Karnavati Veneers Pvt. Ltd. vs New India Assurance Company Limited & Ors.
Background
Karnavati Veneers, a wood-veneer manufacturer in Sabarkantha, Gujarat, held a Standard Fire and Special Perils policy with New India Assurance since 2001, renewed for Rs 1.2 crore cover from 7 October 2006. The factory had been sealed by the Forest Department in July 2006 and its power disconnected in August 2006, so no manufacturing was going on when a devastating fire broke out on 20 October 2006 (Diwali day), just 13 days into the renewed policy. The insurer's own surveyor inspected the site and assessed the loss at Rs 21,76,524, but the insurer repudiated the claim in September 2007, citing condition 6(b) of the policy: that the insured had failed to produce documents the surveyor asked for. The Gujarat State Consumer Commission and then the National Consumer Commission both upheld the repudiation, also voicing suspicion about a "Diwali fire" in a closed factory on the edge of a village.
Decision Breakdown
The Supreme Court allowed the appeal. It noted that the insurer had not disputed its own surveyor's assessment of Rs 21,76,524 and had never rejected the claim on grounds of suspicion: the surveyor's report recorded no such suspicion, so the consumer commissions' doubts had no factual foundation. Condition 6(b) exists only to enable assessment of the loss; whatever documents the insured had were given to the surveyor, who made a physical inspection and completed his assessment. Once the loss was assessed and not disputed, invoking clause 6(b) to reject the claim outright was "unfair and not legally sustainable". The National Commission's order was set aside and the insurer was directed to pay Rs 21,76,524 with 8% interest per year from the date of the surveyor's report (1 June 2007) until payment, within two months.
Lesson Learnt
An insurer cannot use a "produce documents" clause as a pretext to reject a claim once its own surveyor has inspected the loss and put a figure on it: such clauses are meant to help assess the claim, not to defeat it. Policyholders who have cooperated with the surveyor are entitled to at least the surveyor-assessed amount, with interest for the delay.