Full Judgment Text
Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 6527 OF 2002
Sikka Papers Limited ..Appellant
Versus
National Insurance Company Ltd. & Ors. ..Respondents
J U D G E M E N T
R.M. LODHA, J.
This appeal under Section 23 of the Consumer
Protection Act, 1996 (for short ‘the Act’) is at the instance of the
complainant as its claim to the tune of of Rs.35,06,000/- against
the National Insurance Company Limited (for short ‘insurer’) has
not been accepted in its entirety and the National Commission in
its judgment and order dated July 18, 2002 directed the insurer to
pay to the complainant an amount of Rs. 10,47,491 only along
with interest at the rate of 12% from March 1, 2000, till the date of
payment after adjusting the amount already paid.
2. The facts from which the controversy arises are these:
The complainant, Sikka Paper Limited, is a limited company
engaged in the manufacture of paper having a paper mill unit in
District Muzaffarnagar (U.P.). For want of regular and continuous
supply of electricity from the Uttar State Electricity Board, the
complainant purchased the Diesel Generating Set of 1000 KVA of
Kirloskar Cumins Limited with alternator of 1250 KVA for the
smooth running of its unit. The said diesel generating set along
with alternator was got insured by the complainant for a period
from April 8, 1999 to April 7, 2000 for Rs.35,00,000/- vide
insurance policy No. 451902/46/99/415. The complainant paid a
premium amount of Rs.55,860/- to the insurer.
3. On December 25, 1999, the said generating set broke
down and it could not start again despite efforts. The concerned
officers of the insurer were intimated in this regard by the
complainant and they were requested for arranging immediate
survey of the insured generating set. The first surveyor appointed
by the insurer is said to have completed his inspection on
December 26, 1999 and advised the complainant to send the
engine to the authorized repairers viz., Cumins Diesel Sale and
Service (India) Limited, Pune. On December 30, 1999, another
surveyor is said to have inspected the diesel generating set and
identified the damages and the complainant with the consent of the
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insurer, sent the diesel generating set for repairs to authorized
repairers at Pune. The authorized repairers gave the estimate of
expenses of repairs to the tune of Rs.27,00,395/- and repaired the
diesel generating set. The complainant is said to have paid
Rs. 25,00,000/- to the repairers.
4. The case of the complainant is that all bills acquired
and directed by the insurer and their appointed surveyors and as
required by the policy were handed over to the insurer and the
complainant was told that the actual expenses incurred by them
in the repairs of the diesel generating set as well as reinstatement
charges would be paid but later on they agreed to reimburse
Rs.8,07,110/- only. Constrained thereby, the complainant
approached the National Commission and claimed a sum of
Rs.25,00,000/- towards repairs of diesel generating set;
Rs.10,00,000/- for mental harassment and damages along with
interest and costs. The complainant alleged that the insurer failed
to discharge their obligations under the insurance policy and with
mala fide intention to defeat and delay its legitimate claim,
adopted all unwarranted and illegal devices.
5. The insurer resisted the complaint and set up the plea
that claim of Rs.8,07,110/- was accepted as per the surveyor’s
report dated May 15, 2000; the surveyor considered the damage
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caused as a result of the accident to the various parts of the diesel
generating set and wherever he found that replacement was
required, he provided for the same. The insurer stated that the
surveyor assessed the damages on the basis of only those items
which were affected in accidental damage and the balance items
not following the scope of the policy were disallowed. It was the
case of the insurer that the parts which did not suffer any damage
as a result of accident were not liable to be replaced at the
expense of the insurer. The insurer also averred that the surveyor
in its report dated May 15, 2000 after considering the damage
caused to the diesel generating set has allowed amounts for
carrying out the necessary replacement of parts damaged in
accident after deducting the depreciation. The deduction at the
rate of 25.71% as under-insurance was also sought to be justified.
The insurer denied the claim towards mental harassment.
