Repudiation of claim - Insurance company cannot travel beyond the grounds mentioned in the letter of repudiation

National Consumer Commission Rules in Favor of Shadi Lal Enterprises, Orders Insurance Payout with Interest. Insurance Claim for Bursting of Molasses Storage Tank Allowed; National Insurance Co. Ltd. Directed to Pay Rs. 84.97 Lakhs with Interest

In a significant ruling, the National Consumer Disputes Redressal Commission (NCDRC) has decided in favor of M/s. Sri Shadi Lal Enterprises Ltd., ordering National Insurance Co. Ltd. to pay Rs. 84,97,703 with interest. The case revolved around the insurance claim for the loss caused due to the bursting of a molasses storage tank at Upper Doab Sugar Mills, Shamli, which the insurance company had previously repudiated.

The dispute arose when, on April 27, 2008, a molasses storage tank burst, causing substantial losses. Shadi Lal Enterprises filed a claim for Rs. 2,59,49,519, which was repudiated by the insurance company on grounds of mechanical failure and wear and tear, arguing that the damage was not covered under the policy. The company contended that the tank burst was due to a chemical reaction causing pressure build-up, a claim supported by expert reports including a Failure Analysis Report.

The Commission, presided over by Mr. Justice A.P. Sahi and Mr. Bharatkumar Pandya, scrutinized the grounds of repudiation and the expert evidence presented. It held that the insurance company could not extend its justification beyond the reasons mentioned in the letter of repudiation, following precedents set by the Supreme Court in similar cases. The Commission also noted that the exclusion clause cited by the insurer applied specifically to electrical equipment, which did not pertain to the molasses storage tank in question.

Surveyor reports and expert opinions presented by the complainant evidenced no mechanical failure or weakening of the tank. The Commission found the insurer's reliance on the surveyor's report flawed, as it contradicted the expert analysis and failed to provide substantial evidence against the complainant's claims.

After a detailed examination, the Commission adjudicated the loss at Rs. 84,97,703, factoring in adjustments for under-insurance. The order mandates the insurance company to pay the amount with 6% interest from the date of repudiation, August 4, 2009, until payment is completed. In case of default, the interest rate will increase to 9%.

This judgment underscores the importance of adhering to specified grounds in repudiation letters and respecting expert evidence in insurance disputes.

Bottom Line:

Insurance claim under Standard Fire and Special Perils Policy - Repudiation of claim - Insurance company cannot travel beyond the grounds mentioned in the letter of repudiation - Mechanical failure, weakening of tank plates, wear and tear not established - Exclusion clause pertaining to electrical equipment does not apply to non-electrical apparatus like molasses storage tanks - Claim allowed with interest.

Statutory provision(s):  

• - Standard Fire and Special Perils Policy  
• - Exclusion Clauses in Insurance Policies  
• - Consumer Protection Act (as applicable in insurance claim disputes)

M/s. Sri Shadi Lal Enterprises Ltd. v. National Insurance Co. Ltd., (NCDRC)(New Delhi) : Law Finder Doc Id # 2775867