Fire damage need not be caused by fire alone

Consumer Education & Research Society, Bileshwar Khand Udyog Sahakari vs. IFFCO-Tokio general
insurance, National Consumer Disputes Redressal Commission, March 19.

Ahmedabad-based Consumer Education & Research Society; Bileshwar Khand Udyog Sahakari paid a
premium of Rs 38,520 for a Rs 2.25 lakh fire cover from IFFCO-Tokio General Insurance for a stock of
molasses. While the policy was still being validated, a portion of the stock was burnt due to
spontaneous combustion. The insurance company rejected the claim on the grounds that the stock
was not burnt by an actual fire. The National Consumer Disputes Redressal Commission ruled in the
favour of the insured, stating that this amounted to deficiency of service on the insurance company’s
part and it was liable to pay damages amounting to Rs 1.14 lakh along with 10 per cent interest per
year from 2003 onwards.

A Supreme Court bench comprising Justice Hrishikesh Roy and Justice Sanjay Karol, in the case of
New India Assurance Co Ltd v. M/S Mudit Roadways, observed that an insurance company’s
obligation to the insured is of much greater importance.

What is the Background of New India Assurance Co Ltd v. M/S Mudit Roadways?

A fire broke out on 14th March 2018, at a warehouse covered by an insurance policy with the
claimant having paid Rs. 44,02,562/- for coverage against fire and safeguarding custom bonded
goods.

The forensic investigation report determined that a short-circuit was not the cause; rather, sparks
from rooftop welding work may have triggered the fire.

On 03rd October 2018, the insured raised a claim for a sum of Rs. 6,57,55,155/. The Insurance
Company rejected the claim on 15th July 2019, citing reasons such as the insured premises were not
affected by the fire and the alleged negligence in roof construction, which increased the risk and
voided the insurance coverage.

The respondent filed a consumer complaint. The National Consumer Disputes Redressal Commission
(NCDRC) ruled in favor of the claimant and held that the insurance policy covered the complainant's
warehouse and that the roofing work did not significantly increase the risk.
What was the Court’s Observation?

The precise cause of a fire, whether attributed to a short circuit or any alternative factor, remains
immaterial, provided the claimant is not the instigator of the fire. The court emphasized the
fundamental principle that insurance contracts are built on trust and good faith. It highlighted the
insurer's duty to act in good faith and fulfill its commitment, particularly when the insured has not
been negligent. The Supreme Court dismissed the appeal of the Insurance Company, upholding the
claim of the insured.

What is the Landmark Judgment Cited in the Case?

Canara Bank v. United India Insurance Company (2020):

The insurance company cannot escape its liability if there is nothing to prove that the fire was caused
by the insured itself, irrespective of what the cause of fire was.