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New India Assurance Company Ltd. v. M/s. Zuari industries Ltd. (2009) 9 SCC 70

New India Assurance Company Ltd. v. M/s. Zuari industries Ltd. (2009) 9 SCC 70

FACT-

  • The respondent(claimant) had insurance policies for its factory in Goa covering fire damage and consequential loss.
  • A short circuit occurred in 1999, leading to a flashover and damage to the boiler and equipment.
  • The Insurance Company(appellant) rejected the claim, arguing the damage resulted from electricity stoppage, not fire.
  • National Consumer Disputes Redressal Commission decided the matter in favour of respondent(claimant)
  • Hence present appeal before SC against the judgment of NCDRC.

ISSUE-

  • Does the damage from the short circuit, including electricity stoppage, fall under the fire insurance policy?

RULE-

  • The proximate cause is the primary, efficient factor initiating a chain of events, determining insurance liability.

HELD-

  • Court observed that the policy doesn't specify 'sustained fire,' so even brief fires are covered.
  • Exclusion clauses shield the insurer from specific electrical damage but not fire-induced losses.
  • The sequence of events, starting from the short circuit to the fire and subsequent damage, implicates fire as the proximate cause.
  • In Lynn Gas and Electric Company v. Meriden Fire Insurance Company [158 Mass. 570; 33 N.E. 690; 1893 Mass. LEXIS 345], a fire occurred in the wire tower of a building, causing minimal damage. However, a disruption in the engine's flywheel in a remote part of the building led to extensive damage. The court held that the fire was the proximate cause of the damage, even though it was not the final event in the chain.
  • In Krenie C. Frontis et al. v. Milwaukee Insurance Company [156 Conn. 492; 242 A.2d 749; 1968 Conn. LEXIS 629], a fire in a neighbouring factory caused minimal damage to the plaintiffs' building. However, due to safety concerns, the building inspector ordered parts of both the plaintiffs' and the neighbouring buildings to be demolished, resulting in further damage. The court ruled that the fire was the proximate cause of the damage.
  • In Farmers Union Mutual Insurance Company v. Blankenship [231 Ark.127; 328 S.W..2d 360; 1959 Ark. LEXIS 474; 76 A.L.R..2d 1133], a fire in the claimant's place of business did not directly damage the claimant's goods. However, the use of a fire extinguisher resulted in a gaseous vapor that damaged the goods. The court upheld the claim, considering the fire as the proximate cause of the damage.
  • Legal precedents support fire as the proximate cause even if not the final event in the causal chain.
  • The appeal is dismissed, upholding the National Commission's decision that the fire-induced damage is covered under the insurance policy.

 

COMMENTARIES RATIO/NOTE-

 

 

  • 26.19 THE MEANING OF “FIRE” IN POLICY AND FIRE LOSS

 

      (v) Meaning of the word “Accident”

The Andhra Pradesh High Court had the opportunity to decide meaning of the word “accident” in the context of fire insurance, covering value of godowns and wood stocked therein against fire by accident. Court held that ‘the plain dictionary meaning of the word “accident” means; the occurrence of things by chance and an event that is without apparent cause or is unexpected. It is the cardinal principle of interpretation of statutes that the plain meaning of the words should be taken into consideration. Thus taken, there should not be any mediation of any human agency to bring it into the ambit of the word “accident”. Thus, where the rioting mob set fire to the godowns and the wood therein, the action cannot be termed as accident, and the insurer shall not be liable [State of Andhra Pradesh v United India Insurance Co Ltd,1998 (2) ALT 51 (DB)].