6 days ago
Insurer cannot delay payment to avoid settlement
Leather Line Tanneries was engaged in the manufacture of buffalo leather. It had mortgaged its assets to Bank of India for availing credit facilities. It had also obtained five policies from Oriental Insurance to cover various losses to the extent of about Rs 48 crore.
During the tenure of the policies, a fire broke out in the factory due to an electrical short circuit, causing extensive damage and halting operations.
The incident was reported to the insurer who appointed a surveyor. The total loss was assessed at about Rs 1.5 crore on market value basis, and at Rs 3.59 crore on reinstatement value basis. During a joint meeting, it was mutually agreed that repairable machinery would be assessed based on repair bills, while machinery requiring replacement would be evaluated according to the replacement invoices.
An interim payment of Rs 1.57 crore was released, which was deposited in Bank of India.
Meanwhile, the bank declared the insured a defaulter, which triggered panic amongst the creditors, leading to premature supplier demands and financial distress. The insured filed a securitisation appeal before the Debt Recovery Tribunal which held that there was no wilful default and an opportunity must be given for rehabilitation.
The insured also filed a complaint before the National Commission. The insurer argued that only the market value was payable since the insured had failed to carry out the reinstatement within 12 months.
The National Commission disagreed it concluded that expecting the insured to spend Rs 3.59 crore on its own for reinstatement constituted a deficiency in service. Accordingly, by its order of May 23, 2025, it directed the insurer to pay the reinstatement value of Rs 3.59 crore along with 9% interest. Additionally, costs of Rs 1 lakh was also awarded.
