NCDRC Holds National Insurance Company Liable for Deficiency in Service Due to Four-Year Delay in Claim Repudiation; Directs Payment of ₹3.14 Crore to National Bulk Handling Corporation
Pranav B Prem
The National Consumer Disputes Redressal Commission (NCDRC), presided over by Dr. Inder Jit Singh (Presiding Member) and Dr. Sadhna Shanker (Member), held that the National Insurance Company was liable for deficiency in service for repudiating an insurance claim after an inordinate delay of four years. The Commission directed the insurer to settle the claim and compensate the complainant, National Bulk Handling Corporation Pvt. Ltd., for the losses suffered.
Factual Background
National Bulk Handling Corporation Pvt. Ltd., the complainant, was engaged in warehousing and collateral management services across 19 states in India. The company obtained a Fidelity Guarantee Policy and a Fire Insurance Floater Policy from the National Insurance Company, covering its own and outsourced employees, including 1,544 personnel, with a sum insured of ₹50 crores.
The company leased godowns in Junagadh, Gujarat, for storing cumin seeds belonging to 13 clients who availed loans from Dena Bank against storage receipts issued by the complainant. On 1st July 2013, a fire broke out in godown nos. 1 and 4. During the fire extinguishing operation, it was discovered that cumin seeds had been fraudulently replaced with groundnut husk and cumin waste.
Investigation revealed that the theft was orchestrated by an outsider, Mr. Kishor Gadhesariya, in connivance with Mr. Jeshabhai Rada, the warehouse supervisor appointed through an outsourcing agency. A police FIR was registered under multiple IPC sections including cheating, mischief, and criminal conspiracy, and a chargesheet confirming the involvement of the complainant’s employee was filed.
The complainant filed an insurance claim of ₹3.97 crore under the Fidelity Guarantee Policy. The first surveyor, M/s Mehta & Padamsey Pvt. Ltd., assessed the loss at ₹3.14 crore and confirmed policy coverage. However, the insurer appointed a second surveyor, M/s J. Basheer & Associates, who opined that the loss was not solely attributable to employee dishonesty but also involved an outsider, and hence was not covered under the standard fidelity policy. Despite continuous follow-up, the insurer repudiated the claim only after four years on the ground that the loss was "indirect" and arose from the complainant's contractual liability towards Dena Bank, which they argued was outside the scope of the policy.
Contentions of the Parties
The insurer contended that the complainant did not fall under the definition of 'consumer' as per the Consumer Protection Act, 1986, because it was a commercial entity engaged in profit-making activities. According to the insurer, the loss in question had not occurred due to the fraudulent act of an employee alone but was the result of a conspiracy involving an outsider who was not covered under the Fidelity Guarantee Policy. The insurer maintained that this type of third-party involvement was beyond the scope of the policy coverage, which explicitly protected only against direct pecuniary losses caused solely by the dishonesty of the insured’s employees. Furthermore, the insurer argued that the complainant’s liability was contractual in nature arising from its collateral management agreement with Dena Bank, and that the insurer was not a party to this agreement nor bound by its terms. The insurance company stressed that the loss was not direct but an indirect consequence of the complainant’s obligations to the bank, which the Fidelity Guarantee Policy did not cover. To support this position, the insurer relied on a number of judicial precedents such as Bajaj Allianz v. Mukul Aggarwal [(2024) 2 SCC 344] and Oriental Insurance Co. v. Sony Cherian [ (1999) 6 SCC 451], asserting that insurance contracts must be interpreted strictly in accordance with their terms.
On the other hand, the complainant argued that the loss arose directly from the fraudulent conduct of its outsourced warehouse supervisor, who was explicitly covered under the Fidelity Guarantee Policy. It was pointed out that the insurer had full knowledge of the complainant’s nature of business and operations at the time of policy issuance, which included warehousing and collateral management responsibilities. The complainant denied that the loss was indirect, asserting that as a bailee, it had a legal obligation to safeguard the stored goods, and any failure on this count constituted a direct pecuniary loss to itself, not merely a contractual liability to Dena Bank. Additionally, the complainant highlighted the impropriety of appointing a second surveyor without adequate justification, particularly when the first surveyor’s report had already assessed the loss as falling squarely within the policy coverage. The complainant emphasized that the insurer’s unexplained delay of nearly four years in arriving at its repudiation decision was itself a glaring instance of deficiency in service.
Observations and Findings of NCDRC
The NCDRC, after carefully examining the facts and submissions, rejected the preliminary objection raised by the insurer that the complainant was not a ‘consumer’ under the Consumer Protection Act. The Commission referred to the Supreme Court’s ruling in National Insurance Co. Ltd. v. Harsolia Motors [(2023) 8 SCC 362], which clarified that insurance contracts are indemnity agreements and are protected under consumer law even when procured by commercial enterprises. Therefore, the complainant’s status as a commercial organization did not disqualify it from seeking remedies under the Consumer Protection Act.
A significant observation of the Commission was that the repudiation letter issued by the insurer mentioned only one reason for claim rejection: that the loss was “indirect” as it arose from the complainant’s agreement with Dena Bank. No other ground, such as the involvement of an outsider or inadequacy of employee coverage, was raised in the letter. As per settled legal principles, an insurer cannot introduce new grounds or defences that were not explicitly stated in the repudiation letter. The insurer’s subsequent attempt to shift its defence by claiming outsider involvement was therefore disallowed.
The Commission found that the loss suffered by the complainant was indeed a direct pecuniary loss covered under the Fidelity Guarantee Policy. The complainant, acting as a bailee of the goods, had an inherent duty to maintain the quantity and quality of the stored commodities, regardless of its contractual obligations to Dena Bank. When the employee entrusted with the safe custody of the goods committed a fraudulent act, the resultant financial liability imposed on the complainant was a direct consequence of that employee’s infidelity, squarely within the scope of the policy coverage. The Commission further noted that the insurer was fully aware of the complainant’s business model when it accepted the premium and issued the policy, making the repudiation on such grounds unjustifiable.
Moreover, the NCDRC condemned the insurer’s delay of nearly four years in settling the claim, observing that such an inordinate lapse violated the guidelines of the Insurance Regulatory and Development Authority of India (IRDAI), which requires insurance claims to be settled promptly, preferably within 90 days. This prolonged delay in claim resolution amounted to clear deficiency in service and mala fide conduct on the part of the insurer.
Final Decision
In its final order, the NCDRC allowed the complaint in favour of the complainant. The insurer was directed to pay an amount of ₹3,14,96,268, as assessed by the first surveyor, along with simple interest at the rate of 6% per annum from the date of repudiation until the date of realization. The Commission further ruled that if the insurer failed to comply with this order within two months, the rate of interest would be increased to 9% per annum from the date of repudiation till the date of actual payment. The NCDRC thus held the National Insurance Company liable for wrongful repudiation and unreasonable delay in processing the insurance claim, constituting a clear deficiency in service.
Appearance
For the Complainant: Mr. Ravi Prakash, Sr. Advocate with Mr. Parag Khandhar, Advocate Ms. Isha Kanth, Advocate
For the Opposite Party: Mr. Yogesh Malhotra, Advocate with Mr. Sushant Kishore, Advocate
Cause Title: National Bulk Handling Corporation Vs. National Insurance Company Ltd.
Case No: C.C. No. 3687 of 2017
Coram: Hon’ble Dr. Inder Jit Singh [Presiding Member], Hon’ble Dr. Sadhna Shanker [Member]
[Read/Download order]
