THE NEW INDIA ASSURANCE CO. LTD. versus SRI BUCHIYYAMMA RICE MILL & ANR. on 21 January 2020

1. Leave granted.

2. This appeal arises from a judgment of the NationalBConsumer Disputes Redressal Commission[1]dated 4 February 2019, bywhich the decision of the State Consumer Disputes RedressalCommission[2]was reversed and the insurer was di- rected to pay a sumof Rs 29,23,503 together with interest at the rate of nine per cent perannum from the date of repudiation of claim i.e. 15 October 2007.

C3. The first respondent has a rice mill situated in EastGodavari District of Andhra Pradesh. The claim of the first respondentwas in terms of three standard fire and special perils insurance policies,to cover specified risks in respect of plant and machinery, the building,the godowns, stock of rice, paddy, and the boiling units in the year2004-2005. On 19 April 2005, the first respondent reported that whileDthe rice mill was in operation, a lorry which was in the process of reversing,collided with the boiler unit, as a result of which the boiler unit collapsedin its en- tirety together with sixteen storage tanks including a paddybin and an elevator. The damage was estimated at Rs 76 lakhs. A FirstInformation Report was lodged on 21 April 2005, and a telegraphicEintimation was furnished to the appellant on the same day. Initially, theappellant deputed Mr V Satya Sai Baba, an insurance surveyor to conducta preliminary survey of the damage. The report of the preliminary surveywas submitted on 25 April 2005 wherein, it was stated that it was un-likely that the incident had taken place in the manner in which theinsured had claimed. The survey report indicated several reasons inFsupport of these findings, which are extracted below:

“1. According to the information given by the lorry driver ofADB7047 while he is reversing the lorry towards the paddyboiling unit he suddenly heard some noise and jumped from thelorry and observed the collapsing of the paddy boiling unit.G2. After observing the collapsed paddy boiling unit andalleged impact truck ADB7047 jointly the following observationswere clearly observed.

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a. The alleged impact truck rear portion collapsed boiling unitstructures are having reasonable distance, which means thereis no direct impact of alleged truck and structures. Photo no10 shows the clear picture.

b. A huge MS sheet of the paddy boiling bin is hanging inbetween the alleged truck and collapsed structure.

c. No damages bending or twisting of the back portion of thebody of the alleged impact vehicle were found and the body is ingood condition.

3. The alleged impact truck was found far away from thestructure. Hence the structure collapsed due to alleged impactby truck is to be thoroughly investigated. The same wasinformed immediately to the insurer.

4. Based on collapsed structure observations I found theboiling unit columns are flatten like compressed ‘s’ and notcollapsed unevenly. After observing this type of collapse, whichmight be occurred only during structural failure cases.Hence a structural expert opinion is also required in orderto ascertain the real cause of damage. This informationwas also informed to the insurer immediately.

5. The undersigned observed the insured premises of boiling unitarea. The majority of the operations carried from other sideof alleged impact truck location. The clear axes of loading,unloading and other operations are carrying to boiling unit fromthat side only. The present alleged impact truck found locationwas found to be not accessible for the above operation.

6. The insured boiling unit was originally designed for 8 bins andextended to 16 bins during 2004 ending. This extension work wascarried without proper balancing the structure at full load, whichmight be the one of the cause of failure of boiling unit structure.

7. Total paddy boiling unit structure including tanks was collapsed.8. All boiling tanks were with paddy under process at the time ofcollapse.”

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A4. The preliminary surveyor had opined that it would be appropriateif a structural expert was called upon to ascertain the real cause ofdamage. Consequently, a report was submitted to the insurer on 25November 2006, by Professor K Rambabu of Andhra University Collegeof Engineering, Department of Civil Engineering, Visakhapatnam. Thereport of the structural expert indicated that (i) there was no externalBimpact noted on any of the failed columns; (ii) the storage capacity ofthe system had been breached; (iii) the incident was as a result ofexceeding the load carrying capacity of the column section resulting inthe collapse of the entire paddy boiling structure. The appellant deputedM/s Surya Teja Associates in order to investigate into the matter. InCtheir report dated 8 December 2006, which was replete with photographs,the investigator arrived at the finding that though the boiling mill waserected in 1999 with a 32 tons capacity, at the time of collapse, the millwas overloaded to the extent of 184.5 tons. An Insurance RegulatoryDevelopment Authority[3]licenced surveyor, Mr V Abbu Rao was alsodeputed by the insurer to carry out the survey and make an assessmentDof the losses. The surveyor submitted a final survey report dated 29June 2007. Based on an evaluation of the nature of damage, the surveyornoted that (i) no external impact or damage to the failed columns hadbeen noted; (ii) the MS sheet of the paddy bin was hanging in betweenthe vehicle and the collapsed structure which belied the claim that theEbody of boiling unit had collapsed as a result of collision with the lorry.The surveyor concluded with the finding that the boiling tank structurehad collapsed due to overload and not due to the impact of a collisionwith a lorry.

