JUSTICE V.K.JAIN (ORAL)

The complainant company proposed to construct a five star hotel project at 37, Juhu Beach, Mumbai. The complainant submitted a Proposal and Questionnaire, for obtaining a ‘Contractors All Risks, Insurance’ cover in respect of the proposed construction. Some of the clauses of the said proposal and questionnaire read as under:-

2.            On receipt of the proposal, V.V. Deshpande and Co. was appointed by the insurer for inspection. The aforesaid agency submitted a report dated 19.5.2007 which to the extent it is relevant, reads as under:-

3.      After receipt of the aforesaid report, an insurance policy was issued by the opposite party on 23.8.2007, which to the extent it is relevant, reads as under:-

“Contract Works : RCC > 5 Storeys and <=10 Storeys HOTEL HORIZON 5 STAR HOTEL PROJECT COMPLEX.

“If in the event of the occurrence of a loss or damage it is found that the Sum Insured representing the completed value of contract works and/or of particular items involved is less than the amount required to be insured, the amount recoverable under the Policy shall be reduced in such proportion as the Sum Insured bears to the amount required to be Insured.”

4.      A perusal of the incident report submitted by the complainant to the insurer would show that the proposed building abutted King’s Hotel, Golden Manor Hotel and Nippon Housing Society on the southern side. There was an access road to the said properties running parallel  along with common compound boundary between the proposed hotel building and the said properties. There was a buried underground 6 inches 4 C.I. fire hydrant pipe, running along with the length of the access road leading up to the fire hydrant, in the compound of the Nippon Housing Society. The said underground pipe got burst, as a result of which water collected in the ground, thereby creating huge pressure in the area. As a result of the said pressure and the subsoil water, around 60 ft. of the said shore piling system collapsed. The complainant estimated the cost of reinstatement to be Rs.79903849.23.

5.      The interim survey report dated 15.3.2010 submitted by M/s Cunningham Lindsey International Pvt. Ltd. appointed as surveyors to assess the loss alleged to have been suffered by the complainant,  would show that the entire project comprised construction of five storey hotel including mall complex and was to have three towers called A,B & C having three basements plus  super structure. It further shows that the main hotel complex comprising of towers A and B was to have 237 guest rooms and other associated facilities whereas Tower-C as per the proposal form was to compromise of  3 basements plus six storey super structure and  the said Tower-C was to be occupied for shopping, gymnasium, spa etc. The aforesaid report also shows that the surveyor had provisionally assessed the loss relating to collapsed 26 piles under Annexure -1 of its report and the loss reserve was considered based on cost of 126 piles damage. It was reported that insured’s provisional loss worked out to Rs.38.71 lakhs and the net provisional loss after deductions came to Rs.36.78 lakhs. The surveyor recommended payment of Rs.27.50 lakhs,  constituting 75% of Rs.36.78 lakhs  to the complainant and also recommended loss reserve to be retained at Rs.250 lakhs.

6.      Instead of asking the surveyor to give its final report, the insurer closed the file as ‘no claim’ vide letter dated 7.9.2010 which to the extent it is relevant reads as under:-

“As regards the above claim, it is also observed from the Survey Report that there are three towers (A, B & C) and basement c under construction which were not mentioned in the proposal form. If we consider this as a entire project of Hotel Horizon then there is tremendous underinsurance due to which the claim amount finally arrived falls within the excess limits.

This is the case of non disclosure of material fact and claim is falling below deductible. Hence, we would like to inform that the Competent Authority is of the opinion that the loss does not fall under the purview of the policy. Hence we are closing our files ‘No Claim’ which please note.”

7.      Being aggrieved, the complainant is before this Commission seeking payment of Rs.79903849.23 with interest and  compensation.

8.      The complaint has been resisted by the insurer which has interalia alleged that the complainant deliberately took a policy only for roadside towers having three basements with six storeys building above that .and it deliberately did not take the policy for the other towers. Thus according to the insurer, the complainant concealed the value of the entire project and obtained insurance cover for a much lesser value.

