Once Accidental Fire And Loss Are Established And No Fraud Is Alleged, Cause Of Fire Is Immaterial For Insurance Claim: Supreme Court
Rejecting the insurer’s claim that the fire was not accidental, the Apex Court has held that fire insurance is a contract of indemnity, meant to place the insured in the same financial position they occupied immediately before the loss.
Justice Dipankar Datta, Justice Manmohan, Supreme Court
The Supreme Court has held that in a fire insurance claim, once it is established that the insured has suffered loss due to fire and there is no allegation or finding of fraud or instigation, the cause of the fire becomes immaterial.
The Court was hearing cross-appeals arising from an order of the National Consumer Disputes Redressal Commission, which had partly allowed the insurer's liability but reduced the quantum awarded.
The dispute involved a claim for damage caused in a fire that occurred in 2010, where the insurer had repudiated the claim, alleging a lack of proof that the fire was accidental.
A Bench comprising Justice Dipankar Datta and Justice Manmohan, while stating that “the objective of the fire insurance policy is to restore the policyholder to the financial position before the loss”, further observed 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.”
Senior Advocate Ramesh Singh appeared for the appellant, while Advocate Shantha Devi Raman represented the respondent.
Background
The insured had suffered damage to stocks, raw materials, machinery, building structure, and other assets due to a fire. The insurer repudiated the claim, citing that the final surveyor had not conclusively held the fire to be accidental and questioned the extent of loss claimed.
The National Commission, upon appeal, partly allowed the complaint and directed limited compensation. Both sides, aggrieved, approached the Supreme Court.
The insured argued that the rejection was arbitrary, relying on police records, surveyor reports, bank audits, stock statements, cancelled export orders, production logs, and cost sheets to establish actual losses. The insurer contended that the fire was not accidental and that the insured had failed to substantiate the value or quantity of damaged goods.
Court’s Observation
The Supreme Court, upon hearing the matter, reaffirmed the fundamental nature of fire insurance as a contract of indemnity. Relying on established legal principles, the Court observed that the purpose of such a policy is to indemnify the insured and place him in the same position as he was immediately before the occurrence of the loss.
The Court held 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 the fire is immaterial. The Bench stated that the insurer cannot deny liability merely on the ground that the exact cause of the fire could not be determined.
The insurer’s repudiation was found to be arbitrary, particularly because the surveyor and the insurer themselves accepted that a fire had taken place, but sought to avoid liability by raising doubts about the cause. The Court noted that neither the surveyor nor the insurer produced any material to show that the fire was staged, calling attention to the fact that the investigation records treated the incident as accidental, and that “there is no reasoning in the final Surveyor’s report as to why the fire is not accidental.”
Regarding the assessment of loss, the Court held that the insured had produced extensive contemporaneous documentation, including stock registers, production logs, bank statements, cancelled export orders, purchase orders, and statutory filings required by law.
The Court observed that these records were “maintained in the ordinary course of business and supported the claim made,”. In contrast, the Bench remarked, the surveyor “ignored 5,855 pages of documents submitted by the insured” and failed to consider primary evidence that demonstrated the quantities and valuations of goods destroyed.
The Court also criticised the manner in which the surveyor assessed the value of damaged items. It noted that the surveyor adopted a uniform valuation of ₹450 per piece irrespective of whether the destroyed article was a finished leather jacket, a leather garment, or a polyester lining. The Court found this approach to be indefensible, observing that such a blanket valuation “had no rational basis” and failed to reflect the true value of the goods lost in the fire.
The Bench further held that the National Commission had wrongly excluded the assessment for furniture, fixtures and fittings as no premium had been paid for the same, stating that “even the learned counsel for the Insurance company did not defend the impugned order on the said ground.”
Conclusion
The Supreme Court allowed the insured’s appeal and dismissed the insurer’s appeal, holding the repudiation arbitrary and unsustainable.
The Court ordered the insurer to indemnify the insured as per the claims proved from contemporaneous business records, with simple interest at 6% per annum from three months after the incident till payment.
Cause Title: Orion Conmerx Private Ltd. v. National Insurance Co. Ltd., (Neutral Citation: 2025 INSC 1271)
Appearances
Petitioner: Ramesh Singh, Senior Advocate, with Advocates Bharti Badesra, Shivleen Pasricha, Karan Khaitan, Bina Gupta, AOR
Respondent: Advocates Shantha Devi Raman, Garvesh Kabra, AOR, Pooja Kabra, Tanisha Goyal, and others.