The Supreme Court, which recently allowed an appeal, found that the insurance company should pay the amount that would be required to restore or repair such property if it could lawfully be restored to its prior condition.
The bank of Judge MR Shah and Justice CT Ravikumar that observed “If the company is unable to restore or repair the insured property, the insurance company is obligated to pay the amount that would be required to restore or repair that property if it could lawfully be restored to its former condition .”
In this case, the appeal of the judgment under appeal and the order of the National Consumer Disputes Redressal Commission, New Delhi (NCDRC) had been brought forward, with the order of the State Consumer Disputes Redressal Commission, Punjab being amended and the complainant being awarded impairment instead of new value. The complainant had obtained a Standard Fire and Special Hazards policy at new value and as such the surveyor engaged by the insurance company observed/estimated the loss based on new value at Rs 29,17,500 / and written off value at Rs 12,60. 000/.
Lead Attorney Jay Savla appearing for the complainant argued that the complainant should be entitled to the replacement value. It was also alleged that the NCDRC had wrongly reduced the claim to Rs. 12,60,000/ by misinterpreting Clause 9 of Section 2 of the policy as it only gave the insurance company the option of either restoring or replacing the damaged/destroyed property. Further reliance was placed on the Apex Court case Canara Bank vs. United India Insurance Company Limited and Ors.; 2020 (3) SCC455 and argued that the terms of coverage should be interpreted broadly and that where there is any ambiguity, the outcome should be decided in favor of the insured.
Attorney Amit Kumar Singh appearing for the insurance company argued that the NCDRC made no error in awarding the amount of the depreciation as the insured goods were to be replaced “as it is” that is, if the machine was old, it was to be replaced by old, and the value of the old could only be calculated by subtracting the value of depreciation from the current value of the machine.
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Regardless of whether the facts and the correct interpretation of the relevant clause of the insurance policy correspond to the circumstances of the case, in the event of fire damage to machinery and equipment the complainant is entitled to the replacement value or the depreciation value.
The Apex Court interpreted and held Clause 9 of Section 2 of the Directive “First, the insurance company is given the option to restore or replace damaged or destroyed property instead of paying for the loss or damage. If the insurance company makes use of the possibility of restoration or replaces the damaged property, the company is not obliged to restore all or part of it, but only if circumstances permit and in a reasonably sufficient manner, and in no case should the company be obliged be obliged to expend more in restoration than it would have cost to restore such property to the condition in which it was at the time such loss or damage occurred, not more than the sum insured thereon by the Company. In any event, however, the Company will be unable to restore or repair the Insured Property because of municipal or other applicable regulations affecting the routing or construction of buildings, or OTHERWISE in which case the Company will be liable to pay such sum that would be required to restore or repair such property if it could lawfully be restored to its former condition.”
The court found that the complainant’s case fell under the second part of clause 9, i.e. the company was unable to restore or repair the insured property and the expert’s report would be relevant evidence for the consideration of the sum required for restoration or repair. Therefore, the complainant should be entitled to the replacement value and not the depreciated value.
Therefore, the Apex Court, overturning NCDRC’s impugned judgment, held that NCDRC had misinterpreted Clause 9 of the policy and committed a serious error in finding and finding that the insurance company should only be liable for the written-off value and should not be the new value of Rs. 29,17,500/ with interest @ 7% from the date of State Commission order until actual payment.
Accordingly, the appeal was allowed.
Title of Cause – M/s Oswal Plastic Industries v. Manager, Legal Dept. NAICO Ltd.
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