Insured's Failure to Follow Manufacturer's Operating Manual Justifies Claim Repudiation Under Machinery Breakdown Policy: Gujarat State Consumer Commission - 2025-09-05

Adherence to Manufacturer's Manual is Key: State Commission Upholds Insurer's Repudiation of ₹82.97 Lakh Claim

Ahmedabad, Gujarat - The Gujarat State Consumer Disputes Redressal Commission has dismissed a complaint filed by Rainbow Papers Ltd., upholding the repudiation of an insurance claim worth ₹82.97 lakh by Cholamandalam MS General Insurance Co. Ltd. The Commission, presided over by Member Mr. R N Mehta, ruled that the insurer was justified in denying the claim as the damage to the machinery was caused by the insured's failure to adhere to the manufacturer's operational instructions, a key condition of the policy.

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Background of the Dispute

Rainbow Papers Ltd., a paper manufacturing company, had secured a "Machinery Breakdown Insurance" policy from Cholamandalam for two turbo-generators for the period of April 2008 to April 2009. The policy covered a 10-MW generator for a sum insured of ₹4 crore.

On October 5, 2008, the 10-MW generator suffered a severe breakdown. Rainbow Papers claimed that an operator inadvertently supplied steam to the generator at a pressure meant for a smaller 5-MW turbine, causing serious damage to the rotor. The company filed a claim for ₹1.63 crore, which was later reduced in the complaint to ₹82.97 lakh to bring it within the Commission's pecuniary jurisdiction.

After a prolonged assessment, which included a survey by M/s. Mehta Padamasy Pvt. Ltd., the insurance company repudiated the claim on January 7, 2010. The insurer stated that the loss fell outside the scope of the policy because the damage resulted from a failure to follow the Original Equipment Manufacturer's (OEM) guidelines.

Arguments from Both Sides

Complainant's Stance: Rainbow Papers Ltd.

• Represented by Advocate Mr. C R Kothari, the complainant argued that the incident was a case of "faulty operation" by an employee, which should be covered under a Machinery Breakdown policy.
• They contended that the insurer's repudiation, based on a letter from the machinery's manufacturer (Triveni Engineering) denying warranty coverage, was improper. They argued that the warranty contract and the insurance contract are two separate agreements.
• Rainbow Papers also pointed out the significant delay in the insurer's decision-making process and hired a second surveyor, Mr. B G Bhatt, who opined that the claim was admissible.
• The complainant insisted that the insurer blindly followed its surveyor's report without an independent application of mind, constituting a deficiency in service.

Opponent's Position: Cholamandalam MS General Insurance Co. Ltd.

• Advocate Mr. Sandeep C Shah, appearing for the insurer, admitted the policy's existence but contested the cause of loss and its coverage.
• The core of their argument rested on policy conditions which obligated the insured to "fully observe the manufacturer’s instructions for operation." They highlighted that any departure from these conditions that increases risk voids the policy.
• The insurer's surveyor found that the damage was caused by water carryover into the turbine, a direct result of operating it at a steam pressure of 43 Kgs/Sq.cm instead of the prescribed 64 Kgs/Sq.cm.
• It was argued that the insured's admission of "faulty operation" was an admission of breaching the policy's conditions, shifting the onus on them to prove the loss was still covered.

Commission's Analysis and Key Findings

The Commission meticulously examined the terms and conditions of the insurance policy to determine the validity of the repudiation.

Pivotal Policy Clauses:

The judgment highlighted two crucial conditions:

1. Condition 5: Obligated the insured to "take all reasonable steps to maintain the insured property in efficient working order" and to "fully observe the manufacturer’s instructions for operation, inspection, and overhaul."

2. Condition 7: Stated that the policy would be void in the event of any "departure from prescribed operating conditions, whereby the risk or loss or damages increases," unless agreed upon by the insurer.

Reasoning of the Commission:

In his order, Member Mr. R N Mehta observed:

"Combined reading of aforesaid clauses makes it clear that it was obligatory on the part of insured to observe compliance of operative manual and any departure there from, if increases risk or loos or damages than in that case, the policy shall be void..."

The Commission noted that Rainbow Papers had admitted that the loss was due to "faulty operation," specifically, supplying steam at the wrong pressure. This admission corroborated the findings of the manufacturer and the insurer's surveyor that the operating manual was not followed.

The court stated that the burden was on the complainant to prove that such a loss was covered under the policy, a burden they failed to discharge. The report by the second surveyor, Mr. B G Bhatt, was given little weight as it was prepared long after the machinery had been repaired and operational, without a chance for a primary inspection of the damage.

Final Judgment and Its Implications

Finding no deficiency in the service provided by the insurance company, the Commission concluded that the repudiation was justified and based on a clear breach of policy conditions.

The order stated:

"The entire process of settlement of claim is done within the scope of policy and performed in the manner that can be expected from a prudent insurer and therefore repudiation cannot be said unjustified by any stretch of imagination... Hence complainant fails."

The Consumer Complaint was dismissed without any order as to costs. This judgment serves as a critical reminder to policyholders, especially in commercial and industrial sectors, of the importance of strictly adhering to the operational guidelines of insured machinery, as failure to do so can provide legitimate grounds for an insurer to repudiate a claim.