Supreme Court Upholds Initial Surveyor’s Report in Insurance Claim Dispute: New India Assurance Co. Ltd. vs. Luxra Enterprises Pvt. Ltd. (2019) INSC 403 (1 May 2019)

Date of the Judgment: 1 May 2019
Citation: (2019) INSC 403
Judges: Dr. Dhananjaya Y. Chandrachud, J. and Hemant Gupta, J.
Can an insurance company repeatedly appoint surveyors until it receives a favorable report? The Supreme Court of India addressed this question in a dispute over a fire insurance claim. The Court ruled against the insurance company, emphasizing that multiple surveyor appointments are not permissible without valid reasons, thereby upholding the initial surveyor’s assessment. This judgment was delivered by a bench comprising Justices Dr. Dhananjaya Y. Chandrachud and Hemant Gupta, with Justice Hemant Gupta authoring the opinion.

Case Background

M/s Luxra Enterprises Pvt. Ltd., a garment manufacturer, obtained a fire insurance policy from New India Assurance Co. Ltd. for a sum of ₹85,00,000, covering the period from March 27, 2000, to March 26, 2001. On July 12, 2000, a fire broke out at the factory premises. Luxra Enterprises subsequently filed an insurance claim for the damages incurred. The insurance company appointed multiple surveyors to assess the loss, leading to conflicting reports and ultimately, the repudiation of the claim. The Complainant sought compensation for the loss suffered due to the fire incident.

Timeline

Course of Proceedings

The National Consumer Disputes Redressal Commission (NCDRC) ruled in favor of the Complainant, directing the Insurance Company to pay ₹54,93,865, the amount assessed by the first surveyor. The NCDRC also stipulated that the amount must be paid within 45 days, failing which it would attract an interest of 10% per annum. Both the Insurance Company and the Complainant filed appeals against this order. The Insurance Company challenged the order to pay ₹54,93,865, while the Complainant appealed for interest on the amount.

Legal Framework

The case primarily involves the interpretation of Section 23 of the Consumer Protection Act, 1985, which deals with appeals against orders of the National Commission. Additionally, Section 64 UM of the Insurance Act, 1938, is central to the dispute. Section 64 UM(2) of the Insurance Act, 1938 states that:

“(2) No claim in respect of a loss which has occurred in India and requiring to be paid or settled in India equal to or exceeding twenty thousand rupees in value on any policy of insurance, arising or intimated to an insurer at any time after the expiry of a period of one year from the commencement of the Insurance (Amendment) Act, 1968, shall, unless otherwise directed by the Authority, be admitted for payment or settled by the insurer unless he has obtained a report, on the loss that has occurred, from a person who holds a licence issued under this section to act as a surveyor or loss assessor (hereafter referred to as “approved surveyor or loss assessors) :
Provided that nothing in this sub-section shall be deemed to take away or abridge the right of the insurer to pay or settle any claim at any amount different from the amount assessed by the approved surveyor or loss assessor.”

Section 64 UM(3) of the Insurance Act, 1938 allows the Authority to call for an independent report:

“(3) The Authority may, at any time, in respect of any claim of the nature referred to in sub-section (2), call for an independent report from any other approved surveyor or loss assessor specified by him and such surveyor or loss assessor shall furnish such report to the Authority within such time as may be specified by the Authority or if no time limit has been specified by him within reasonable time and the cost of, or incidental to, such report shall be borne by the insurer.”

Section 64 UM(4) of the Insurance Act, 1938 empowers the Authority to issue directions regarding settlement of claims:

“(4) The Authority may, on receipt of a report referred to in sub-section (3), issue such directions as he may consider necessary with regard to the settlement of the claim including any direction to settle a claim at a figure less than, or more than, that at which it is proposed to settle it or it was settled and the insurer shall be bound to comply with such directions:
Provided that where the Authority issues a direction for settling a claim at a figure lower than that at which it has already been settled, the insurer shall be deemed to comply with such direction if he satisfies the Authority that all reasonable steps with due regard to the question whether the expenditure involved is not disproportionate to the amount required to be recovered, have been taken with due dispatch by him:
Provided further that no direction for the payment of a lesser sum shall be made where the amount of the claim has already been paid and the Authority is of opinion that the recovery of the amount paid in excess would cause undue hardship to the insured:
Provided also that nothing in this section shall relieve the insurer from any liability, civil or criminal, to which he would have been subject but for the provisions of this sub-section.”

These provisions outline the procedure for settling insurance claims, emphasizing the role of surveyors and the powers of the Insurance Regulatory and Development Authority.

Arguments

The Insurance Company argued that the Commission erred in not considering whether the letter of credit was fake or manipulated, whether the import order was genuine, and whether Mr. Ajay Verma’s involvement in a criminal case had any bearing on the matter. They contended that the appointment of multiple surveyors was justified because the initial surveyor’s report was incomplete and lacked necessary clarifications. The Insurance Company relied on the judgment in Sri Venkateswara Syndicate vs. Oriental Insurance Company Limited [4 (2009) 8 SCC 507] to support their claim that appointing another surveyor is permissible, provided reasons are recorded for not accepting the first report. They argued that the first surveyor’s assessment of loss was done without proper verification of documents and that the value of shirts was taken without any basis.

