Supreme Court Upholds Insurance Company’s Repudiation of Fire Claim, Cites False Declarations and Policy Breach, NCDRC order awarding Rs. 2.40 crore set aside; Court says insured failed to prove bona fide loss-mitigation efforts and made misleading claims about stock and fire damage.
The Supreme Court has allowed an appeal filed by New India Assurance Company Ltd. and overturned a National Consumer Disputes Redressal Commission (NCDRC) order that had directed the insurer to pay Rs. 2.40 crore to M/s. Hemkund Duplex and Board Pvt. Ltd. in a fire insurance dispute.
A bench of Justices Sanjay Kumar and Sanjeev Sachdeva held that the insurer was justified in repudiating the claim on the grounds of breach of policy conditions, false declarations, and lack of sincere efforts to mitigate the fire damage. The Court also dismissed the cross-appeal filed by the insured, which had sought a higher compensation.
The dispute arose from a fire incident on 7 May 2009 at the respondent’s factory in Najibabad, where waste paper and other material were allegedly damaged. The company claimed losses under two fire insurance policies covering stock, building, plant and machinery. However, the insurer’s preliminary surveyor, a private investigator, and the final surveyor all raised serious doubts about the genuineness of the claim.
The Supreme Court noted that the survey reports found major inconsistencies in the insured’s version, including changing estimates of loss, absence of reliable stock records, unusual stock patterns, and signs that the material in the tin shed was old, unusable, and not properly accounted for in the books. The Court also highlighted that the fire brigade was informed nearly 50 minutes after the fire broke out, despite the station being only 6–7 kilometres away, and that the employees’ attempts to extinguish the fire were not bona fide.
The bench further held that the insured had breached Policy Condition No. 6, which required full and truthful disclosure of claim-related facts, and Policy Condition No. 8, which barred fraudulent claims and false declarations. The Court found that false statements were made by the company’s management about the storage of usable raw material in the burnt tin shed, whereas evidence suggested that only unusable waste had been stored there for a long time.
Rejecting the NCDRC’s approach, the Supreme Court said the Commission had erred in disregarding the surveyors’ findings without valid reasons and in treating the claim as genuine despite the adverse material on record. The Court observed that while survey reports are not conclusive, they cannot be brushed aside arbitrarily, especially when they are supported by other evidence.
Accordingly, the Supreme Court set aside the NCDRC’s order dated 19 November 2024 and allowed the insurer’s appeal. The respondent’s appeal was dismissed. The Registry was directed to return the deposited amounts to the insurer along with accrued interest.
Bottom Line:
Insurance Law - Insurer justified in repudiating claim on grounds of breach of policy conditions, false declarations, and lack of sincerity in fire mitigation efforts.
Statutory provision(s): Insurance Act, 1938 Section 64UM(2), Insurance Act, 1938 Section 64UM(1-A), Consumer Protection Act, 1986 Section 2(1)(g)
