Supreme Court sets aside a Rs 2.4 crore fire insurance award that brushed aside both surveyors' reports

Justices Sanjay Kumar and Sanjeev Sachdeva hold the consumer commission gave the insured a clean chit without basis and quantified the loss far above what the surveyors had assessed.

A paper board manufacturer whose waste paper yard caught fire in 2009 was awarded Rs 2.4 crore by the National Consumer Disputes Redressal Commission in November 2024, against a preliminary surveyor's tentative assessment of about Rs 56 lakh. The Supreme Court has set that award aside. Justices Sanjay Kumar and Sanjeev Sachdeva held that the Commission was not justified in brushing aside the findings recorded in two surveyors' reports, that it held without any basis that there had been no delay in informing the fire station, and that having given the insured a clean chit on no material it then went on to assess and quantify the loss far in excess of what the surveyors had found.

Two policies and a fire in the waste paper yard

The respondent's premises consisted of an open yard and three godowns — two pucca godowns and one tin shed. It had insured its stock and its buildings with the appellant insurer under two separate fire policies: one on stock for a sum of Rs 13 crore, covering the period from 30 December 2008 to 29 December 2009, and one on buildings, plant and machinery for Rs 14 crore, covering 28 February 2009 to 27 February 2010.

On 7 May 2009 at about 1.30 p.m. a fire is stated to have broken out in the waste paper yard inside the factory, damaging raw material and the tin shed. A supervisor was said to be the first to see the fire in the tin shed; he told the company's Vice President, who informed the fire brigade and the police. The fire brigade is stated to have arrived at around 2.30 p.m. The insurer was informed the same day, appointed a preliminary surveyor the next day, and the claim was lodged on 9 May 2009.

What the surveyors found

The preliminary surveyor reported in June 2009 that the case required meticulous investigation to rule out the possibility of a deliberate fire and a hypothetical loss. Having said that, he tentatively assessed the net loss of stock and building at Rs 56,46,681.

The insurer then brought in an investigative agency, which reported in March 2010. Its findings are the ones the Commission later disregarded, and they are specific. The date and time of the fire seemed genuine, but the cause of the fire was not clear. The tin shed was in an isolated place inside the factory and workers rarely visited it. There was no chance of anybody throwing an ignited beedi or cigarette into the godown, because smoking was prohibited inside the factory. Even the throwing of ignited material from outside was remote, because the structure was covered with a roof and the factory was enclosed by a boundary wall of sufficient height. And there seemed to be no usable stock inside the tin shed at all.

On the response to the fire, the agency recorded that the fire station was informed one hour after the fire, although it was only six or seven kilometres from the factory, and that the respondent did not bother to send anyone. On those findings the insurer was advised to deal with the claim in accordance with the terms and conditions of the policy.

A final surveyor was then appointed, and submitted its final survey report in March 2010. That report took up the account of the supervisor who claimed to have seen the fire, and the sequence by which the Vice President was told.

What a surveyor's report is for

The structure of a fire claim explains why the two reports mattered as much as they did.

An insurer faced with a claim of this size does not assess it itself. It appoints a surveyor, whose function is to inspect the site while the evidence is fresh, form a view on what happened and quantify the loss. Where the circumstances invite suspicion, as the preliminary surveyor said these did, an investigative agency may be brought in as well. The reports that result are the only contemporaneous professional record of a scene that no longer exists by the time a complaint is decided — here, fifteen years later.

That is not to say such a report binds anyone. A surveyor's assessment is opinion evidence and a consumer forum is entitled to reject it, and in many cases ought to: insurers have been found to repudiate claims on thin surveys often enough. But rejecting it calls for reasons engaging with what it says. The three documents on this file — a preliminary report, an investigation report and a final survey report — between them raised a specific case about the cause of the fire, the usability of the stock said to have burned, and the hour that passed before the fire station six kilometres away was told.

Those were the propositions the Commission had to answer before it could reach a figure, and the Court's criticism is that it answered none of them.

Where the Commission went wrong

The consumer complaint was filed in 2011, alleging deficiency in service on account of inordinate delay in settling the claim, and seeking the claim amount with interest and other damages. The Commission decided it in November 2024, directing the insurer to pay Rs 2.4 crore.

The Supreme Court identified three distinct errors, and they build on one another.

The first is the treatment of the surveyors. There were two reports on the record, and the Commission brushed aside the findings recorded in them. A surveyor's report is not conclusive and a commission is not bound to accept it, but it is evidence that has to be dealt with; findings cannot simply be passed over.

The second is a specific finding of fact made on nothing. The Commission held that there was no delay on the part of the respondent in informing the fire station — a holding the Court described as being without basis. The material before it said the opposite: that the station was six or seven kilometres away and was told an hour after the fire, and that nobody was sent.

The third follows from the second. Having given the respondent what the judgment calls a clean chit, again without basis, the Commission proceeded to undertake its own assessment of the loss allegedly suffered, and to quantify that loss far in excess of the quantification by the surveyors. The gap is the measure of the problem: a preliminary assessment of a little over Rs 56 lakh became an award of Rs 2.4 crore.

The sequence matters because the quantification depended on the clean chit. Once the suspicion of a deliberate fire and a hypothetical loss had been cleared away without evidence, there was nothing left to discipline the figure, and the Commission substituted its own estimate for the professional assessments on the file.

The delay that was alleged, and the delay that was found

There is a symmetry in the case worth noticing. The complaint was founded on delay — the insurer's inordinate delay in settling the claim. The finding that undid the award was also about delay, but the claimant's: the hour that passed before a fire station six or seven kilometres away was informed, with nobody sent to fetch it.

Those two delays were doing different work. The first, if established, is a deficiency in service and sounds in compensation. The second goes to whether the loss was what it was said to be, because a claimant who does not hurry to put out a fire in a shed said to hold valuable stock invites the question the surveyors asked. The Commission resolved the second in the claimant's favour without basis and then awarded on the first, which is the order of reasoning the Court found unsustainable.

Order

The insurer's appeal was allowed, and the order of the National Consumer Disputes Redressal Commission of 19 November 2024 in the consumer complaint was set aside.

In consequence the respondent's own appeal, which had sought more than the Commission awarded, was dismissed.

The Registry was directed to return to the insurer the suitor's fund amount and the sum of Rs 50 lakh it had deposited, along with the interest accrued on it, under proper acknowledgement and as per due procedure.

In the circumstances, the parties were directed to bear their own costs.

The order is a clean setting aside rather than a remand, which means the claim is not sent back to the Commission for fresh consideration on the surveyors' material. The complaint of 2011, which alleged deficiency in service through inordinate delay in settling the claim, stands rejected along with the award that followed it.

What the judgment does not say is that the fire was staged or the claim false. The preliminary surveyor had asked for meticulous investigation to rule out a deliberate fire and a hypothetical loss, and the investigative agency reported that the cause of the fire was not clear — which is a statement that the question was unresolved, not that it had been resolved against the insured. The criticism is of a tribunal that treated an unresolved question as settled in the claimant's favour and then built a figure on it.

The distance between the two numbers is what makes the point hard to escape. On the material the insurer had gathered, the loss was tentatively put at a little over Rs 56 lakh against policies totalling Rs 27 crore. The Commission, having cleared the insured without basis, arrived at Rs 2.4 crore. A quantification that departs that far from the professional assessments on the record needs to explain itself, and this one did not.