6. The National Commission, inter alia, considered the
matter thus:
“… We are also unable to accept the figure
given by the Complainant for purchase of the Engine
as well as while it meets the ‘capacity’ requirement
but not of ‘kind’ i.e. a cumin engine thus not meeting
the requirement of the Terms of Policy as reproduced
earlier under the head ‘Sum Insured’. We find that the
third Surveyor has taken pains to explain each and
every part of the repairs, freight etc. and his
assessment of loss is as per terms of the Policy which
alone can form the basis of payment to the
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Complainant. We also see further material on record
that estimates of Rs.25 lakhs for repairs relate to
replacement of several parts not affected by the
incident but to prolong the life of the Engine. Full
reimbursement has been made for replacement of
crankshaft, Main bearings, connecting Rod bearing, oil
coolers and Gears but not for cylinder liners, Piston
and Pistons rings as they are expendibles, to the
extent that they are subject to wear and tear on
account of constant use. The latter contingency is
not covered by terms of the policy, hence cannot be
allowed.
In the light of above discussions, we direct
the Opposite Party to pay to the Complainant an
amount of Rs.10,47,491/- as assessed by the third
Surveyor along with interest @ 12% from 1.3.2000
i.e. after two months of the receipt of the report of the
second Surveyor, till the date of payment after
adjusting for the payment already made. The
Opposite Party shall also pay cost of Rs. 5000/- to the
complainant.”
7. We heard the learned counsel for the parties. In the
light of the contentions advanced before us, the following two
questions arise for our consideration:
(one) Whether the insurer was justified in
accepting report dated May 15, 2000 submitted by
the surveyor who had assessed the loss of
Rs.14,45,000/- after deducting about Rs.10,55,000/-
from Rs.25,00,000/- i.e. actual amount paid by
the complainant for repairing the diesel
generating set ?
(two) Whether the insurer was justified in
deducting an amount of Rs.3,71,509.50 (25.71%)
as under insurance from the loss assessed at
Rs.14,45,000/- by the surveyor in its report dated
May 15, 2000 ?
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re : question (one)
8. That the complainant took machinery insurance
policy to cover diesel generating set of 1000 KVA with alternator
of 1250 KVA from the insurer is not in dispute. The said diesel
generating set with alternator was got insured for the period from
April 8, 1999 to April 7, 2000. Although the said diesel generating
set with alternator was purchased by the complainant as per the
invoice in 1997 for Rs. 45,00,000/-, it is not in dispute that sum
insured for alternator was Rs. 9,00,000/- and diesel generating
set Rs.26,00,000/- i.e., insurance cover was for Rs. 35,00,000/- in
all. It is also an admitted position that on December 25, 1999,
the diesel generating set that was insured with insurer broke
down and could not be started. The spot survey was got
conducted by the insurer and on the advice of the surveyor, the
diesel generating set was sent to authorized repairers at Pune for
repairs. The last surveyor’s report is May 15, 2000. According to
the complainant, they paid a sum of Rs.25,00,000/- to the
repairers for the repairs of diesel generating set but the insurer
relying upon the report of the last surveyor agreed to reimburse
the sum of Rs.8,07,110/- only which was not acceptable to the
complainant.
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9. In Vikram Greentech (I) Ltd. & Anr. v. New India
1
Assurance Co. Ltd., we considered the essentials of insurance
of contract thus:
“15. An insurance contract, is a species of
commercial transactions and must be construed like
any other contract to its own terms and by itself. In
a contract of insurance, there is requirement of
uberimma fides i.e. good faith on the part of the
insured. Except that, in other respects, there is no
difference between a contract of insurance and any
other contract. The four essentials of a contract of
insurance are, (i) the definition of the risk, (ii) the
duration of the risk, (iii) the premium and (iv) the
amount of insurance. Since upon issuance of
insurance policy, the insurer undertakes to indemnify
the loss suffered by the insured on account of risks
covered by the insurance policy, its terms have to
be strictly construed to determine the extent of
liability of the insurer. The endeavour of the court
must always be to interpret the words in which the
contract is expressed by the parties. The court
while construing the terms of policy is not expected
to venture into extra liberalism that may result in re-
writing the contract or substituting the terms which
were not intended by the parties. The insured
cannot claim anything more than what is covered by
the insurance policy. [ General Assurance Society
Ltd. Vs. Chandumull Jain and another, AIR 1966
SC 1644, Oriental Insurance Co. Ltd. Vs. Sony
Cheriyan (1999) 6 SCC 451 and United India
Insurance Co. Ltd. Vs. Harchand Rai Chandan Lal
(2004) 8 SCC 644.”
