Claim can’t be denied on frivolous grounds | Business Standard Column

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As for the purchase of raw materials from its sister concern, the National Commission observed this was properly recorded and there were corresponding sales and exports

Herbal India Phytochem, a partnership firm, manufactures calcium sennosides from senna leaves mixed with methanol and ammonia, which is used in various concentrations as a medicine for digestive problems.

The firm had taken a loan of Rs 2.65 crore and had availed of a cash credit facility of Rs 1.85 crore from Punjab National Bank. So, the bank had a mandatory duty to check the stocks on a monthly basis. The firm had obtained insurance coverage from United India Insurance Co. to cover its building, plant machinery, fittings, fixtures and stocks for a sum of Rs 61.5 crore. During the subsistence of the policy, a fire broke on the night between April 15 and 16, 2012. The fire brigade was summoned and a police complaint was lodged. Photographs were also taken and e-mailed to the insurer on the same day. A claim for loss of Rs 3.3 crore was lodged.

Rank surveyors were appointed to assess the loss. Even after the survey, the insurer left the claim hanging without taking any decision either to settle it or to reject it. So, the firm had a legal notice issued and then filed a complaint. Meanwhile, the insurer repudiated the claim even before a notice was issued by the National Commission. The firm withdrew the complaint with liberty to file a fresh complaint to challenge the repudiation.

The repudiation letter stated that the firm had failed to furnish all the relevant documents and also because certain raw materials had been procured from a sister concern. The firm contested the repudiation, pointing out that even though all the documents had been furnished, the surveyor kept repeatedly demanding the same documents over and over again, instead of submitting the survey report. As regards the purchase of some raw materials from its sister concern, the firm pointed out that it had produced all the bills, transport receipts, and sales tax documents to substantiate that the purchase was genuine.

The insurer contested the complaint on the ground that the claim was fraudulent. It also argued that original documents had not been produced for verification and that there were certain inconsistencies in the records. The surveyor did not bother to either contest the complaint or appear for the hearing.

The National Commission observed that there was documentary evidence to substantiate that all the required documents had been furnished and samples sent as demanded by the surveyor. The Commission concluded that the insured had co-operated with the surveyor and submitted whatever was required.

As regards purchase of over 55 per cent of its raw materials from its sister concern, the Commission observed that the records revealed the purchase was properly recorded and there was also corresponding sales and exports. The Commission observed that a higher concentration of the medical properties was evident even in the samples obtained after the use of water by the fire brigade. The Commission held that it would not be correct to ignore the evidence of the genuineness of the claim merely because raw material was purchased from a sister concern.

In its order dated April 29, 2021 delivered by Justice Deepa Sharma, the National Commission held that the insurance company had failed to substantiate that the claim was fraudulent. It directed United India to pay Rs 3,30,21,189 towards the claim for loss, along with 9 per cent interest from the date of repudiation. Additionally, a litigation cost of Rs 25,000 was also awarded.

The writer is a consumer activist

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