Marvel Drugs Pvt. Ltd. vs United India Insurance Co. Ltd. on 27/7/2006
ORDER
S.N. Kapoor, J. (Presiding Member)
1. In this complainant Company seeks following reliefs by way of directions to the opposite party:
(a) to pay to the complainant the said insurance claim of Rs. 27,06,065 under four policies;
(b) to pay to the complainant interest on Rs. 27,06,065 at market rate from such date as is deemed fit;
(c) to pay damages for mental agony and physical suffering of the complainant assessed at Rs. 1,00,000 or such sums as deemed fit;
(d) to pay cost of this proceeding to the complainant; and
(e) other reliefs as the complainant may be entitled to may also be granted.
The complainant Company undisputedly purchased four insurance policies and insured their stock of finished goods, semi-finished goods and stock in process and raw material in the aggregate sum of Rs. 1,45,00,000. The details of the four polices are as under:
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Sr. Policy No. Date Sum Insured Goods covered No.
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1. 20700/01/13/00710 12.2.1999 50,00,000 Stock of Raw Materials semi-finished, finishe
d
goods and stocks and
stocks in process.
2. 20700/01/13/00466 30.9.1999 50,00,000 Stock of Raw Materials semi-finished, stocks
in
process.
3. 20700/01/13/00431 17.9.1999 15,00,000 Stock of Raw Materials semi-finished, finishe
d
goods and stocks and
stocks in process.
4. 20700/01/13/00695 8.2.1999 30,00,000 Stock of Raw Materials semi-finished, stocks
and stocks in process.
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On 23.10.1999, Phenyl Diamino Ethylphenanthridinium Chloride was taken for purif icationbatch in Rl Reactor having capacity of about 1200 ltrs. Heating and dissolution of the said production solution was required to be done in the morning hours of 23.10.1999 in Reactor R1 in accordance with the normal routine. The workmen had to start the filtration of the said product solution from Reactor R1. In the early morning hours of Sunday, the 24.10.1999 at about 6.30 a.m. the workmen had to start filtration.
2. According to the complainant however, the workmen did not start the said process at the appointed time. The shift change took place at about 7 a.m. Some of the workmen in the end of 3rd shift and the commencement of 1st shift instead of starting with filtration, drained out the said product solution, with malicious intentions from bottom outlet of Reactor R1 with a flexible pipe straight to the effluent treatment sewerage line so that nobody could notice the draining out from within the plant. The filtration unit was found slightly in damaged condition as the threads of the hole were damaged so that the bolt could not be fixed up to start the filtration. A complaint was lodged with the Police vide Annexures B-l and B-2 on 24.10.1999 under Section 427, IPC.
3. There is no dispute that on 26.10.1999 the complainant informed the O.P. Insurer vide Annexure 'C and preferred a claim. M/s. Bhatawadekar and Co. were appointed as Surveyors. Surveyor visited the site on 27.10.1999. A Panchnama vide Annexure 'D' was proposed indicating that chemical loaded in Rl Reactor was drained down in the sewerage pipe line. Police on their investigation found that it is drained by some unknown 1/2 workers intentionally. The Surveyors informed the complainant Company vide Annexure 'H' dated 20.11.1999 that there was no liability of the opposite party in respect of the claim of the complainant. The complainant sought second survey. Accordingly, M/s. C.P. Mehta and Co. was appointed as Joint Surveyors on 15.3.2000. The site was inspected and discussions were held with Mr. Nikhil Shah, Director of the complainant. M/s. C.P. Mehta and Co. reported that the workers had attached a flexible pipe to the outlet valve of the Reactor. The pipe was drawn out upto a drainage channel, outside the building. The valve of the Reactor was opened and the stock in process from the Reactor flowed by gravity through the pipe and into the drainage channel and was irretrievably lost. About 1200 ltrs. of the said product solution valued at about Rs. 27.00 lakh drained out and was lost. The vessel was discovered almost empty at about 10.30 a.m. on 24.10.1999. M/s. C.P. Mehta and Co. recorded this in para 13.3. of the Surveyors Report on 29.9.2001, yet by letter dated 17.4.2000 Annexure T informed that the loss would not fall within the ambit of policy and that the opposite party would have no liability.
