Coverage of Flood and Inundation insurance includes damage caused by heavy rains and not just overflowing of river: SC

THE ORIENTAL INSURANCE CO. LTD. V. M/S J.K. CEMENT WORKS  [2020] IN SC 91 – SUPREME COURT OF INDIA; DATED: 28 JANUARY 2020

HELD THAT: Coverage of ‘Flood & Inundation’ insurance includes damage caused by heavy rains and not just overflowing of river.

BRIEF FACTS:

• The claimant, claiming against the judgment passed by the National Consumer Disputes Redressal Commission is a cement manufacturer, having a factory in Nimbahera, District Chittorgarh, Rajasthan.
• These factory premises included an open coal yard, where a stock of coal that was used in the manufacturing process was stored.
• The Respondent purchased a Standard Fire and Special Perils insurance policy from the Appellant herein for the stock of coal for the period between 20.11.2002 and 19.11.2003. Among other things, the policy covered damage caused by “Storm, Cyclone, Typhoon, Tempest, Hurricane, Tornado, Flood and Inundation”.
• Due to heavy rains in Nimbahera on 29.08.2003 and 30.08.2003, some of the coal was washed off, and the stock of coal suffered damage.
• Consequently, on 01.09.2003, the Respondent informed the Appellant of the damage and requested the appointment of a surveyor. upon receiving such report, the Appellant sought a clarification from the surveyor, as to whether the loss could be said to have been caused by “Flood and Inundation” in terms of the wording of the insurance policy.
• The Appellant also hired a Chartered Accountant to verify the declarations submitted by the Respondent vis-a-vis its accounts books and daily stocks. the surveyor reaffirmed its stand that the losses in question were payable to the Respondent as per the terms and conditions of the policy.
• On the other hand, the Chartered Accountant hired by the Appellant reported on 02.09.2004 that he was unable to verify the declarations because the Respondent had not provided the necessary documents to him.
• Aggrieved by this repudiation, the Respondent filed a consumer complaint before the NCDRC seeking compensation to the tune of Rs. 1.32 crores.
• Vide the impugned order, the NCDRC allowed the complaint to the extent of the loss assessed by the surveyor, i.e. Rs. 59,89,400/- , and directed the Appellant to pay the said amount along with interest at the rate of 9% per annum.

 THE OBSERVATIONS AND DECISION OF THE APEX COURT;

• The terms ‘flood’ and ‘inundation’ refer to two significantly different phenomena that cannot be equated with each other.
  • The learned advocate of insurance companies contended that the term ‘flood’ refers to the overflowing of water bodies such as rivers, ponds, lakes, etc. Accordingly, he submitted that since it was not the case of the Respondent that there was a water body near the factory which had overflown into the coal yard, the loss cannot be said to have been caused by a ‘flood’.
  • With respect to the term ‘inundation’, he argued that the same refers to ‘accumulation of water’ and could thus not be applied to the instant case as the coal had merely been washed off due to heavy rains.
• Even if the Appellant’s definition of ‘inundation’ as ‘accumulation of water’ were to be accepted, the surveyor’s report had clearly observed that there was an accumulation of water in the coal yard, thereby making the policy applicable.
• Further, it was brought to our attention that the surveyor had relied on the rainfall data of Nimbahera for 29.08.2003 and 30.08.2003, as received from the Meteorological Department of the Government of India, to conclude that there were adequate rains in the area to cause floods/inundation. It was also submitted that the Appellant could not have appointed a second surveyor unilaterally.
• The Appellant had only appointed a Chartered Accountant for the purposes of verifying the accounts books of the Respondent regarding its daily stock of coal.
• In our considered opinion, the appointment of a Chartered Accountant for this limited purpose is not tantamount to the appointment of a surveyor. Thus, we do not consider it necessary to deal with the prerequisites for the appointment of a second surveyor in the instant case.

LET’S CONSIDER THE DEFINITION OF “INDUNDATION AND FLOOD:-

Inundation (from the Latin inundation, flood) is both the act of intentionally flooding land that would otherwise remain dry, for military, agricultural, or river-management purposes and the result of such an act. It means the rising of water and its overflowing onto drying land.

The “inundation” refers to both the act of inundating; an overflow; a flood; a rising and spreading of water over grounds; and to the state of being inundated; flooding.

It should therefore be distinguished from other types of flooding, not caused by man. It should also be recognized that this type of flooding would not take place without the intentional human act. So e.g. tidal flooding of areas that fall dry at ebb tide, and periodical river floods are not inundations in the sense intended here.

As mean sea level rise (MSLR) accelerates, it will become increasingly necessary and useful to distinguish coastal “flooding” from “inundation.”

The growing number of coastal MSLR vulnerability assessments makes it clear that confused usage is abundant. The term “flooding” be used when dry areas become wet temporarily—either periodically or episodically—and that “inundation” be used to denote the process of a dry area being permanently drowned or submerged.

According to these proposed definitions, flooding is always higher than inundation, but they are fundamentally different. Flooding, including tidal flooding, is and has been dominant along open coasts. However, inundation is likely to become ever more important in the coming decades and centuries and may itself eventually become a dominant physical coastal process.

