Insurance has
evolved over the years – there are lot of terms, conditions, wording- all
capable of being understood and interpreted in varied manner. In a recent judgement noteworthy for the
interpretation of the peril termed as
‘Flood & Inundation’ – the Supreme Court has dwelt at length – significant
for the Insurers, Intermediaries and insuring public. Before you read the extract of that judgment,
a detailed introduction, I feel, is necessary.
Please do read on :
Fire
insurance contract is "an agreement,
whereby Insurer in return for a consideration undertakes to indemnify the other
party against loss or damage to defined
subject-matter being by fire or other named perils”. The contract of insurance involves all the
elements of an ordinary contract and insurance contracts. In India, now we have
the ‘Standard Fire and Special Perils Policy’ being used by all the General
Insurers. Contrary to common belief, a
Fire insurance policy offers indemnity not only against fire but against
certain other specified perils that includes ‘water perils’ as well. The term
Fire for the purpose of a policy has a wider meaning that that ordinarily
associated with the word fire. Fire is the rapid oxidation of a material in the
chemical process of combustion, releasing heat, light and various reaction.
For
those new to Insurance, the Insurance contract i.e., Policy document is drafted
by the Insurer and any discrepancy in interpretation is certain to be held
against the party drawing the contract wording. The Indian market now
predominantly follows the “All India Fire Tariff” effective 2001. The Tariff
has been subjected to revisions and amendments from time to time. During 1980s,
the Fire Tariff presented bewildering demonic proportions being of big volume
and too difficult even for the Insurers. During those days, there were
restrictions of ‘night work’, usage of petrol / flammable material, material in
open and for each of these there were restrictions by way of warranties and
additional premium.
The
Tariff was largely simplified and released with a new look effective April 1987
when there were three variants Fire Policy A, B & C. The first two,
broadly, covered residences and non manufacturing / storage risks. Based on the
perils covered, B & C offered similar protection. Policy A covered 9 perils
: Fire, Lightning, Explosion/Implosion, RSMD, Impact damage, Aircraft damage,
STFI, Subsidence & Landslide and Earthquake Fire & Shock. B covered
only first six perils. C covered first six but the latter 3 could be extended
upon payment of additional premium.
The
Standard Fire and Special Perils Policy (Material damage) which came into
effect from April 2003, defines Fire as : other than destruction or damage
caused to the property insured by (a) its own fermentation, natural heating or
spontaneous combustion (b) its undergoing any heating or drying process (c)
burning of property insured by order of any Public Authority. This is a named
peril policy specifying 12 perils. The
peril group VI. Storm, Cyclone, Typhoon, Tempest, Hurricane, Tornado, Flood and
Inundation (termed STFI peril) has been widely discussed upon. contention. Another
interesting aspect is Insurers bitten by frequent losses were charging premium
compulsorily for this group of peril – with the introduction of IIB rates,
there is sigh of relief and Insures would perhaps return to the tariff regime
of premium rates !
What is
covered under this ‘STFI’ and more specifically what is defined as ‘inundation’
has been clearly elaborated by the Apex Court Bench judgement dated 28th
Jan 2020 in an appeal preferred by The Oriental Insurance Co Ltd against JK
Cement.
The cause of action
arose when Nimbahera had heavy rains on 29.08.2003 and 30.08.2003, some of the
coal was washed off, and the stock of coal suffered damage. A claim was preferred by the policy holder,
the surveyor assessed the loss at Rs.58,89,400/-
- upon receipt of the FSR, the Insurer sought a clarification from the
surveyor, as to whether the loss could be said to have been caused by “Flood and Inundation” in terms of the wording of the
insurance policy. They also hired a
Chartered Accountant. The surveyor
reaffirmed its stand that the losses in question were payable to the Respondent
as per the terms and conditions of the policy. On the other hand, the Chartered
Accountant hired by the Appellant reported that he was unable to verify the
declarations because the Respondent had not provided the necessary documents to
him.
In Dec
2004, Insurers repudiated the claim on the ground that the loss caused to it did not fall within the scope of the policy, having occurred due to
heavy and extraordinary rain and not ‘flood’ or ‘inundation’. Aggrieved by this
repudiation, the Respondent filed a consumer complaint before the NCDRC seeking
compensation to the tune of Rs.1.32 crores. Vide the impugned order dated
18.11.2008, the NCDRC allowed the complaint to the extent of the loss assessed
by the surveyor, i.e. Rs.59,89,400/- and
directed the Appellant to pay the said amount along with interest at the rate of 9% per annum. The Insurers
went on appeal filing petition before the Apex Court.
Counsel for Insurer argued
that the terms ‘flood’ and ‘inundation’ refer to two significantly different
phenomena that cannot be equated with each other. He contended that the term
‘flood’ refers to overflowing of water bodies such as rivers, ponds, lakes etc.
Accordingly, he submitted that since it was not the case of the Respondent that
there was a water body near the factory which had overflown into the coal yard,
the loss cannot be said to have been caused by a ‘flood’. With respect to the
term ‘inundation’, he argued that the same refers to ‘accumulation of water’
and could thus not be applied to the instant case as the coal had merely been
washed off due to heavy rains.
Per contra, learned
counsel for the Respondent submitted that even if the Appellant’s definition of
‘inundation’ as ‘accumulation of water’ were to be accepted, the surveyor’s
report had clearly observed that that there was an accumulation of water in the
coal yard, thereby making the policy applicable. It was also brought to the attention of the
Court that the surveyor had relied on
the rainfall data of Nimbahera for 29.08.2003 and 30.08.2003, as received from
the Meteorological Department of the Government of India, to conclude that that
there were adequate rains in the area to cause floods/inundation. It was also submitted that the Appellant could not have
appointed a second surveyor unilaterally, as the procedure under Section 64 UM
of the Insurance Act, 1938, requiring permission from the Insurance Regulatory
and Development Authority before appointing a second surveyor, had not been
followed.
