Insurance Company liable to pay reinstatement value of insured property if it is unable to repair it: Supreme Court

The Supreme Court on Friday observed that the insurance company would be liable to pay the reinstatement value of the insured property if it is unable to reinstate or replace the damage or destroyed property [M/s Oswal Plastic Industries v. Manager, Legal Deptt N.A.I.C.O. Ltd.]..A division bench of Justices MR Shah and CT Ravikumar was hearing an appeal challenging a decision of the National Consumer Disputes Redressal Commission (NCDRC) which had held that the insurance company shall be liable to pay only ₹ 12.6 lakh (deprecated value) instead of ₹29.17 lakh (reinstatement value)..As per the facts of the case, the appellant had obtained a fire policy with effect from July 2, 2009. On October 17, 2009, a fire broke out in the factory premises of the appellant resulting in loss of material, stock, and machinery of the value ₹76.64 lakh.The surveyor appointed by the insurance company observed the loss on reinstatement value basis at ₹29.17 lakh and on depreciated value at ₹12.6 lakh. The insurance company despite the reports of the surveyor repudiated the claim.Aggrieved, the appellant moved the SCDRC seeking claim of R₹76.64 lakh with interest. However, the SCDRC relying upon the surveyor report and the loss assessed by him on the basis of reinstatement value awarded the sum of ₹29.17 lakh with 9 per cent interest.The insurance company filed an appeal before the NCDRC against the same which had allowed the appeal and modified the order passed by the State Commission. It awarded ₹12.6 lakh along with interest at 7 per cent instead of ₹29.17 lakh on the ground that the appellant shall be entitled to the depreciated value and not the reinstatement value.The appellant then moved the Supreme Court against the NCDRC order. .The Supreme Court noted that as per the true interpretation of insurance policy, two options are given to the insurance company:- First, it can reinstate or replace property damaged or destroyed instead of paying the amount of loss or damage; or- Second, it can pay such sum as would be requisite to reinstate or repair such property.After analyzing the same, the Court was of the view that the present case fell under the second category and, therefore, held that the insurance company shall be liable to pay the reinstatement value of the property insured to repair such property.While restoring the order of the SCDRC, the Court observe that:"Therefore, as per second part of Clause 9 of Section 2 of the policy, the complainant shall be entitled to the reinstatement value and not the depreciated value. The NCDRC has misinterpreted and misread the Clause 9. The NCDRC has seriously erred in observing and holding that the insurance company shall be liable to pay the depreciated value only and not the reinstatement value. The State Commission was absolutely justified in awarding the reinstatement value," the Court ordered..[Read Judgment]