SC Propounds: If Insurance Company is unable to reinstate property insured, then it shall pay reinstatement amount,

 

The Division Bench of Justice M.R. Shah and Justice C.T. Ravikumar of the Apex court in the case of M/s Oswal Plastic Industries Vs Manager, Legal Deptt N.A.I.C.O. Ltd held that in case the company is unable to reinstate or repair the property insured, the insurance company shall be liable to pay such sum as would be required to reinstate or repair such property if the same could lawfully be reinstated to its former condition.

Brief Facts:

The factual matrix of the case was that the Appellant obtained Standard Fire and Special Perils Policy. As per the Appellant, the policy was on reinstatement value. During the policy tenure, a fire broke out in the factory premises resulting in a loss of Rs. 76,64,000/­. The Insurance Company observed a loss on the reinstatement value basis at Rs.29,17,500/­ and on depreciated value at Rs. 12,60,000/­. The Insurance Company despite the reports of the surveyor and investigator repudiated the claim. 

Brief Background:

The Appellant filed the complaint before the State Commission seeking a claim of Rs. 76,64,000/­ together with interest. However, the State Commission relying upon the surveyor report and the loss assessed by the surveyor based on the reinstatement value awarded a sum of Rs. 29,17,500/­ together with 9% interest from the date of the repudiation letter and also awarded Rs. 1 lakh as compensation and Rs. 11,000/­ as litigation expenses.

 

Then an appeal was filed before the NCDRC by the Insurance Company and the order which was passed by the State Commission was modified to  Rs. 12,60,000/­ by observing that the complainant shall be entitled to the depreciated value and not the reinstatement value. The NCDRC also set aside the award of compensation of Rs. 1 lakh.

Hence, the present petition. 

Contentions of the Appellant:

 

It was contended that the order passed by the NCDRC was just contrary to Clause 9 of Section 2 of the insurance policy. It was submitted that because the complainant had bought new equipment after a fire destroyed five of them, the State Commission's decision to pay Rs. 29,17,500 as reinstatement value based on the surveyor's report was wholly warranted. Furthermore, the complainant shall be entitled to the reinstatement value. 

Contentions of the Insurance Company:

It was contended that as the actual reinstatement was not completed by the Complainant or by the Insurance Company and the money was to be paid to the insured on a reinstatement basis, according to which one must determine the value of the machinery on a replacement basis, i.e., the value of the old machinery, which can be calculated only by deducing the value of the depreciation from the current value of the machinery. Further that the goods insured were to be replaced on an "as is basis," meaning that if the machinery is old machinery, it is to be replaced by old machinery.

 

Observation of the Court:

It was observed that in case the Company is unable to reinstate or repair the property insured, the insurance company shall be liable to pay such sum as would be required to reinstate or repair such property if the same could lawfully be reinstated to its former condition. 

For the aforesaid purpose, the report of the surveyor was relevant evidence to consider the sum required to reinstate or repair. Therefore, as per the second part of Clause 9 of Section 2 of the policy, the Complainant shall be entitled to the reinstatement value and not the depreciated value.

The NCDRC misinterpreted and misread Clause 9 and erred in observing and holding that the Insurance Company shall be liable to pay the depreciated value only and not the reinstatement value. The State Commission was justified in awarding the reinstatement value. 

The decision of the Court:

The Hon’ble Apex Court quashed and set aside the order passed by the NCDRC and the order which was passed by the State Commission was restored. 

Case Title: M/s Oswal Plastic Industries Vs Manager, Legal Deptt N.A.I.C.O. Ltd

Coram: Hon’ble Justice M.R. Shah and Hon’ble  Justice C.T. Ravikumar

Case No: Civil Appeal No. 83 OF 2023

 Citation: 2023 Latest Caselaw 24 SC

Advocate for the Appellant: Adv. Shri Jay Savla

 

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