Fire insurance — nature of contract — cause of fire. — A fire insurance policy is a contract of indemnity. Once it is established that loss has occurred by fire and there is no allegation or finding of fraud or that the insured instigated the fire, the precise technical cause of the fire is immaterial; the insurer cannot repudiate liability merely because the surveyor opines that the fire did not originate from a particular source unless an exclusion or culpability is proved. (Paras 32–43, 36.)
Surveyor’s report — scope of challenge before consumer forum. — A surveyor’s reasoned on-site report is entitled to weight; however, where the final surveyor’s conclusions lack cogent reasoning or ignore contemporaneous primary business records produced by the insured, the report may be held to be perverse and arbitrary. Consumer fora need not subject a surveyor’s report to microscopic forensic dissection but may quash it where it is vitiated by omission or arbitrariness. (Paras 14, 57, 62.)
Interpretation of policy abbreviations — ‘FFF’. — Ambiguous policy language must be construed commercially and in favour of the insured; the abbreviation “FFF” in the policy is to be read as “Furniture, Fixtures & Fittings” and cannot be excluded without clear contractual basis. (Paras 44–47.)
Proof of quantum — contemporaneous business records. — Stock loss and its valuation can be proved by contemporaneous records maintained in the ordinary course of business (stock statements, cost sheets, production logs, purchase orders, cancelled orders, VAT returns and audited financials); such material, if coherent and corroborative, furnishes admissible and reliable proof of quantum and may rebut an unreasoned surveyor’s estimate. (Paras 49–56, 60.)
Assessment methodology — arbitrary unit valuation, depreciation and salvage. — A surveyor’s assignment of a uniform per-unit value without regard to differing product types or to charred/unidentifiable goods is arbitrary. Depreciation and salvage require specification of machine age and accepted rates; salvage cannot be mechanically assumed for goods (e.g., leather) rendered worthless by fire/water. (Paras 58–61.)
Relief and interest. — Where insurer’s repudiation is found contrary to record and law, insured is entitled to recovery under the policy; the Court may moderate interest where appropriate — here, interest fixed at 6% p.a. from three months after the date of the incident until payment. (Para 63.)
Disposition. — Appeal by insurer dismissed; appeal by insured allowed in part — insured entitled to coverage including FFF and to quantum established by admissible evidence; interest awarded as above.2025 INSC 1271
Civil Appeal Nos.3806/2020 & 3855/2020 Page 1 of 25
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVILAPPELLATE JURISDICTION
CIVILAPPEAL NO. 3806 OF 2020
ORION CONMERX PVT. LTD. .…. APPELLANT
VERSUS
NATIONAL INSURANCE CO. LTD. ..…RESPONDENT
WITH
CIVIL APPEAL NO. 3855 OF 2020
J U D G M E N T
MANMOHAN, J.
1. Cross Appeals have been filed challenging the order dated 10th August
2020 passed by National Consumer Disputes Redressal Commission (herein after
referred to as the ‘National Commission’), wherein the consumer complaint
No.248 of 2012 filed by M/s Orion Conmerx Pvt. Ltd. (hereinafter referred to as
‘Insured’) was partly allowed and it was held by the National Commission that
the Surveyor ‘had not proved that the fire was not accidental’ and that the
documents provided by the Insured, namely, reports of the Bank Auditor,
Architect and Chartered Accountant were adequate to assess the loss caused.
Further, the National Commission held that the assessment of the loss at
Rs.61,39,539/- by the Surveyor was rightly done taking into account the material
lost in the fire and the documentary evidence (after the exclusion of furniture,
fittings and fixtures, as they were not insured) and the said amount was directed
Civil Appeal Nos.3806/2020 & 3855/2020 Page 2 of 25
to be paid with simple interest @ 9% per annum, with effect from the date of
repudiation of the claim till realization, by the National Insurance Co. Ltd.
(hereinafter referred to as ‘Insurance Company’) to the Insured within eight
weeks.
ARGUMENTS ON BEHALF OF THE INSURANCE COMPANY
2. At the outset, Ms. Shantha Devi Raman, learned counsel for the Insurance
Company submitted that the Insurance Company had given cogent reasons for
repudiation of the claim raised by the Insured, inasmuch as, the Insurance
Company had rightly stated vide letter dated 14th June, 2011 that the nature of
damage did not support the manifestation of an occurrence which could
reasonably and otherwise sustainably be concluded as an occurrence within the
terms and conditions of the Insurance Company’s policies.
3. She stated that the preliminary Surveyor, after visiting the premises, had
concluded that circumstantial evidence indicated electrical short circuiting as the
most probable cause of fire. She contended that the role of preliminary Surveyor
was only to inspect the spot immediately after the loss.
