Insurer must pay heed to surveyor's findings

The National Commission observed that failure to carry out the impossible task of closing the road couldn't be considered a failure to take reasonable precautions

PNC Infratech, a public limited company, was engaged in the business of road construction and other similar projects.

The company was granted a rehabilitation contract on October 1, 2005 by the Public Works Department of the U.P. state government.

PNC obtained a contractor’s all risk policy from Iffco Tokio General Insurance to cover the project. The policy had a coverage of Rs 26,50,10,339 along with a further amount of Rs 20 lakh for third-party liability.

Torrential rains in July 2006 caused inundation and resulted in damage to the newly-constructed road. A claim was submitted for the loss quantified at Rs 1,49,19,330. The surveyor who was appointed asked the insurer to give consent to the unconditional acceptance of Rs 68,51,447 towards final settlement of the claim. As the claim had been pending for a long time, the insured consented to accept the amount offered by the surveyor.

The insured repeatedly requested for settlement of the claim. However, the claim was not paid. Instead the insurer demanded proof of flooding, ignoring the fact that the rain records maintained by the meteorological department had already been furnished. The claim was ultimately repudiated on February 8, 2008 on the ground that the damage had not occurred due to flood but due to faulty work design and defective workmanship.

The insured protested against the reason given for repudiation, and cited the survey report where it was mentioned that the insured was well equipped with the latest road construction machinery along with dedicated and committed technical and professional staff, and that the work was being closely monitored by the public works department. It was pointed out that the road could not be totally closed as piling up of traffic on the highway would create a major law and order problem. The insurer re-examined the claim and again repudiated it on the ground that precautions should have been taken by closing the road to prevent damage due to plying of vehicles. It contended that the claim was not payable under the exclusion clause which made it necessary to take reasonable precautions to prevent damage.

The insured then filed a complaint before the U.P. State Commission. The insurer contested the case, arguing that assessment of the loss would be subject to admission of liability. It denied liability on the ground that loss had been intimated after a delay of 14 days. It also argued that there was no proof of flooding.

The U.P. State Commission observed that delay in lodging the claim had become irrelevant as the insurer had appointed a surveyor to assess the claim. It allowed the complaint and ordered the insurer to pay the amount of Rs 68,51,441 as assessed by the surveyor along with 9 per cent interest and Rs 30,000 towards litigation costs.

The insurer challenged this order in appeal. In his order of October 6, 2022 delivered by Justice Ram Surat Ram Maurya, the National Commission observed that the insurer’s defence would have to be confined to the grounds set out in the repudiation letter, and that no fresh ground could be pleaded in the legal proceedings. It also observed that failure to carry out the impossible task of closing the road could not be considered as a failure to take reasonable precautions. It castigated the insurer for repudiating the claim on mere conjectures and surmises for which there was no evidence whatsoever, and which were even contrary to the findings of the surveyor. Accordingly, the insurer’s appeal was dismissed and the order of the State Commission in the insured’s favour was upheld.

The writer is a consumer activist