5. Based on the report of the surveyor, the insurer repudiated theFclaim on 15 October 2007. This led to the institution of a consumercomplaint before the SCDRC. The SCDRC dismissed the complainton 16 March 2012. In arriving at this finding, the SCDRC relied upon thefollowing circumstances:

(i) In the telegraphic communication addressed on 19 April 2005Gby the insured to the insurer, there was merely a referenceto the accident without any details of an alleged collisionwith a lorry;

(ii) The appellant’s complaint was lodged at 9 pm on 29 April2005, more than two days after the damage to the unit;H3 “IRDA”

THE NEW INDIA ASSURANCE CO. LTD. v. SRI BUCHIYYAMMARICE MILL & ANR. [DR. DHANANJAYA Y CHANDRACHUD, J.]

(iii) If the lorry had collided with the boiler unit with such a greatimpact as claimed, there would have been extensive damageto the vehicle, but no evidence of any damage to the vehiclehad been produced; A

(iv) The insured had not produced any material evidence tosupport the plea that injuries had been caused to a worker atBthe site;

(v) Though the incident is alleged to have been videographed, nomaterial evidence had been produced; and

(vi) The report of the insurance company surveyor (RW 3) asCwell as of the Professor in the Department of CivilEngineering (RW 4) indicated that the damage had beencaused not as a result of the external impact of a vehicularcollision but because the weight of the mill was beyond theload carrying capacity of the column section. The SCDRCalso relied on the report of the Chief Investigator (RW 5),Dwho had found that at the time of the incident, the mill wasloaded to the extent of 184.5 tons of paddy as against itsoriginal capacity of 32 tons.

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6. The above findings of the SCDRC have been reversed by theNCDRC. In doing so, the NCDRC has come to the conclusion that (i)the report of the surveyor was submitted nearly one and half yearsafter the incident; and (ii) the second survey report was submitted beyonda period of two years. This according to the NCDRC was in breach ofthe Insurance Regulatory and Development Authority of India (Protectionof Policyholders’ Interests) Regulations 2002, more particularly,Regulation 9, which prescribes a period of thirty days for completion ofthe survey. Relying on the report of the Inspector of the FactoriesDepartment, the NCDRC awarded the respondent’s claim in theamount of Rs 29,23,503 together with interest.

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7. In assailing the judgment of the NCDRC, Mr K K Bhat,learned counsel appearing on behalf of the appellant submitted thatthere was a fundamental misconception on the part of the NCDRCin coming to its conclusion. The first survey which was conducted wasin the nature of a preliminary survey. It was submitted that the inspectiontook place on 19 April 2005 at 3 pm, soon after the incident was reported,and a report was submitted within less than a week thereafter on G

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A25 April 2005. A further report was obtained from the structural expertat the Department of Civil Engineering, Andhra University College ofEngineering, since the preliminary survey had set out the need forobtaining a structural opinion. The Chief Investigator submitted his reporton 8 December 2006 and the final survey report itself was submitted on29 June 2007. The final survey report which had been submitted wasBalso of a surveyor who had inspected the site on 21 April 2005. Learnedcounsel while relying upon the decision of this Court in SriVenkateswara Syndicate v Oriental Insurance Company Limitedand Another[4], submitted that in the present case the insurer had validreasons for obtaining a preliminary report after which a structural opinionCand the report of an investigator was sought. It was urged that the finalsurvey report did not arrive at a position at variance with the conclusionof the earlier reports. Hence, this is not a case where the insurer hasappointed a succession of surveyors merely for the purpose of obtaininga favourable opinion. On the contrary, all the reports which had beensubmitted to the insurer are consistent. This Court has in the aboveDjudgment clarified that there is no prohibition per se on more than onesurveyor being appointed, though this cannot be done as a matter ofroutine only to obtain a favourable opinion.

8. On the other hand supporting the judgment of the NCDRC,Ms K Radha, learned counsel appearing on behalf of the respondentEsubmitted that the survey reports which were obtained by the insurerwere after a considerable lapse of time. The delay which has takenplace in the submission of the reports would substantially dilute theirevidentiary value. Hence, it was urged that the NCDRC had taken acogent view of the matter in affirming the claim of the insured in termsFof the three insurance policies.