10. The relevant portion of Machinery Insurance Policy
taken by the complainant from the insurer are :
“NOW THIS POLICY OF INSURANCE
WITNESSETH THAT subject to the terms and
exemptions exclusions provisions and conditions
contained herein or endorsed hereon the Company
will at its own option by payment or reinstatement or
repair indemnify the Insured against unforeseen and
sudden physical damage by any cause not
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JT 2009 (5) SC 579
7
hereinafter excluded to any Insured property
specified in the attached Schedule whilst in the
premises therein mentioned necessitating its
immediate repair or replacement.
GENERAL EXCEPTIONS .
THE COMPANY SHALL NOT BE LIABLE UNDER
THIS POLICY IN RESPECT OF:-
1……………………………
2……………………………
3……………………………
4……………………………
5.Deterioration of or wearing away or wearing out
of any machine caused by or naturally resulting from
normal use or exposure.
Special Exclusions :
1……………………………
2……………………………
3……………………………
PROVISIONS
Sum Insured:
It is a requirement of this Insurance that the Sum
Insured shall be equal to the cost of replacement of
the insured property by new property or the same
kind and same capacity which shall mean its
replacement cost including freight dues and
customs duties if any and erection costs.
Basis of Indemnity:
a) In cases where damage to an insured item can be
repaired the Company will pay expenses
necessarily incurred to restore the damaged machine
to its former state of serviceability plus the cost
dismantling and re-erection incurred for the purpose
of effecting the repairs as well as ordinary freight
to and from a repair-shop customs duties and
dues if any to the extent such expenses have been
included in the Sum Insured if the repairs are
executed at a workshop owned by Insured, the
Company will pay the cost of materials and wages
incurred for the purpose of the repairs plus a
reasonable percentage to cover overhead charges.
No deduction shall be made for depreciation in
respect of parts replaced except those with limited
life but the value of any salvage will be taken into
account if the cost of repairs as detailed herein
above equals or exceeds the actual value of the
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machinery insured immediately before the
occurrence of the damage the settlement shall be
made on the basis provided for in (b) below.
b)…………………………………..
…………………………………….
…………………………………….
…………………………………….
…………………………………….
If the sum insured is less than the amount required
to be insured as per Provision 1 hereinabove the
Company will pay only in such proportion as the sum
insured bears to the amount required to be insured.
Every item is more than one shall be subject to this
condition separately.
…………………………………………………………”
11. It has been argued on behalf of the complainant that
the insured must be reimbursed for the entire repairs costs
incurred by it in repair of diesel generating set since as per
insurance policy, the insurer was responsible for the payment of
any sort of loss or reinstatement or repair and indemnify the
insured in all respects. Relying upon the policy, it was submitted
that it was the duty of the insurer to pay the necessary expenses
incurred to restore the damaged generating set to its former state
and the cost of dismantling and erection etc. We find it difficult
to accept the aforestated contention since it overlooks the General
Exceptions incorporated in the policy that provide that the insurer
shall not be liable under the policy in respect of deterioration of
or wearing away or wearing out of machine caused by or naturally
resulting from normal use or exposure. In other words, the policy
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does not provide for protection against wear and tear that the
machinery had undergone and that the insured may have chosen
to replace. The provision of ‘sum insured’ viz., the cost of
replacement of insured property by new property of the same kind
and same capacity is subject to the exception that repair or
replacement shall not extend to the machinery or parts which
have undergone normal wear and tear due to its use and
exposure. In terms of the Machinery Insurance Policy taken by
the insured, the insurer is required to reimburse the insured to the
extent of moneys spent on repairs or replacement of the
machinery to the kind of position that it was before the incident of
damage.
