Insurer that closed a fire claim to force a discharge voucher must pay Rs 62.83 lakh more, NCDRC rules
The National Commission held that an offer made nearly 27 months after the fire, followed by a letter closing the claim when Sapphire Papers Mill would not sign, left the mill no free choice; it then found the stock had never been underinsured.
A short circuit set fire to the Sapphire Papers Mill factory on National Highway-31 in Darjeeling district, West Bengal, on 29 December 2011. The mill claimed ₹1.79 crore under a ₹16.32 crore fire policy. National Insurance Co. Ltd. offered ₹38.28 lakh nearly 27 months later, on condition that the mill sign a full and final discharge, and when the mill held out, it wrote that the claim was closed. On 15 October 2026 the National Consumer Disputes Redressal Commission held that the discharge voucher the mill eventually signed was obtained by coercion, that the surveyor had wrongly applied underinsurance to the stock, and that the insurer must pay a further ₹62,82,998 with 6 per cent interest from August 2012, together with ₹1 lakh in costs.
A ₹1.79 crore claim, a ₹43 lakh assessment, then silence
The mill held a Standard Fire and Special Perils policy for 11 February 2011 to 10 February 2012. The cover of ₹16.32 crore took in the factory building, plant and machinery, general stores and chemicals, raw material, stock in process and finished goods. The fire tore through the finishing section and the finished-goods godown attached to it, and the fire brigade fought it for hours. The insurer was told the same day and appointed P.K. Chakraborti and Associates as surveyor and loss assessor.
The surveyor filed a preliminary report on 10 January 2012. The mill submitted a claim bill of ₹1,79,11,638. The final survey report came on 2 July 2012. It put the physical loss, after depreciation and salvage, at ₹99,35,093: ₹68,93,599 for finished and semi-finished stock, ₹29,27,937 for plant and machinery and ₹1,13,557 for the building. The surveyor then applied underinsurance to the stock, which shrank that head to ₹11,82,985, added debris removal, fire brigade and advertisement charges, deducted the ₹10,000 policy excess and arrived at a net assessed loss of ₹43,43,887. An addendum report on 25 October 2012 cut that to ₹38,28,898.
Then nothing happened. The insurer neither offered the assessed sum nor repudiated the claim. On 7 March 2014 its Regional Manager wrote offering ₹38,28,898 in full and final settlement and asking for a signed discharge voucher so that payment could be released. Reminders followed on 27 May and 9 June 2014. The mill did not sign. On 10 July 2014 the insurer wrote that it was treating the claim as closed and would entertain no further correspondence. The mill sent a detailed representation on 24 July 2014 saying that a substantial part of the loss had gone unaddressed, and made a slide presentation to the insurer's senior officers. Nothing changed.
On 22 September 2014 the mill's director, Sanjay Golecha, emailed the insurer. The mill's objections to the assessment had got nowhere, and since “there is none to hear our point of view” the mill accepted the amount as full and final and asked for payment by RTGS before the Pujas. The discharge voucher was signed on 26 September 2014. On 17 April 2015 the mill wrote again to say that it had accepted the money under protest, and on 15 May 2015 it filed a consumer complaint before the National Commission seeking the ₹1,40,83,029 balance, 18 per cent interest from the date of the fire, ₹10 lakh for pain and agony and ₹50 lakh for deficiency in service.
The insurer: a signed voucher ends the matter
National Insurance's defence rested on the voucher. Once the mill had accepted ₹38,28,898 in full and final settlement, it argued, the mill ceased to be a consumer, was estopped from claiming more and could not approbate and reprobate. The complaint, filed more than a year after the offer and some eight months after acceptance, was an afterthought. The insurer quoted the Supreme Court in United India Insurance Co. Ltd. v. Ajmer Singh Cotton and General Mills (1999) 6 SCC 400 and cited twelve further decisions, among them Sri Venkateswara Syndicate v. Oriental Insurance Co. Ltd. (2009) 8 SCC 507. The offer had been followed by two reminders before the mill accepted, counsel Jaladhar Das submitted, which showed a considered, voluntary decision. On the merits, a surveyor licensed by the Insurance Regulatory and Development Authority and appointed under Section 64UM of the Insurance Act, 1938 produces an expert report that cannot be brushed aside without strong contrary evidence, and underinsurance had been correctly applied on the basis of the proposal form and its annexure, which the mill had not questioned while the policy ran.
For the mill, Vijay K. Jain argued that there had been no free consent at all. The surveyor had delayed his report despite full cooperation, the insurer had then sat on it, and the mill, carrying bank debt and mounting losses, had been forced to take what was on offer. He relied on National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd. (2009) 1 SCC 267 and New India Assurance Co. Ltd. v. Mudit Roadways 2023 SCC OnLine SC 1532, among others. On quantum, he said the surveyor had himself recorded damage of close to ₹1.35 crore across stock, machinery and building, and had then cut the indemnifiable loss to about a quarter of the claim by treating stock in process as finished goods and applying underinsurance on the strength of an annexure the mill had never signed.
Twenty months late, then a closure letter: why the consent was not free
President Justice A.P. Sahi and Member Bharatkumar Pandya, who wrote the order, framed two questions: whether the consent to the discharge was vitiated by coercion, undue influence or misrepresentation, and, if it was, what the correct assessable loss was.
