Consumer Forum Cannot Forensically Reassess Non‑Arbitrary Surveyor Report: Supreme Court
Background of the Dispute
The Supreme Court of India in Khatema Fibres Ltd. Vs New India Assurance Company Ltd. & Anr. considered the scope of interference by consumer fora with a surveyor’s assessment in an insurance claim relating to fire loss. The assessee, Khatema Fibres Ltd., had obtained a “Standard Fire and Social Perils” policy from New India Assurance Company Ltd. for Rs.42,40,00,000/-, covering the period from 07.05.2007 to 06.05.2008.
On 15.11.2007, a fire broke out in the assessee’s factory premises, specifically in the waste paper stockyard. The assessee lodged a claim on 19.11.2007 asserting that approximately 8,500 MT of waste paper had been destroyed, valuing the loss at Rs.13,00,00,000/-.
The insurer appointed M/s Adarsh Associates as surveyors. After seeking records, posing queries, and obtaining clarifications, the surveyor submitted a final report dated 09.01.2009, assessing the net loss at Rs.2,86,17,942/-. The insurer ultimately approved and offered Rs.2,85,76,561/- as full and final settlement.
Dissatisfied, the assessee approached the National Consumer Disputes Redressal Commission (“National Commission”) under Section 21(a)(i) of the Consumer Protection Act, 1986, seeking substantially higher compensation on multiple counts. The National Commission, by judgment dated 03.07.2018, rejected the enhanced claim, but directed payment of the amount admitted by the insurer (Rs.2,85,76,561/-) with interest @ 9% p.a. from 15.11.2007 till the date of the insurer’s offer.
The assessee then preferred a civil appeal before the Supreme Court under Section 23 of the Consumer Protection Act, 1986, challenging the limited relief granted by the National Commission.
Key Facts and Survey Process
Spot Inspection and Initial Estimation
Immediately after the incident, on 16.11.2007, the insurer engaged Shri Kapil Vaish, a Chartered Accountant, to conduct a spot inspection and file a status report. At that time, fire‑fighting operations were still ongoing. Shri Vaish recorded that the fire had affected waste paper bales in an open yard area measuring 27 mtrs. x 55 mtrs. = 1485 sq. mtrs. in the open compound.
Proceeding on assumptions regarding stacking—namely, bales stacked six-high and a rough possible quantity of about 5,000 MT—and using an estimated cost of Rs.20-22 per kg, he initially estimated the potential loss at about Rs.10-11 crores. The assessee, however, claimed that 8,500 MT of waste paper, valued at Rs.13,00,00,000/-, had been destroyed.
Options Before the Surveyor
When M/s Adarsh Associates undertook the detailed survey, they had two principal methods available to compute the quantity of stock destroyed:
- Method 1 – Books/Stock Record Based: Determine the quantum of loss from the assessee’s stock registers and related records.
- Method 2 – Volumetric Analysis: Use physical measurements of the affected yard, standard bale measurements, and stacking patterns to estimate the maximum possible quantity stored and burned.
The surveyor ultimately decided to proceed with volumetric analysis, in view of serious inconsistencies in the records furnished by the assessee.
Rejection of Stock Records and Resort to Volumetric Analysis
Discrepancies in Documentation
The surveyor reviewed the assessee’s stock records extensively.