying to install the machinery cannot be termed as responsible representative for the General Exclusion Policy. For this proposition, he relied on Bajaj Allianz General Insurance Co. Ltd. vs. Samsung C & T Pvt. Ltd., RFA No. 68 of 2018 decided on 22.01.2018. It was further argued that the surveyor came to the conclusion that the fire started because “the brackets were not removed from the machine based on verbal evidence” and not of any evidence. In view of the submissions made, it was submitted that the repudiation of the claim by the insurance company is a clear deficiency in service on its part and the insurance company is liable to indemnify the loss.

11.     On behalf of the insurance company, learned counsel firstly argued that the claim involves detailed appreciation of the facts and evidence, which is not in the jurisdiction of the consumer court. It was further argued that the submission of the complainant that the copy of the exclusion clause was not furnished to them was not binding and was without any merit. He drew the attention to the Erection All Risk Policy Schedule, which clearly states that “The insurance under this policy is subject to warranties & Clauses (as per forms attached)”. He relied on the judgment of this Commission in the case of Anjaneya Jewellery vs. New India Assurance Co. Ltd. & Ors. III (2018) CPJ 565 (NC) wherein it was held that once the policy mentions that there are other documents, which form part of the policy, the insured either should not accept the policy or it should immediately write a letter to the insurer seeking the same. Thirdly, it was submitted that the survey report carries immense significance and cannot be brushed aside unless complete perversity is established by leading contradictory evidence. For this proposition, he relied on Roshan Lal Oil Mills Ltd. & Ors. (2000) 10 SCC 19, Oriental Insurance Co. Ltd. vs. Pavan Enterpises & Anr. I (2016) CPJ 503 (NC), Khatema Fibres Ltd. vs. New India Assurance Co. Ltd. and another 2021 SCC Onlione SC 818, Suraj Mal Ram Niwas Oil Mills (P) Ltd. vs. United India Insurance Co. Ltd. (2010) 10 SCC 567 and Vikram Greentech (I) Ltd. vs. New India Assurance Co. Ltd. (2009) 5 SCC 599.

12.     In this case, it is undisputed that the two machines caught fire during the validity of the insurance policy i.e. from 22.01.2014 to 21.07.2014. The surveyor had given a very detailed survey report and come to the conclusion that the cause of fire was the ‘willful negligence’ of the insured in not removing the shipping brackets on the Stack Sizer Machines. As per the surveyor’s report, this resulted in an electric short circuit leading to fire in machines. The shipping brackets are provided to facilitate transportation of the equipment and as per installation guidelines of the supplier, the shipping brackets had to be removed prior to installation and testing. The surveyor has assessed the loss at Rs.2,22,56,768/-. However, he recommended that the General Exclusion (C) of the policy applies in this case as non-removal of brackets amounts to ‘willful negligence’ of the insured or his responsible representative. Thereafter, the insurance company repudiated the claim.

13.     As regards the first objection of the insurance company that this matter involves complicated questions of fact and law and therefore, this Commission does not have jurisdiction to entertain the same, does not appear to have any merit. This is a case of examination of whether the repudiation by the insurance company was correct and the interpretation of the terms of the policy, which is clearly within the jurisdiction of the consumer commission.       

14.     As regards the plea of the insured that the General Exclusion clause of the policy document was not provided to them, it is seen that the documents provided to the complainant clearly stated that the insurance under this policy is subject to warranties and clauses. Further, the complainant is a private limited company and has taken an insurance of Rs. 78.50 crores for the machinery by paying premium of Rs. 4,32,193/- on the same. For a corporate entity, which is engaging in high value transactions and taking substantial insurance for the same, it is difficult to accept the proposition that no efforts were made to acquire or gain knowledge of the exclusion policy that was clearly mentioned in the documents received by the complainant. The decision in the case of Anjaneya Jewellery (supra)  squarely applies in this case. This ground of the complainant lacks merit.

15.     In this case, it is seen that all the questions asked for by the surveyor have been responded to by the insured each time. A perusal of the responses shows that the question and answers are in a tabulated form and therefore, each and every question had been answered. The replies also state that the documents as asked for are attached along with reply. Therefore, the first ground of repudiation that the documents asked for are not supplied does not appear to be correct from the evidence on record. Therefore, the contention of the learned counsel for the insurance company that the documents are not produced is rejected.

16.     The main contention in this case is as to whether the non-removal of brackets prior to installation and testing amounted to willful negligence by the insured on its responsible representative.

17.     What constitutes ‘willful negligence’ has been elaborately dismissed by this Commission in the case of DCW Ltd. Nirmal vs. United India Assurance Co. Ltd. (supra), which is quoted below:

“27. In legal sense, Negligence signifies failure to exercise a standard of care which the doer as a reasonable man should have exercised in a particular situation. Negligence is to be either established or Res-ipsa Loquitur that the situation of a particular act is enough to understand what has happened or mere occurrence of some type of accident is sufficient to imply negligence. Wilful negligence, also known as reckless or wanton negligence is where the defendant disregards the risks of his actions and possible impacts. Wilful negligence has all the elements of gross negligence, but it also requires that the defendant knows or should have known about the potential injury. It is the highest degree of negligence. It is indifference not just to safety or rights but also to the effects of their behaviour.

