Fake invoices can lead to insurance claim repudiation, shows a recent order

Aristo Texcon, a private limited company, had its factory in Kolkata's Tangra Industrial Estate. A massive fire occurred on February 19, 2012. Here's what happened when they approached their insurer.

Aristo Texcon (the insured), a private limited company, had its factory in Kolkata’s Tangra Industrial Estate. It was engaged in the manufacture and sale of elastic tapes, laces, mattresses, pillows, cushions, and ready-made garments.
 

The insured had obtained a Standard Fire and Special Perils Policy from United India Insurance for a coverage of Rs 7.1 crore, which included Rs 1.1 crore for its seven-storeyed building, Rs 1 crore for plant, machinery and accessories, and Rs 5 crore towards stock. The policy was valid from May 31, 2011 to May 30, 2012.
 

A massive fire occurred on February 19, 2012 at about 9 PM during the tenure of the policy. Since it was a Sunday night, only the security guard was present. He immediately informed the fire brigade which sent several fire engines to the spot. It took about three hours to douse the fire. The Disaster Management Team sealed the building and then carried out a forensic investigation to find out the root cause of the fire. The report which was issued later concluded that the fire was not caused deliberately or fraudulently, but had occurred due to an accidental electric fault.
 

The insured intimated the insurer about the loss, and pegged the estimated loss to be around Rs 6 crore. The insurer appointed P.S. Ramnathan to conduct the survey. Later, S.N. & Associates was appointed as investigator to visit the establishment of the fabric manufacturer and the tailoring units.
 

The surveyor sought an item wise list of the loss. When this was prepared, the total loss came to Rs 3,25,27,455. After adding the cost of segregation of the damaged materials, removal of debris, and other expenses, the revised claim amounted to Rs 3,28,50,037. The insured filed a claim for this amount.
 

Of the amount claimed, the major component of the loss was stated to be Rs 1,81,53,919 for 72,000 ready-made garments prepared for an export order. The insured claimed that this order was prepared by purchasing fabrics from Sanjay Enterprises. These fabrics were tailored by Mangla Traders and Mamoni Industries.
 

As the claim was not settled despite repeated reminders and even a legal notice, the insured filed a complaint before the National Commission seeking a direction to settle the claim along with interest, compensation and costs. The insurer contested the case. 
 

Based on the report of the surveyor, it pointed out that the challans produced by the insured did not exist or tally with the records of the fabric vendor and the tailoring units. Besides, the tailoring units did not have the capacity to stitch 72,000 garments within a period of two months. The insurer argued that the claim had been repudiated on the basis of the surveyor’s findings.

In its order of August 30, 2022 delivered by Justice Ram Surat Ram Maurya, the National Commission observed that the survey report should be given due consideration. The Commission noted that the major component of the claim was towards loss of Rs 1,81,53,919 for 72,000 ready-made garments, regarding which no reliable evidence had been produced to substantiate the loss. Hence, it concluded that the insurer was justified in repudiating the entire claim on the ground that it was exaggerated and based on fabricated documents. Accordingly, it upheld the repudiation and dismissed the claim.