Supreme Court directs fresh consideration of Insurance Claim: M/S. Kozyflex Mattresses Private Limited vs SBI General Insurance Company Limited (20 March 2024)

Date of the Judgment: 20 March 2024

Citation: 2024 INSC 234

Judges: B.R. Gavai, J., Sandeep Mehta, J.

Can an insurance claim be rejected if the insured was not given a chance to respond to the surveyor’s and investigators’ reports? The Supreme Court recently addressed this question in a case involving a fire at a mattress manufacturing company. The court considered whether the company could be considered a ‘person’ under the Consumer Protection Act and whether the insurance policy was for a commercial purpose. The bench comprised Justices B.R. Gavai and Sandeep Mehta, with the majority opinion authored by Justice Mehta.

Case Background

M/s. Kozyflex Mattresses Private Limited, a company manufacturing coir foam mattresses, had a manufacturing unit in Vizianagaram. They obtained a ‘Standard Fire and Special Perils Policy’ from SBI General Insurance Company Limited, insuring their plant, machinery, stock, and building. The policy was for a sum of Rs. 1.25 crores on plant and machinery and Rs.30,00,000 on stock, later enhanced to Rs.1.55 crores for stock and Rs. 20,00,000 for building.

A fire incident occurred at the manufacturing unit on the night of April 13th/14th, 2013. The company informed the police, the fire service, and the insurance company about the incident. The insurance company appointed a surveyor to assess the damage. The surveyor conducted inspections and prepared an inventory. The company submitted an insurance claim for Rs. 3.31 crores, which included damages to the building, plant and machinery, and stock.

The insurance company also appointed two independent investigators to verify the documents submitted by the company. The investigators reported that the purchase of machinery and stock were mere paper transactions to siphon money from the State Bank of Hyderabad and the National Small Scale Industries Corporation Ltd. Based on these reports and the surveyor’s final report, the insurance company repudiated the claim, stating that it was fraudulent and based on fabricated documents.

Timeline:

Course of Proceedings

The insured-appellant initially filed a complaint before the National Consumer Disputes Redressal Commission, which was later withdrawn with the liberty to file a fresh complaint. The fresh complaint was filed alleging deficiency in service on the part of the insurer-respondent. The insurer-respondent contested the complaint, stating that the claim was fraudulent and based on fabricated documents. The National Commission accepted the insurer’s arguments and upheld the repudiation of the claim.

Legal Framework

The case primarily revolves around the interpretation of the Consumer Protection Act, 1986, specifically Section 2(1)(m), which defines ‘consumer’. The court also considered Clause 8 of the General Terms and Conditions of the insurance policy, which states:

“8. If the claim be in any respect fraudulent, or in any false declaration be made or used in support thereof or any fraudulent means or devices are used by the Insured or any one acting on his behalf to obtain any benefit under the policy or if the loss or damage be occasioned by the wilful act, or with the connivance of the insured, all benefits under this policy shall be forfeited.”

The court also noted the amendment made to the definition of ‘person’ in the Consumer Protection Act, 2019, which included ‘company’.

Arguments

Arguments of the Insured-Appellant:

• The insured-appellant argued that they had duly replied to all queries raised by the investigators and surveyor, and that these replies were part of the record before the National Commission.
• They contended that neither the preliminary nor the final reports of the surveyor and investigators were provided to them, denying them an opportunity to rebut these reports.
• The insured-appellant claimed that the stock and machinery destroyed in the fire were purchased through properly accounted transactions, which were reflected in their account books.
• They argued that the reports of the surveyor and investigators were partisan and unacceptable, and that the surveyor’s report was contradicted by the investigators’ reports.
• The insured-appellant prayed for the matter to be remanded to the National Commission for reconsideration, after giving them an opportunity to rebut the investigation and survey reports.

Arguments of the Insurer-Respondent:

• The insurer-respondent argued that the insured-appellant, being a body corporate, is not a ‘consumer’ within the meaning of Section 2(1)(m) of the Consumer Protection Act, 1986. They contended that the definition of ‘person’ under the 1986 Act did not include ‘company’.
• The insurer-respondent argued that the insured-appellant had taken the insurance policy for commercial purposes and therefore, could not invoke the jurisdiction of the consumer forums.
• They relied on the judgments in Shrikant G. Mantri v. Punjab National Bank [2022] 5 SCC 42 and National Insurance Company v. Harsolia Motors and Ors. [2023] 8 SCC 362 to support their argument that a company taking an insurance policy for commercial purposes is not a consumer.
• They contended that the claim was fraudulent and exaggerated, and that the insured-appellant did not cooperate with the surveyor and investigators.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court framed the following issues:

1. Whether the word ‘company’ is covered within the definition of ‘person’ under Section 2(1)(m) of the Consumer Protection Act, 1986.
2. Whether the insured-appellant, having taken the policy for commercial purposes, can invoke the jurisdiction of the National Commission.
3. Whether the insured-appellant was provided a fair opportunity to rebut the reports of the surveyor and investigators.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The following authorities were considered by the court:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Court distinguished the cases of Shrikant G. Mantri v. Punjab National Bank [2022] 5 SCC 42 and National Insurance Company v. Harsolia Motors and Ors. [2023] 8 SCC 362 stating that these cases dealt with insurance policies taken for a purely commercial purpose, unlike the present case where the policy was for material damage.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the principle of natural justice, emphasizing the need for a fair opportunity to be heard. The Court noted that the insured-appellant was not given a chance to rebut the reports of the surveyor and investigators, which was a crucial factor in the repudiation of the insurance claim. The Court also considered the inclusive nature of the definition of ‘person’ under the Consumer Protection Act and the specific nature of the insurance policy, which was for material damage rather than a commercial purpose.

Fact:Law Ratio

The Court’s reasoning was based on the legal interpretation of the Consumer Protection Act and the principle of natural justice. The factual aspects of the case, such as the fire incident and the surveyor’s and investigators’ reports, were considered, but the legal principles were the primary drivers of the decision.

Logical Reasoning

Key Takeaways

• A company is considered a ‘person’ under the Consumer Protection Act, 1986, as clarified by the 2019 amendment.
• An insurance policy taken for material damage is not considered to be for a commercial purpose, allowing the insured to invoke the jurisdiction of consumer forums.
• It is essential to provide the insured with a fair opportunity to rebut the reports of the surveyor and investigators before repudiating an insurance claim.
• The principle of natural justice must be followed, ensuring that all parties have a fair chance to present their case.

Directions

The Supreme Court directed that the insured-appellant be permitted to file a rebuttal/rejoinder affidavit before the National Commission, limited to the contents of the reports of the surveyor and investigators. The National Commission is to rehear and decide the complaint afresh on merits after providing this opportunity.

Development of Law

The ratio decidendi of the case is that a company is a ‘person’ under the Consumer Protection Act, 1986, and that an insurance policy for material damage is not for a commercial purpose. This clarifies the scope of the Consumer Protection Act and ensures that companies are not excluded from its purview. The decision also reinforces the principle of natural justice, emphasizing the importance of providing a fair opportunity to be heard before any adverse decision is taken.

Conclusion

The Supreme Court set aside the order of the National Consumer Disputes Redressal Commission, which had rejected the insurance claim of M/s. Kozyflex Mattresses Private Limited. The Court held that the company was a ‘person’ under the Consumer Protection Act, 1986 and that the insurance policy was not for a commercial purpose. The matter was remitted back to the National Commission for fresh consideration after giving the insured-appellant an opportunity to rebut the reports of the surveyor and investigators. This decision ensures that companies are not excluded from the protection of consumer laws and that natural justice is upheld in insurance claim disputes.

Category

Parent Category: Consumer Protection Act, 1986

Child Categories:

• Section 2(1)(m), Consumer Protection Act, 1986
• Definition of Consumer
• Insurance Claim
• Natural Justice

FAQ

Q: Is a company considered a ‘consumer’ under the Consumer Protection Act?

A: Yes, the Supreme Court has clarified that a company is considered a ‘person’ and therefore a ‘consumer’ under the Consumer Protection Act, 1986.

Q: What if my insurance claim is rejected based on a surveyor’s report?

A: You have the right to receive a copy of the surveyor’s report and to present your side of the story. If you are not given this opportunity, the decision can be challenged.

Q: What is the importance of the principle of natural justice in insurance claims?

A: The principle of natural justice requires that all parties have a fair opportunity to be heard before any adverse decision is taken. This ensures that decisions are fair and just.

Q: What does it mean for an insurance policy to be for ‘commercial purpose’?

A: An insurance policy is for a commercial purpose if it is directly related to the business activities of the insured. The Supreme Court clarified that a policy for material damage is not necessarily for a commercial purpose.

Q: What should I do if my insurance claim is rejected without a proper hearing?

A: You can approach the consumer forum and challenge the decision, highlighting that you were not given a fair opportunity to present your case.