Supreme Court Upholds Insurance Claim: Karnavati Veneers vs. New India Assurance (2023)

Introduction

Date of the Judgment: 9th February 2023
Citation: 2023 INSC 1122
Judges: Justice Ajay Rastogi and Justice C.T. Ravikumar. The judgment was authored by Justice Ajay Rastogi.

Can an insurance company deny a claim simply because some documents were not submitted, even after their own surveyor has assessed the damages? The Supreme Court of India recently addressed this critical question in a case involving a fire insurance claim. The court examined whether the insurance company was justified in rejecting the claim based on a technicality, despite having a surveyor’s report detailing the loss.

Case Background

Karnavati Veneers Pvt. Ltd., the appellant, is a company that manufactures veneers. They had a standard fire and special perils insurance policy with New India Assurance Company Limited, the respondent. The policy, initially taken in 2001, was renewed over the years, with the cover being Rs. 1,20,00,000 from October 7, 2006, to October 6, 2007.

The factory was sealed by the Forest Department on July 11, 2006, and power was disconnected on August 18, 2006, halting all manufacturing activities. On October 20, 2006, a fire broke out at the factory, causing significant damage. The appellant filed a claim under the policy, which the respondent rejected on September 11, 2007, citing a breach of policy condition 6(b) due to non-submission of required documents.

Timeline:

Course of Proceedings

The appellant initially filed a claim petition before the Gujarat State Consumer Disputes Redressal Commission (State Commission). The State Commission dismissed the claim on January 16, 2012, stating that the appellant failed to provide the necessary documents as required by the insurance company, thus breaching Clause 6(b) of the policy.

The appellant then appealed to the National Consumer Disputes Redressal Commission (National Commission), which also dismissed the appeal on September 3, 2012, affirming the State Commission’s decision. The National Commission reiterated the suspicion about the fire incident, similar to the State Commission.

Legal Framework

The core of the dispute revolves around Clause 6(b) of the Standard Fire & Special Perils policy. This clause states:

“The Insured shall also at all times at his own expenses produce, procure and give to the company all such further particulars, plans, specification books, vouchers, invoices, duplicates or copies thereof, documents, investigation reports(internal/external), proofs and information with respect to the claim and the origin and cause of the loss and the circumstances under which the loss or damage occurred, and any matter touching the liability or the amount of the liability of the company as may be reasonably required by or on behalf of the company together with a declaration on oath or in other legal form of the truth of the claim and of any matters connected therewith.”

The insurance company argued that the appellant’s failure to submit the required documents constituted a breach of this clause, justifying the repudiation of the claim.

Arguments

Appellant’s Submissions:

• The surveyor appointed by the respondent, M/s. A.M. Patel Surveyors Pvt. Ltd., extensively examined the loss and damage caused by the fire on October 20, 2006.
• The surveyor conducted a preliminary survey on October 21, 2006, and after a physical site inspection and review of available records, assessed the loss at Rs. 21,76,524.
• The respondent did not provide any evidence to challenge the surveyor’s findings.
• The suspicion raised by the State Commission about the fire occurring on Diwali was baseless.
• The repudiation based on non-submission of documents is not sustainable because the necessary documents for assessing the loss were provided to the surveyor.

Respondent’s Submissions:

• The factory was closed on July 11, 2006, and power was disconnected on August 18, 2006.
• There was no manufacturing activity when the fire occurred on October 20, 2006, just 13 days after the policy renewal.
• This situation raised suspicion, as noted by the State Commission and affirmed by the National Commission.
• The surveyor’s report does not negate the fact that the appellant failed to submit the required documents, justifying the repudiation.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue that the court addressed was:

• Whether the insurance company was justified in repudiating the claim based on non-submission of documents under Clause 6(b) of the policy, despite having a surveyor’s report assessing the loss.

Treatment of the Issue by the Court

Authorities

The judgment does not explicitly mention any cases or books that the court relied upon. However, it does refer to the following:

• Clause 6(b) of the Standard Fire & Special Perils Policy: The court examined the requirements of this clause, which pertains to the submission of documents by the insured.

Judgment

How each authority was viewed by the Court:

• Clause 6(b) of the Standard Fire & Special Perils Policy: The court interpreted this clause to mean that it requires the insured to submit necessary documents for the assessment of the claim. However, the court noted that since the surveyor had already assessed the loss based on available documents and a physical inspection, repudiating the claim based on this clause was not legally sustainable.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the fact that the insurance company’s own surveyor had already assessed the loss. The court emphasized that the purpose of Clause 6(b) of the policy was to facilitate the assessment of the claim, and since that assessment had already been done by the surveyor, the repudiation based on non-submission of documents was deemed unfair and not legally sustainable. The court also noted that the respondent did not dispute the surveyor’s report.

The court’s reasoning was primarily based on the interpretation of the insurance policy and the facts of the case. The court held that the insurance company’s reliance on a technicality (non-submission of documents) was not justified when the substantive assessment of the loss had already been completed by its own surveyor.

The court considered the insurance company’s argument that the factory was closed and that the fire occurred shortly after the policy renewal. However, the court did not find these points to be sufficient grounds for repudiating the claim, especially given the surveyor’s assessment. The court emphasized that the insurance company’s own surveyor had already assessed the loss, and therefore, the repudiation based on non-submission of documents was not legally sustainable.

The Supreme Court’s decision was clear and direct, stating: “In our considered view, invoking condition no. 6(b) of the policy for repudiation dated 11th September, 2007 was unsustainable in law…”. The court also noted that “Whatever the material documents available with the insured were indisputedly made available to the Surveyor…”. The court concluded that “…repudiating the claim invoking clause 6(b) of the policy, in our considered view, was unfair and is not legally sustainable.”

There was no minority opinion in this case. The judgment was delivered by a bench of two judges, and they were unanimous in their decision.

Key Takeaways

• Insurance companies cannot reject claims solely based on non-submission of documents if their own surveyor has already assessed the loss.
• Clause 6(b) of the Standard Fire & Special Perils policy should be interpreted to facilitate the assessment of claims, not to create technical hurdles.
• Insurance companies must act fairly and not use technicalities to avoid paying legitimate claims.
• This judgment underscores the importance of surveyor’s reports in insurance claims.
• The decision could set a precedent for similar cases, ensuring that insurance companies do not unfairly deny claims.

Directions

The Supreme Court directed the respondent company to:

• Pay Rs. 21,76,524 to the appellant, as assessed by the surveyor.
• Pay interest at 8% per annum on the assessed amount from June 1, 2007 (the date of the surveyor’s report) until the actual payment.
• Comply with the order within two months.

Specific Amendments Analysis

There were no specific amendments discussed in the judgment.

Development of Law

The ratio decidendi of this case is that an insurance company cannot repudiate a claim based on non-submission of documents when its own surveyor has already assessed the loss. This judgment clarifies that the purpose of document submission requirements is to facilitate the assessment of the claim, and not to create technical grounds for rejecting legitimate claims. This decision reinforces the principle of fairness and good faith in insurance contracts.

Conclusion

The Supreme Court allowed the appeal, setting aside the National Commission’s order. The court held that the insurance company’s repudiation of the claim was not justified, as the surveyor had already assessed the loss. The court directed the insurance company to pay the assessed amount along with interest. This judgment reinforces the principle that insurance companies must act fairly and cannot use technicalities to avoid paying legitimate claims.