Basic fire policy doesn’t cover self-ignition

Sanjay Foods, which had its office in Jalgaon, manufactured oil and oil cakes using cotton seeds purchased from ginning and pressing units. It obtained a Standard Fire and Special Perils Policy from United India Insurance, valid from March 6, 2011, to March 5, 2012. The policy covered the building for ~95 lakh; plant, machinery, and accessories for ~40 lakh; and stock for ~2 crore.

During the policy’s tenure, on June 4, 2011, a sudden fire broke out in the factory. It was controlled with the help of the fire brigade. A first information report (FIR) was immediately lodged with the Maharashtra Industrial Development Corporation (MIDC) Police Station, and the insurer was also informed. A claim was lodged stating that the total loss was ~37,28,168, out of which the value of the salvage was ~7,71,345, resulting in a net loss of ~29,56,823.

Since the claim was not settled, a notice was issued. The insurer then sent a letter on April 10, 2012, stating that the claim had been rejected based on the survey report that the loss was not covered under the policy. Even though the insured asked for a copy of the report, it was not furnished.

The insured filed a complaint before the Aurangabad Bench of the Maharashtra State Consumer Commission. The insurer contested the case, contending that the claim was not payable as the fire had occurred due to “spontaneous combustion”, which was not covered by the policy. The insured argued that the reason for the fire was incorrect. The fire report and the police investigation had recorded the cause of the fire to be a short circuit.

The State Commission went by the survey report and dismissed the complaint. Sanjay Foods appealed against the order, contending that the report of the surveyor was incorrect and contradictory to the report of the fire department and the police investigation. The insured also pointed out that the surveyor had stated that there was no smoke or fumes, which was incorrect as eyewitnesses had filed affidavits stating they had seen smoke and flames.

The National Commission noted that the evidence showed the outer and upper layer of the stock of cotton seeds was not affected, while the inner layer had turned dark brown. The Commission observed that this occurs due to the self-heating property of cotton seed due to humidity, which is known to reach a high temperature leading to ignition and fire, a phenomenon termed as spontaneous combustion. The Commission further observed that even the electric wiring above the stock was not affected, and the colour of the walls and ceiling was also intact, which established that there was no short circuit. Hence, the Commission concluded that the surveyor had rightly concluded the loss to be due to spontaneous combustion and not due to a short circuit. The next issue was whether spontaneous combustion was covered under the policy. The Commission examined the terms of the Fire and Standard Perils Policy and found that unless special additional coverage for spontaneous combustion is obtained, it would not be covered under the policy. Since no such additional coverage had been obtained by the insured, the Commission concluded that the claim had been rightly repudiated.

Accordingly, by its order of April 8, 2024, delivered by Subhash Chandra, the National Commission indicted the insured for making false and inconsistent statements and dismissed the appeal, holding that the claim had been rightly repudiated.

The National Commission, on reviewing the Fire and Standard Perils Policy, found that spontaneous combustion is excluded unless additional coverage for it is specially purchased