The Court noted that
Insurers had only appointed a Chartered
Accountant for the purposes of verifying the accounts books of the Respondent
regarding its daily stock of coal. In their considered opinion, the appointment
of a Chartered Accountant for this limited purpose is not tantamount to the
appointment of a surveyor. The quantum
of loss was not in dispute but the central Q was - whether the loss occurred due to ‘flood’ or ‘Inundation’.
The Court delved
on the dictionary meanings of the terms
‘flood’ and ‘inundation’.
The word ‘flood’ is defined in the Concise Oxford
English Dictionary, 8th edition (1990) as follows: “…1 an overflowing or influx of water beyond its
normal confines, esp. over land; an inundation. b the water that overflows. 2 an outpouring of water; a torrent (a flood of
rain)…” Particularly in the context of insurance contracts, Stroud’s Judicial
Dictionary, 5th edition (1986) defines the word ‘flood’, in reference to Young
v. Sun Alliance and London Insurance, [1977] 1 W.L.R. 104, an English case
decided by the Court of Appeal, and reads as follows:
“Flood” in an insurance policy meant a large
movement or irruption of water, and did not cover mere seepage from a natural
source...” The word ‘inundate’ is
defined in the Concise Oxford English Dictionary, 8th edition (1990) as
follows: “…1 flood; 2 overwhelm (inundated with enquiries)…” Further, per
Black’s Law Dictionary, 9th edition (1990), the word ‘inundate’ means: “To
overflow or overwhelm; esp. to flood with water” . Simply put, a flood may be
described as overflow of water over land. Floods can be broadly divided into
the following categories: coastal floods, fluvial floods (river floods), and
pluvial floods (surface floods).
So far as the term ‘inundation’ is concerned,
it can be used to refer to both the act of overflow of water over land that is
normally dry and to the state of being inundated. Inundation can also be
intentional, which is sometimes carried out for military purposes, as well as
for agricultural and river management
purposes. It flows from the above
discussion that overflow of water due to a flood may result in the state of
inundation. As discussed above, floods are of different types, and may be
caused due to several factors complementing each other. Usually, non-coastal
floods originate from rainfall, but the magnitude of rainfall sufficient to
cause a flood, and the damage that a flood causes, may vary depending on a
variety of aspects such as the location of land, the water retention capacity of the soil, and
the density of population and man made construction in the area, among other
things. In rare cases, a non-coastal flood may also occur without any rainfall.
For instance, shortcomings in the construction of a dam may lead to its
complete breakdown, resulting in a flood.
In the
impugned case, Insurers were not contending that coal was not properly stacked
or alleging any negligence on the part of the claimant. The only arguments advanced by the Appellant were
: firstly, that the terms ‘flood’ and ‘inundation’ cannot be equated, and,
secondly, that ‘flood’ needs to be understood in a narrow sense to refer only
to the overflowing of a water body, and to exclude instances where overflowing
of water occurs due to excessive rainfall.
The
Honble Court inferred that the terms ‘flood’ and
‘inundation’ are often used synonymously to refer to the act of overflowing of
water over land that is generally dry. Therefore, the first argument of the
Appellant cannot be sustained. Similarly, given the detailed discussion on
pluvial floods, which occur independently of a water body, it is clear that
floods are not restricted to overflow of water bodies. Thus, the second
argument raised by the Appellant also lacks merit. Furthermore, the second argument made by the
Appellant seems tenuous even if we look into the intent of the parties entering
into the contract, as it has not come on record that there was any water body
near the coal yard or the factory premises. In such a scenario, where there was
no risk of water from a water body overflowing onto the dry land where the coal
yard was located, it could not have been the intention of the parties entering
into the contract to give a restrictive meaning to the term ‘flood’. Such a
narrow interpretation would lead to the conclusion that the insertion of the
term ‘flood’ was superfluous, which could not have been the case.
In the impugned case,
Insurer did not dispute heavy rains in the Nimbahera region which was the
affected premises. The surveyor too had
observed that there had been heavy rainfall in the area causing flood-like
condition that resulted in some of the coal kept in the insured premises being
washed off. The FSR also stated that there was accumulation of
water due to the heavy rains, that had caused the coal to get washed off.
The
NCDRC in the following cases: (i) Bajaj Allianz General Insurance Co. Ltd. v.
M/s. Gondamal Hardyal Mal, [2009] NCDRC 127, (ii) Oriental Insurance Co. Ltd.
v. M/s Sathyanarayana Setty & Sons, [2012] NCDRC 124, and (iii) Oriental
Insurance Co. Ltd. v. M/s R.P. Bricks, [2013] NCDRC 494, had held that damage
caused by heavy rainfall would not fall beyond the
‘flood and inundation’ clause of the Standard
Fire and Special Perils insurance policies. This was also put
forth by the learned counsel appearing for the Respondent that the aforesaid
view has been consistently taken by the NCDRC. The aforementioned view of the
NCDRC supports the impugned judgment and the same cannot be said to be
erroneous. The Apex Court Bench decreed that in view of the foregoing, the appeal by the Insurer is dismissed. The Court
directed the Insurer to pay the sum awarded by the NCDRC within a period of
eight weeks from the date of this order, to the Respondent.
There are learnings
for everyone concerned.
With regards – S.
Sampathkumar
30th Jan
2020.
Biblio : Civil Appeal
no. 7402/2009 – decided by Bench: Hon’ble Mohan M. Shantanagoudar, R. Subhash
Reddy
