Insurance strategic tool for risk management, cause of fire immaterial for claims: SC

Observing that fire insurance is a ''strategic tool'' for risk management, asset protection and economic resilience, the Supreme Court on Thursday held that the cause of the blaze is immaterial unless triggered by the insured, and such incidents are covered under the insurance policies.

The significant observations were made in a verdict by which the top court upheld the claim of the company Orion Conmerx Pvt. Ltd against PSU National Insurance Co Ltd.

''This court is of the opinion 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 and falls within the ambit and scope of fire policy,'' a bench comprising Justices Dipankar Datta and Manmohan said.

It ruled that the fire that damaged the company's premises in September 2010 was accidental and covered under its fire insurance policies.

''This court is of the view that fire insurance is a strategic tool for risk management, asset protection and economic resilience. Fire insurance policy does not prevent fire – but it cushions the financial impact when it occurs. Keeping in view the importance of the concept of fire insurance, it is important to outline the principles governing the same,'' Justice Manmohan, who authored the judgment, said.

The verdict said it is settled law that the contract of fire insurance is a contract to indemnify the insured against loss by fire.

''The expression 'fire' signifies the cause of the loss and in order to determine whether in a particular case the loss is caused by fire, the following rules generally apply: a) There must be an actual fire; hence, mere heating or fermentation will not be sufficient to render the insurers liable for loss occasioned thereby…,'' it said.

It said the object of the insurance contract is to protect the insured against loss by fire and the inferno must be accidental.

''The dictionary meaning of the expression 'accidental' is a 'happening occurring unexpectedly or by chance'. Consequently, damage from a deliberately set fire will not be covered. To carry out the investigation, therefore, beyond the cause of the loss and to cast upon the insured the burden of establishing that the cause of the fire itself was covered by his contract, would largely defeat this object,'' it said.

The cause of fire, however, becomes material where the circumstances of the case are open to suspicion, and seem to indicate that it would be contrary to the principle of good faith inherent in the contract to permit the insured to recover, it said.

The cause of fire becomes material in cases where the fire is occasioned not by negligence but by the wilful act of the insured himself or of someone acting with his privity or consent, it added.

The court dismissed the insurer's appeal and allowed Orion Conmerx's cross-appeal, directing that the firm be compensated with interest.

The dispute stemmed from the insurer's repudiation of Orion's fire-loss claim after a blaze broke out at its premises on September 25, 2010.

In 2020, the National Consumer Disputes Redressal Commission (NCDRC) partly allowed Orion's complaint and directed the insurance company to pay Rs 61.39 lakh with nine per cent annual interest from the date of repudiation.

Both parties challenged that decision before the Supreme Court.

The insurance firm argued that the fire did not fall within the scope of the policy and that the damage did not support a claim under the policy terms. It sought to rely on the final surveyor's report, which questioned the cause of fire and suggested multiple ''seats'' of fire.

The apex court rejected the insurer's reasoning, terming the repudiation ''arbitrary'' and ''perverse''.

It noted that neither the final survey report nor the insurer alleged fraud, negligence or wilful misconduct by the insured.

''Once it is established that the loss is due to fire and there is no allegation of fraud… the cause of fire is immaterial and it will have to be assumed and presumed that the fire is accidental,'' it said.