In CIVIL APPEAL No.83 of 2023-SC- Top Court comes to aid of complainant possessing Standard Fire & Special Perils Policy, confirms Order awarding reinstatement value and not depreciated value for damage of machinery
Justices M.R. Shah & C.T.Ravikumar [13-01-2023]

Read Judgment:M/s Oswal Plastic Industries v. Manager, Legal Deptt N.A.I.C.O. Ltd 

Tulip Kanth

New Delhi, January 16, 2023: In a case where the complainant-Company possessing  a Standard Fire and Special Perils Policy had suffered damage of the plant and machinery due to fire, the Supreme Court has dismissed the NCDRC’s Order while confirming the State Commission’s Order in awarding the reinstatement value.

“The NCDRC has seriously erred in observing and holding that the insurance company shall be liable to pay the depreciated value only and not the reinstatement value. The State Commission was absolutely justified in awarding the reinstatement value”, the  Division Bench of Justice M.R. Shah and Justice C.T.Ravikumar asserted.

In this case, the appellant had obtained Standard Fire and Special Perils Policy and the insured sum was Rs. 2.50 crore. According to the appellant, the policy was on reinstatement value which was enhanced to Rs. 4.50 crore. During the validity period of policy, fire broke out in the factory premises resulting into loss of material, stock, and machinery of the value of Rs. 76.64 lakh. The surveyor appointed by the insurance company assessed the loss on reinstatement value basis at Rs 29,17,500 and on depreciated value at Rs. 12,60,000. 

Despite the reports of the surveyor and investigator, the insurance company repudiated the claim. The appellant– original complainant filed the complaint before the State Commission, seeking a claim of Rs 76.64 lakh together with interest contending that the complainant had purchased the machinery to replace the damaged machinery at the cost of Rs 1,34,07,836. 

The State Consumer Disputes Redressal Commission, Punjab awarded a sum of Rs 29,17,500 together with 9% interest from the date of repudiation letter alongwith Rs 1 lakh as compensation and Rs 11,000 as litigation expenses. 

The Appellant- Original complainant had approached the Top Court after feeling aggrieved and dissatisfied with the impugned judgment of the National Consumer Disputes Redressal Commission, New Delhi (NCDRC) whereby the order passed by the State Commission was modified to the extent that the insurance company should be liable to pay only Rs 12,60,000 instead of Rs 29,17,500.

The main issue before the Bench was whether in case of damage of the plant and machinery due to fire, the complainant would be entitled to the reinstatement value or the depreciated value.

Placing reliance upon Clause 9 of Section 2 of the Policy, the Bench opined that firstly the option is given to the insurance company to reinstate or replace property damaged or destroyed instead of paying the amount of loss or damage. 

As per the  Clause, if the insurance company exercises the option of reinstatement or replaces the property damaged, the company shall not be bound to reinstate completely or partly but only as circumstances permit and in reasonably sufficient manner, and in no case shall the company be bound to expend more in reinstatement than it would have cost to reinstate such property as it was at the time of the occurrence of such loss or damage not more than the sum insured by the company thereon. 

However, it was observed by the Top Court that in any case the company is unable to reinstate or repair the property insured, because of any municipal or other regulations in force affecting the alignment of streets or the construction of buildings or otherwise then, in that case, the company shall be liable to pay such sum as would be requisite to reinstate or repair such property if the same could lawfully be reinstated to its former condition. 

The present case was one where  the company was unable to reinstate or repair the property and the surveyor in its report determined the loss on the basis of reinstatement value at Rs. 29,17,500 and on the basis of depreciated value at Rs 12,60,000.

Though, the complainant claimed Rs 76,64,000 being the value of the new machinery, however, the Bench opined that it was rightly observed by the State Commission as well as the NCDRC, that the complainant shall not be entitled to the said amount. 

Considering second part of Clause 9  that in case company is unable to reinstate or repair the property insured, the insurance company shall be liable to pay such sum as would be requisite to reinstate or repair such property if the same could lawfully be reinstated to its former condition, the Bench said, “Therefore, as per second part of Clause 9 of Section 2 of the policy, the complainant shall be entitled to the reinstatement value and not the depreciated value.”

Noting that the NCDRC had misinterpreted and misread the Clause 9, the Bench held that the State Commission was absolutely justified in awarding the reinstatement value. 

Thus, setting aside the NCDRC’s order and confirming the State Commission’s Order, the Bench allowed the appeal.