A case fraught with inconsistencies

Usually, in case of disputed claims, legal recourse is sought for interpreting a policy condition or point of law, on which hinges the admissibility or otherwise of the claim. This case before the   State Consumer Disputes Redressal Commission, Ahmedabad       is peculiar in that, more than the technical point or policy wording, other factors took centrestage. What were the other factors? The differential wordings in two sets of documents, rather casual approach of the loss assessor, the reliance of the insurer on the survey report and, above all, the legal defence put up by the insurer’s lawyer and the precedents cited. The case was Thakkar Exim vs Tata AIG General Insurance Co. Ltd.

Not aware if the insurer went on appeal before the National Commission and if yes, what the outcome was. Suffice to say the State Commission had come out with a well-reasoned judgement. Possibly, a case where the claim declination would have been justified, had the insurer/surveyor followed the right procedures. The facts of the case, in brief, are as under:

The assured and complainant Thakkar Exim had a marine open policy with the defendant, Tata AIG General Insurance on ‘All-Risks’ basis, i.e. coverage on ICC-A terms. No doubt, there were other manuscript limitations and exclusions  that featured in the policy. Assured had exported 3 containers(FCL) of wheat flour from Rajkot to Mundra port and thence to Madagascar. As it was an open policy, individual certificate of insurance for the intended transit had to be obtained. The assured, using the online portal E-Marine, obtained the certificate of insurance for this transit with a value of USD 33,879.

Loss was reported at Madagascar and a surveyor was appointed. The surveyor observed that one bag of wheat flour was missing and 1201 bags were damaged. Bags were found crushed against the ceiling and doors of the container and, there was a foul smell. Droplets of water were found on the walls and floor and the high humidity inside was evident. Laboratory tests revealed that the wheat flour was mildew infested and hence not fit for human consumption.  Surveyor called for  a) Loading report b) Container cleanliness certificate. As these were not provided by the assured/consignee, surveyor concluded that the mildew was caused by a) condensation or b) ingress of water through the gaskets in the container doors. Based on the survey report, insurer repudiated the claim citing the following warranty/exclusion under the policy  – “warranted that cargo to be containerised in fully enclosed containers and de-stuffing at final destination only. Excluding mould, mildew, fungus and infestation losses unless caused by ICC-(B) / ITC-(B) perils only. Excluding wet damages, moisture and contamination losses.”

The assured challenged the declination before the SCDRC on the following grounds.

• They had not been given the complete set of policy with conditions, warranties and clauses, but merely the Schedule of the policy. As evidence, the E-marine certificate was produced that bore the title ‘Specific Marine policy’ and had a set of clauses/conditions/warranties mentioned therein. The defendant insurer produced the open policy with its complete set of wordings/ conditions/ clauses. In the page titled ‘Certificate of insurance’, where the conditions/clauses/warranties spelt out were slightly different from that stated in the e-marine certificate. 
•  Assured pointed out that the Loading report requirement was never a part of the policy as evidenced by the list of documents to be produced in case of claim, shown in the Certificate of insurance produced by the insurer. There is no mention of the Loading report. The only obligation of the assured as stated in the policy was with regard to packing, that said ‘Plastic bags/standard and customary’. This was strictly adhered to. Further, stuffing was carried out by a professional agency, Central Warehousing Corporation.
• The surveyor, without carrying out tests or enquiries to figure out how water entered the container, wrote a whimsical report, surmising that water entry could be due to condensation OR through the gaskets in the container door. He was not sure.
• Insurer, relying on the surveyor’s report and quoting policy conditions (that were differential)  wrongfully declined the claim.

The SCDRC, after hearing arguments from both sides, ruled in favour of the complainant, Thakkar Exim. The reasoning of the Court was as under:

1. When two sets of insuring documents with differing conditions are produced, the one more favourable to the assured must be considered.
2. The surveyor had erred in not coming out with conclusive evidence on what peril caused the loss and, whether the peril was excluded under the policy.
3. The insurer, on their part cannot merely quote the conditions of ICC-B  –‘ entry of sea lake or river water into vessel craft hold conveyance container liftvan or place of storage’, without establishing that no ICC-B had operated and hence the loss due to mildew was not tenable as per manuscript policy conditions.
4. Advocate for the defendant insurer cited the judgement of the NCDRC in another case Parthbhai Ganatra vs Tata AIG General Insurance Co. Ltd., as a precedent. The Court pointed out that this was not the right citation. Though circumstances were similar, in the Parthbhai Ganatra case, silver nitrate test was carried out to see if sea water entry was there. No such action happened in the instant case.

In all probability, insurer had no intention of covering condensation risks ( as is the case with most insurers), and the mildew infestation too was probably due to condensation. However, the way the policy was worded, the way the surveyor performed and the way the defence was put up, gave the assured a clear opening in this case.

Questions to be asked are:

1. How can the wordings in the open policy created by the Policy issuance team and the wordings in the online certificate generated differ? In the name of simplifying processes and ‘Insta policies’,  these sort of differences crop up and, many more would come to haunt insurers before courts. The think-tanks in most insurance companies are retail insurance experts and , they equate every policy to a simple motor  TP policy. Do not understand how the Product, Legal and Operations teams of insurers go ahead with these abbreviated policy/certificate versions, without questioning/thinking through.
2. How can such vague wordings form part of a policy document? On the one hand it is said mould, mildew, fungus infestation losses will be excluded unless caused by ICC-B/ITC-B perils and in the same breath is added  ‘excluding wet damages, moisture and contamination losses’. Mould, mildew and fungus infestation are the outcomes of the presence of moisture/water, right? So, if wet damages and moisture losses are anyway excluded, why bring in the ICC-B/ITC-B part for mould and mildew? In the name of protecting themselves, the insurer have not only tied themselves into knots but also, I daresay misled the customer. If ‘wet damages’ are excluded, does that mean damages caused by rainwater or the cargo getting wet because the container falls into a river/sea are also excluded? Confusion between peril, nature of loss, proximate cause…… compounded.
3. Clients and intermediaries too, need to look at their policy documents and certificates of insurance closely to see there are no variances. Many insurers make a reference saying that complete wordings of all clauses are available in their website. These are not shared with the customers. To me, this is grossly incorrect. An insurance policy is a legal document and should be a self-contained unit , with all terms, conditions and clauses wordings being given there. Now, that almost all policies are issued in soft form, wonder what the problem is, in sharing complete wordings to the customer?