4. In response to the demand of the Surveyors to submit excise Panchnama in view of the complainant having availed of Modvat Credit, the complainant placed on record that the Excise issue was between the complainant and the Excise Department and that on the settlement of the claim by the opposite party the Modvat Credit and the claim of the Excise Department would be settled. As desired by the Surveyors the complainant Company could not produce the demanded record of the Excise Department about the loss incurred by them. However, a statement of losses was submitted on 18.10.2000 by the complainant along with a certificate of Chartered Accountant dated 15.9.2000. The Insurance Company relying on the report of the Joint Surveyors dated 29.9.2001 repudiated the claim on the ground that the malicious damage was strictly subject to the damage or loss caused by external violence and hence it is outside the policy provision. The complainant-Company thereafter filed the complaint seeking the above mentioned reliefs.
5. The United India Insurance Company contested the matter and the submitted that the alleged loss was not covered under any of these policies in the light of the guidelines as prescribed by the Insurance Company. It was contended that from the complainant made and the facts alleged there was no sign of any loss to the property insured directly caused by visible physical external violent means on the spot.
6. Therefore, before the Acts mentioned in the five sub-clauses are to operate the phrase 'external violent' means were in contradiction to the word 'internal' mischief has to be understood to appreciate the contention of the parties. In this context if one goes by the complainant's case, it was closely a malicious act of employee who attempted to sabotage the property of the insured as alleged by it. On this basis the respondents contended that there being the absence of any external agency, the claim would not be covered under the terms of the policy. On the basis of the Joint Surveyors report and preliminary report, the opposite party after applying its mind and perusing the record vide its letter dated 5.2.2002 repudiated the claim giving detailed reasons on the ground that the claim was not covered under the policy.
7. It was also claimed that the complainant was neither 'consumer' nor was entitled to take advantage of the Consumer Protection Act for the insurance was taken by the complainant for 'commercial purpose'. The report of the Surveyors could be rejected nor the objections relating to the appointment of second and the third Surveyors would be objected. The opposite party had appointed two surveyors under Section 64UM of the Insurance Act.
8. Having heard the parties and having gone through the record, the following points need our consideration:
(i) Whether the loss alleged by the complainant is covered by either of the Insurance Policies, in question?
(ii) Relief?
9. These terms and conditions have not been disputed. The same terms and conditions have been reproduced in the joint survey report dated 29.9.2001. In the joint survey report, Para 7 reads as under:
7.00 Occurrence:
7.1 The Insured reported that there had been 'Malicious Damage' in their factory on 23rd October 1999/24th October, 1999.
7.2 This incident has been described in the Insured's letter of 15.11.1999 to M/s. Bhatwadekar and Co. Relevant excerpts from their letter are reproduced below-
7.2.1 We have taken a purification batch of our product 'Phenyl Diamino Ethylphenanthridinium Chloride' in the reactor R1 on Saturday 23rd October, 1999. It is a water soluble specialty fine chemical of Pharmaceutical/veterinary industry and is for export to European countries. Till 6.30 a.m. on the early morning of 24th October, 1999 Sunday it was under settling from 6.30 p.m. of 23rd October, 1999 Saturday, after heating and dissolution was done in the morning of 23rd October, 1999 in reactor R1. The workmen had to start filtration of the product solution from reactor R1 of capacity about 1200 ltrs. at 6.30 a.m. on Sunday 24th October, 1999. Somehow, they did not start at this time. Shift change takes place at 7 O'clock in the morning when 1st shift starts and 3rd shift ends. Some of the workmen and Plant Chemist were busy doing other product in reactor GLR II. Some workmen in the 3rd or 1st shift instead of starting with filtration drained it out with malicious intention from bottom outlet of reactor R1 with flexible pipe straight to effluent treatment sewerage line, so that nobody could notice from within the plant. The material and its solution is of highly red colour. With full opening of drain valve entire reactor R1 can be drained within 30 minutes. This act has been caused with deliberate intention to damage the plant and reputation of the company.
7.2.1: Note: It may be observed that there has not been any violence.
In this letter, the Insured have also stated-
Our filtration unit through which the filtration was to take place was found in slightly damaged condition as the threads of the hole were damaged so bolt could not be fixed up to start filtration, so that filtration could be delayed, by which time the workmen could drain out the material.