9. The rival submissions fall for consideration.

10. In order to adjudicate upon the dispute, it is relevant to refer toSection 64- UM(2) of the Insurance Act 1938:

G“64-UM. (2) No claim in respect of a loss which has occurred inIndia and requiring to be paid or settled in India equal to orexceeding twenty thousand rupees in value on any policy ofinsurance, arising or intimated to an insurer at any time after theexpiry of a period of one year from the commencement of the Insurance (Amendment) Act, 1968, shall, unless otherwise directedby the Authority, be admitted for payment or settled by the insurerunless he has obtained a report, on the loss that has occurred,from a person who holds a licence issued under this section toact as a surveyor or loss assessor (hereafter referred to as‘approved surveyor or loss assessor’):

Provided that nothing in this sub-section shall be deemed to takeaway or abridge the right of the insurer to pay or settle any claimat any amount different from the amount assessed by the approvedsurveyor or loss assessor.

(3) The Authority may, at any time, in respect of any claim of thenature referred to in sub-section (2), call for an independent reportfrom any other approved surveyor or loss assessor specified byhim and such surveyor or loss assessor shall furnish such reportto the Authority within such time as may be specified by theAuthority or if no time-limit has been specified by him within areasonable time and the cost of, or incidental to, such report shallbe borne by the insurer.

(4) The Authority may, on receipt of a report referred to in sub-section (3), issue such directions as he may consider necessarywith regard to the settlement of the claim including any directionto settle a claim at a figure less than, or more than, that at whichit is proposed to settle it or it was settled and the insurer shall bebound to comply with such directions:

Provided that where the Authority issues a direction forsettling a claim at a figure lower than that at which it has alreadybeen settled, the insurer shall be deemed to comply with suchdirection if he satisfies the Authority that all reasonable steps,with due regard to the question whether the expenditure involvedis not disproportionate to the amount required to be recovered,have been taken with due dispatch by him:

Provided further that no direction for the payment of a lesser sumshall be made where the amount of the claim has already beenpaid and the Authority is of opinion that the recovery of the amountpaid in excess would cause undue hardship to the insured:

Provided also that nothing in this section shall relieve the insurerfrom any liability, civil or criminal, to which he would have beensubject but for the provisions of this sub-section.”

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A11. Section 64 UM (1) of the Insurance Act 1938, speaks oflicensing of surveyors and loss assessors. In the present case, we arenot concerned with sub-section (1). Sub-section (2) mandates that noclaim in respect of a loss which has occurred in India and requiring to bepaid in an amount equal to or exceeding Rs 20,000 in value on anypolicy of insurance shall be admitted for payment, unless the insurerBobtains a report of a surveyor or loss assessor who holds a licenseissued under sub-section (1) of Section 64 UM. Sub-section (3) empowersIRDA with the power to obtain an independent report from any othersurveyor in respect of a claim of the nature referred to in sub-section (2). Sub-section (4) envisages that the regulatory authorityCmay issue such directions as it may consider necessary on receipt ofthe report referred to in sub-section (3). The proviso to sub-section (2)reserves to the insurer the right to pay or settle the claim for an amountdifferent from the amount assessed by the surveyor or loss assessor.

12. The impugned judgment of the NCDRC has incorrectlyDanalysed the basis by the insurer for the appointment of surveyors forthe purpose of inspection and assessment. The record to which we haveadverted to earlier would indicate that immediately upon receipt of anintimation of the incident, the insurer initially appointed a surveyor tosubmit a preliminary survey report. The inspection was carried out on19 April 2005 close on the heels of the incident. The report of theEpreliminary surveyor found serious anomalies in the claim of the insuredin regard to the genesis of the incident. It was on the suggestion of thesurveyor that the appellant obtained an opinion from a structural expertfrom the Department of Civil Engineering, Andhra University Collegeof Engineering. The insurer thereafter proceeded to obtain the opinionFof an investigator on 8 December 2006, and eventually, a final surveyreport was submitted on 29 June 2007. The purpose of the final surveywas to determine, on the basis of the material which had emerged duringthe course of an inspection the cause of the incident, and to assess theextent of damage and loss.G13. In Sri Venkateswara Syndicate (supra), the issue beforethis Court was whether the insurer can appoint successive surveyorsfor getting the loss and damage assessed before settling the claim of theinsured. The two judge Bench while explaining the purpose of a reportof the surveyor observed thus:

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THE NEW INDIA ASSURANCE CO. LTD. v. SRI BUCHIYYAMMARICE MILL & ANR. [DR. DHANANJAYA Y CHANDRACHUD, J.]

“31. The assessment of loss, claim settlement and relevance ofsurvey report depends on various factors. Whenever a loss isreported by the insured, a loss adjuster, popularly known asloss surveyor, is deputed who assesses the loss and issuesreport known as surveyor report which forms the basis forconsideration or otherwise of the claim. Surveyors areappointed under the statutory provisions and they are the linkbetween the insurer and the insured when the question ofsettlement of loss or damage arises. The report of thesurveyor could become the basis for settlement of aclaim by the insurer in respect of the loss suffered by theinsured.”