4. Ms. Shantha Devi Raman, learned counsel for the Insurance Company
further stated that the final Surveyor, after a more detailed investigation, had
concluded that ‘after removal of all the debris has resulted in a finding, which
precludes the possibility of an accidental ignition of electrical origin.’ She stated
that the final Surveyor had observed in paragraph 11 of the Report dated 30th
March, 2011 that the electrical short circuit as a probable cause stood readily
Civil Appeal Nos.3806/2020 & 3855/2020 Page 3 of 25
denied in view of the fact that the walls and roof right above the electrical fitting
had been spared almost completely and that the debris after the occurrence at the
location immediately adjoining the fitting were also not supporting the possibility
of an electrical source of ignition having had its seat there and then spread out to
the other materials. She stated that the final Surveyor had pointed out that even
thin plastic sheets and accessories such as buttons were intact. Thus, according to
her, final Surveyor had clearly opined that an electrical short circuit could not
have been the source of the fire. Therefore, she stated that the final Surveyor had
concluded that based on the physical examination undertaken by him, no
accidental fire had occurred and that available evidence showed manifestation of
multiple sources of fire.
5. She contended that the Insured had not pleaded anything specific to
contradict this or to disprove the findings of the final Surveyor that fire was not
accidental. She stated that the Insured had only raised few interrogatories on
ventilation to the final Surveyor and CW-1 had deposed in his affidavit about the
same but had failed to show the correlation or implication of the same on his
finding about the fire incident. Moreover, she contended that the Insured had not
led evidence of any forensic expert or independent witness disproving the report
of final Surveyor.
6. Consequently, according to her, as the final Surveyor had not concluded
that the fire was accidental, the Insured was not entitled to any compensation
under the fire policies.
Civil Appeal Nos.3806/2020 & 3855/2020 Page 4 of 25
7. She also emphasised that the preliminary Surveyor and the final Surveyor
in their reports dated 07th October 2010 and 30th March 2011 had stated that there
is no coverage available for ‘FFF’ (i.e. furniture, fixtures and fittings) under any
of the fire policies.
8. She further stated that the Insured in its complaint had not specifically
pleaded as to what was the basis for claiming an amount of Rs.3,30,93,678/-
(amount as per prayer in complaint) or to substantiate the quantity/unit of stocks
lost or its unit value and therefore, there was no calculation available on record
to contradict the calculation made by the final Surveyor. She pointed out that the
Insured had sought the claim amount (while raising the claim with Insurance
Company) of Rs.3,51,52,412/- under the following six heads:-
CLAIM PARTICULARS CLAIM AMOUNTS
Stocks Rs.2,65,75,647/-
Furniture and Fittings Rs.3,53,893/-
Building Rs.19,98,853/-
Plant and Machinery Rs.21,12,069/-
Showroom Rs.25,00,000/-
Electrical Fittings Rs.16,11,950/-
TOTAL Rs.3,51,52,412/-
9. According to her, the five claims of the Insured (other than claim for stock)
rested on the Report of M/s AURA, Architects & Designers, which, vide Report
dated 11th October, 2010 had estimated loss on account of Civil works to be
Rs.19,98,853/-; on account of furniture and fittings to be Rs.3,53,893/-; on
account of Plant and Machinery to be Rs.21,12,069/-; on account of construction
and interior design of showroom to be Rs.25,00,000/- and Rs.16,11,950/- on
Civil Appeal Nos.3806/2020 & 3855/2020 Page 5 of 25
account of Electrical works amounting to a total of Rs.85,76,765/- only.
However, according to her, after perusal of the evidence affidavit of Mr. Rakesh
Ahuja, Proprietor of M/s AURA, it was clear that they were all estimates and the
architect had not physically visited the premises but had issued his report on the
basis of discussion held with the Insured and that this estimate had not been
substantiated with any reasoning or document. Further, the architect had not
considered the depreciation and non-coverage of ‘FFF’ (i.e. furniture, fixtures and
fittings) under the policy.
10. She stated that the claim of the Insured with regard to stocks rested on the
report of Tarun Gandhi & Co., Chartered Accountants, which concluded that after
analysis of the average stock computed on the basis of stock statements, the stock
before the date of the fire and stock on the date of the fire, the stock lost on
account of fire, the sales tax return and the audited balance sheet, the total loss on
account of fire was Rs.2,45,16,913/-. However, after perusal of the evidence
affidavit of Mr. Tarun Gandhi, Partner, it was clear that the Chartered Accountant
had not physically visited the premises and that his estimate was based on
approximation and was on the basis of the trend and not substantiated with the
units or rates.
