Claim can't be avoided by suppressing vital report

The National Commission castigated the insurer for suppressing the second report, which favoured the insured. It concluded this report made it evident the claim was genuine

Ahmednagar-based Nitin Industries was a proprietary concern of Nitin Bora, who ran a plastic reprocessing business. He had taken a Standard Fire & Special Perils Insurance Policy from National Insurance.

On July 30, 2004, Nitin heard a loud sound and came out to see what had happened. He noticed sparks emanating from the electric transformer installed in front of the factory. When he went inside, he saw the main switchboard burst with a bang, sparking a fire, which spread rapidly to the plastic kept in the factory. Nitin called the fire brigade, which took several hours to extinguish the fire.

The insurer was also informed about the incident. National Insurance deputed a person called Thombare as surveyor who inspected the factory the following day. The surveyor asked for various documents, which were furnished. The insurer then appointed the same surveyor as investigator. However, it rejected the claim on the pretext that it was fraudulent.

Nitin approached the insurance ombudsman who passed an order dated March 17, 2006 allowing the claim. However, on March 31, 2006, the ombudsman passed another order clarifying that the previous order was incorrect due to a typographical error. It dismissed the grievance as non-sustainable.

Nitin then filed a complaint before the Aurangabad bench of the Maharashtra State Commission. The insurer contested the complaint. After hearing the contentions of the rivals, the State Commission held the claim payable, but with 20 per cent deduction for the contributory negligence of not having installed proper equipment for fire-fighting. It ordered National Insurance to pay Rs 13,30,000 along with 9 per cent interest from the date of repudiation of the claim. Additionally, Rs 10,000 was awarded as compensation for mental agony and Rs 5,000 towards litigation costs.

National Insurance challenged this order in appeal. It contended that the claim was fraudulent since there had been no fire.

The National Commission was confused about whether there were two reports—one by the surveyor and the other by the investigator. The insurance company’s advocate was asked to clarify the matter and file all the reports. It was only then that National Insurance produced the second report.

The National Commission scrutinised the documents and noted that Thombare, in his capacity as surveyor, had stated that the cause of fire could not be ascertained. Later, when called upon to investigate the cause of the fire, he had reported that the electric transformer had developed a technical snag causing fluctuation in current, which led to sparking on July 30, 2004. This spread to the domestic switchboard in the factory premises, causing a short circuit and resulting in a fire which engulfed the entire factory. Both the investigator and the police had concluded that the fire was accidental and not intentional. The electric inspector had also opined that there was a technical fault, which resulted in fluctuation in current and sparking, and eventually caused a short circuit.

In its judgement of May 24, 2022, the bench of the National Commission comprising C. Viswanath and Ram Surat Ram Maurya observed that the second report was a vital document which threw light on the cause of the fire. The bench castigated the insurer for suppressing this document merely because it favoured the insured. It concluded that the second report made it evident that the claim was genuine and not fraudulent. Accordingly, it upheld the order of the State Commission and dismissed the insurer's appeal with further costs of Rs 50,000 for concealment of material facts and vital documents.
The writer is a consumer activist