Insurance Claim Dispute: Supreme Court Rules in Favor of Oswal Plastic Industries

The case between M/s Oswal Plastic Industries and the Manager, Legal Department, N.A.I.C.O. Ltd. revolves around a crucial dispute regarding insurance claim settlement. The appellant, Oswal Plastic Industries, had obtained a Standard Fire and Special Perils Policy, covering their factory for an insured sum of Rs. 4.50 crores. On October 17, 2009, a fire incident caused damage amounting to Rs. 76,64,000/- as per the appellant’s claim. However, the insurance company’s surveyor assessed the loss on a reinstatement basis at Rs. 29,17,500/- and on a depreciated value at Rs. 12,60,000/-.

The insurance company repudiated the claim despite the surveyor’s report, leading Oswal Plastic Industries to file a complaint before the State Consumer Disputes Redressal Commission, Punjab, seeking compensation of Rs. 76,64,000/-. The State Commission, relying on the surveyor’s report, awarded Rs. 29,17,500/- along with 9% interest from the date of repudiation. Additionally, Rs. 1 lakh was granted as compensation and Rs. 11,000/- as litigation expenses.

Appeal Before NCDRC

The insurance company challenged the State Commission’s decision before the National Consumer Disputes Redressal Commission (NCDRC). The NCDRC modified the order, reducing the awarded amount to Rs. 12,60,000/- based on the depreciated value instead of the reinstatement value, citing Clause 9 of Section 2 of the insurance policy.

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Arguments Presented

Petitioner’s Arguments

The petitioner, represented by Senior Advocate Shri Jay Savla, strongly argued that the NCDRC’s ruling was incorrect and in direct contradiction with Clause 9 of Section 2 of the insurance policy. He contended:

• The surveyor assessed the loss at Rs. 29,17,500/- on a reinstatement basis.
• The petitioner had already purchased new machinery to replace the five damaged machines.
• The State Commission’s award was justified as it was based on the surveyor’s report.
• Clause 9 of Section 2 of the policy gave the insurance company an option to reinstate the damaged property, but since they did not opt for reinstatement, the clause was not applicable.
• The Supreme Court, in Canara Bank Vs. United India Insurance Company Limited (2020), held that policy provisions must be interpreted to align with the insured’s reasonable expectations.

Respondent’s Arguments

The insurance company defended the NCDRC’s ruling, arguing:

• The NCDRC correctly interpreted Clause 9 of Section 2 of the policy.
• Since the policy covered goods on an ‘as-is’ basis, the insured was entitled to compensation for an old machine’s replacement cost rather than a new machine’s cost.
• Compensation must be calculated after applying depreciation to reflect the actual replacement cost of old machinery.

Supreme Court’s Judgment

The Supreme Court deliberated on whether the appellant was entitled to reinstatement value or depreciated value. It examined Clause 9 of Section 2 of the policy, which stated that the insurer could opt to reinstate or replace the damaged property instead of paying a loss amount. However, if the insurer was unable to reinstate, it must pay the sum required to reinstate or repair the property to its former condition.

The Supreme Court ruled in favor of Oswal Plastic Industries, holding that the NCDRC misinterpreted Clause 9. The judgment emphasized:

• The insurance company did not opt to reinstate or repair the damaged property.
• Clause 9 mandated that when reinstatement was not possible, the insurer had to pay the amount required for reinstatement.
• The surveyor’s report, which valued the loss at Rs. 29,17,500/-, was the most reliable basis for compensation.

Final Decision

The Supreme Court quashed the NCDRC’s order and reinstated the State Commission’s ruling. It awarded Rs. 29,17,500/- to Oswal Plastic Industries, with interest at 7% from November 10, 2014, until the actual payment.

Read also: https://judgmentlibrary.com/supreme-court-rules-in-favor-of-policyholder-in-insurance-claim-dispute/

This judgment reinforces consumer rights in insurance claim disputes, ensuring fair compensation aligned with policy terms and legal principles.

Petitioner Name: M/s Oswal Plastic Industries.
Respondent Name: Manager, Legal Deptt N.A.I.C.O. Ltd..
Judgment By: Justice M. R. Shah, Justice C.T. Ravikumar.
Place Of Incident: Punjab.
Judgment Date: 13-01-2023.

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