11. She stated that the Insured had also relied on the stock statement, as on 31st
July 2010, submitted to their bankers, Canara Bank and had led the evidence of
one Mr. Amit Singh from the bank. She contended that as per the stock valuation
report submitted to Canara Bank, which was part of evidence affidavit of Mr.
Civil Appeal Nos.3806/2020 & 3855/2020 Page 6 of 25
Amit Singh, Manager, Canara Bank, samples lying with the Insured had been
excluded from the total stock value and the reason of the exclusion was that ‘these
are sample pieces and not for sale and hence cannot be included.’ She, however,
stated that while filing its claim, the Insured had included the cost of sample
pieces.
12. She contended that the Insured relied on the generalised findings of M/s
AURA pertaining to furniture, fittings, building, plant and machinery, showroom
and electrical fittings, without any evidence to substantiate their findings and M/s
Tarun Gandhi for stocks, without substantiating the basis or proof of their
analyses and hence, both were unreliable and could not be a piece of evidence to
contradict the detailed report of the final Surveyor. She stated that the Insured
had attached a table of cancellation of orders and divided the claim of
Rs.2,65,75,647/- into Rs.1,72,88,452/- as against cancelled orders,
Rs.50,02,698/- as against accessories and Rs.42,84,497/- as against samples. She
contended that this table had been created by the Insured with the assumption that
all its products were finished products, however, it cannot be accepted when it is
not supported with evidence. She emphasised that cancellation of orders does not
prove actual loss.
13. She submitted that the Insured claimed that they had provided documents
which constituted 5855 (five thousand eight hundred fifty five) pages, however,
except the final Surveyor, no one else had perused the documents in detail and
conducted a proper physical inspection of the premises. The Insured had not filed
Civil Appeal Nos.3806/2020 & 3855/2020 Page 7 of 25
even a single document before the National Commission or before this Court to
show the exact number of units damaged/burnt, whether they were finished
products or WIP or raw material etc., and what were the corresponding rates of
each item. Hence, according to her, the Insured, being the complainant, had failed
to file base documents and discharge the onus of proof.
14. In support of her submissions and contentions, she relied upon the
following judgments:-
A. Khatema Fibres Limited Vs. New India Assurance Company Limited and
Another, (2023) 15 SCC 327, wherein it has been held as under:-
“32. It is true that even any inadequacy in the quality, nature and
manner of performance which is required to be maintained by or under
any law or which has been undertaken to be performed pursuant to a
contract, will fall within the definition of the expression “deficiency”.
But to come within the said parameter, the appellant should be able to
establish : (i) either that the Surveyor did not comply with the code of
conduct in respect of his duties, responsibilities and other professional
requirements as specified by the regulations made under the Act, in
terms of Section 64-UM(1-A) of the Insurance Act, 1938, as it stood
then; or (ii) that the insurer acted arbitrarily in rejecting the whole or
a part of the surveyor's report in exercise of the discretion available
under the proviso to Section 64-UM(2) of the Insurance Act, 1938.
xxx xxx xxx
38. A consumer forum which is primarily concerned with an allegation
of deficiency in service cannot subject the surveyor's report to forensic
examination of its anatomy, just as a civil court could do. Once it is
found that there was no inadequacy in the quality, nature and manner
of performance of the duties and responsibilities of the surveyor, in a
manner prescribed by the Regulations as to their code of conduct and
once it is found that the report is not based on adhocism or vitiated by
arbitrariness, then the jurisdiction of the Consumer Forum to go further
would stop.”
Civil Appeal Nos.3806/2020 & 3855/2020 Page 8 of 25
B. Industrial Promotion and Investment Corporation of Orissa Limited Vs.
New India Assurance Company Limited and Another, (2016) 15 SCC 315,
wherein it has been held as under:-
“12. This Court in General Assurance Society Ltd. v. Chandmull Jain,
(1966) 3 SCR 500 : AIR 1966 SC 1644] held that there is no difference
between a contract of insurance and any other contract except that in a
contract of insurance there is a requirement of uberrima fides i.e. good
faith on the part of the insured and the contract is likely to be
construed contra proferentes i.e. against the company in case of
ambiguity or doubt. It was further held in the said judgment that the
duty of the Court is to interpret the words in which the contract is
expressed by the parties and it is not for the Court to make a new
contract, however reasonable.”
C. United India Insurance Company Limited Vs. Hyundai Engineering and
Construction Company Limited and Others, (2024) 6 SCC 310, wherein it has
been held as under:-
“34. At the outset, the experts concerned were never examined
before NCDRC. Further, these reports were not based on siteinspection. They are all theoretical in nature….
35. A similar approach was adopted by the other experts. On the other
hand, the surveyor has examined himself and adduced documents.
Further, there is sufficient evidence to indicate that the surveyor has
made site visits and the proof of that was part of the pleadings filed
before us.”
