The National Consumer Disputes Redressal Commission in New Delhi has ruled that an insurance claim cannot be rejected merely on suspicion about the cause of a fire when there is no cogent evidence of wilful act or fraud by the insured, and has directed United India Insurance Co. Ltd. to pay ₹98 lakhs with interest in a dispute arising from a warehouse fire that destroyed pledged cotton stock.
Claim Rejection Challenged After Warehouse Fire
M/s Shri Hira Industries, a proprietary firm engaged in the manufacture of cottonseed oil and cotton cake, had availed a loan facility from Axis Bank against the pledge of cotton bales and cotton oil cake. A collateral management agreement had been executed with Star Agriwarehousing and Collateral Management Ltd. for supervision and inventory of the pledged goods.
The firm had taken a Standard Fire and Special Perils Policy from United India Insurance Co. Ltd. for the period from April 30, 2018 to July 29, 2018. On July 22, 2018, a fire broke out at the warehouse where the goods were stored. The complainant said the entire stock of 1,800 cotton bales was destroyed, resulting in a loss of ₹3,89,86,650. The insurer appointed a surveyor and an investigator, but later repudiated the claim on March 25, 2019 on grounds of misrepresentation and fraud.
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Insurer Alleged Fire Was Deliberately Caused
United India Insurance argued that the claim was not genuine and relied on surveyor and investigator reports suggesting that the fire had been deliberately caused. It contended that 1,800 cotton bales could not have been reduced completely to ashes in a short span, particularly when firefighting operations had begun soon after the incident.
The insurer also submitted that there was no electrical connection in the godown, ruling out the possibility of a short circuit, and claimed the fire had spread in a manner inconsistent with normal progression. On that basis, it maintained that the claim had been rightly repudiated.
Commission Finds No Cogent Proof of Fraud
The Commission held that the insurer’s conclusion that the fire had been staged rested on presumptions and was not backed by cogent evidence. It noted that the police investigation indicated the possibility of fire caused by friction between iron strips, and that no material had been placed on record to attribute any deliberate act to the complainant. It also observed that forensic examination did not detect hydrocarbons or other external inflammable substances in the debris.
The Commission further said cotton and cotton bales are highly inflammable and that complete destruction of stock in a severe fire cannot be ruled out merely on assumptions. At the same time, on the issue of quantum, it relied on the surveyor’s assessment and noted that laboratory reports indicated low cotton content in the debris, leaving no sufficient ground to disregard the valuation based on those findings.
Partly allowing the complaint, the Commission directed United India Insurance Co. Ltd. to pay ₹98,68,302 with interest at 7 per cent per annum from the date of the final survey report, December 24, 2018, along with ₹20,000 towards litigation costs, subject to adjustment of any dues payable to Axis Bank Ltd.
About the author – Rehan Khan is a law student and legal journalist with a keen interest in cybercrime, digital fraud, and emerging technology laws. He writes on the intersection of law, cybersecurity, and online safety, focusing on developments that impact individuals and institutions in India.