9.      If I go only by the Proposal and Questionnaire which the complainant had submitted to the insurer, it appears that the complainant had projected to the insurer that the entire building was to comprise of three basements plus super structure of six storyes and the cost of the entire project was Rs.32 crores including Rs.5 crore for the material or items to be supplied by the complainant. Relying solely upon the Proposal and Questionnaire submitted by the complainant it can be said that the complainant had represented to the insurer that the cost of the entire project would be Rs.32 crores, though the case of the complaint is that Rs.32 crores was the cost only of the Phase-1 of the project comprising three basements and Tower-C of the project. However, the report of V.V. Deshpande and Co. which the insurer had received before accepting the proposal clearly disclosed to the insurer that the work proposed on the site was only Phase -1 of the hotel project and in the said Phase -1 only three basements plus four storied structures were to be constructed.  The basements was to be utilized for car parking and services whereas the upper floors were to be utilized  for shopping. The second phase comprising restaurants, rooms, etc. was to be constructed later. Having received and considered the above-referred report dated 19.5.2007, the insurer cannot say that it was not aware that the construction proposed at the site was limited to Phase -1 of the project. The insurer instead of seeking a clarification or asking the complainant to submit a revised Proposal and Questionnaire, seeking insurance cover  for the entire project i.e. Phase -1 as well as Phase-2, based upon the cost of the entire project, chose to issue the insurance policy dated  23.8.2007, to the extent of Rs.40 crores, comprising contract price of Rs.27 crores, cost of the supplied material at Rs.5 crore, Rs.3 crore 20 lakhs for surrounding property and Rs.4 crore 80 lakhs for escalation. Therefore, it cannot be said that before issuing the insurance policy, the OP was not aware that the insurance cover was being sought only in respect of Phase -1 of the project which envisaged construction of three basements plus four storeys. Though as per the proposal, the project was to consist of basements plus six storeys whereas as per the pre-insurance inspection, it was to comprise of basements plus four storeys, the said discrepancy would be immaterial since the insurer chose to issue a policy which described the contract work to comprise RCC greater than five  storeys and less than 10 storeys. What is material is that only Phase -1 of the project was insured by the opposite party and it is not correct to say that before issuance of the insurance policy, the opposite party was not aware that it was covering only Phase -1 of the project estimated to cost about 32 crores including an amount of Rs.5 crores for the material to be supplied by it. The OP/Insurer, therefore, was not justified in filing the claim on the ground given in the letter dated 7.9.2010. In fact, even the surveyor appointed by the insurer M/s Cunningham Lindsey International Pvt. Ltd. had opined that the insurance cover was in respect of Block-C of the project and the estimated replacement value of the said block was assessed by it at Rs.3129.77 lakhs. In their opinion, the insured was found to be adequately covered.

10.    The next question which arises for consideration is as to what amount the complainant is entitled from the insurer for the loss suffered by it. As noted earlier, the surveyor M/s Cunningham Lindsey International Pvt. Ltd. did not submit the final report assessing the loss suffered by the complainant and tentatively they had assessed the net loss to the complainant only at Rs.36.78 lakhs, recommending the payment of  75% of that amount to the complainant. Theretofore, it becomes necessary to require the surveyor to make a final assessment of the loss alleged to have been suffered by the complainant. In the absence of such an assessment,  it would not be possible for this Commission to arrive at the correct amount required to be paid by the insurer to the complainant. Though the surveyor recommended loss reserve to be retained by the insurer at Rs.250 lakhs,  that would not amount to assessing the loss to the extent of an additional amount of Rs.250 lakhs. The surveyor in my opinion, should complete the exercise of assessment of loss after obtaining such additional documents and information, if any, as may be required by them for making the said final assessment.

11.    For the reasons stated hereinabove, the complaint is disposed of with the following directions:-

1. The surveyor which the insurer had appointed to assess the loss alleged to have been suffered by the complainant shall make a final assessment of the said loss on the basis of the documents already submitted to them and additional documents and information, if any, as may be sought by them from the insured as well as the insurer.

2. The final assessment in terms of this direction shall be made by the surveyor within four months from the date of this order.

3. The decision on the final assessment made by the surveyor shall be taken by the insurer within two months of receiving the said report, a copy of which shall also be provided to the complainant as soon as it is received from the surveyor.

4. The complainant shall promptly provide all such document and information, as may be required by the surveyor.

5. If the complainant is aggrieved from the payment offered to it by the insurer based upon the final assessment made by the surveyor and other facts, circumstances and documents, it shall be open to the complainant to avail such remedy as may be open to it in law.