This Court held that the report of a surveyor must be given dueimportance and that there should be sufficient grounds for explaininga disagreement with an assessment made by a report of the surveyor.Yet at the same time, under Section 64-UM(2) of the Insurance Act1938, it is not open to the insurer to merely appoint a succession ofsurveyors with a view to obtain a tailor-made report. It is open to theinsurer to appoint another surveyor for valid reasons bearingon the deficiencies found in the survey report and the reasons whichmust be indicated by the insurer. In this backdrop, the two judge Benchwhile holding that there is no absolute prohibition on the insurer appointingmore than one surveyor observed thus:

33. Scheme of Section 64-UM, particularly of sub-sections(2), (3) and (4) would show that the insurer cannot appoint asecond surveyor just as a matter of course. If for any valid reasonthe report of the surveyor is not acceptable to the insurermay be for the reason if there are inherent defects, if it isfound to be arbitrary, excessive, exaggerated, etc., it mustspecify cogent reasons, without which it is not free toappoint the second surveyor or surveyors till it gets a reportwhich would satisfy its interest. Alternatively, it can be statedthat there must be sufficient ground to disagree with thefindings of surveyor/surveyors. There is no prohibition inthe Insurance Act for appointment of second surveyor bythe insurance company, but while doing so, the insurancecompany has to give satisfactory reasons for not accepting A

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Athe report of the first surveyor and the need to appointsecond surveyor.”

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“35. In our considered view, the Insurance Act only mandatesthat while settling a claim, assistance of a surveyor should beBtaken but it does not go further and say that the insurer would bebound by whatever the surveyor has assessed or quantified; iffor any reason, the insurer is of the view that certainmaterial facts ought to have been taken into considerationwhile framing a report by the surveyor and if it is not done,Cit can certainly depute another surveyor for the purposeof conducting a fresh survey to estimate the loss sufferedby the insured.”

14. While determining whether the appointment of a second orDsuccessive surveyor is justified, one must take into consideration thenecessity of doing so and it must be weighed in the context of relevantfacts and circumstances including the deficiencies or omissions in thereport of the first surveyor. Each case must be independently consideredbased on relevant facts and circumstances. There ought to be cogentEreasons for appointing a second surveyor.

15. At this point, we may take note of a two judge Bench decisionof this Court in New India Assurance Company Limited v ProtectionManufacturers Private Limited[5], where a submission was made thatunder Section 64-UM of the Insurance Act 1938, prior to the appointmentFof a subsequent surveyor, the insurer ought to have gone to the RegulatoryAuthority and under sub-section (3), it was for the Regulatory Authorityto call for an independent report from any other surveyor. It wasargued that the subsequent report of the surveyor must be disregardedon the above ground. This Court made a passing reference to thesubmission and accepted the contention. However, the facts of the aboveGcase are distinguishable from the present case. In the above case, theinsurance company appointed another surveyor, who based on a cursoryinvestigation determined the damages suffered by the insured in an amountclose to the assessment made out by the insurer. This Court disregardedthe subsequent report describing it as a tailor-made report, motivatedH5 2010 7 SCC 386

and intended to benefit the insurer. Significantly, in the present case allthe survey reports have spoken in one voice. The theory of the insuredthat the collapse of the entire boiler unit of the mill was due tothe impact of a collision with a reversing lorry is belied by the cogentreasons which form the basis of the repudiation of the claim by theinsurer. As a matter of fact, it is significant that in the first intimation bythe insured of the incident, there was no reference to an alleged collisionof the boiler unit with the lorry. This fact was noticed by the SCDRC.That apart, it is evident from the survey reports that the column sectiondid not contain any evidence of an impact damage that would be sustainedby collision with a lorry. The lorry had evidently suffered no damage atall, something that would have been unlikely if there was an impact withthe boiler unit with such a high force. These reasons were the foundationof the order of the SCDRC.

16. In the present case, as we have noted, the process which wasfollowed by the insurer was not designed to obtain a report whichwould adopt a position adverse to the claim of the insured. Thereexist no mala fides on part of the insurer. On the contrary, it is evidentfrom the record that the reports which have been relied upon maintaineda consistent line of reasoning in regard to the nature and genesis of theincident. In this backdrop, we are of the view that the NCDRC has notacted reasonably in overturning the considered decision of the SCDRC.Cogent reasons were given by the SCDRC for rejecting the claim ofdeficiency of service on the part of the insurer. On the basis of thematerial which has emerged from the record, we find the opinion of theSCDRC to be correct. The view which has been taken by the NCDRCis not consistent with the statement of legal position as containedin the judgment of this Court in Sri Venkateswara Syndicate (supra)and is contrary to the material evidence on the record.

17. For the above reasons, we allow the appeal and set aside theimpugned judgment of the NCDRC dated 4 February 2019. The consumercomplaint filed by the respondent shall accordingly stand dismissed.There shall be no order as to costs.

Appeal allowed.

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