Supreme Court Rules on Insurance Claim Denial in Rice Mill Damage Case

The case of The New India Assurance Co. Ltd. vs. Sri Buchiyyamma Rice Mill & Anr. is a landmark judgment addressing the validity of insurance claim repudiation based on survey reports and structural analysis. The Supreme Court overturned the decision of the National Consumer Disputes Redressal Commission (NCDRC), upholding the insurance company’s right to reject claims where the cause of damage does not fall under policy coverage.

Background of the Case

• The respondent, Sri Buchiyyamma Rice Mill, operates a rice mill in East Godavari District, Andhra Pradesh.
• The rice mill was insured under three standard fire and special perils policies issued by The New India Assurance Co. Ltd.
• On April 19, 2005, the rice mill reported structural damage, claiming that a lorry had reversed into the boiler unit, causing its collapse.
• The estimated damage was reported as Rs 76 lakhs, and a claim was filed with the insurer.
• The insurer conducted multiple surveys, concluding that the damage was caused by structural failure due to overloading rather than external impact.
• The insurance claim was repudiated on October 15, 2007, leading the rice mill to file a consumer complaint.

Legal Issues Considered

• Whether the insurer was justified in rejecting the claim based on survey reports.
• Whether the NCDRC erred in reversing the findings of the State Consumer Disputes Redressal Commission (SCDRC).
• The admissibility of multiple survey reports and their validity in insurance claim settlement.
• Whether the insured’s claim of external damage was supported by factual evidence.

Arguments of the Petitioner (The New India Assurance Co. Ltd.)

• The insurance company contended that the rice mill’s claim was fraudulent and the damage was due to internal structural failure.
• Multiple surveys and expert reports confirmed that the boiler unit collapsed due to overloading beyond design capacity.
• No signs of external impact were found on the damaged columns, contradicting the insured’s claim that a lorry collision caused the collapse.
• The insured had modified the boiler unit from an original capacity of 32 tons to an overloaded 184.5 tons, which led to structural failure.
• The insurer had every right to appoint multiple surveyors as long as they were legally licensed under the Insurance Act, 1938.

Arguments of the Respondent (Sri Buchiyyamma Rice Mill)

• The rice mill contended that its insurance claim was genuine and the collapse was due to a lorry accident.
• The first surveyor’s report had been submitted late, weakening its reliability.
• The insurer conducted multiple surveys, which indicated an attempt to manipulate findings to justify claim rejection.
• The NCDRC rightly found that the insurer had delayed claim processing beyond the timeline prescribed under IRDAI regulations.
• The insured had provided all necessary documentation, including a factory inspector’s report supporting their claim.

Supreme Court’s Observations

• The Court reaffirmed that an insurer has the right to reject claims based on valid survey reports.
• The surveyors had consistently found that the collapse resulted from overloading rather than external impact.
• Structural analysis revealed no evidence of external collision damage, contradicting the insured’s claim.
• The insured’s own expansion of the storage system without proper structural balancing was the likely cause of failure.
• The Court stated: “A claim cannot be admitted when expert reports clearly indicate that the cause of damage is beyond the scope of the insurance policy.”

Final Judgment

The Supreme Court ruled as follows:

• The NCDRC’s order directing the insurer to pay Rs 29,23,503 was set aside.
• The State Consumer Disputes Redressal Commission’s (SCDRC) order dismissing the claim was reinstated.
• The insured’s consumer complaint was dismissed as the claim was not covered under the insurance policy.
• The judgment sets a precedent that insurers can rely on multiple survey reports as long as they follow IRDAI guidelines.

This ruling reinforces the principle that insurance claims must be backed by factual evidence and surveyor reports, preventing fraudulent or misrepresented claims.

Petitioner Name: The New India Assurance Co. Ltd..
Respondent Name: Sri Buchiyyamma Rice Mill & Anr..
Judgment By: Justice Dhananjaya Y Chandrachud, Justice Ajay Rastogi.
Place Of Incident: East Godavari District, Andhra Pradesh.
Judgment Date: 21-01-2020.

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