The Facade of Insurance companies in respect to claims under Tripartite Agreement

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The bench comprising of Justice S. Abdul Nazeer and Deepak Gupta of the Hon’ble Supreme Court in Canara Bank vs. United India Insurance Co. Ltd and others , categorically ruled that Section “2(d)” of the Consumer Protection Act, 1986 in its widest amplitude includes not only the person who hires or avails the services but also a person who may be a beneficiary of such services.
Around 91 claim petitions were filed by farmers who were engaged in growing Byadgi chili crops during the year 2012-2013. The claimants obtained a loan from Canara Bank against agricultural produce. On the intervening nights of January 13, 2014 and January 14, 2014, a huge fire broke out in the cold storage, and the entire stock of agricultural produce was reduced to ashes. After the incident, the cold storage, filed for an insurance claim, however, the claim was rejected on the ground that the fire was not accidental but a result of a conspiracy. Subsequently, the farmers issued a notice to the insurance company with respect to the plant, machinery, etc but it was dismissed again on the grounds that farmers lacked locus standi to make such a claim as the insurance policy applied only to the cold storage and not the farmers.
Consequently, claim petitions were filed before the Karnataka State Consumer Disputes Redressal Commission, Bangalore (KSCDRC), wherein it was observed that the fire fiasco was the result of a short circuit and not by any human intervention. It was further held that the tripartite agreement which was entered between the farmers, bank and cold storage, the cold storage needed to ensure the goods that were hypothecated by the farmers to the bank. Thus, the insurance company and the cold storage were held jointly and severally liable. They were further directed to pay the value of the agricultural produce hypothecated with the bank/claimants according to the tripartite agreement along with 14% interest per annum payable from six months from the date of the incident till the date of realization.
Aggrieved by this Order, an appeal was filed before the National Consumer Disputes Redressal Commission (NCDRC), the findings of KSCDRC were concurred and observed that the farmers were the consumers. The NCDRC further opined that there was no evidence to prove that the fire happened due to human intervention and therefore, partly allowed the appeal to reduce the interest from 14% p.a. to 12%p.a. The NCDRC also stated that as a matter of fact, the farmers had suffered losses, therefore, the principal amount of loan was to be remitted by the insurance company to the bank but any interest, etc was to be given to the farmers.
The decision of NCDRC was again challenged by the insurance company, farmers, cold storage and the Bank before the Hon’ble Supreme Court where Clause 5 of General Exclusion Clauses along with General Conditions’ no.178 of the Insurance Policy were referred.
The Hon’ble Supreme Court disposing of the appeals held the insurance company liable to compensate the farmers according to the value of their goods and based on the price mentioned on the warehouse receipts, along with interests which are calculated @12% p.a. from the date of the fire and directed the bank to file a certified statement of accounts before the State Commission showing the loan amount which was advanced to the farmers.
The quintessence of this judgment is that the tripartite agreement between the farmers, bank and the cold storage, provided for the insurance company to compensate the farmers for the damages and destruction of their goods and the Court’s interpretation of Section “2(d)” of the Consumer Protection Act in its widest amplitude to include not only the person who hires or avails the services but to a person who may be a beneficiary of such services. The concept of privity of contract was also construed as to include not just the parties to the contract but also its beneficiaries. Thus, the farmers were also covered under the insurance policy and were entitled to compensation.

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