12. In this backdrop, before we turn to the surveyor’s
report dated May 15, 2000, we deem it proper to notice Section
64 UM(2) of the Insurance Act, 1938 that reads thus :
64-UM (2)- No claim in respect of a loss which
“
has occurred in India and requiring to be paid or
settled in India equal to or exceeding twenty
thousand rupees in value on any policy of
insurance, arising or intimated to an insurer at any
time after the expiry of a period of one year from
the commencement of the Insurance
(Amendment) Act, 1968, shall, unless otherwise
directed by the [Authority], be admitted for
payment or settled by the insurer unless he has
obtained a report, on the loss that has occurred,
from a person who holds a licence issued under
this section to act as a surveyor or loss assessor
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(hereafter referred to as “approved surveyor or
loss assessor”):
Provided that nothing in this sub-section shall be
deemed to take away or abridge the right of the
insurer to pay or settle any claim at any amount
different from the amount assessed by the
approved surveyor or loss assessor.”
13. Recently, in New India Assurance Company Limited v.
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Pradeep Kumar , we had occasion to consider the aforesaid
provision and we held thus :
“The object of the aforesaid provision is
that where the claim in respect of loss required
to be paid by the insurer is Rs.20,000/- or more,
the loss must first be assessed by an approved
surveyor ( or loss assessor) before it is admitted
for payment or settlement by the insurer. Proviso
appended thereto, however, makes it clear that
insurer may settle the claim for the loss suffered
by insured at any amount or pay to the insured
any amount different from the amount assessed
by the approved surveyor (or loss assessor). In
other words although the assessment of loss by
the approved surveyor is a pre-requisite for
payment or settlement of claim of twenty
thousand rupees or more by insurer, but
surveyor’s report is not the last and final word.
It is not that sacrosanct that it cannot be departed
from; it is not conclusive. The approved
surveyor’s report may be basis or foundation for
settlement of a claim by the insurer in respect of
the loss suffered by the insured but surely such
report is neither binding upon the insurer nor
insured.”
14. The last surveyor in his report dated May 15, 2000
assessed the loss thus :
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2009 (6) SCALE 253
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I) Working of Claim under Invoice No.60/184989 dated
13.01.2000 of M/s.CDSS :
We have allowed Labour Charges at Rs.80,000. Rs.80,000
Octroi Charge
Rs.16,200
Freight Charges
Rs.16,000
Transit Insurance Rs.
3,500
-------------------
Rs.1,15,700
Works Contract Tax 4% 4,628
--
-----------------
Rs.1,20,328
II) Working of Claim under Invoice No.60/184990 dated
31/1/2000 of M/s. CDSS:
1) “Kit –Crank Shaft” – Part No.AR 388113400K9 – 1 No.
Rs.13,80,895.
52
(vide Page 1, Sr.No.1 of Subject invoice)
Add 4% Work contract Tax Rs. 55,235.83
------------------------
Rs.14,36,131.35
The subjects Kit –Crank Shaft is comprising of set Main
Bearings & connecting Rod Bearings, the reasonable total
value for them is taken at Rs.1,35,131.35.
Less Reasonable cost for set of main bearings &
Connecting rod bearings Rs. 1,35,131.35
-------------------------
-
Rs.13,01,000/-
Thus , bifurcation of costs are as under:-
Cost of Crank Shaft Rs.13,01,000
Cost of set of main bearings &
Connecting rod bearings Rs. 1,35,131
--------- ----------
Rs.14,36,131.35
A) Assessment for Crank Shaft:
Cost for Crank Shaft Rs.13,01,000
Less additional policy excess for the
Crank shaft as per endorsement ..20% Rs. 2,60,200
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-------------------
Net Loss Rs.10,40,800
B) Assessment for set of main bearings
& connecting rod bearings:-
Cost for the set Rs. 1,35,131.35
Less reasonable depreciation ..50% Rs. 67,565.67
------------------------
Net Loss after depreciation Rs. 67,565.67
2) Gears – 2 Nos. @ Rs.2587.69 –
Part No.3177095 (Vide Page 6,Sr.