15. She contended that the final Surveyor, while concluding his report dated
30th March 2011 despite calculating net assessed losses for all claims, had
erroneously directed payment of gross loss amounting to Rs.61,39,539/-. She
emphasised that the gross amount included profit element and did not consider
depreciation and salvage. Consequently, while not admitting any liability, she
Civil Appeal Nos.3806/2020 & 3855/2020 Page 9 of 25
alternatively submitted that the National Commission ought to have awarded the
net amount of Rs.44,35,174/- instead of the gross amount of Rs.61,39,539/-.
ARGUMENTS ON BEHALF OF THE INSURED
16. Mr. Ramesh Singh, learned senior counsel for the Insured stated that the
fire which took place on 25th September, 2010 at 8:30 a.m. was a result of an
accident, namely, short circuit as is clear from Preliminary Surveyor Report at
para 5.5 and police investigation report based on the complaint dated 25th
September, 2010, inasmuch as, it records ‘on the basis of the letter/report the
matter has been found of accidental fire’.
17. According to him, regarding the cause/source of fire, the final Surveyor’s
report was inconclusive. He contended that the final Surveyor’s finding on the
origin/source of fire was flawed as it had failed to consider ventilation which was
a critical factor for determination of fire origin and its behavior.
18. He stated that during the financial year 2010-2011 (year of fire damage) up
to the date of fire i.e. 25th September 2010, the Insured had recorded a sales
turnover of Rs. 26,26,95,194/- with additional export incentive of
Rs.1,80,70,106/- amounting to a turnover of approximately Rs. 28 crores and the
total sales turnover during the said financial year amounted to Rs. 42 crores
(inclusive of export incentive of about Rs. 2.5 crores).
19. He pointed out that statutory stock audit had been conducted by Canara
Bank’s panel auditor M/s Gupta & Bagaria between 27th August 2010 and 30th
August 2010 who certified that the total stock of approximately Rs. 24.46 crores
Civil Appeal Nos.3806/2020 & 3855/2020 Page 10 of 25
were held by the Insured out of which raw materials and consumables accounted
for Rs. 14.65 crores, work in progress for Rs. 6.35 crores and finished goods for
Rs. 6.35 crores approximately. He clarified that samples have no marketable
value for bank and hence were excluded by the bank from total stock in its
valuation report.
20. He emphasised that due to fire, considerable damage had taken place to the
building structure, plant and machinery, furniture and fixture, electrical fittings,
stock of raw material, semi-finished and finished goods and showroom.
21. He stated that except for the claim of stocks (i.e. insofar as other five heads
of claims were concerned), the difference in the amount claimed and agreed to by
the Surveyor was essentially on account of furniture, fittings and fixtures not
being considered on the basis that none of the fire policies covered the said
category. He pointed out that Rs.54,31,076/- was towards furniture, fixtures and
fittings. He contended that the Surveyor’s view on furniture and fittings was a
clear error, inasmuch as, the Policy No.360901/11/103400000092 under the head
“Description of Risk” clearly provided for “FFF” which means furniture, fittings
and fixtures.
22. He contended that the Insured is entitled to the claim of Rs.3,30,93,678/-
and accordingly, the amount of Rs.61,39,539/- determined by the Surveyor was
incorrect.
Civil Appeal Nos.3806/2020 & 3855/2020 Page 11 of 25
23. He stated that while assessing the claim for stocks, the following
documents were asked for by the final Surveyor which were duly submitted by
the Insured:-
a. Cost sheets show required raw material to produce the finished
goods and also show the prices of the raw materials for finalization of
price of final product.
b. Purchase orders and purchase bills showing the purchases of
raw materials to produce the finished goods.
c. Outward Inward registers showing date-wise entries of items,
quantity, value along with party name, including the raw material
movement.
d. Stock movement details which included month-wise closing
and opening balance for raw material, leather and accessories.
e. ‘Production Movement Records’ showing production logs of
Insured pursuant to the receipt of orders placed upon it. Same duly
reflected the production being done by Insured towards meeting the
orders.
f. Stock statement for the last six months showing stock
statements of raw material (accessories), raw material (leather), WIP
and finished goods.
g. VAT returns.
Civil Appeal Nos.3806/2020 & 3855/2020 Page 12 of 25
h. Balance sheets as well as profit and loss account for the last
three years at 31.03.2008, 31.03.2009 and 31.03.2010.
i. Total loss details as per which the item wise detail of goods
damaged along with its quantity, value and location were provided i.e.
goods at production floor, production store, WIP store, finished goods
production store, samples at showroom and finished goods garments at
ground floor.
j. Details of orders and emails regarding cancellation of orders
were also relied upon. The said document showed the details of orders
buyer-wise/ description-wise/ quantity-wise and value-wise.
