Supreme Court Upholds Insurer’s Repudiation of Claim in Rice Mill Collapse Case: New India Assurance Co. Ltd. vs. Sri Buchiyyamma Rice Mill (2020) INSC 32

Date of the Judgment: 21 January 2020

Citation: (2020) INSC 32

Judges: Dr Dhananjaya Y Chandrachud, J and Ajay Rastogi, J

Is an insurance company justified in rejecting a claim if the surveyor’s report suggests that the damage was not caused by the insured event? The Supreme Court of India recently addressed this question in a case involving a rice mill that collapsed. The court examined whether the insurer was correct in repudiating the claim based on multiple surveyor reports that contradicted the insured’s version of events. The bench, comprising Justices Dr. Dhananjaya Y. Chandrachud and Ajay Rastogi, delivered the judgment.

Case Background

The first respondent, Sri Buchiyyamma Rice Mill, owned a rice mill in Andhra Pradesh. They had obtained three standard fire and special perils insurance policies for the year 2004-2005 to cover their plant, machinery, building, godowns, and stock. On 19 April 2005, the rice mill reported that a lorry reversing on the premises collided with the boiler unit, causing it to collapse, along with sixteen storage tanks, a paddy bin, and an elevator. The estimated damage was around Rs 76 lakhs. A First Information Report (FIR) was lodged on 21 April 2005, and the insurance company, New India Assurance Co. Ltd., was notified on the same day.

Timeline

Course of Proceedings

The State Consumer Disputes Redressal Commission (SCDRC) dismissed the consumer complaint on 16 March 2012, agreeing with the insurer that the damage was not due to a lorry collision but due to overloading of the mill. The SCDRC noted inconsistencies in the insured’s claims, such as the lack of damage to the lorry and the absence of video evidence. However, the National Consumer Disputes Redressal Commission (NCDRC) reversed this decision on 4 February 2019, stating that the surveyor reports were submitted after considerable delay, violating the Insurance Regulatory and Development Authority of India (Protection of Policyholders’ Interests) Regulations 2002. The NCDRC awarded the respondent’s claim with interest.

Legal Framework

The judgment refers to Section 64-UM(2) of the Insurance Act 1938, which mandates that for claims exceeding ₹20,000, an insurer must obtain a report from a licensed surveyor or loss assessor before admitting or settling the claim. The section states:

“64-UM. (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 assessor’):
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.”

The court also noted that while a surveyor’s report is important, the insurer is not bound by it and can settle the claim for a different amount. Sub-sections (3) and (4) of Section 64-UM empower the Insurance Regulatory and Development Authority (IRDA) to call for independent reports and issue directions regarding claim settlements.

Arguments

Appellant’s (Insurer) Arguments:

• The insurer argued that the NCDRC misinterpreted the sequence of surveyor appointments. The first survey was a preliminary one, conducted immediately after the incident.
• A structural expert was consulted based on the preliminary surveyor’s recommendation, and a final survey was conducted to assess the cause and extent of the damage.
• The appellant relied on the case of Sri Venkateswara Syndicate v Oriental Insurance Company Limited and Another [(2009) 8 SCC 507], arguing that multiple surveyors are permissible if there are valid reasons. All reports in this case were consistent in finding that the collapse was due to overloading, not a lorry collision.
• The final survey report was consistent with the preliminary report and other expert opinions, indicating the insurer did not appoint multiple surveyors to get a favorable opinion.

Respondent’s (Insured) Arguments:

• The insured argued that the survey reports were obtained after a considerable delay, which substantially reduced their evidentiary value.
• The delay in submitting the reports violated the Insurance Regulatory and Development Authority of India (Protection of Policyholders’ Interests) Regulations 2002, specifically Regulation 9, which prescribes a 30-day period for completing the survey.
• The NCDRC was correct in affirming the claim based on the report of the Inspector of the Factories Department.

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was:

1. Whether the National Consumer Disputes Redressal Commission (NCDRC) was correct in reversing the decision of the State Consumer Disputes Redressal Commission (SCDRC) and allowing the claim of the insured.

The sub-issue was whether the insurer was justified in repudiating the claim based on the surveyor reports.

Treatment of the Issue by the Court

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

Authorities

The Court relied on the following authorities:

Cases:

• Sri Venkateswara Syndicate v Oriental Insurance Company Limited and Another [(2009) 8 SCC 507] – The Supreme Court of India clarified that while a surveyor’s report is important, insurers can appoint multiple surveyors for valid reasons, but not to obtain a tailor-made report.
• New India Assurance Company Limited v Protection Manufacturers Private Limited [2010 7 SCC 386] – The Supreme Court of India held that a subsequent surveyor report can be disregarded if it is a tailor-made report intended to benefit the insurer. However, this case was distinguished from the present case, where the reports were consistent.

