Heavy rain damage covered under policy for 'flood' and 'inundation'

The National Commission concluded that the policy's coverage for flood and inundation would include losses caused by heavy rains

Geekay International, a business specialising in cloth and garments, had secured a Standard Fire and Special Perils Policy from National Insurance Co. This policy provided coverage for stock stored at its business premises, which were leased under a leave and licence agreement.

During the policy period of 2011-2012, heavy rains struck Mumbai on August 18, 2011. The intense downpour led to a partial collapse of the building, including the premises housing the insured’s business. As a result, the stock suffered significant water damage.

The insured promptly informed the insurer, which then appointed a surveyor to assess the damage and determine the value of the loss. However, the claim was later repudiated on the grounds that the policy did not cover damage resulting from heavy rains.

Aggrieved by the insurer’s refusal to honour the claim, the insured filed a complaint with the Maharashtra State Consumer Disputes Redressal Commission. The complaint alleged a deficiency in service and sought a declaration requiring the insurer to settle the claim, along with 18 per cent interest and compensation of ~25 lakh for mental harassment. The insurer contested the complaint, reiterating its decision and justifying the repudiation based on the terms and conditions of the policy.

The State Commission, however, ruled in favour of the insured, directing the insurer to pay ~46,48,565 along with 9 per cent interest from July 18, 2011, the date the loss occurred. The Commission granted a one-month period for compliance, stipulating that any delay would result in an increased interest rate of 12 per cent. Additionally, ~1 lakh was awarded for costs.

The insurer challenged the order by filing an appeal. It argued that the State Commission’s order was incorrect as it had overlooked the terms of the policy which provided coverage for loss due to floods, but did not include perils related to heavy rains or defective construction.

The National Commission observed that the law was well settled: the terms of a policy, if ambiguous, would be construed in favour of the insured. It further observed the insurer had not been able to cite any specific exclusion clause under which the claim had been rejected.

The National Commission referred to both general dictionary definitions and legal interpretations from Black’s Law Dictionary and Stroud’s Judicial Dictionary where “flood” was described as an overflow or large movement of water beyond its natural confines. The Commission identified three main categories of floods: coastal floods, fluvial (river) floods, and pluvial (surface) floods. Pluvial floods, it noted, could result from flash floods caused by intense, short-term rainfall, with water flowing from surrounding hilly areas into low-lying regions, or rainwater accumulating in urban areas where concrete streets and dense construction prevent seepage. 

The Commission further observed that steady rainfall over a few days or torrential rains for a short period could overwhelm drainage systems, leading to water accumulation on the streets and nearby structures, causing immense economic damage.

Based on this reasoning, the National Commission, in a judgement delivered by J. Rajendra on August 16, 2024, upheld the State Commission’s decision. It concluded that the policy’s coverage for “flood” and “inundation” would include losses caused by heavy rains. Consequently, the insurer’s appeal was dismissed, and the order to settle the claim was upheld.

The writer is a consumer activist