24. He stated that the stock details not only showed that the value of the total
stock at the premises where the fire incident took place was approximately Rs.19
crores but also gave the breakup quantity-wise as well as value of the said items.
This, according to him, corroborates the figures in the cost sheet and stock
statement.
25. According to him, all the above documents shared with the final Surveyor
were contemporaneous documents maintained by the Insured in the usual course
of business.
26. He stated that apart from the aforesaid preliminary evidence, the affidavit
of Mr. Tarun Gandhi, Partner of M/s Tarun Gandhi & Co. enclosing a detailed
report dated 05th January 2012 was also relied upon. The said report, according
to him, was admissible in terms of Section 65(g) of the India Evidence Act, 1872.
Civil Appeal Nos.3806/2020 & 3855/2020 Page 13 of 25
27. He further stated that the loss of Rs.2,45,16,913/- against loss of stock had
been duly proved/established by the Insured. He pointed out that the value of
stock had been independently proved by placing on record costs of various items
(finished WIP, raw material) which were lying on the first floor and the ground
floor that got damaged because of fire as well as use of water to douse the fire
and the quantity of such items in the said two places.
28. Mr. Ramesh Singh contended that the amount of Rs.29,93,850/- assessed
by the final Surveyor towards the net loss of stock was clearly wrong as it
considered only the value of identifiable/recognizable goods i.e. the goods which
were damaged because of water and completely left out the
unidentifiable/unrecognizable goods i.e. the goods which were damaged on
account of fire. He emphasised that photographs showing the damage caused due
to fire were shared with the final Surveyor.
29. Mr. Ramesh Singh clarified that the cost of each item of stock had been
determined on the basis of cost sheets of various items which were shared with
the Surveyor.
30. He emphasised that the Surveyor had arbitrarily awarded a uniform
compensation of Rs.450/- for each damaged item of identifiable/recognizable
stock irrespective of the fact whether it was a leather belt or leather jacket or
polyester lining. He further stated that when an explanation was sought from the
Surveyor regarding the said figure, the same was once again met with evasive
reply.
Civil Appeal Nos.3806/2020 & 3855/2020 Page 14 of 25
31. He lastly pointed out that the National Commission ordered for
compensation to the Insured in the form of simple interest @ 9 % p.a., with effect
from the date of repudiation of the claim till realization. He submitted that in the
absence of agreement between the parties regarding payment of interest or
quantum of interest, the Insured was entitled to enhanced interest and that too
from three months from the date of incident.
REASONING
PRINCIPLES GOVERNING ‘FIRE INSURANCE’
32. Having heard learned counsel for the parties, this Court is of the view that
fire insurance is a strategic tool for risk management, asset protection and
economic resilience. Fire insurance policy does not prevent fire – but it cushions
the financial impact when it occurs. Keeping in view the importance of the
concept of fire insurance, it is important to outline the principles governing the
same.
33. It is settled law that the contract of fire insurance is a contract to indemnify
the Insured against loss by fire. The expression ‘fire’ signifies the cause of the
loss and in order to determine whether in a particular case the loss is caused by
fire, the following rules generally apply:-
a) There must be an actual fire; hence mere heating or
fermentation will not be sufficient to render the insurers liable
for loss occasioned thereby.
Civil Appeal Nos.3806/2020 & 3855/2020 Page 15 of 25
b) There must be something on fire which ought not to have been
on fire.
c) There must be something in the nature of an accident, but a fire
occasioned by the wilful act of a third person without the
consent of the Insured, is to be regarded as accidental for the
purpose of this rule.
If these requisites are satisfied, any loss attributable to the fire, whether by
actual burning or otherwise, is within the contract.
34. The object of the contract is to protect the Insured against loss occasioned
by fire. The fire must be accidental. The dictionary meaning of the expression
‘accidental’ is a ‘happening occurring unexpectedly or by chance’. Consequently,
damage from a deliberately set fire will not be covered. To carry out the
investigation, therefore, beyond the cause of the loss and to cast upon the Insured
the burden of establishing that the cause of the fire itself was covered by his
contract, would largely defeat this object.
35. The cause of fire, however, becomes material where the circumstances of
the case are open to suspicion, and seem to indicate that it would be contrary to
the principle of good faith (doctrine of uberrima fides) inherent in the contract to
permit the Insured to recover. Accordingly, the cause of fire becomes material in
cases where the fire is occasioned not by negligence but by the wilful act of
Insured himself or of someone acting with his privity or consent. In such a case,
his conduct, coupled with the making of a claim, is a fraud upon the insurers and
Civil Appeal Nos.3806/2020 & 3855/2020 Page 16 of 25
he cannot enforce his claim against them. (See: The Law Relating to Fire
Insurance by A.W. Baker Welford and W.W. Otter-Barry Fourth Edition).