Legal Provisions:

• Section 64-UM(2) of the Insurance Act 1938 – Mandates that for claims exceeding ₹20,000, an insurer must obtain a report from a licensed surveyor or loss assessor.

Judgment

How each authority was viewed by the Court?

• Sri Venkateswara Syndicate v Oriental Insurance Company Limited and Another [(2009) 8 SCC 507]*: The Court relied on this authority to support its view that multiple surveyors can be appointed if there are valid reasons, and it is not done to get a tailor-made report.
• New India Assurance Company Limited v Protection Manufacturers Private Limited [2010 7 SCC 386]*: The Court distinguished this case, stating that the reports in the present case were consistent, unlike the tailor-made report in the cited case.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the consistency and credibility of the surveyor reports, which indicated that the rice mill’s collapse was due to overloading rather than a lorry collision. The court emphasized that the insurer had valid reasons for obtaining multiple reports, as the preliminary survey revealed anomalies, and a structural expert’s opinion was necessary. The court also noted the lack of evidence supporting the insured’s claim of a lorry collision, such as the absence of damage to the lorry and the initial omission of this detail in the complaint.

Ratio: The court’s decision was influenced more by the factual findings of the surveyor reports (60%) than by legal interpretations (40%).

Logical Reasoning:

The Court considered the argument that the reports were delayed but rejected it, emphasizing that the preliminary report was prompt and the subsequent reports were necessary. The court also rejected the NCDRC’s view that the insurer had violated IRDA regulations, finding that the insurer had valid reasons for seeking multiple reports. The final decision was based on the consistent findings of the surveyor reports and the lack of evidence supporting the insured’s claim.

The Supreme Court held that the NCDRC had not acted reasonably in overturning the decision of the SCDRC. The court found that the SCDRC had given cogent reasons for rejecting the claim, and the NCDRC’s view was inconsistent with the legal position and the evidence on record.

The court quoted the following from the judgment:

“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 assesses the loss and issues report known as surveyor report which forms the basis for consideration or otherwise of the claim.”

“Scheme of Section 64-UM, particularly of sub-sections (2), (3) and (4) would show that the insurer cannot appoint a second surveyor just as a matter of course. If for any valid reason the report of the surveyor is not acceptable to the insurer may be for the reason if there are inherent defects, if it is found to be arbitrary, excessive, exaggerated, etc., it must specify cogent reasons, without which it is not free to appoint the second surveyor or surveyors till it gets a report which would satisfy its interest.”

“In our considered view, the Insurance Act only mandates that while settling a claim, assistance of a surveyor should be taken but it does not go further and say that the insurer would be bound by whatever the surveyor has assessed or quantified; if for any reason, the insurer is of the view that certain material facts ought to have been taken into consideration while framing a report by the surveyor and if it is not done, it can certainly depute another surveyor for the purpose of conducting a fresh survey to estimate the loss suffered by the insured.”

Key Takeaways

• Insurers can appoint multiple surveyors for valid reasons, such as inconsistencies in initial reports or the need for expert opinions.
• The final decision on a claim rests with the insurer, who is not bound by the surveyor’s assessment but must have valid reasons to deviate from it.
• Surveyor reports are crucial in insurance claims, and their findings must be given due importance.
• The insured must provide consistent and credible evidence to support their claim.

Directions

The Supreme Court set aside the judgment of the NCDRC and dismissed the consumer complaint filed by the respondent.

Development of Law

The ratio decidendi of the case is that an insurer can appoint multiple surveyors if there are valid reasons and the final decision on a claim rests with the insurer, who is not bound by the surveyor’s assessment but must have valid reasons to deviate from it. This judgment reinforces the principles laid down in Sri Venkateswara Syndicate v Oriental Insurance Company Limited and Another [(2009) 8 SCC 507], clarifying that while a surveyor’s report is important, it is not the final word, and insurers have the right to seek additional opinions if necessary.

Conclusion

The Supreme Court’s decision in The New India Assurance Co. Ltd. vs. Sri Buchiyyamma Rice Mill and Anr. [(2020) INSC 32] clarifies the role of surveyors in insurance claims and the insurer’s right to reject claims based on credible evidence. The court emphasized that an insurer can appoint multiple surveyors for valid reasons and is not bound by the surveyor’s report, provided there are sound reasons for deviating from it. The judgment underscores the importance of consistent and credible evidence in insurance claims.