IMPORTANT POINT
Where Insurance Company after inspecting factory premises charged higher premium being aware of high risk subsequent to accident belatedly much after lapse of validity period of policy Insurance Company cannot charge premium at still higher rate.

Headnote:Insurance-Fire insurance-Demand for higher premium after accident-Legality of-Appellant s Mill had Blow-room-Insurance Company s official visited factory and after inspection charged higher premia for Blow-room and policy issued accordingly-Major fire accident-Claim amount settled but Insurance Company demanding additional premium on ground Blow room was not segregated from Carding Section in that appellant did not provide TAC approved type Automatic Diversion System or Co-2 Flood System in Chute Feeding arrangement between Blow-room and Carding Section-Insurance Company deducting additional premium allegedly payable by appellant-Not justified-Blow-room was segregated from Carding Section and higher premium was charged at the time of issuing policy-Report of Loss Prevention Association confirms that Blow-room stood segregated prior to fire accident-Fire did not spread to Blow-room-Further, Appellant was never informed that it should provide TAC approved Automatic Diversion System or Co-2 Flood System in the Chute Feeding arrangement-It was within special knowledge of Insurance Company-Insurance Company was aware of high risk and charged premium accordingly-Belated steps taken by Insurance Company to charge higher premium for entire factory much after lapse of validity period of policies not justified-Insurance Company liable to pay entire amount settled towards claim.
       Initially the entire area was insured @ Rs. 2.5 per thousand, and subsequently the officers and engineers of the respondent Insurance Company visited the premises of the appellant factory and vide communication dated 22.11.1994, the Blow-room was separately insured at the higher rate of Rs. 8.9 per thousand. In the letter dated 22.11.94 addressed to the appellant, it was stated that: "We are in receipt of your letter dated 14th November, 1994 furnishing separate values in respect of the properties situated in the Blow-room area of your factory referred to herein above. The additional premium in respect of the said property comes to Rs. 93,316/- as per the premium computation shown hereunder." Therefore, it is clear that the Blow-room was taken as a separate portion segregated from the rest of the factory premises. (Para 8)
       It is of primary importance to note that the fire had not spread to the Blow-room area. That raises a strong presumption that the Blow-room was segregated even before the accident. The appellant had also produced documents to show that they had installed the fireproof doors to protect the Blow-room. The next important fact was that the respondent demanded a higher rate of premium for the Blow-room in November 1994 and this is prima facie indicative of the fact that the Blow-room was separated from the rest of area. The observations of the representatives of the Loss Prevention Association of India Ltd., who visited the factory on 6.1.1995, cannot be lightly disregarded. Therefore, it is clear that the attempts of the respondent Insurance Company to show that the appellant had not taken effective steps to segregate the Blow-room cannot succeed. (Para 11)
       The respondent Insurance Company claimed the additional premium of Rs. 1,13,13,344/- on the basis of the recommendations of the Tariff Advisory Committee, and it seems that the Comptroller and Auditor General had also recommended that this additional premium should be paid by the appellant. According to the opinion of the Tariff Advisory Committee, the Blow-room was not segregated and the entire main factory, including the building and the Blow-room, was a single communicating structure and, therefore, premium at the higher rate of Rs. 11.73 per thousand should have been charged for the entire area and this higher rate of Rs. 11.73 was reduced to Rs. 8.9 per thousand by the Tariff Advisory Committee with effect from 1.4.1994. It was made clear that the revised lower rate of Rs. 8.9 per thousand would apply to the new business or renewals falling due on or after 1.4.94. It is also the case of the respondent Insurance Company that the TAC - approved type Automatic Diversion System or Co-2 Flooding System in the Chute Feeding arrangement between the Blow-room and the Carding Section was not installed. It is pertinent to note that the appellant was never informed that these arrangements have to be made. The respondent Insurance Company has also not produced any correspondence to show that when the insurance policies in question were issued, the appellant was informed about these matters or that the appellant refused to comply with these requirements. There is no case that the insured had suppressed any material, whereas the respondent Insurance company had not apprised the insured about the Automatic Diversion System or the Co-2 Flooding System in the Chute Feeding Arrangement. The special precautions to be made on the basis of the report of the TAC are generally matters within the knowledge of the insurers and the contract of insurance being a contract of utmost good faith, ordinarily, these matters should have been brought to the notice of the insured before the policy was issued in his favour. It is also important to note that the respondent Insurance Company did charge a higher rate of premium for the "Blow-room". There is nothing to indicate that it was done on a provisional basis or that the insured suppressed any material facts. In fact, the engineers of the respondent Insurance Company visited the appellant s factory prior to the issuance of the policies and charged a higher rate of premium for the Blow-room. When premium is thus demanded and collected at a higher rate, it is an indication regarding the nature of the contract that subsists between the parties, namely, that the insurer was aware of the higher risks involved. It is clear that the respondent Insurance Company recovered the premium at a higher rate for the Blow-room and this can only be on the basis of the acceptance of the fact that the Blow-room was a separate unit. Therefore, the contention of the respondent that the Blow-room and the rest of the area was a single communicating structure cannot be accepted. (Paras 12, 14 & 15)
       On reappraisal of the evidence, including various correspondences between the insured and the insurer, it is clear that the appellant had segregated the Blow-room from the rest of the area even prior to the occurrence of fire. The fact that the respondent charged a higher rate of premium after having inspected the premises, and the report of the Loss Prevention Association of India Ltd. that the Blow-room was segregated by means of double fire-proof doors and the fire had not spread to this area, strengthen the plea of the appellant as regards the Blow-room. It is also to be noted that the respondent Insurance Company received the separate values of bifurcation as early as on 14.11.94 without any demur and went ahead with the issuance of policy charging premium at a higher rate for the Blow-room. The belated steps taken by the respondent to charge premium at still higher rate for the entire area was not justified under law. It may be noted that out of Rs. 1,13,13,344/-, an amount of Rs. 43,99,003/- was sought to be levied as premium due for the period 1993-94. This amount was sought to be recovered from the appellant apparently much after the lapse of the validity period of those policies. Therefore, we hold that a sum of Rs. 1,20,77,614/- due to the appellant was illegally withheld by the respondent. In the result, the respondent Insurance Company is directed to pay an amount of Rs.1,20,77,614/- to the appellant with 12% interest per annum from 14.3.97, that is the date of the complaint filed by the appellant before the National Consumer Disputes Redressal Commission. (Paras 16 & 17)