36. This Court in New India Assurance Company Limited and Others vs.
Mudit Roadways, (2024) 3 SCC 193 has held, ‘the precise cause of a fire,
whether attributed to a short-circuit or any alternative factor, remains
immaterial, provided the claimant is not the instigator of the fire’. The said
judgment categorically holds that the precise cause of fire is immaterial provided
the Insured is not the instigator of the fire. This judgment underscores the
importance of insurers’ duty to act in good faith and honour its commitment to
the Insured.
37. Consequently, this Court is of the opinion that once it is established that
the loss is due to fire and there is no allegation/finding of fraud or that the Insured
is the instigator of the fire, the cause of fire is immaterial and it will have to be
assumed and presumed that the fire is accidental and falls within the ambit and
scope of fire policy.
IN THE PRESENT CASE, THE INCIDENT IS AN ACCIDENTAL FIRE
38. The term and condition of one of the fire policies, in the present case, is
reproduced hereinbelow:-
“THE COMPANY AGREES, (Subject to the Conditions and Exclusions
contained herein or endorsed or otherwise expressed hereon) that if
after payment of the premium the Property insured described in the said
Schedule or any part of such Property be destroyed or damaged by any
of the perils specified hereunder during the period of insurance named
in the said schedule or of any subsequent period in respect of which the
Insured shall have paid and the Company shall have accepted the
Civil Appeal Nos.3806/2020 & 3855/2020 Page 17 of 25
premium required for the renewal of the policy, the Company shall pay
to the Insured the value of the Property at the time of the happening of
its destruction or the amount of such damage or at its option reinstate
or replace such property or any part thereof:
I. Fire excluding destruction or damage caused to the property
insured by
a) i) its own fermentation, natural heating or spontaneous
combustion.
ii) its undergoing any heating or drying process.
b) burning of property ensured by order of any Public
Authority.
II. Lightning
III. Explosion/Implosion Excluding loss, destruction of a
damage….”
39. The aforesaid fire policy does not state that no liability will accrue upon
the insurer till the exact cause of fire is proved.
40. In the present case, actual fire damage is proved by police investigation
report based on complaint dated 25th September 2010, preliminary Surveyor’s
report, photographs of fire, fire claim form and reports of M/s AURA, Architects
& Designers and Tarun Gandhi & Co., Chartered Accountants.
41. The final Surveyor’s conclusion that the fire is not accidental is not correct,
as there is no reasoning in the final Surveyor’s report as to why the fire is not
accidental. This Court is of the view that the final Surveyor’s report has only
found that electric short circuit is not the sole source and that there were three
independent sources/seats/pools of fire. But the said finding cannot lead to the
conclusion that the fire in question is not accidental. This is more so, when the
Civil Appeal Nos.3806/2020 & 3855/2020 Page 18 of 25
final Surveyor in its report has neither concluded that the incident of fire falls
within the exception/exclusion clause of the fire policies nor fraud, negligence or
intentional damage by the Insured. In fact, the final Surveyor’s report is not
conclusive with regard to the cause of fire and there is no finding leave alone any
conclusion in the final Surveyor’s report that the Insured caused the fire.
Accordingly, this Court is of the view that in the present case, the incident of fire
is an accidental fire and is an occurrence which reasonably and otherwise is an
occurrence within the terms and conditions of the Insurance policies.
42. Consequently, this Court is of the opinion that the basis for rejecting the
claim by the final Surveyor and Insurance Company is contrary to record,
untenable in law and suffers from arbitrariness and perversity.
43. Even otherwise, this Court is of the opinion that the National Commission’s
view on this issue is well considered and cogent and does not call for any
interference.
POLICIES PROVIDE FOR COVERAGE OF ‘FFF’ WHICH CAN ONLY MEAN
FURNITURE, FIXTURES AND FITTINGS
44. This Court agrees with the contention of Mr.Ramesh Singh, learned senior
counsel for the Insured that the difference in the amount claimed and granted by
the Surveyor qua five claims (i.e. other than stocks) is essentially on account of
furniture, fixtures and fittings not being considered on the ground that none of the
policies covered the said category. This view on furniture, fixtures and fittings is
a clear error, inasmuch as, the policy No.360901/11/10/3400000092 under the
Civil Appeal Nos.3806/2020 & 3855/2020 Page 19 of 25
head “Description of Risk” clearly provides for ‘FFF’ which can only mean
furniture, fixtures and fittings.
45. On the meaning of ‘FFF’ in the fire policies, the Surveyor has given an
evasive reply in his answer to interrogatories. The said answers are reproduced
hereinbelow:-
“8(a) On what basis you say that the furniture and fittings are not
covered when the same are explicitly covered under the policy?
