Internal Leakage Cannot Be Treated As Seepage Exclusion: Chandigarh State Commission Holds Liberty General Insurance Liable
Pranav B Prem
The State Consumer Disputes Redressal Commission, Chandigarh partly allowed an appeal filed by Dheeraj Khanna and held Liberty General Insurance Limited liable for deficiency in service for wrongfully repudiating a home insurance claim arising from internal leakage damage. The Bench comprising Justice Raj Shekhar Attri (President) and Preetinder Singh (Member) held that internal leakage causing sudden and extensive damage was covered under the policy and could not be excluded by misinterpreting exclusion clauses.
The complainant had obtained a home loan of ₹29 lakh from Aditya Birla Housing Finance Limited in June 2020 for purchase of a residential flat, which was registered in the names of his parents. Acting as an agent of the insurer, the housing finance company offered a House Protection Insurance policy, which the complainant purchased by paying a premium of ₹14,010 for the period from August 7, 2020 to July 7, 2025. Shortly after taking possession of the flat, the complainant noticed subsidence of flooring, damage to POP and paint, and sinking of tiles in bathrooms and washing areas. The loss was reported to the insurer, but the claim was repudiated. The complainant undertook repairs at his own expense and claimed to have spent ₹6,18,000.
The complainant also alleged that a theft occurred in the flat on July 5, 2021 and that the claim relating to theft was also rejected by the insurer. Aggrieved by repudiation of both claims, the complainant filed a consumer complaint before the District Consumer Disputes Redressal Commission-I, Chandigarh, which dismissed the complaint, leading to the present appeal.
Aditya Birla Capital Limited and Aditya Birla Housing Finance Limited contended that they were not parties to the insurance contract and had no role in processing or settling the claim. They denied any principal-agent relationship with the insurer and sought dismissal of the complaint.
Liberty General Insurance Limited contended that the complainant had no insurable interest as the property was registered in the names of his parents. The insurer further argued that the damage was caused by internal leakage, which according to it was not covered under the policy. It was also contended that the theft claim was not maintainable as the complainant had failed to lodge a proper FIR promptly and had only submitted a delayed complaint. The insurer relied upon the surveyor’s report and policy conditions to justify repudiation.
The Commission found that the District Commission had wrongly relied upon the exclusion clause by treating the damage as seepage and therefore outside the scope of the policy. It observed that there was no material on record to establish that the damage was caused by seepage in the strict sense contemplated under the exclusion clause and that the admitted position was that the damage occurred due to internal leakage. The Commission held that internal leakage resulting in sudden and extensive damage to flooring and tiles could not be equated with seepage and that exclusion clauses must be strictly construed, with the burden resting on the insurer to prove that the loss was excluded.
The Commission also held that Clause 9 of the policy specifically covered damage caused by bursting or overflow of water tanks, apparatus and pipes, and once internal leakage was established, the insurer could not deny liability by adopting a narrow interpretation that defeated the object of the policy.
Examining the surveyor’s report, the Commission found that the surveyor had assessed the gross loss at ₹4,15,332 but had deducted 30 percent on account of “variation” without assigning any convincing reasons. The Commission held that such deductions were arbitrary and that only reasonable deductions towards depreciation and salvage could be allowed. After permitting deductions of 2 percent towards depreciation and 5 percent towards salvage, the Commission held the complainant entitled to ₹3,86,259 and concluded that repudiation of the claim amounted to deficiency in service.
However, with regard to the theft claim, the Commission upheld the repudiation on the ground that the complainant had failed to produce cogent evidence showing that the incident was promptly reported. The delayed complaint deprived both the police authorities and the insurer of a fair opportunity to investigate the matter, and the repudiation of the theft claim was therefore justified.
Accordingly, the Commission partly allowed the appeal and set aside the order of the District Commission to the extent of the insurance claim relating to internal leakage damage. Liberty General Insurance Limited was directed to pay ₹3,86,259 to the complainant with interest at 9 percent per annum from May 31, 2022 till realization, along with ₹20,000 as compensation for mental agony and ₹15,000 towards litigation costs. The amount was directed to be paid within 30 days, failing which it would carry interest at 12 percent per annum. The complaint against the remaining opposite parties was dismissed.
Cause Name: Dheeraj Khanna v. Aditya Birla Capital Ltd. & Ors.
Case No.: Appeal No. 106 of 2025
Coram: Justice Raj Shekhar Attri (President) and Preetinder Singh (Member)
