2025 (5) TMI 1450 - SC - Indian Laws

Insurer must pay flood damage claim after rejecting arbitrary second survey report favoring seepage theory

The SC determined that damage to insured premises resulted from flooding due to heavy rainfall, not seepage. The court relied on the first survey report ... Cause of damage to the insured premises - 'due to the seepage water' or 'flooding of water into the basement due to heavy rainfall' - corroboration between first survey report and certificate issued by Unique Consulting Engineers - delay in claim settlement - Interpretation of the terms 'flood' and 'seepage' within the context of the insurance policy - HELD THAT:- Upon a careful examination of the material on record, including the first survey report and certificates submitted by various technical experts, it is evident that the cause of damage to the insured premises was the flooding of water into the basement due to heavy rainfall in Delhi during the relevant period. The First Survey Report dated 06.09.2016 clearly attributes the damage to rainwater entering through the flooring following the downpour on 25.08.2016. Subsequently, the same cause is further corroborated by the certificates issued by M/s International Consultants & Technocrats Pvt. Ltd. and M/s Chordia Engineering Consultancy Services, both of which confirm that the flooding, and not seepage or structural failure, was the proximate cause of loss. Conversely, the certificate issued by Unique Consulting Engineers pertains solely to seepage affecting the structural elements of the building and is silent on the condition of the basement or the cause of damage in question. As such, this report does not assist in determining the cause of damage to the basement and therefore, as a result of such limitation, it cannot be relied upon for the present purpose. In the case at hand, from the evidence presented before us it can be concluded that the cause of damage to the premises is due to heavy rainfall accounting for flooding in the basement. In view of the concurrent findings in the certificates and first survey report aforementioned, we conclude that the damage to the insured premises was not caused by any inherent structural defect or seepage, but was instead a direct consequence of the unprecedented and heavy rainfall experienced during the relevant period, which led to flooding of water into the basement. Proceeding further, Despite conducting a survey before, the Respondent proceeded to commission a second survey without furnishing any reasonable, cogent, or valid grounds justifying the necessity for a reassessment. Subsequently, the second survey report dated 18.10.2016 deviated from the reasons of the first survey report and curiously recorded that the damage to the premises was caused by seepage, rather than by flooding due to heavy downpour. However, the second survey report failed to counter or address the detailed and comprehensive observations made in the first survey report dated 06.09.2016, nor did it offer any explanation or new material facts that would warrant a reversal of the initial conclusion. This abrupt departure from the earlier findings, without explanation or justification, raises serious concerns about the reliability and objectivity of the second survey. In the absence of any substantive grounds to question the findings of the first survey, we find that the belated reassessment conducted by the Respondent is deemed arbitrary and without due basis. In consequence thereof, we find no reason to accept the second survey report dated 18.10.2016 and the same is hereby set aside. Accordingly, we set aside the contrary findings impugned before us and remand the matter back to the NCDRC for the limited purpose of determining the appropriate quantum of compensation payable to the Appellant in accordance with the policy terms and applicable law. The civil appeal is accordingly disposed of. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court in this appeal under Section 23 of the Consumer Protection Act, 1986, arising from the dismissal of the consumer complaint by the National Consumer Disputes Redressal Commission (NCDRC), were:Whether the damage to the insured premises was caused by flooding due to heavy rainfall (a covered peril under the insurance policy) or by continuous seepage of water (an excluded peril under the policy)Rs.Whether the repudiation of the insurance claim by the Respondent on the ground of seepage was justified in light of the evidence and survey reportsRs.Whether the NCDRC erred in relying on the second survey report and structural engineer certificates that attributed damage to seepage, while disregarding the first survey report and other expert opinions indicating flooding due to heavy rainfallRs.Whether the Respondent's conduct in commissioning a second survey and delaying the claim settlement was arbitrary and mala fideRs.What is the appropriate approach to interpreting the terms 'flood' and 'seepage' within the context of the insurance policy and the facts of the caseRs.