The Complainant argued that the Insurance Company’s appointment of multiple surveyors was not justified and was done to delay and ultimately repudiate the claim. They pointed out that the Head Office of the Insurance Company had appointed M/s Sunil J. Vora & Associates as the final surveyor and was unaware of the subsequent appointments. The Complainant contended that the second surveyor’s report was based on flawed reasoning, particularly regarding the stock statements submitted to Canara Bank. The Complainant explained that the letter of credit was in favor of Gurcharan Singh Company Pvt. Ltd. PTE Singapore, based on an order placed on them. The Complainant also rebutted the allegations regarding the letter of credit and the involvement of Mr. Ajay Verma, stating that there was no evidence to link them to any wrongdoing related to the Complainant’s claim.

The Complainant also pointed out that the Insurance Company did not follow the procedure prescribed under Section 64 UM(3) of the Insurance Act, 1938, which requires the Insurance Regulatory and Development Authority to appoint an independent surveyor if the insurer is not satisfied with the initial report.

The innovativeness of the argument lies in the Complainant’s emphasis on the procedural lapse by the Insurance Company in not following Section 64 UM(3) of the Insurance Act, 1938, and the fact that the Head Office of the Insurance Company had already appointed the first surveyor as the final surveyor.

Issues Framed by the Supreme Court

The Supreme Court considered the following issue:

1. Whether the Insurance Company was justified in appointing multiple surveyors and rejecting the initial surveyor’s report.

Treatment of the Issue by the Court

Authorities

The Supreme Court relied on the following authorities:

• Sri Venkateswara Syndicate vs. Oriental Insurance Company Limited [(2009) 8 SCC 507] – Supreme Court of India. This case clarified that while an insurance company can appoint a second surveyor, it must provide cogent reasons for not accepting the first surveyor’s report. The Court in this case held that there is no prohibition in the Insurance Act for appointment of a second surveyor by the insurance company, but while doing so, the insurance company has to give satisfactory reasons for not accepting the report of the first surveyor and the need to appoint a second surveyor.
• Section 64 UM of the Insurance Act, 1938 – This section governs the appointment of surveyors and the settlement of claims.

Judgment

The Court considered the authorities as follows:

• Sri Venkateswara Syndicate vs. Oriental Insurance Company Limited [(2009) 8 SCC 507]*: The Court relied on this case to reiterate that while an insurance company can appoint a second surveyor, it must provide valid reasons for not accepting the first surveyor’s report. In this case, the Court found that no such valid reasons were given by the Insurance Company.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the fact that the Insurance Company failed to provide valid reasons for rejecting the initial surveyor’s report. The Court emphasized that the appointment of multiple surveyors was not permissible without cogent reasons, and that the Insurance Company had attempted to manipulate the process to repudiate the claim. The Court also noted that the Insurance Company did not follow the procedure prescribed under Section 64 UM(3) of the Insurance Act, 1938, which requires the Insurance Regulatory and Development Authority to appoint an independent surveyor if the insurer is not satisfied with the initial report. The Court also took note of the fact that the Head Office of the Insurance Company had already appointed the first surveyor as the final surveyor.

The Court reasoned that the Insurance Company’s actions were not in accordance with the principles of fairness and transparency. The Court emphasized that the purpose of appointing a surveyor is to assess the loss objectively, and not to manipulate the process to avoid paying a legitimate claim.

The Court stated: “In fact, in the present case it is evident that the claim of Rs. 54,93,865/- was accepted by the surveyor- M/s Sunil J. Vora & Associates.”

The Court further observed: “There are no cogent reasons to appoint Surveyors time and again till such time one Surveyor gives a report which could satisfy the interest of the Insurance Company.”

The Court also noted: “In fact, the appointment of the Surveyors was to repudiate the claim of the Complainant on one pretext or the other.”

The Supreme Court dismissed the Insurance Company’s appeal and allowed the Complainant’s appeal. The Court directed the Insurance Company to pay ₹54,93,865, the amount assessed by the first surveyor, along with interest at the rate of 6% per annum from the date of filing the petition until the date of payment.

Key Takeaways

• ✓ Insurance companies cannot arbitrarily reject the report of the first surveyor without valid reasons.
• ✓ Insurance companies cannot appoint multiple surveyors until they get a favorable report.
• ✓ Insurance companies must follow the procedure prescribed under Section 64 UM(3) of the Insurance Act, 1938, when they are not satisfied with the initial surveyor’s report.
• ✓ The judgment reinforces the importance of fairness and transparency in the insurance claim settlement process.
• ✓ The judgment sets a precedent against the manipulation of surveyor reports to avoid paying legitimate claims.

Directions

The Supreme Court directed the Insurance Company to pay the Complainant a sum of ₹54,93,865, along with interest at the rate of 6% per annum from the date of filing the petition until the date of payment.

Development of Law

The ratio decidendi of this case is that an insurance company cannot appoint multiple surveyors without valid reasons and cannot reject the report of the first surveyor arbitrarily. This judgment clarifies the interpretation of Section 64 UM of the Insurance Act, 1938, and reinforces the principle that insurance companies must act fairly and transparently in the settlement of claims. This judgment also upholds the principle laid down in Sri Venkateswara Syndicate vs. Oriental Insurance Company Limited [(2009) 8 SCC 507].

Conclusion

In conclusion, the Supreme Court’s judgment in this case underscores the importance of adhering to due process and acting in good faith in insurance claim settlements. The Court’s decision to uphold the initial surveyor’s report and reject the subsequent appointments highlights the need for insurance companies to provide valid reasons for disagreeing with surveyor assessments. This judgment serves as a significant precedent, ensuring that insurance companies cannot manipulate the survey process to avoid paying legitimate claims.