In Civil Appeal No. 339 of 2023 -SC- Supreme Court upholds Principle of Uberrimae Fidei, Orders New India Assurance to honour commitment in Rs. 6.57 crore fire insurance claim
Justice Hrishikesh Roy & Justice Sanjay Karol [24-11-2023]

Read Order: New India Assurance Co. Ltd. & Ors V. M/s. Mudit Roadways

Chahat Varma

New Delhi, November 28, 2023: The Supreme Court has recently dismissed an appeal filed by New India Assurance Co. Ltd., upholding the National Consumer Disputes Redressal Commission's (NCDRC) order directing the insurance company to pay Rs.6,57,55,155 for a fire insurance claim.

The factual matrix of the case was that the respondent, M/s. Mudit Roadways, had purchased various insurance policies to cover its premises. The claimant had leased the premises from M/s. Platinum Logistics for warehousing purposes. The claimant had paid Rs. 44,02,562 to New India Assurance for safeguarding custom-bonded goods and covering the risk of fire, etc. During the pendency of the insurance policies, a fire broke out at the insured warehouse. The respondent informed the Insurance Company and the Customs authorities about the incident. Upon receiving the Survey and Investigation Reports, the Insurance Company rejected the respondent's claim, citing two reasons: 1) The insured premises was unaffected by the fire, and 2) The fire resulted from the insured's negligence during roof construction in a secure customs-bonded warehouse with hazardous chemicals. Construction work in the warehouse increased the risk, leading to the cessation of insurance coverage under Clause 3 of the policy's terms and conditions.

However, the NCDRC ruled in favour of the claimant, concluding that the insurance policy covered the claimant’s warehouse. On the second issue, the NCDRC noted the time lag between the welding work and the fire incident and observed that the Forensic report was inconclusive. The other reports suggesting an electrical short circuit as the cause of the fire were found to be more acceptable. Adverting to the roofing work done by the insured, the NCDRC held that it did not significantly increase the risk, and therefore, Clause no. 3 was inapplicable.

The division bench, comprising of Justices Hrishikesh Roy and Sanjay Karol, highlighted that an insurance company cannot introduce new grounds for repudiation during the hearing that were not included in the original repudiation letter.

The bench, after examining the policy documents, the Leave & License Agreement, and various communications from the customs, police, fire, and electricity departments, concluded that the insured premises identified and insured by the insurance company was at Survey No. 9/3. There was no indication that the area where the fire occurred was not covered by the insurance policy.

The bench further observed that the insured had undertaken essential repair work on the rooftop to prevent water leakage to the warehouse. This repair work, in the court's assessment, was not considered an alteration that would increase the risk of loss or damage, as argued by the insurance company. Consequently, the bench found no infirmity with the NCDRC's view on the matter.

The bench also noted that the conclusion of the Forensic Investigator, attributing the cause of the fire to sparks from rooftop welding, appeared illogical. The investigator's oversight of other potential causes, such as a short circuit, was noted. Additionally, there was a lack of evidence that sparks fell on flammable chemicals due to activities undertaken by workers. Out of the nine reports, seven suggested a short circuit as the likely cause of the fire, while two inferred negligence on the insured's part for inadequate precautions during warehouse construction.

The bench concluded that the significant time gap between the welding work and the fire lacked a logical explanation. As a result, the basis for repudiation appeared unreasonable and was deemed unacceptable.

Additionally, the bench observed that the surveyor’s report could not be considered a sacred document, and contrary evidence, including an investigation report, was subject to rebuttal. The key question was whether the investigation report was indispensable or if the survey report alone was sufficient to determine the cause of the fire. Thus, the bench held that the surveyor’s report, although comprehensive otherwise, was inconclusive on the aspect of identifying the actual cause of the fire. Given that the surveyor’s report only relied on the findings of the Forensic Examiner, it was deemed unsafe, to rely on the said report.

The bench also, in reference to Canara Bank v. United India Insurance Co. Ltd. [LQ/SC/2020/180], highlighted that the precise cause of a fire, whether attributed to a short-circuit or any alternative factor, remained immaterial, provided the claimant was not the instigator of the fire. This case emphasized the fundamental principle that an insurance company’s obligation to the insured was of much greater import.

The bench remarked, “In the realm of risk and uncertainty, individuals and organisations seek solace in the bastion of insurance – a covenant forged on the bedrock of trust. Trust serves as the cornerstone, forming the essence of the insurer-insured relationship.”

The bench emphasized the fundamental principle that insurance is governed by the doctrine of uberrimae fidei, requiring complete good faith on the part of the insured. The insurer assumes a fiduciary duty to act in good faith and honour their commitment, particularly when the insured had not been negligent.

Accordingly, the appeal of the Insurance Company was dismissed. However, the Court, while dismissing the appeal, added that to avoid any confusion, the customs duty component of the claim should be discharged directly to the Customs Department.