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Cause of Damage - Flooding due to Heavy Rainfall or Continuous SeepageRs.Relevant legal framework and precedents: The insurance policy covered loss or damage caused by named perils including flood and inundation but excluded damage caused by continuous seepage of water. The Court considered precedents interpreting 'flood' as an outpouring of water, which may include inundation and seepage in some contexts, but emphasized that each case must be decided on its facts and policy terms.Court's interpretation and reasoning: The Court examined the first survey report dated 06.09.2016, which clearly attributed the cause of loss to heavy rains on 25.08.2016 leading to water entering from the flooring and flooding the basement. This report noted water ingress was from the flooring and not from openings, confirming flooding as the cause. The Court also reviewed certificates from independent engineering consultants. The certificate from International Consultants & Technocrats Pvt. Ltd. dated 07.09.2016 corroborated flooding due to heavy rainfall as the cause of damage to the basement. Similarly, the certificate from Chordia Engineering Consultancy Services dated 22.09.2016 confirmed flooding of the basement due to heavy downpour in late August. Conversely, the certificate from Unique Consulting Engineers dated 07.09.2016 addressed seepage affecting structural elements but did not mention the basement or flooding, and thus was deemed irrelevant to the cause of damage to the basement.Key evidence and findings: The first survey report and two independent expert certificates supported flooding as the proximate cause. The Unique Consulting Engineers' report related only to structural corrosion due to seepage but did not link to basement flooding. The Meteorological Department report did not indicate heavy rainfall on 25.08.2016 but did confirm rainfall during the period 25.08.2016 to 31.08.2016. The Court noted that the Appellant's basement was dry on 24.08.2016 and found flooded upon return on 29.08.2016, with water marks up to window height, supporting sudden flooding rather than slow seepage.Application of law to facts: The Court concluded that the damage was caused by flooding, a covered peril under the policy, and not by seepage, which was excluded. The first survey report and corroborative expert opinions were given primacy over the second survey report and the structural engineer's certificate.Treatment of competing arguments: The Respondent relied on the second survey report dated 18.10.2016 and structural engineer certificates indicating continuous seepage as the cause, arguing seepage is a gradual process and the policy excludes seepage. The Court rejected reliance on the second survey report as arbitrary and unexplained, noting the first survey was comprehensive and timely. The Court also found the structural engineer's certificate irrelevant to basement flooding and damage. The Respondent's argument that the claim was an afterthought was not accepted given the evidence of flooding.Conclusion: The Court held that the damage was caused by flooding due to heavy rainfall, which is a covered peril under the insurance policy, and not by seepage. Therefore, the repudiation of the claim on the ground of seepage was unjustified.Issue 2: Validity and Reliability of Survey Reports and Expert OpinionsRelevant legal framework and precedents: Insurance claims require prompt and reliable assessment of loss. Survey reports are critical evidence. The Court emphasized that a second survey report that contradicts an earlier comprehensive report without explaining the basis for deviation is suspect.Court's interpretation and reasoning: The first survey report was conducted promptly on 03.09.2016, shortly after the incident. It comprehensively assessed the damage and cause. The second survey report, commissioned about 10 days later, contradicted the first by attributing damage to seepage without addressing or refuting the first report's findings. The Court found no cogent or valid reasons for the second survey, deeming it arbitrary and unreliable.Key evidence and findings: The first survey report and expert certificates consistently supported flooding as the cause. The second survey report was inconsistent and unexplained. The Court also noted the delay in the second survey and report submission (over a month after the incident), which undermined its credibility.Application of law to facts: The Court set aside the second survey report and held that the first survey report should be accepted as the basis for determining cause of loss.Treatment of competing arguments: The Respondent argued the second survey was necessary due to dissatisfaction with the first report. The Court found no evidence supporting this claim and highlighted the lack of explanation for the contradictory findings.Conclusion: The Court rejected the