ASSESSMENT FOR DAMAGES BY INSURANCE COMPANIES UNDER CONSUMER PROTECTION ACT

 

ASSESSMENT FOR DAMAGES BY INSURANCE COMPANIES UNDER CONSUMER PROTECTION ACT

 

Assessment must start with amount described as “sum insured” on day, when contract was entered into

Sumit Kumar Saha v. Reliance General Insurance Company Ltd.

Facts: On 27th March, 2007 Appellant purchased one Volvo Hydraulic

Excavator for a sum of Rs. 49,75,000/- with VAT amounting to

Rs. 1,99,000/-, total purchase value thus being Rs. 51,74,000/-. Immediately

after purchase, said Hydraulic Excavator was insured with Respondent vide

“Contractor, Plants & Machinery Insurance Policy”. Insurance policy

thereafter stood renewed. For period 22nd July, 2009 to 21st July, 2010, sum

insured was Rs. 46,56,600/- on payment of premium of Rs. 33,700/-. Said

Hydraulic Excavator was hired and was to be used at a different location.

Appellant duly intimated change of location. On 30th June, 2010 Hydraulic

Excavator was badly damaged in a fire while it was at such changed location.

An FIR was lodged with local police and Respondent was also immediately

intimated about damage and was requested to survey damage and settle claim.

On 7th July, 2010 a surveyor came to be appointed by Respondent to survey

and assess loss and damage. Though survey was undertaken, claim of

Appellant was not getting settled and as such reminders were sent by

Appellant. Thereafter, on 13th April, 2011, Appellant was intimated that,

loss was assessed by surveyor at Rs. 25,24,273/-. Appellant being

aggrieved filed case before State Commission. Appellant submitted that,

Excavator was a total loss and that, he was entitled to insured amount of

Rs. 46,56,600/- along with interest @ 12% p.a. and compensation as claimed in complaint. During pendency of the matter, Appellant placed on record report of a surveyor appointed by him. Said surveyor had assessed loss on two counts, namely “loss assessed on repairing basis” at Rs. 94,64,357.70/- and on “total loss basis” at Rs. 41,90,940.00/- State Commission allowed complaint observing that, salvage wreck was property of insurance company and it could not be forced upon owner of damaged machine. State Commission directed Respondent to pay a sum of Rs. 41,90,940/- with interest @ Rs. 8% p.a. from date of filing of claim. Respondent, being aggrieved filed First Appeal which was partly allowed by National Commission vide its judgment. National Commission held that, Insurance Company was responsible to indemnify loss on basis of replacement of damaged machine in same condition at which it was at day of accident. In present case, though IDV of Rs. 46,56,000/- was mentioned in policy and was agreed between parties, however, if new machine was available for Rs. 51,00,000/- then on that basis, same machine of 3.25 years age could be available on approximate price being arrived at by deducting depreciation for 3.25 years from current price of new machine. Surveyor had calculated depreciated price of new machine fit for replacement as Rs. 34,42,500/- after applying depreciation of 10% p.a. since purchase of machine on current price of new machine till date of accident. National Commission further observed that, salvage value to tune of Rs. 6,50,000/- which was realized by Respondent could not have been deducted from aforesaid sum of Rs. 34,42,500/- National Commission, thus directed Respondent to pay a sum of Rs. 34,17,500/- for settlement of insurance claim of Appellant. It was found that, since Respondent was willing

to settle matter for Rs. 25,42,273/- Respondent would be liable to pay interest on differential amount of Rs. 8,93,227/- @ 8% p.a., Hence this present appeal.

Issue: What was amount or value that insured is entitled to?

Decision: Supreme Court while allowing the appeal held that As a result of

fire, Excavator was a “total loss” and insured would be entitled to replacement cost of Excavator and The policy in question indicates that the “year of make” of the Excavator was “2007” while the policy was for the period 22.07.2009 to 21.07.2010. The parties were aware that the Excavator was purchased in the year 2007 for Rs. 51.74 lakhs. If the contract mentioned the sum insured to be Rs. 46,56,600/- the parties must be deemed to be aware about the significance of that sum and the fact that it represented the value of the Excavator as on the date when the coverage was obtained. It also observed that where agreement on part of Insurance Company was brought about by fraud, coercion or misrepresentation or cases where principle of uberrima fide was attracted, parties were bound by stipulation of a particular figure as sum insured. Therefore, surveyor and Insurance Company were not justified in any way in questioning and disregarding amount of “sum insured”. Further depreciation, if any, could always be computed keeping figure of “sum insured” in mind. Starting figure, therefore, in this case had to be figure which was stipulated as “sum insured”. Since Excavator, after policy was taken out was used for eleven months, there must be some reasonable depreciation which ought to be deducted from “sum insured”. Surveyor appointed by insured was right in deducting 10% and in arriving at figure of Rs. 41,90,940/-. Assessment made by State Commission was correct and that made by National Commission was completely incorrect.