Strange is this case..

A recent pronouncement by the National Consumer Disputes Redressal Commission ( NCDRC) appears to have all aspects of strangemess, be it in the basic case itself, the arguments put forth from both sides and the judgement on appeal. The case referred to here is Dujodwala Products Ltd vs National Insurance Company Ltd.

Dujodwala Products Ltd bagged an order from a Saudi Arabian company to supply oleo-resins, a cargo which was ‘ temperature sensitive’ and had to be transported under controlled temperature of 5 degrees Celsius or less. Accordingly, in October 2006 Dujodwala had hired a refrigerated container (reefer) from Maersk India, brought it to their factory, stuffed it with 109 drums of the cargo after checking the temperature at the time of loading and then loaded it on a trailer en route to the port of JNPT. The container bearing No. MWCU6037091,was insured with National Insurance Company Ltd under a marine policy on All-Risks basis. Four days later, Maersk informed the appellant that the said container could not be shipped as the refrigeration system of the container was not working properly. Appellant brought back the container to their factory the following day. It was noticed that due to the temperature fluctuation, the cargo had deteriorated in quality. A claim was lodged on National Insurance Company who engaged a loss assessor and the loss was assessed at INR 1.22 million. The insurer however, declined the claim citing that the cargo was damaged due to change in temperature caused by improper packing which resulted in the change in temperature and this was not covered under the insurance policy issued. Aggrieved by this decision, Dujodwala Products moved the DCDRC (District Forum) who ordered the claim to be paid with interest. National Insurance went on appeal before the State Commission which overturned the decision of the District forum. Hence, the Revision Petition by Dujodwala Products before the NCRDRC.

The argument from the appellant’s side was that the Exclusion 2.3, no doubt included stowage in a container, but in the instant case the cargo was in sealed drums, temperature inside the container was checked at the time of loading and then the cargo was properly loaded. If subsequently the refrigeration machinery of the container fails and the cargo were to get damaged, the exclusion of ‘insufficiency of packing’ cannot be invoked. The respondent argued that the State Commission order was after due consideration of the facts and that the exclusion 2.3 would definitely apply in this case. However, the NCDRC agreed with the views of the appellant and passed orders quashing the State Commission’s judgement and restored the order passed by the District forum. In short, ii was judged that National Insurance Company had wrongly declined the claim and Dujodwala Products was fully entitled to recover the assessed claim amount from the insurer with interest.

My comments about ‘strangeness’ in this case in the opening paragraph arise due to certain aspects which I would like to highlight. The marine policy in question is not available to me as an exhibit. However based on the wordings used in the judgement , there are two possibilities — 1) The cargo was not insured at all. The insurance was of the container No. MWCU6037091 on All-Risks basis. Since the container was hired from Maersk, there would have been insistence to insure the container as long as it was in the possession of the exporter. Further it is apparent that the appellant had no intention of insuring the cargo for the overseas voyage. Possibly the terms of sale were such that the appellant exporter had no obligation to insure. The inland transit from the appellant’s factory to JNPT will be at best a distance of 50 kilometers.You may wonder why do I say this. The prelude to the judgement talks about the only question which was to be addressed and that was if Exclusion 2.3 for insufficiency of packing can be invoked by the insurer. Readers may note that Exclusion 2.3 forms part of Inland Transit Clauses, while the same exclusion under ICC is 4.3. Exclusion 2.3 of ITC reads as under:

2.         In no case shall this insurance cover …..

2.3       loss damage or expenses caused by insufficiency or unsuitability of packing or preparation of the subject matter insured (for the purpose of this clause 2.3 “packing” shall be deemed to include stowage in a container or liftvan but only when such stowage is carried out prior to attachment of this Insurance or by the Assured or their servants)”

The second possibility– 2) Yes, the cargo of 109 drums was indeed insured under the Inland Transit policy. In such a case, will the insurer be liable for failure of refrigeration following malfunctioning of the refrigerating equipment of the reefer container under an All-Risks policy? My humble opinion would be NO —The loss would still fall under Exclusion 2.3 i.e. insufficiency or unsuitability of packing. It has been stated that the packing in drums was sound and the appropriate temperature in the container at the time of loading was checked and then the stuffing was done. So, subsequently if the refrigerating equipment malfunctions/ breaks down, it cannot be considered as insufficiency of packing. The spirit of the Exclusion has not been fully appreciated. Packing is defined in the 2009 ICC ( from which ITC draws) as sufficient ” if it can withstand the ordinary incidents of the intended transit”. One may say that this policy was issued before the 2009 clauses came into being. Yes, but the 2009 clauses only provided greater clarity to what was intended. The essence is that insufficiency/unsuitability of packing need not manifest itself at the time of loading. In the instant case, if the refrigeration was not adequate throughout the intended transit, the cargo would get spoilt/damaged. The refrigeration having failed en route, it certainly is unsuitability of packing as the container itself is a considered a packing. Insured is not privy to the refrigeration failure. Yes, that is the very reason extension to ICC/ITC needs to be taken for the cargo by way of Failure of Refrigeration clause/ Frozen Food clause variants, wordings of which may vary. This also supports the fact that failure of refrigeration does not stand covered under an All-Risks policy, without specific extensions in coverage.

Be it possibility (1) or (2), the case has not been properly represented/defended from the insurer’s side. Except for a feeble submission before the State Commission — ” All risks in respect of transportation of Container was covered in the Insurance Policy but damage to the products due to failure of refrigeration system was certainly not included in the Insurance Policy.”, the point that cargo was not covered at all was not forcefully argued on the basis of what the ‘subject matter insured’ was. ( Assuming Possibility (1).). Even if it had been Possibility (2), arguments from the insurer’s side had not been sufficient to show that failure of refrigeration does not fall under All-Risks coverage.The arguments from the insurer’s side had revolved around the filing of the case being time-barred, Maersk being not made a party to the case and an that inappropriate stowage had caused the refrigeration equipment to fail and hence Exclusion 2.3 would apply. Very strange indeed! Further, the Technical experts assisting the NCDRC do not seem to have evaluated the case in totality.

The reason behind this post is that the opinion being spread by some is that insufficiency of packing exclusion cannot be invoked by an insurer to decline a claim. Nothing can be farther from the reality.

Look forward to your views.