second survey report and relied on the first survey report and expert certificates as the authoritative evidence on cause of damage.Issue 3: Interpretation of the Terms 'Flood' and 'Seepage' in the Insurance PolicyRelevant legal framework and precedents: The Court considered prior judicial interpretations of 'flood' as an outpouring of water that may include inundation and seepage in some contexts, but emphasized that the specific policy language and facts govern interpretation. Seepage was recognized as a gradual, continuous ingress of water, generally excluded from coverage.Court's interpretation and reasoning: The Court accepted that seepage refers to slow, continuous infiltration of water causing structural damage over time, whereas flooding involves sudden and substantial accumulation of water. Given the basement was dry before the rainfall and found inundated with over three feet of water after a heavy downpour, the Court concluded the damage was caused by flooding, not seepage.Key evidence and findings: The first survey report and expert opinions supported flooding. The structural engineer's report described seepage affecting reinforcement but did not link to basement flooding. The Court differentiated between seepage affecting structural elements and flooding causing sudden inundation of the basement.Application of law to facts: The Court applied the terms in light of the facts, concluding that the damage fell within the covered peril of flood and inundation, not excluded seepage.Treatment of competing arguments: The Respondent argued seepage was the cause based on structural reports and that seepage is excluded. The Court rejected this, emphasizing the factual evidence of flooding and the absence of any causal link between seepage and basement flooding damage.Conclusion: The Court held that the terms must be interpreted in the factual context, and here the damage was caused by flooding, a covered peril, not seepage.Issue 4: Conduct of the Respondent and Fairness of Claim RejectionRelevant legal framework: Insurers have a duty to act fairly and in good faith in claim assessment and settlement. Arbitrary denial or delay without reasonable grounds may amount to unfair trade practice.Court's interpretation and reasoning: The Court noted the Respondent's failure to provide the preliminary survey report to the Appellant and the unexplained delay in conducting the second survey and submitting the final report. The second survey report contradicted the first without explanation. The Respondent did not attempt to trace the source of water in the basement. The Court found these actions indicative of mala fide intentions and unfair practice.Key evidence and findings: Delay in survey and report, refusal to share preliminary report, contradictory second survey report without justification, and failure to investigate source of water.Application of law to facts: The Court held that the Respondent's conduct was arbitrary and unfair, justifying setting aside the repudiation and remanding for compensation determination.Treatment of competing arguments: The Respondent justified repudiation based on policy terms and expert reports. The Court found these insufficient and emphasized fair dealing obligations.Conclusion: The Respondent's repudiation was unjustified and arbitrary, warranting intervention.3. SIGNIFICANT HOLDINGS'The first survey report dated 06.09.2016 clearly attributes the damage to rainwater entering through the flooring following the downpour on 25.08.2016.''The certificate issued by Unique Consulting Engineers pertains solely to seepage affecting the structural elements of the building and is silent on the condition of the basement or the cause of damage in question. As such, this report does not assist in determining the cause of damage to the basement and therefore, as a result of such limitation, it cannot be relied upon for the present purpose.''The second survey report failed to counter or address the detailed and comprehensive observations made in the first survey report dated 06.09.2016, nor did it offer any explanation or new material facts that would warrant a reversal of the initial conclusion. This abrupt departure from the earlier findings, without explanation or justification, raises serious concerns about the reliability and objectivity of the second survey.''We find no reason to accept the second survey report dated 18.10.2016 and the same is hereby set aside.''The damage to the insured premises was not caused by any inherent structural defect or seepage, but was instead a direct consequence of the unprecedented and heavy rainfall experienced during the relevant period, which led to flooding of water into the basement.''The repudiation of the claim on the ground of seepage water was unjustified.''The matter is remanded to the NCDRC for the limited purpose of determining the appropriate quantum of compensation payable to the Appellant in accordance with the policy terms and applicable law.'