LEGAL ISSUE: Whether the assessment of loss by a surveyor appointed under Section 64UM of the Insurance Act, 1938 is final and binding on the insured and the insurer, and the extent to which a Consumer Forum can interfere with such an assessment.
CASE TYPE: Consumer Dispute, Insurance Law
Case Name: Khatema Fibres Ltd. vs. New India Assurance Company Ltd. & Anr.
Judgment Date: 28 September 2021
Date of the Judgment: 28 September 2021
Citation: [Not Available in Source]
Judges: Hemant Gupta, J., V. Ramasubramanian, J. (authored the judgment)
Can an insurance company limit compensation to the amount assessed by a surveyor, even if the insured claims a higher loss? The Supreme Court of India recently addressed this question in a case involving a fire at a factory. The core issue was whether the National Consumer Disputes Redressal Commission (NCDRC) was correct in upholding the surveyor’s assessment of loss, which was significantly lower than the amount claimed by the insured. The Supreme Court examined the powers of the consumer forum in cases involving insurance claims and surveyor reports.
Case Background
Khatema Fibres Ltd. (the appellant) had a “Standard Fire and Social Perils” insurance policy for ₹42,40,00,000, valid from 7 May 2007 to 6 May 2008. On 15 November 2007, a fire broke out at their factory premises, destroying a large quantity of waste paper. The appellant estimated the loss at ₹13,00,00,000, claiming that 8500 MT of waste paper was destroyed.
The insurance company appointed M/S Adarsh Associates as surveyors, who, after examining the records, assessed the loss at ₹2,86,17,942 in a report dated 9 January 2009. The appellant objected to this assessment and requested the appointment of another surveyor. However, the insurance company, through letters dated 21 August 2009 and 7 October 2009, approved the claim only to the extent of ₹2,85,76,561.
Aggrieved by the insurance company’s decision, the appellant filed a consumer complaint before the National Commission under Section 21(a)(i) of the Consumer Protection Act, 1986, seeking a total compensation of ₹3460,40,000, including interest and litigation costs. The National Commission rejected the appellant’s claim, directing the insurance company to pay only the amount assessed by the surveyor, with interest.
Timeline
| Date | Event |
|---|---|
| 7 May 2007 to 6 May 2008 | “Standard Fire and Social Perils” policy in force. |
| 15 November 2007 | Fire broke out at the appellant’s factory. |
| 16 November 2007 | Shri Kapil Vaish appointed for spot inspection. |
| 19 November 2007 | Appellant submitted a claim, estimating loss at ₹13,00,00,000. |
| 5 December 2007 | Appellant’s letter mentions volumetric analysis for stock quantification. |
| 9 January 2009 | M/S Adarsh Associates submitted final survey report, assessing loss at ₹2,86,17,942. |
| 2 May 2009 | Appellant objected to the survey report. |
| 21 August 2009 | Insurance company approved claim for ₹2,85,76,561. |
| 14 September 2009 | Appellant raised objections to the Survey Report again. |
| 7 October 2009 | Insurance company reiterated that the claim would be finalized for the amount indicated in the letter dated 21 August 2009. |
| 3 July 2018 | National Commission directed payment of ₹2,85,76,561 with interest. |
| 28 September 2021 | Supreme Court dismissed the appeal. |
Course of Proceedings
The appellant, dissatisfied with the insurance company’s decision to limit the claim to the surveyor’s assessment, filed a consumer complaint before the National Consumer Disputes Redressal Commission (NCDRC). The NCDRC rejected the appellant’s claim for higher compensation and directed the insurance company to pay the amount assessed by the surveyor, along with interest at 9% per annum from 15 November 2007, until the date of the insurance company’s offer.
The appellant then filed an appeal before the Supreme Court under Section 23 of the Consumer Protection Act, 1986, challenging the NCDRC’s judgment.
Legal Framework
The case primarily revolves around the interpretation of Section 64UM of the Insurance Act, 1938, which mandates that insurance claims exceeding a certain amount must be assessed by a licensed surveyor.
Section 64UM(2) of the Insurance Act, 1938 (before amendment by Act 5 of 2015) states:
“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”):”
However, the proviso to Section 64UM(2) allows the insurer to settle the claim for an amount different from the surveyor’s assessment:
“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 considered Section 2(1)(g) of the Consumer Protection Act, 1986, which defines “deficiency” in service:
“2(1)(g) deficiency” means any fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance which is required to be maintained by or under any law for the time being in force or has been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any service”
The Supreme Court noted that a deficiency in service could arise if the surveyor failed to comply with the code of conduct under Section 64UM(1A) of the Insurance Act, 1938 or if the insurer arbitrarily rejected the surveyor’s report.
Arguments
The appellant (Khatema Fibres Ltd.) argued that:
- The National Commission erred in accepting the surveyor’s assessment of 2264.400 MT of damaged waste paper, as against their claim of 8332 MT.
- There were no discrepancies in the stock registers maintained by the appellant, but the surveyor arbitrarily rejected them and proceeded on a volumetric analysis basis.