On the first, the Commission began with the calendar. The IRDA regulations on protection of policyholders allow at most seven months from the loss to settlement: six for the survey report and one for the insurer to act on it. Here the offer came after nearly 27 months, about 20 months beyond that limit, and neither the survey report nor the insurer's reply explained why. The addendum report had been ready since 25 October 2012, yet the assessed amount was neither offered nor the claim repudiated until March 2014. When the offer did come, the insurer made discharge a precondition for paying even the sum its own surveyor had assessed, sent two reminders and then, by the letter of 10 July 2014, closed the claim rather than pay. That step, the Commission held, was “nothing less than threat, duress and coercion” and vitiated whatever consent followed.
The bench also noted what was missing. Apart from the survey report itself, there was not a single communication from the insurer showing any genuine consideration of the mill's objections, despite the representation, the presentation and a meeting with senior officers. There had been no real negotiation before the discharge, and so no accord and satisfaction. The regulator itself, in circulars of 24 September 2015 and 7 June 2016, had deprecated the use of a part payment far below the claim as a lever to obtain a discharge.
The insurer's own authority did not help it. Ajmer Singh Cotton, the Commission pointed out, holds that whether a discharge reflects free consent is always a question of fact, and that the voucher itself can never prove accord and satisfaction. The bench then turned to the illustrations in paragraph 52 of Boghara Polyfab. Illustration (iii) describes an employer who tells a hard-pressed contractor that an admitted amount will not be released without a full and final receipt; illustration (iv) describes an insured told that unless it signs a voucher for a sum far below its claim, the whole claim will be rejected. In both, the Supreme Court said, the discharge is given under economic duress and does not bind. The mill's case, the Commission held, fell squarely within both. The voucher had been obtained by cornering the insured and withholding the assessed amount until it signed, and the unexplained delay was in itself a deficiency in service and a major cause of the distress that pushed the mill to sign.
Three stock heads or one: the underinsurance that was not there
With the voucher out of the way, the dispute came down to how much stock was insured. The annexure to the proposal form, which the insurer placed on record, listed stock under three heads: coal in the open for ₹2 lakh; raw material such as waste paper, rice husk, AKD and caustic soda, with spontaneous combustion cover, for ₹150 lakh; and general stores and chemicals together with stock of raw materials and finished goods for ₹30 lakh. The surveyor reasoned that because raw material had its own ₹150 lakh head, finished goods and stock in process had to share the ₹30 lakh head, and since the stock at risk was about ₹175 lakh, the mill was heavily underinsured. The mill answered that it had never signed that annexure, that Annexure-1 to the policy itself described the cover as stock and stock in process for ₹1,82,00,000, and that the previous year's policy with United India had insured the stock jointly in the same way.
The Commission went with the insurer on the document and with the mill on its meaning. It accepted the typed annexure as part of the policy: the proposal form said the details were as per an attachment, it recorded spontaneous combustion cover on coal and raw material of ₹152 lakh, and the ₹16.32 crore total matched the annexure exactly. But the meaning the surveyor had put on it was, in the Commission's words, “far-fetched, imaginary, made out and arbitrary”. The premium chart at page 41 of the insurer's reply showed why the stock had been split. The ₹150 lakh raw material head and the ₹2 lakh coal head carried a premium of 0.75 per cent because they were additionally covered for spontaneous combustion; the ₹30 lakh head, which was not, was charged 0.55 per cent. The split marked a difference in peril, not in class of stock. For ordinary fire there was no difference in risk or premium between raw material, semi-processed stock and finished goods, and raw material in fact appeared under both heads, so a literal reading would have insured it twice.
The surveyor and the insurer had themselves accepted that stock in process was covered, even though the annexure did not name it, and had paid for it in the settlement. Having read the policy purposively to that extent, the Commission said, they could not then insist on a literal split to bring in underinsurance. The policy described its subject as a paper mill covering building, plant and machinery, raw material, semi-finished and finished goods as per the annexure submitted by the insured. On the strictest reading, stock of every kind was covered jointly up to ₹180 lakh for ordinary fire, with coal at ₹2 lakh, and raw material was additionally covered up to ₹150 lakh against spontaneous combustion, a peril that had nothing to do with this fire. Since the surveyor's own paragraph 8.11 valued the stock at risk at about ₹1.75 crore, below the ₹1.8 crore cover, there was no underinsurance at all, and the addendum report fell with it.
The Commission left the rest of the assessment untouched. The surveyor had split the finished goods equally between the burnt godown and the unaffected one because the mill's records showed only total stock, and the bench saw no fault in that. His 5 per cent deduction for slow-moving stock, 50 per cent depreciation on machinery and the salvage values were matters of professional judgment, not to be disturbed unless shown to be wholly arbitrary, and the mill had produced nothing to prove higher values. The insurer's deficiency lay in adopting the survey report without asking whether underinsurance was valid under the policy, and in paying far less than was due.
Order
Recomputed from paragraph 9 of the survey report without the underinsurance step, the assessed loss of ₹99,35,093 plus debris removal of ₹99,351, fire brigade charges of ₹83,429 and advertisement charges of ₹3,734, less the ₹10,000 excess, came to ₹1,01,11,607. After the ₹38,28,609 already paid, ₹62,82,998 remained. National Insurance must pay that sum with simple interest at 6 per cent from 2 August 2012, one month after the survey report, until payment. On whatever remains unpaid on 15 January 2027, the rate rises to 8 per cent from that date. The mill also gets ₹1 lakh in costs. The complaint was partly allowed.