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Wednesday, March 23, 2022

Appointing Surveyors and relevance of Survey Report in a Fire Insurance Claim

Dear (S)

Another judgment of significance pronounced by Markandey Katju & HL Dattu in a Civil Appeal. The facts of the case do make very interesting reading.

As stated the assessment of loss, claim settlement and relevance of survey report depends on various factors. Whenever a loss is reported by the insured, a loss adjuster, popularly known as loss surveyor, is deputed who assess the loss and issues report known as surveyor report which forms the basis for consideration or otherwise of the claim. Surveyors are appointed under the statutory provisions and they are the link between the insurer and the insured when the question of settlement of loss or damage arises. The Insurance Act with specific reference to Sec 64 UM does allow appointment of more than one surveyor especially when the report of the First surveyor is not acceptable due to inherent defects.

Here are some more facts on the impugned case. This was an appeal directed against the order passed by National Consumer Disputes Redressal Commission, New Delhi in Original Petition No.135 of 2001 dated 19th day of January, 2003. The appeal was preferred by Sri Venkateswara Syndicate against Oriental Insurance Co in respect of claim arising out of accidental fire during Aug 1999, that occurred in the godown of M/s Jai Bharat Traders, leased by the appellant firm, where its cotton stocks were stored. The loss was estimated to be around Rs.1.90 crores.

Upon intimation of loss, the Insurers appointed K Sivaprasad, a licensed surveyor who submitted a preliminary report, estimating the loss of stock at Rs.1,73,92,310/-, which was without verification of the actual quantity of lint damaged by fire.  The insurer organized Joint Survey through M/s Mehta and Padamsey and Kaypsens. They onducted a joint survey and in that, estimated the loss of stock Rs.1,67,80,925/- The Insurer felt the report to be perfunctory and appointed Dinesh Gopal and Co. who, in  turn appointed Mr. Panchal, former DIG (Fire) CISF and Fire Adviser to the Government of India to investigate and submit a report. This report confirmed the quantification made already. As the Insurers were not satisfied with this report also, they appointed R. Srinivasan and Co., Chartered Accountant to give a fresh report by estimating the loss of stock insured due to accidental fire by verifying the book of accounts. This report put the loss at Rs.105,00,817/- Insurers placed this report before the Joint Surveyors and sought clarifications. They responded that the verification of books of accounts was for the period 1.10.98 to 31.3.99 and not till the date of the fire accident.

There was another query also : ‘ The cause of the accident is mentioned as electrical short circuit because of voltage fluctuations. When the stocks were kept in a locked godown and when there was no kind of activity for months together, we wonder as to why the lights in the godown were kept switched on round the clock. Had the lights been switched off the short circuit causing the fire accident could not have occurred. Please let us have your comments.’

The claimants preferred original complaint before the National Consumer Forum alleging, inter-alia that there has been inordinate delay, deficiency of service and sought Rs.1.67 crores together with 18% interest from the date of loss. The NCDRC passed order directing Insurer to pay Rs.1,05,00,817/- - with interest at 6% per annum from 01.03.2001 till the date of payment within two months from the date of receipt of the order.

The issues before the Apex court were :
1) whether the Insurers can repeatedly appoint Surveyor after surveyor for assessment and
2) whether the Commission was justified in awarding 6% p.a.

The Insurer relied upon the provisions of Sec 64 UM of Insurance Act which does authorizes independent report from any other approved surveyor. The Apex Court concluded that the option to accept or not to accept the report is with the insurer. However, if the rejection of the report is arbitrary and based on no acceptable reasons, the courts or other forums can definitely step in and correct the error committed by the insurer while repudiating the claim of the Insured. We hasten to add, if the reports are prepared in good faith, due application of mind and in the absence of any error or ill motive, the insurance company is not expected to reject the report of the Surveyors. The Court added that citing the Act, the Insurance Company cannot go on appointing surveyors one after another so as to get a tailor made report to their satisfaction.

Finally, the Apex Court directed the Insurers to pay Rs.1,05,00,817/- with interest at the rate of 9% as compensation from the date of assessment done by the Chartered Accountant, within two months from the date of this order.

As usual there are many learnings from this judgment for all of us.

With regards
S Sampathkumar

Circulated to my group through email on Wed, Aug 26, 2009 at 9:22 PM 

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