- Even on volumetric analysis, the surveyor made errors by considering the area of the open yard to be 1485 sq. mtrs. instead of the actual 2700 sq. mtrs.
- The surveyor incorrectly took the net weight per bale as 900 kgs, despite finding it to be 988.889 kgs in their own report.
The respondent (New India Assurance Company Ltd.) contended that:
- M/S Adarsh Associates were appointed as surveyors under Section 64UM(2) of the Insurance Act, 1938, and they assessed the loss scientifically.
- The surveyor’s report is an important document, and courts should defer to it.
- The appellant themselves adopted volumetric analysis for quantifying the stock.
- The appellant admitted that there was no physical verification of stock of raw material in the recent past and the consumption of raw material was recorded only on estimated yield basis.
| Main Submission | Sub-Submissions by Appellant | Sub-Submissions by Respondent |
|---|---|---|
|
Assessment of loss by surveyor is incorrect |
|
|
Issues Framed by the Supreme Court
The Supreme Court considered the following issues:
- Whether the National Commission was correct in upholding the surveyor’s assessment of the loss suffered by the appellant.
- Whether the surveyor’s assessment was based on a proper evaluation of the facts and records.
- Whether the Consumer Forum can interfere with the assessment made by the surveyor.
Treatment of the Issue by the Court
| Issue | Court’s Decision | Brief Reasons |
|---|---|---|
| Whether the National Commission was correct in upholding the surveyor’s assessment of the loss suffered by the appellant. | Upheld | The Court found no deficiency in the surveyor’s methodology and reasoning. |
| Whether the surveyor’s assessment was based on a proper evaluation of the facts and records. | Affirmed | The surveyor had valid reasons to reject the stock records and adopt volumetric analysis. The surveyor also considered the spot inspection report. |
| Whether the Consumer Forum can interfere with the assessment made by the surveyor. | Limited Interference | The Consumer Forum can only interfere if there is a deficiency in service, such as a breach of code of conduct by the surveyor or arbitrary rejection of the surveyor’s report by the insurer. |
Authorities
The Supreme Court considered the following authorities:
| Authority | Court | How it was used |
|---|---|---|
| United India Insurance Company Ltd. And Others vs. Roshan Lal Oil Mills Ltd. And others [2000 (10) SCC 19] | Supreme Court of India | Cited to support the contention that the report of the surveyor is an important document and that Courts may have to show deference to the report of the surveyor appointed in terms of section 64UM(2) of the Act. |
| Sikka Papers Limited vs. National Insurance Company Limited And Others [2009 (7) SCC 777] | Supreme Court of India | Cited to support the contention that the report of the surveyor is an important document and that Courts may have to show deference to the report of the surveyor appointed in terms of section 64UM(2) of the Act. |
| New India Assurance Company Limited vs. Luxra Enterprises Private Limited And Another [2019(6) SCC 36] | Supreme Court of India | Cited to support the contention that the report of the surveyor is an important document and that Courts may have to show deference to the report of the surveyor appointed in terms of section 64UM(2) of the Act. |
| New India Assurance Company Limited vs. Pradeep Kumar [(2009) 7 SCC 787] | Supreme Court of India | Cited to state that the surveyor’s report is not so sacrosanct as to be incapable of being departed from. |
| Section 64UM(2) of the Insurance Act, 1938 | Statute | Explained the requirement of obtaining a surveyor’s report for claims exceeding ₹20,000. |
| Proviso to Section 64UM(2) of the Insurance Act, 1938 | Statute | Explained the right of the insurer to pay any amount different from the amount assessed by the surveyor. |
| Section 2(1)(g) of the Consumer Protection Act, 1986 | Statute | Defined the term “deficiency” in service. |
| Section 64UM(1A) of the Insurance Act, 1938 | Statute | Explained the code of conduct for surveyors. |
Judgment
The Supreme Court upheld the decision of the National Commission, stating that the surveyor’s report was not flawed and that the insurance company was justified in limiting the compensation to the assessed amount.
| Submission by Parties | How the Court Treated the Submission |
|---|---|
| Appellant’s claim of higher loss based on stock records. | Rejected. The Court found the surveyor’s decision to reject the stock records justified due to discrepancies and the appellant’s own admission of not conducting physical verification. |
| Appellant’s argument that the surveyor wrongly applied volumetric analysis. | Rejected. The Court found the surveyor’s use of volumetric analysis appropriate, given the discrepancies in the stock records and the appellant’s own admission of using volumetric analysis. |
| Appellant’s claim that the area measured was incorrect. | Rejected. The Court found that the surveyor had considered the spot inspection report and the salvage operations to conclude the area affected by fire. |
| Appellant’s claim that the weight per bale was incorrectly calculated. | Rejected. The Court noted that the appellant themselves had initially provided the weight per bale as 900 kgs. |
| Respondent’s contention that the surveyor’s report is an important document. | Accepted. The Court recognized the importance of the surveyor’s report but clarified that it is not final and can be departed from under specific circumstances. |
How each authority was viewed by the Court?
