Court’s Decision
The Supreme Court allowed the insured’s appeal and dismissed the insurer’s appeal, holding that the fire was accidental, the claim was valid, and the repudiation by the insurance company was arbitrary, perverse, and contrary to law. The Court upheld the National Commission’s view that the surveyor failed to prove the fire was non-accidental and erred in rejecting essential heads of claim. The Supreme Court held that:
• The fire policy covers all accidental fires, regardless of precise cause, unless the insured is shown to be the instigator;
• The insurer cannot deny coverage based on speculative assumptions of multiple fire sources;
• “FFF” in the policy clearly means furniture, fixtures, and fittings and must be paid for;
• The insured established stock loss through contemporaneous business records;
• The surveyor adopted a flawed approach and ignored critical evidence spanning over 5,855 pages.
The insured was held entitled to the full claim under the policy, with interest at 6% per annum from three months after the incident until payment.
Facts
A large manufacturing unit suffered a fire on the morning of 25 September 2010. Significant damage occurred to building structures, machinery, electrical fittings, showroom interiors, furniture, fixtures, raw materials, work-in-progress and finished goods. The insured submitted extensive documentation, including cost sheets, stock movement records, purchase orders, production logs, VAT returns, bank stock audits, and architect and chartered accountant loss assessments.
A preliminary surveyor initially noted electrical short-circuiting as a probable cause. However, the final surveyor rejected the possibility of accidental fire, claimed presence of “multiple fire sources,” and assessed a drastically reduced stock loss based on an arbitrary flat per-item value of ₹450, irrespective of product type.
The insurer repudiated the claim based on the final surveyor’s conclusion. The National Commission partly allowed the complaint. Both sides appealed to the Supreme Court.
Issues
- Whether the fire was accidental under the fire policy.
- Whether the insurer rightfully repudiated the claim.
- Whether “FFF” in the policy covers furniture, fixtures, and fittings.
- Whether the insured sufficiently proved loss of stock and property.
- Whether the surveyor’s report was reliable in law.
- Whether the National Commission erred in partly allowing the claim.
Petitioner’s Arguments (Insurer)
The insurer argued that the final surveyor correctly concluded that the fire was not accidental because the burn patterns, undamaged electrical fittings, intact thin plastic sheets, and absence of electrical ignition indicators suggested multiple sources of fire. The insurer contended that the insured provided no forensic evidence contradicting the final surveyor and failed to disprove the finding that the fire was not accidental.
The insurer further argued that the insured’s documents regarding stock, machinery, furniture, and fittings were unreliable, as the architect and chartered accountant did not physically inspect the site and relied solely on estimates. It claimed the insured’s valuation included sample pieces, overvalued goods, and items not covered by the policy. It contended that “FFF” was not covered, and that the insured did not furnish a proper calculation to support its claim for stock loss of ₹3.3 crores. The insurer insisted that only net assessed loss of ₹44.35 lakhs (not gross loss of ₹61.39 lakhs) was payable, if at all.
Respondent’s Arguments (Insured)
The insured argued that the fire was unquestionably accidental and supported by the preliminary surveyor, police investigation, and contemporaneous business records. It asserted that the final surveyor ignored ventilation conditions, misread burn patterns, and undertook speculative analysis of multiple ignition points.
The insured emphasised that it had placed on record over 5,800 pages of primary business documents establishing stock quantity, value, production movement, and cancelled orders from well-known international brands. It argued that the surveyor ignored these documents and assigned an irrational uniform value of ₹450 per item across diverse product categories like jackets, belts, linings, and samples. The insured contended that “FFF” was explicitly covered under the policy and that the surveyor and insurer wrongly excluded these items. It further argued that the purpose of fire insurance is indemnification, and the insurer’s failure to honour this undermined the principle of utmost good faith.
Analysis of the Law
The Supreme Court restated that:
• Fire insurance is a contract of indemnity;
• The essential requirement is that “something must have caught fire which ought not to have been on fire”;
• The cause of fire is immaterial unless fraud or intentional burning by the insured is alleged;
• Ambiguities in coverage must be resolved in favour of the insured;
• Exclusion clauses must be interpreted narrowly;
• Surveyor reports cannot override reliable contemporaneous business records.
The Court stressed that the insurer bears the burden of establishing exclusions or fraud and cannot repudiate claims on speculative or inconclusive grounds.
Precedent Analysis
Khatema Fibres Ltd.
Held that surveyor reports cannot be subjected to microscopic judicial scrutiny, but they must satisfy standards of proper investigation. Applied here to show that the surveyor’s findings lacked foundational reasoning.
Industrial Promotion & Investment Corporation of Orissa
Affirmed that insurance contracts must be interpreted based on expressed terms and good-faith obligations. Used to reject insurer’s narrow reading of coverage.
United India Insurance Co. v. Hyundai Engineering
Reiterated that expert reports based on site inspection carry weight. Applied to demonstrate that the surveyor’s inspection must be logical and evidence-based — which it was not.
Canara Bank v. United India Insurance Co.
Confirmed that coverage clauses must be interpreted broadly and ambiguities resolved in favour of insured. Relied upon to uphold “FFF” as covered.
Court’s Reasoning
The Supreme Court held that:
• The final surveyor’s conclusion that the fire was not accidental was unsupported by reasons;
• The surveyor did not conclude fraud, wilful act, or exclusion-based cause;
• The presence of multiple fire seats does not rule out an accidental fire;
• The finding that electrical short circuit was not the sole cause does not establish deliberate ignition;
• “FFF” in the policy undeniably signifies furniture, fixtures, and fittings;
• The surveyor’s valuation ignored actual cost sheets, primary stock registers, purchase orders, production logs, and bank audits;
• Assigning a uniform ₹450 per damaged item was arbitrary and irrational;
• Salvage and depreciation were wrongly computed;
• The insurer’s repudiation was contrary to record, perverse, and violative of insurance principles.
Thus, the insured’s full claim was substantiated, and the repudiation could not stand.
Conclusion
The Court upheld the National Commission’s findings, corrected the exclusion of “FFF,” rejected the surveyor’s flawed assumptions, and held that the insured had fully established loss through contemporaneous business documents. The insurer’s appeal was dismissed; the insured’s appeal was allowed, awarding interest at 6% from three months after the incident until payment.
Implications
• Strengthens protection for insured entities against arbitrary repudiation.
• Reinforces that cause of fire is irrelevant absent fraud.
• Ensures broad interpretation of coverage terms like “FFF.”
• Sets strong precedent for evaluating stock loss through primary business records.
• Limits insurer discretion when surveyor reports are speculative or incomplete.