Inundation: To cover with water, especially floodwaters or not necessarily floodwaters, could be due to local rainfall or could even be due to a local artesian well or when intense rain falls over a short period of time, or when an ice or debris jam causes a river or stream to overflow onto the surrounding area. Inundation is the act of inundating or the state of being inundated; an overflow; a flood; a rising and spreading of water over grounds.

Flooding: An overflowing of water onto land that is normally dry or the overflow may or may not remain in place. Flooding typically occurs when prolonged rain falls over several days. Flooding can also result from the failure of a water control structure, such as a levee or dam, flood is a (usually disastrous) overflow of water from a lake or other body of water due to excessive rainfall or other input of water

THE APEX COURT CONSIDERED BELOW MENTIONED DEFINITIONS OF – Coastal Floods, Fluvial, Pluvial, and Inundation as follows;

• Coastal floods occur when water from a sea or an ocean flows into nearby areas. They are caused either by extreme tidal activity (high tides) or by a storm surge – strong winds from a hurricane or other storms forcing the water onshore – or by the simultaneous occurrence of both these phenomena.
• Fluvial or river flood occurs when the water level exceeds the capacity of a river, stream, or lake, resulting in the overflow of the surplus water to surrounding banks and neighboring land. They are usually caused by either excessive rainfall or unusually high melting of snow because of rising temperatures.
• Lastly, pluvial or surface floods refer to the accumulation of water in an area because of excessive rainfall. These floods occur independently of an overflowing water body.
• Pluvial floods include flash floods that take place due to intense, torrential rains over a short period of time. A pluvial flood may also occur if the area is surrounded by hilly regions from where the run-off water comes and accumulates in the low-lying area. In urban localities, because of concrete streets and dense construction, rainwater is unable to seep into the ground. Steady rainfall over a few days or torrential rains for a short period of time may overwhelm the capacity of the drainage systems in place, leading to an accumulation of water on the streets and nearby structures, and resulting in immense economic damage.
• So far as the term ‘inundation’ is concerned, it can be used to refer to both the act of overflow of water over land that is normally dry and to the state of being inundated. Inundation can also be intentional, which is sometimes carried out for military purposes, as well as for agricultural and river-management purposes. In the latter sense, i.e. as a state of being, inundation refers to the accumulation of water in which objects or land may be submerged. In simpler terms, inundation can be used to refer to both the act of overflow of water as well as the result of such overflow. It flows from the above discussion that an overflow of water due to a flood may result in a state of inundation.
• As discussed above, floods are of different types and may be caused due to several factors complementing each other. Usually, non-coastal floods originate from rainfall, but the magnitude of rainfall sufficient to cause a flood, and the damage that a flood causes, may vary depending on a variety of aspects such as the location of land (low-lying or altitudinous), the water retention capacity of the soil, and the density of population and manmade construction in the area, among other things. In rare cases, a non-coastal flood may also occur without any rainfall. For instance, shortcomings in the construction of a dam may lead to its complete breakdown, resulting in a flood.
• Similarly, given our prior discussion on pluvial floods, which occur independently of a water body, it is clear that floods are not restricted to the overflow of water bodies. Thus, the second argument raised by the Appellant also lacks merit. Even if we look into the intent of the parties entering into the contract, as it has not come on record that there was any water body near the coal yard or the factory premises. In such a scenario, where there was no risk of water from a water body overflowing onto the dry land where the coal yard was located, it could not have been the intention of the parties entering into the contract to give a restrictive meaning to the term ‘flood’. Such a narrow interpretation would lead to the conclusion that the insertion of the term ‘flood’ was superfluous, which could not have been the case.

DECISION OF HON’BLE APEX COURT

• In the instant case, the Appellant has not disputed that there were heavy rains on 29.08.2003 and 30.08.2003 in the Nimbahera region.
• In fact, the surveyor appointed by the Appellant had also observed in its report that heavy rainfall had occurred in the area, causing flood-like conditions that resulted in some of the coal kept in the insured premises being washed off.
• Moreover, the surveyor’s report also stated that there was an accumulation of water due to the heavy rains, that had caused the coal to get washed off.
• The NCDRC in the following cases:
  • Bajaj Allianz General Insurance Co. Ltd. v. M/s. Gondamal Hardyal Mal, [2009] NCDRC 127,
  • Oriental Insurance Co. Ltd. v. M/s Sathyanarayana Setty & Sons, [2012] NCDRC 124, and
  • Oriental Insurance Co. Ltd. v. M/s R.P. Bricks, [2013] NCDRC 494, had held that damage caused by heavy rainfall would not fall beyond the ‘flood and inundation’ clause of the Standard Fire and Special Perils insurance policies. It is brought to our notice by the learned counsel appearing for the Respondent that the aforesaid view has been consistently taken by the NCDRC.
• The aforementioned view of the NCDRC supports the impugned judgment and the same cannot be said to be erroneous.
• In view of the above, the appeal stands dismissed. The Appellant is directed to pay the sum awarded by the NCDRC within a period of eight weeks from the date of this order, to the Respondent.

DISCLAIMER: the case law presented here is only for sharing information and knowledge with the readers. The views are personal and shall not be considered as professional advice. In case of necessity do consult with insurance professionals for more understanding and clarity on subject matters.