- United India Insurance Company Ltd. And Others vs. Roshan Lal Oil Mills Ltd. And others [2000 (10) SCC 19], Sikka Papers Limited vs. National Insurance Company Limited And Others [2009 (7) SCC 777] and New India Assurance Company Limited vs. Luxra Enterprises Private Limited And Another [2019(6) SCC 36]: The Court acknowledged the importance of surveyor’s reports as stated in these cases, but also clarified that they are not final and binding.
- New India Assurance Company Limited vs. Pradeep Kumar [(2009) 7 SCC 787]: The Court relied on this case to emphasize that the surveyor’s report is not sacrosanct and can be departed from.
- Section 64UM(2) of the Insurance Act, 1938: The Court used this provision to explain the requirement of a surveyor’s report for claims exceeding a certain amount.
- Proviso to Section 64UM(2) of the Insurance Act, 1938: The Court used this to highlight the insurer’s right to settle claims for amounts different from the surveyor’s assessment.
- Section 2(1)(g) of the Consumer Protection Act, 1986: The Court used this to define “deficiency” in service, which is the basis for a consumer complaint.
- Section 64UM(1A) of the Insurance Act, 1938: The Court used this to highlight the code of conduct that surveyors must follow.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the following factors:
- The surveyor’s justification for rejecting the stock records due to discrepancies and the appellant’s own admission of not conducting physical verification.
- The surveyor’s detailed explanation of the volumetric analysis method used to assess the loss, including the consideration of the spot inspection report.
- The appellant’s own admission of using volumetric analysis for stock quantification.
- The appellant’s initial estimation of the weight per bale as 900 kgs.
- The limited scope of interference by the Consumer Forum in cases involving surveyor reports, unless there is a deficiency in service.
- The importance of the surveyor’s report as an expert assessment, though not final and binding.
Sentiment Analysis of Reasons Given by the Supreme Court
| Reason | Percentage |
|---|---|
| Surveyor’s justification for rejecting stock records | 25% |
| Surveyor’s volumetric analysis method | 20% |
| Appellant’s admission of using volumetric analysis | 15% |
| Appellant’s initial estimation of weight per bale | 15% |
| Limited scope of interference by Consumer Forum | 15% |
| Importance of surveyor’s report | 10% |
Fact:Law Ratio
| Category | Percentage |
|---|---|
| Fact (Consideration of factual aspects of the case) | 60% |
| Law (Consideration of legal aspects) | 40% |
Logical Reasoning
The court’s logical reasoning for each issue is explained below:
Issue 1: Was the National Commission correct in upholding the surveyor’s assessment?
Reasoning: Surveyor’s report was detailed and based on volumetric analysis after rejecting the stock records. There was no deficiency in the surveyor’s methodology.
Conclusion: National Commission’s decision to uphold the surveyor’s assessment was correct.
Issue 2: Was the surveyor’s assessment based on a proper evaluation of facts and records?
Reasoning: Surveyor had valid reasons to reject stock records due to discrepancies and the appellant’s admission of not conducting physical verification. Volumetric analysis was a reasonable alternative.
Conclusion: Surveyor’s assessment was based on a proper evaluation of facts and records.
Issue 3: Can the Consumer Forum interfere with the surveyor’s assessment?
Reasoning: Consumer Forum can only interfere if there is a deficiency in service. This includes breach of code of conduct by the surveyor or arbitrary rejection of the surveyor’s report by the insurer.
Conclusion: Consumer Forum’s power to interfere is limited to cases of deficiency in service.
Key Takeaways
- The surveyor’s report is an important document in insurance claims, but it is not final and binding.
- Insurers have the right to settle claims for amounts different from the surveyor’s assessment.
- Consumer Forums have limited jurisdiction to interfere with surveyor’s reports, unless there is a deficiency in service.
- The insured must provide accurate and consistent records to support their claim.
- Surveyors must follow the code of conduct and provide a reasoned assessment.
- The court will give due consideration to the spot inspection report.
Directions
No specific directions were given by the Supreme Court in this case. The appeal was dismissed.
Specific Amendments Analysis
The judgment discusses the amendment to Section 64UM(2) of the Insurance Act, 1938, by Act 5 of 2015, which replaced “twenty thousand rupees” with “amount specified in the Regulations by the Authority”. However, this amendment was not central to the court’s decision.
Development of Law
The ratio decidendi of this case is that while a surveyor’s report is an important piece of evidence in insurance claims, it is not final and binding. The insurer has the right to settle the claim for an amount different from the surveyor’s assessment. The Consumer Forum can only interfere with the surveyor’s report if there is a deficiency in service, such as a breach of the surveyor’s code of conduct or an arbitrary rejection of the report by the insurer.
This judgment clarifies the extent of deference that should be given to a surveyor’s report and the limited scope of interference by Consumer Forums in such matters.
Conclusion
The Supreme Court dismissed the appeal filed by Khatema Fibres Ltd., upholding the National Commission’s decision to limit the insurance claim to the amount assessed by the surveyor. The court emphasized that while surveyor’s reports are important, they are not final and binding, and the insurer has the right to settle claims for different amounts. The court also clarified the limited scope of interference by Consumer Forums in such matters, requiring a demonstration of deficiency in service for any intervention.