JUDGMENT

K.G. Balakrishnan, J.-The appellant is a manufacturer of cotton, polyester, woollen and viscose yarns and their blends. It is a hundred per cent export-oriented unit and has got two manufacturing mills, one engaged in the manufacture of spinning acrylic yarn (Mill A) and the other for spinning cotton yarn and various blended yarn (Mill B). Appellant started production of these yarns in 1994 and in the same year had taken 12 fire insurance policies for a total assured sum of Rs. 125.72 crores. These policies were initially valid from January 1994 to October 1995 and were later renewed from time to time. These policies covered raw materials, stocks, plant and machinery, accessories, spares, building etc. While issuing the policies, the officials of the respondent Insurance Company had visited the premises of the appellant factory and inspected machinery, building, stock etc. and the premia payable by the appellant were fixed accordingly. Mill B has a Blow-room since cotton processing requires the said facility. The officials of the respondent Insurance Company inspected and verified the Blow-room and the respondent informed the appellant on 22.11.1994 that the property situated in the Blow-room in Mill B attracted a higher premium of Rs. 8.9 per thousand instead of Rs. 2.5 per thousand charged earlier and accordingly an additional sum of Rs. 93,316/- was required to be paid by the appellant. The appellant paid the additional premium of Rs. 93,316/- as demanded by the respondent Insurance Company.

2. A major fire accident occurred in Mill B on 24.12.94 destroying the stocks, machinery and building therein. Admittedly, the Blow-room was not affected by fire. The appellant immediately reported the matter to the respondent Insurance Company. The surveyors visited the Mill on 6.1.1995 to assess the extent of damage caused by the fire. Having taken several months to complete their report, the Surveyors ultimately assessed a net claim of Rs. 3,68,60,231/-, though, according to the appellant s estimate, the loss was around Rs.7 crores.

3. On 24.1.95, the respondent Insurance Company informed the appellant that a sum of Rs. 49,89,463/- should be paid as additional premium as the Tariff Advisory Committee (TAC) approved type Automatic Diversion System or Co-2 Flooding System in the Chute Feeding arrangement between the Blow-room and the Carding Section was not installed in the Mill and in the absence of the fire protection system as prescribed under the TAC regulation, premium at the rate of Rs. 8.9 per thousand would be applicable to the entire factory w.e.f. 1.1.95, excluding the raw material in godown. Subsequently, on 13.7.95, the respondent Insurance Company again addressed a letter to the appellant stating that the earlier letter for payment of Rs. 49,89,463/- was cancelled and a sum of Rs. 1,13,13,344/- was to be paid by the appellant as the entire factory building, including the Blow-room was a single communicating structure and, therefore, the premium at a higher rate of Rs. 11.73 per thousand was applicable to the entire area. This was based on the alleged inspection by the engineers of the respondent Insurance Company along with the engineers of the Tariff Advisory Committee (TAC) and the Loss Prevention Association of India Ltd. (LPA) after the date of the fire. The appellant was not agreeable to pay the additional amount so required to be paid to the respondent Insurance Company and contended that the Blow-room was segregated in all respects and the TAC approved fire-fighting equipment had been installed by the appellant. On 19.9.96, the respondent Insurance Company informed the appellant that the competent authority had approved the settlement of the fire claim for Rs. 2,94,10,834/- and an amount of Rs. 73,67,636/- was due towards customs liability. The respondent Insurance Company sought to claim a deduction of Rs. 1,20,77,614/- towards an alleged short-charged premium. Thus, on 27.11.96, the appellant receive

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Judicial Analysis

SupremeToday

2000 Supreme(SC) 1911

IMPORTANT POINTWhere Insurance Company after inspecting factory premises charged higher premium being aware of high risk subsequent to accident belatedly much after lapse of validity period of policy Insurance Company cannot charge premium at still higher rate.

Judicial Analysis

IMPORTANT POINT
Where Insurance Company after inspecting factory premises charged higher premium being aware of high risk subsequent to accident belatedly much after lapse of validity period of policy Insurance Company cannot charge premium at still higher rate.