7.3.1 It may be noted that no such damage was shown to any of the Surveyors.
7.4 It has been pointed out to the insured that in the absence of 'violence' the claim would not fall within the ambit of the policy. The Insured in their letter of 15.11.1999 have hence stated:
Some violence may have taken place between those people who wanted to stop these workmen. But we have no idea about this. At 10.30 a.m. our plant incharge came and he shouted as to why the filtration was delayed from 6.30 a.m. to 10.30 a.m. on Sunday 24th October, 1999. So he asked Mr. R.D. Mandel that liquid was coming out in a very thin stream and there was no pressure as usual Mr. Mandel was, therefore, asked to go on mezzanine floor and check the reactor. On opening the manhole it was noticed that the reactor was empty and hardly about 35 ltrs. of solution was in it and hence there was no pressure.
13.10. M/s. C.P. Mehta and Company and M/s. Bhatawadekar and Company in their joint report gave opinion as under-
In this case, the loss has been attributed to draining out of chemicals in process from a Reactor through a pipe attached to the normal drain outlet. This could even have been an accident. Nevertheless, in the absence of any violence, there would not be any tenable claim under the policy.
The matter was examined carefully and clearly there is no liability under the policy.
This has been explained to Mr. Nikhil J. Shah, Director of the Insured Company.
The insured have not agreed and have maintained that there is a claim under the policy.
The matter is left to the insurer's discretion.
Relevant Provisions of Insurance policies are as under-
Riot, Strike, Malicious and Terrorist Damage Clause-
1. This policy is extended to cover Riot, Strike, Malicious and Terrorist damage as under-
Loss of or visible physical damage by external violent means to the property insured directly caused by:
(i) The act of any person taking part together with others in any disturbance of the public peace (whether in connection with a strike or lock-out or not) not being an occurrence mentioned in Exclusion h(iii)(iv).
(ii) The action of any lawfully constituted authority in suppressing or attempting to suppress any such disturbance or in minimizingthe
consequences of any such disturbance.
(iii) The xvilful act of any striker or locked-out worker done in furtherance of strike or in resistance to a lockout resulting in visible physical damage by external violent means.
(iv) The action of any lawfully constituted authority in preventing or attempting to prevent any such act or in minimizing the consequences of any such act.
(v) Any malicious act but excluding any omission of any kind of any person (whether or not such act is committed in the course of a disturbance of public peace) provided that the Company shall not be liable for any loss or damage arising out of or in the course of burglary, housebreaking, theft or larceny or any attempt by any person taking part therein.
10. In the aforesaid circumstances, it is required to be seen whether it could be said that the loss had been caused by draining out of chemicals in process from a Reactor through pipeline attached to the normal dram outlet by external violent means to the property insured by way of malicious act.
11. Insofar as malicious act is concerned. It was argued from the side of the complainant more particularly by Nikhil J. Shah, a Technocrat that the Company could not be aware of the working mind or skill of the culprit worker working on the Reactor. The way chemical has been drained out indicated the desperate act of mischievous workers. The incident cannot be termed as accident. Police had also noticed the malicious act. Two persons were arrested. No worker would speak against any other union member. There was no exclusion clause in the policy in agreement or any other thing as per his wish and the chemical had been maliciously drained out from the Reactor. The Reactor of stainless steel was fully welded and closed and functional for 24 hours. There was no charge of any omission of any automatic leakage. It could be only a commission of mala fide of workmen who stealthily drained out the chemical.
12. Seeing the reports of M/s. Bhatawadekar and Company and C.P. Mehta and Company, the observations made therein and evidence on record, it is evident that one or the other workmen had maliciously caused the loss by draining out the chemical from the Reactor. It is also evident that no outsider had reportedly visited the Reactor.
13.These facts now lead us to face a legal question whether loss caused by external violent means while committing any malicious act as noticed herein would be covered under the policy. The term 'violent' have been defined in Black's Law Dictionary as under:
Moving, acting, or characterized by physical force, especially by extreme and sudden or by unjust or improper force. Furious, vehement, as a violent storm mental excitement. Vehement, passionate, as violent speech. Violent reproaches produced or effected by force, not spontaneous or natural as a violent death. Displaying or proceeding from extreme or intense force, caused by unexpected unnatural causes.