Ans. Based on the description or the absence of the same in the policy
contract.
8(b) What is the meaning of the words “FFF” used in the policy?
Ans. The question calls for an argumentative reply.
8(c) Do the words “FFF” used in the policy not mean Furniture,
Fittings and Fixtures?
Ans. The question calls for an argumentative reply.
8(d) If no, what do they stand for? (Please specify on the basis of past
precedents)?
Ans. The question calls for an argumentative reply...”
46. Further, the National Commission’s finding that ‘assessment for furniture,
fixtures and fittings has been rightly excluded….as no premium had been paid for
the same’ is contrary to record. Even the learned counsel for the Insurance
company did not defend the impugned order on the said ground.
47. It is also settled law that coverage provisions should be interpreted broadly
and in case of ambiguity, it is to be resolved in favour of the Insured. This Court
in Canara Bank vs. United India Insurance Company Limited and Others,
(2020) 3 SCC 455 has held as under:-
“22. The principles relating to interpretation of insurance policies are
well settled and not in dispute. At the same time, the provisions of the
Civil Appeal Nos.3806/2020 & 3855/2020 Page 20 of 25
policy must be read and interpreted in such a manner so as to give
effect to the reasonable expectations of all the parties including the
insured and the beneficiaries. It is also well settled that coverage
provisions should be interpreted broadly and if there is any ambiguity,
the same should be resolved in favour of the insured. On the other
hand, the exclusion clauses must be read narrowly. The policy and its
components must be read as a whole and given a meaning which
furthers the expectations of the parties and also the business realities.
According to us, the entire policy should be understood and examined
in such a manner and when that is done, the interpretation becomes
a commercially sensible interpretation.”
(emphasis supplied)
48. Consequently, this Court is of the view that the policies provide for
coverage of ‘FFF’ which can only mean furniture, fixtures and fittings and the
Insured is entitled to the amounts claimed under the heads of Building, Plant and
Machinery, Showroom, Electric fittings, furniture and fixtures.
INSURED HAS SUBSTANTIATED ITS CLAIMS FOR LOSS OF STOCK WITH
REASONS AND CONTEMPORANEOUS DOCUMENTS MAINTAINED IN THE
REGULAR COURSE OF BUSINESS
49. This Court finds that the purchase orders and emails regarding cancellation
of orders contain the details of orders buyer-wise/description-wise/quantity-wise
and value-wise.
50. Insofar as the quantity of the products damaged/destroyed in the fire are
concerned, the closing balance figures of such items are reflected in stock
movement detail and stock statement as on 24th September, 2010 of the unit where
the fire incident took place for the two floors, namely, ground floor and first floor.
The same was relied upon and shared with the Surveyor.
Civil Appeal Nos.3806/2020 & 3855/2020 Page 21 of 25
51. From the documents on record, it is apparent that the companies who had
cancelled their orders included Levis Strauss (India) Pvt. Ltd., Benetton India Pvt.
Ltd., Gap inc, Tommy Hilfiger Europe BV, J. Crew, Mexx Europe BV, Tempe and
Wilson Leather amongst others. The total value of the damaged goods that were
in the process of being manufactured/produced as per the orders of the Companies
was Rs.1,72,88,452/- (at the exchange of 1 US = Rs.44) out of total loss of
Rs.2,65,75,647/-.
52. Further, the Insurance Company’s argument that cancellation of orders
does not prove the actual loss is erroneous as figures given in calculation sheet
indicating the cancelled orders are supported with the following
contemporaneous documents maintained in the regular course of business:-
a. Stock details till 24.09.2010 (25.09.2010 being the date of fire)
showing date-wise/period-wise opening and closing stock along with
description of goods i.e. finished/WIP, raw material (accessories) etc.
quantity, rate and value.
b. Cost sheets.
c. Stock statement showing period-wise, including period from
01.09.2010 to 24.09.2010 (25.09.2010 being date of fire) stock (WIP,
finished goods and finished goods samples) with opening and closing
quantity, in and out quantity along with unit, rate and value.
d. Date-wise production movement.
Civil Appeal Nos.3806/2020 & 3855/2020 Page 22 of 25
e. Copies of orders placed by various customers on Insured which
were cancelled due to fire.
53. This Court randomly tested the veracity of five figures given in the said list
of cancelled orders against the backup/primary evidence/documents. No
discrepancy was found, except in one instance, namely, Serial No. 32, wherein
the quantity ordered figure is shown to be less than quantity cancelled. This was
found on account of the fact that the production of said product was more than
what was ordered. This figure is corroborated by contemporaneous documents
like production movement records and stock details at three locations.