28. As regards element of negligence in Claims, in a UK case P (A Child) v Royal London Mutual Insurance Society Ltd [2006] EWCA Civ 421 (30 March 2006) The Court stated that: “Most acts, including negligent acts, are deliberate and intentional.” The court further stated: “Obviously if the act is deliberate and intended to cause damage of the kind in question it will be within the exclusion. It will be wilful, as the judge held, and might also be malicious or criminal. But for an act to be wilful I do not think it is necessary to go as far as this. It will be enough to show that the insured was reckless as to the consequences of his act. Recklessness has been variously defined but if someone does something knowing that it is risky or not caring whether it is risky or not he is acting recklessly.”

29. The Circuit Court of Appeals, Fifth Circuit, US, in the case Federal Insurance Co. et al. v. Tamiami Trail Tours Inc. et al. (1941) stated that: “An overwhelming percentage of all insurable losses sustained because of fire can be directly traced to some act or acts of negligence. Were it not for the errant human element, the hazards insured against would be greatly diminished. It is in full appreciation of these conditions that the property owner seeks insurance, and it is after painstaking analysis of them that the insurer fixes his premiums and issues the policies. It is in recognition of this practice that the law requires the insurer to assume the risk of the negligence of the insured and permits recovery by an insured whose negligence proximately caused the loss. In the absence of fraud or gross negligence on the part of the insured, his negligence is no defence against his recovery.”

30. As regards wilful, deliberate and negligence acts, in Sheehan v. Goriansky, (1947) the Supreme Judicial Court of Massachusetts stated: “Wilful means intentional….. The "undoubted rule applicable to ordinary insurance" is that an insurance policy indemnifying an insured against liability due to his wilful wrong is void as against public policy.”

31. In the case Beresford v Royal Insurance Co Ltd, HL 1938, the House of Lords stated: ‘On ordinary principles of insurance law an assured cannot by his own deliberate act cause the event upon which the insurance money is payable. The insurers have not agreed to pay on that happening. The fire assured cannot recover if he intentionally burns down his house, nor a marine assured if he scuttles his ship, nor the life assured if he deliberately ends his own life. This is not the result of public policy, but of the correct construction of the contract.’ and ‘But apart from these considerations the absolute rule is that the courts will not recognise a benefit accruing to a criminal from his crime.’”

32. However, in a recent judgement by the England and Wales Court of Appeal, in the case CA Blackwell (Contracts) Ltd v Gerling Allegemeine Verischerungs -Ag [2007] EWHC 94, the court stated:

“49. It is common ground that an insured is not entitled to indemnity in respect of a casualty which he or it (as opposed to someone else) was brought about by wilful misconduct, the principle arising as a matter of public policy.”

33. Thus, the conclusions are twofold: (1) most claims will have some element of negligence, and this is not a bar to paying the claim, unless the negligence is wilful, or the insured had acted recklessly; (2) the onus of proving wilful negligence or recklessness is on the insurer. Mere allegations will not be sufficient.”

18.      Further, in the case of T. Appu (supra), the Hon’ble Kerala High Court has observed that “it is not necessary that the fire should be purely accidental in origin. Fires are frequently due to negligence and one of the objects of a fire policy is to protect the assured against the consequences of negligence. It has further been held in some cases that “exceptions are inserted in the policy mainly for the purpose of exempting the insurers from liability for a loss, which, but for the exception, would be covered by the policy, they are construed against the insurers with the utmost strictness.”

19.     From the principle enunciated above, it is clear that the term ‘willful negligence’ involves an element of mens rea and intention towards the alleged act of negligence and the onus of proving the same is on the insurer. There is a difference between “gross negligence” and “willful negligence” and mere negligence itself cannot be a bar to claim under insurance policy.

20.     It is seen in this case that the complainant had employed a company that is an expert in installation of such machines and did not get it done exclusively through its own employees only. The shipping brackets were not removed prior to the testing is an admitted fact, and this may amount to negligence. However, the insurance company and the surveyor have not been able to prove that this is a deliberate act or an orchestrated act done by the complainant, which is an essential ingredient to take shelter under the Exception clause of ‘willful negligence’. In the entire survey report, there has been no allegation that non-removal of the brackets was done deliberately or intentionally by any employee / agency involved in the installation process. Mere negligence cannot be a ground to oust an insured from being compensated for the loss that occurred. The insurance company has not been able to discharge its onus to prove ‘willful negligence’ on the part of the complainant.

21.     Based on the above discussion and after carefully going through the material on record, we are of the view that the loss caused to the two machines is within the scope of the insurance contract between the parties, and it is not covered under the General Exception. As per the survey report, the surveyor has calculated the loss at Rs.2,22,56,768/-.

22.     In the result, the complaint is allowed in part and the insurance company is directed to pay a sum of Rs. 2,22,56,768/-, the loss as assessed by the surveyor, along with compensation in form of interest at the rate of 6% per annum from the date of repudiation till the date of payment, to the complainant within a period of eight weeks from today, failing which, the rate of interest shall be enhanced to 9% per annum. All pending applications, if any, shall stand disposed of.