14. The only violence which has been alleged is as mentioned hereinabove in the statement of Nikhil J. Shah. He stated that filtration unit through which the filtration was to take place was found in damaged condition, the threads of the hole were damaged, nuts and bolts could not be fixed up, to start filtration. This could with an intention to ensure that filtration could be delayed, by which time the material would drain out of R1 Reactor. It amounted to physical force and an unlawful exercise amounting to abuse of force. It is an impingement of the common law right. The loss was definitely caused by mischief of one or the other worker. It would certainly amount to causing loss by acting and using unjust or improper physical force. Consequently, It is covered by the term 'violent'.
15. Now the question is whether it was external violent force in order to appreciate the term 'external' one has to consider the meaning of the term 'external'. According to the Black's Law Dictionary, the term 'external' means is as under:
External. Apparent, outward, visible from the outside patent, exterior, capable of being perceived. Acting from without, as the external surface of a body; physical or corporeal, as distinguished from mental or moral. Provident Life and Accident Ins. Co. v. Campbell 18 Tenn. App. 452,79 S.W. 2d 292, 296. In double indemnity clause of life policy the term "external" applies to the force or means and not to the injury. Hanna v. Rio Grande Nat. Life Ins. Co. Tex. Civ. App. 181 S.W. 2d 908, 911.
External, violent and accidental means. Death through "external, violent and accidental means" necessarily implies the death did not result indirectly from disease or bodily infirmity. Mutual Life Ins. Co. of New York v. Hassing CCA. 10, 134 F. 2d 714, 716.
(Emphasis supplied)
16. In this regard, before proceeding further one has to take note of the contention of the opposite party as well. According to their submissions there was no external violence and, therefore, the Company was not liable to pay. During the course of arguments it was also submitted that the special clauses covering the risk were preceded by the term words loss or visible physical damage expressing to the property insured directly caused by external violent means. It was pre-condition of the policy that loss must be caused by external violent means. In this context since it was established that the loss of the chemical was caused by workers of the Company by draining it out the element of external agency causing the loss would be absent and, as such, the Insurance Company should not be held liable.
17. As has been mentioned the term 'external' has not been interpreted in such a way by classifying the internal and external violent force in terms of internal and external agencies. It may be mentioned that it relates to external surface of a body; physical or corporeal. It could be caused by workmen employed in the Company by using external violent force to R1 Reactor by using pipe by opening the valve and damaging the R1 Reactor to incapacitate it in such way that it would not be shut by tightening nuts and bolts again. This force is certainly external violent force intended to drain out about 1200 ltrs. chemical and to cause loss to the complainant.
18. This artificial and cosmetic argument of the Insurance Company on the premise of internal and external agencies causing the loss is devoid of merits and cannot be accepted in the aforesaid circumstances.
19. There can also not be any doubt that the loss was caused due to malicious act otherwise thread used to tighten nuts and bolts and screw thereof would not have been damaged.
20. In the aforementioned circumstances, the matter is covered by malicious damage caused by external means to the property of the insured. The loss was visible physical damage caused by external violent means. It was not a case of burglary or house-breaking/theft or loss in or any attempt by any person taking part therein.
21. As such the matter is squarely covered by Sub-clause 5 of the Document through which the "policy was extended to cover riot, strike, malicious and terrorist damage".
22. Now coming to the next point of compensation, According to the report of the Surveyor, M/s. C.P. Mehta and Company, is as under:
The loss has been assessed without prejudice as under-
The Insured's loss,
being the value of
303.97 kgs. of Phenyl
Diamino Ethyl-
phenanthridinium
Chioride @ Rs. 8,256/99
Per kg. - Rs. 25,09,877/25 Less: Under-insurance - Rs. 13,12,292/49 -----------------
The Insured's claim Rs. 11,97,583/76 Less: - Rs. 10,000/00 -----------------
The Insured's net claim Rs. 11,87,583/76 i.e. Say Rs. 11,87,583
23. Consequently, we feel that the letter of repudiation was not just. The complainant would be entitled to interest on the aforesaid amount @ 12% p.a. from the date of complaint till the payment with cost which we assess at Rs. 10,000.
24. The complaint is allowed in the above terms.
