Claim can't be rejected on mere suspicion

The insurer should have checked where the machines were being located while enhancing cover, not after lodging of claim

Oswal Plastic Industries had taken a fire and special perils policy from New India Assurance to cover its industrial establishment. The policy was issued on June 27, 2009. The sum insured was increased to Rs 2.5 crore from July 2, 2009.

A fire occurred on October 17, 2009 in which four machines and some raw materials got damaged. The insurer was intimated, and a claim for Rs 1,34,07,836 was lodged. The surveyor assessed the loss at Rs 29,17,500 on reinstatement basis, and Rs 12,60,000 as the depreciated value.

The claim was repudiated on the ground that the insured machine had been shifted and relocated. The insurer also suspected that the fire was not accidental as the site of relocation did not have any power supply. The insurer also disputed the ensdorsement enhancing the sum insured.

The insured filed a complaint before the Punjab State Commission. Even though the insurer contested the case, the State Commission allowed the complaint and ordered the claim to be settled for Rs 29,17,500, along with 9 per cent interest, payment of 1 lakh as compensation for harassment, and Rs 11,000 as litigation expenses.

The insurer appealed against this order. It argued that the fire must have been caused deliberately. The insured countered that even though the cause of the fire could not be determined, neither the surveyor nor the investigator had concluded that it was caused intentionally. So the claim ought not to be rejected merely because the cause could not be determined.

In its order of February 20, 2019 delivered by Prem Narain, the National Commission held that the insurer cannot allege foul play when the surveyor as well as the investigator had ruled it out. The Commission also observed that the sum insured was increased subsequent to the shifting of the machines. At the time of enhancement of coverage, it was the duty of the insurance company to check where the machines were being located. Since this was not done, the Commission held that the insurer would not be entitled to raise this objection after the claim was lodged.

Since the machines were lying unconnected and unused and were not reinstated, the National Commission held that the claim ought to be settled by paying the depreciated value of Rs 12,60,000, together with 7 per cent interest from November 10, 2014. The order for payment of Rs 11,000 towards litigation costs was upheld.

The National Commission further observed that compensation for mental harassment would be applicable only to a natural person and not to a corporate entity, which has no mind. So the amount of Rs 1 lakh awarded as compensation for mental harassment was set aside.

The conclusion is that an insurer who fails to physically check the insured property cannot later raise objections when a claim is lodged. Also, a corporate body is not entitled to claim compensation for mental tension.

The writer is a consumer activist