No.91 of subject Invoice) Rs. 7,763.07
Add 4% work contract Tax Rs. 310.52
Rs. 8,073.59
Less reasonable depreciation 50% Rs. 4,036.79
Net Loss after depreciation Rs. 4,036.80
Thus, net loss after depreciation for (1) & (2)=
A + B + Gears above for items under
Invoice No.60/184990 Rs.11,12,402.47
III) Working of claim under Invoice No.
60/184991 Dt. 31/01/2000 of M/s.CDSS
Core Coolers (Oil collers) – 4 Nos. @
54,205.42 – Part No.3627295 Rs. 2,16,821.68
Add 4% Work contract Tax Rs. 8,672.87
This is not a Limited life item and hence
there is no any depreciation applicable
for it under the policy
Net Loss Rs. 2,25,494.55
Thus net loss under all the three Invoice
as per claim bill works out to I) + II)
+ III) Rs.14,58,225.02
Less reasonable Salvage at scrap value Rs. 13,225.02
Rs.14,45,000.00
Less under-insurance -25.71% vide page
No.13 Rs. 3,71,509 .50
Rs.10,73,490.50
Say Rs.10,73,491
Less Policy Excess Rs. 26,000
Net assessed Loss Rs.10,47,491/-“
15. The parts which had suffered due to wear and tear on
account of constant use, although replaced could not form part of
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claim for reimbursement under the terms of policy and, therefore,
surveyor in its report dated May 15, 2000 cannot be said to have
wrongly rejected such claim. It is true that surveyor’s report is not
the last word but then there must be legitimate reasons for
departing from such report. In our view, the complainant has
failed to show any reason justifying rejection of surveyor’s report
dated May 15, 2000.
re : question (two)
16. In the Dictionary of Insurance (Second Edn.) by C.
Bennett, “under-insurance” is explained thus:
“under-insurance occurs when the amount of
insurance is less than the full value of property insured
and means that the insured pays a smaller premium
than that required as the rate is fixed on the basis of
full values being insured. It leads to partial loss
claims being scaled down by average (qv.).”
The expression “average” is explained thus:
“In non-marine property insurance if a sum insured is
‘subject to average’, and the sum insured is less than
the value at risk at the time of loss, the claim will be
reduced in the same proportion. The measure
combats under-insurance.”
17. As per the invoice, the diesel generating set and the
alternator was purchased by the complainant in the year 1997 for
Rs.45,25,000/-. The complainant, however, got the insurance
cover valuing diesel generating set (Rs.26,00,000/-) and alternator
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(Rs.9,00,000/-), in all for Rs.35,00,000/-. Apparently, therefore,
there is an element of under-insurance. There is merit in the
contention of learned counsel for the insurer that the value of the
item is always declared by the insured at the time of issuance of
the insurance policy while the element of under-insurance is
calculated by the insurer at the time of assessment of loss.
Although on behalf of the complainant, it was contended that
under-insurance, if any, must be calculated at the time of issuance
of policy and could not be deducted at the time of assessment of
the loss but we find it difficult to accept the same. The policy
provides that if the sum insured is less than the amount required
to be insured, the insurer will pay only in such proportion as the
sum insured bears to the amount insured. In accordance with the
said provision in the policy if the surveyor applied the pro-rata
formula and deducted 25.71% from the loss so assessed i.e.
Rs.3,71,509.50 from the sum payable as under-insurance, such
deduction cannot be faulted.
18. We are, thus, of the view that the National
Commission did not commit any error in accepting the Surveyor’s
report dated May 15, 2000 as the assessment made there-under
is proper and in accordance with the provisions of the policy.
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19. By way of footnote, we may observe that claim of
Rs.10,00,000/- made by the complainant for mental harassment is
wholly misconceived and untenable. The complainant is a
company and, therefore, claim for mental harassment is not
legally permissible. It is only the natural person who can
claim damages for mental harassment and not the corporate
entity.
20. In all, we find that the consideration of the matter by
the National Commission does not suffer from any legal flaw
justifying interference by us.
21. Appeal is, accordingly, dismissed with no order as to
costs.
………………….J
(D.K. Jain)
………………….J
(R.M. Lodha)
New Delhi,
May 29, 2009
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