54. This Court agrees with the contention of the Insured that the purpose of
valuation done by the bank is different, inasmuch as, for the Insured the samples
are of value, but not to the bank. Destruction of samples on account of fire caused
loss to the Insured, who had to arrange for replacement of the samples.
55. The Insured has also produced production logs, which showcase daily
production of items, including finished goods and the goods at the advance stage
of production. The Insured has raised claim not on the basis of the order value but
rather on the basis of the stock actually lying at the unit against the said orders,
which substantiates genuineness of Insured’s claim.
56. Consequently, in the present case, actual loss has been proved by the
Insured by producing the ‘base documents’, which are clearly relevant and
admissible in terms of Section 34 of the Indian Evidence Act, 1872.
Civil Appeal Nos.3806/2020 & 3855/2020 Page 23 of 25
57. Moreover, the final Surveyor has not dealt with the 5,855 (five thousand
eight hundred fifty five) pages’ documents provided to him by the Insured and
has erroneously recorded in his report that “till date insured have not submitted
any reasonable or correlatable documentary evidence in support of the quantum
and thereby the value of the claim”. Consequently, the Insurance Company’s
contention that there was no basis for claiming an amount of Rs.3,30,93,678/- as
compensation is contrary to record inasmuch as the Insured has substantiated its
claims with reasons and contemporaneous documents.
58. Not only have the cost sheets been completely ignored by the final
Surveyor, but also an average uniform per unit price of Rs.450/- has been
arbitrarily assigned for ascertaining Insured’s insurance liability towards stock
irrespective of the nature of the stock (i.e. whether the damaged item was a leather
jacket or a leather belt or a polyester lining etc.).
59. This Court is further of the view that the Insurance Company’s insistence
that officers of M/s AURA and/or M/s Tarun Gandhi & Company should have
physically visited the premises is a red herring, inasmuch as, all that could have
been ascertained by the physical visit is the cause of fire and factum of goods
having been damaged by fire and water. Insofar as the quantity and value of the
goods lost by fire and water is concerned, the same could not have been accurately
ascertained by mere physical visit; instead, what was more reliable were various
documents and evidence maintained by the Insured in normal course of business.
Civil Appeal Nos.3806/2020 & 3855/2020 Page 24 of 25
That is precisely the reason why all such documents were asked for by the
Surveyor and were supplied by the Insured.
60. This Court also finds that the Insured has, while assessing loss, reduced the
amount of assessed loss from Rs.2.65 crores to Rs.2.45 crores to exclude the
profit elements and overvalued stock. The relevant portion of the report of M/s
Tarun Gandhi & Co. Chartered Accountants is reproduced herein below:-
“(iii) We certify and Report that the Loss of 2.65 crore shown in the
profit & loss A/C of the Company includes the Profit element and some
overvalued stock and therefore the Assessed loss computed by us comes
to Rs.2.45 crore subject to a marginal variation of 1% to 2%.”
61. Further, the sine qua non for calculation of depreciation is the age of
machinery and the accepted rate of depreciation for the products. Without
specifying these two ingredients, the Surveyor could not have assessed
depreciation – as has been done in the present case. The salvage as assessed by
the Surveyor for stock is misconceived as the products in question are leather
products which are worthless in the event they are damaged by fire and/or water.
Consequently, this Court is of the view that in the present case, the Insured has
only claimed net loss and not gross loss.
62. Keeping in view the aforesaid, this Court is of the view that even according
to the tests stipulated in the judgments cited by the Insurance Company, the
irresistible conclusion is that the final Surveyor has not only misdirected itself in
law, but has adopted a perverse approach, inasmuch as, no reason has been given
for discarding the Cost Sheet for each item maintained in regular course of
business and that too when the Cost Sheet tallies with all other primary documents
Civil Appeal Nos.3806/2020 & 3855/2020 Page 25 of 25
like purchase orders. Further, the final Surveyor’s recommendation to award an
average unit price of Rs.450/- for each item of identifiable stock/product is deeply
flawed as it neither takes into account the value of non-identifiable goods (i.e.
goods that had been charred in the fire) nor does it take into account the nature of
the stock (i.e. whether a leather jacket or a leather bag or a leather belt or a
polyester lining etc.) for determining its value.
CONCLUSION
63. Keeping in view the aforesaid as well as the fact that the objective of the
fire insurance policy is to restore the policyholder to the financial position before
the loss, the appeal filed by the Insurance Company is dismissed and the appeal
filed by the Insured is allowed, except that simple interest is allowed @ 6% per
annum from three months from the date of the incident till the date of payment.
……..……………….J.
[DIPANKAR DATTA]
……………….J.
[MANMOHAN]
New Delhi;
October 30, 2025
