Insurer to pay for closure to avert risk from rioting

BBF Industries, a Ludhiana-based company, had two manufacturing units for making cartons and packaging material. It had obtained two insurance policies from United India Insurance—one for Standard Fire and Special Perils with a coverage of over Rs 60 crore, and the other for Consequential Loss (Fire) Policy with a coverage of Rs 15 crore. Both the policies were valid from October 29, 2007 to October 28, 2008.

In July 2008, there was a huge agitation against the government’s move to acquire land belonging to the Amarnath Shrine Board. There were protest rallies, strikes and riots, due to which curfew was imposed. On July 25, 2008 at around 10.30 am, a mob of around 200-250 persons armed with lathis and stones gathered at the factory. The mob started rioting, entered the factory, damaged property, and set fire to stock.

Due to damage to the units, the factory had to stop its operations completely. The disruption continued till August 31, 2008. After the agitation subsided, it took another seven days to restore the plant, after which production restarted on September 8, 2008.

The insured lodged a claim, both for loss due to riots and arson, and also for consequential loss due to stoppage of operations. The surveyor appointed by the insurer assessed the loss under the Fire Policy at Rs 1,42,88,101, and the claim was settled at Rs 1,32,93,663.

The claim under the other policy for Consequential Loss was assessed only for a period of six days spent on restoration of the factory to make it operational again. The period prior to August 31, 2008, during which the factory remained closed due to riots and arson, was rejected as not being covered under the policy.

The insured wrote several letters regarding the claim of Rs 3,06,54,018 for the preceding period from July 25, 2008 to August 31, 2008. As the insurer did not pay any heed, the insured filed a complaint before the National Commission seeking a reimbursement of Rs 3,06,54,018 along with interest, compensation and costs.

The insurer contested the case, contending that loss due to closure of the factory on account of riots and curfew in the area could not be considered as an interruption of work due to fire. Hence it had rejected the claim for the period prior to August 31, 2008.

The National Commission noted that terrorism was specifically covered under both the policies. It also observed that the factory was working on July 25, 2008 when riots occurred, and thereafter it was kept shut to prevent the rioters from causing further loss. The Commission observed that it is the duty of the insured to minimise loss, and hence keeping the factory closed to prevent further damage was necessitated under the policy terms and conditions. Since the operations remained suspended for 45 days during the period the agitation continued and subsequently during the time it took to restore the premises, the Commission held that loss for the entire period was payable under the terms of the Consequential Loss Policy, which included a claim for loss of profit.

The Commission concluded that the claim for consequential loss for the entire period of 45 days worked out to Rs 1,06,46,422, when computed according to the formula mentioned by the surveyor in the survey report.

Accordingly, by its order of June 1, 2022, delivered by Deepa Sharma along with Subhash Chandra, the National Commission ordered the insurer to pay Rs 1,06,46,422 along with 9 per cent interest and cost of Rs 1 lakh.

The writer is a consumer activist