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New India Assurance Company Limited V. Zuari Industries Limited and Others

The Supreme Court upheld the decision of the National Commission that the insurance company must pay compensation to Zuri Industries for losses suffered. A flashover from a short circuit in the factory's electrical switchboard was found to constitute a fire under the insurance policy. While there was no sustained fire, the flashover set in motion a series of events, including loss of power to the boiler, that directly led to thermal shock damage without an independent intervening cause. The flashover was ruled the proximate cause of the losses under the doctrine of "causa proxima".

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681 views

New India Assurance Company Limited V. Zuari Industries Limited and Others

The Supreme Court upheld the decision of the National Commission that the insurance company must pay compensation to Zuri Industries for losses suffered. A flashover from a short circuit in the factory's electrical switchboard was found to constitute a fire under the insurance policy. While there was no sustained fire, the flashover set in motion a series of events, including loss of power to the boiler, that directly led to thermal shock damage without an independent intervening cause. The flashover was ruled the proximate cause of the losses under the doctrine of "causa proxima".

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gaurav
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© © All Rights Reserved
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NEW INDIA ASSURANCE COMPANY LIMITED

V.
ZUARI INDUSTRIES LIMITED AND OTHERS

C I TAT I O N : ( 2 0 0 9 ) 9 S C C 7 0 ; 2 0 0 9 I N D L AW S C 1 0 6 4
FACTS OF THE CASE

• The respondent in this appeal had taken Insurance Policies


from the appellant on 01.04.1998 in respect of its factory
situated in Jauhri Nagar, Goa.

• One policy was a fire policy and the other was a


consequential loss due to fire policy.

• On 8.1.1999 at about 3.20 p.m. there was a short circuiting in


the main switch board installed in the sub-station receiving
electricity from the State Electricity Board, ultimately
resulting into stoppage of Electricity Supply to plant which
intern damaged the boiler.
CHAIN OR SEQUENCE OF EVENTS

• "Short-circuiting takes place in the INCOMER 2 of the main switchboard


receiving electricity from the State Electricity Board possibly due to the entry
of a vermin.

• Short-circuiting results in a flashover.

• Short-circuiting and flashover produced over-currents to the tune of 8000


amperes, which in turn produced enormous heat. The over currents and the
heat produced resulted in the expansion and ionization of the surrounding
air.
• The electricity supply from the State Electricity Board got tripped.

• The paint of the Panel Board charred by the enormous heat produced above
and the MS partition of the adjoining feeder connected to the generator
power developed a hole. It also resulted in formation of smoke/soot.
CHAIN OR SEQUENCE OF EVENTS

• The smoke/soot and the ionized air crossed over the MS partition and
entered into the compartment receiving electricity from the generator.

• Consequently the generator power supply also got tripped.

• The tripping of purchased power and generator power resulted in total


stoppage of electricity supply to the plant.

• The power failure resulted in stoppage of water/steam in the waste


heat boiler.

• The flue gases at high temperature continued to enter the boiler, which
resulted in thermal shock causing damage to the boiler tubes."
FACTS OF THE CASE

• Insurance Company vide letter dated 4.9.2000 rejected


the claim. Hence petition before National Consumer
Disputes Redressal Commission, New Delhi.

• The claimant-respondent made two claims


(i) Rs.1,35,17,709/- for material loss due to the damage to the boiler
and other equipment’s and
(ii) Rs.19,11,10,000/- in respect of loss of profit for the period the
plant remained closed.
ISSUE RAISED

1. Whether fire caused by the flashover will comes


under the Fire Insurance Policy?

2. Whether accident comes under the preview of the


Doctrine of “ Causa Proxima”?
DOCTRINE OF “CAUSA PROXIMA”

“Causa Proxima non remota spectatur” (the proximate


and not the remote cause must be looked into) is a maxim
of causation and applied in the insurance policy.
• According to this, causation of a loss was related to the
event nearest in time and directly leading to such loss.
• If a ship foundered during a storm, for example, the
cause of her loss as held to be the adverse weather,
regardless of the presence of any other causes that might
have contributed to her foundering.
• It enable a claims manager to decide whether a claim is
at all payable or not and if payable, then to what extent
STAND OF INSURANCE COMPANY

• It was submitted that the cause of the loss to the boiler and
the equipments was the thermal shock caused due to
stoppage of electricity and not due to any fire.

• It was also submitted that the proximate cause has to be seen


for settling an insurance claim, which in the present case, was
the thermal shock caused due to stoppage of electricity.

• However, the National Commission allowed the claim of the


respondent and hence this appeal before the SC.
STAND OF THE APPELLANT-
INSURANCE COMPANY BEFORE SC
• Company submitted that the claim of damages did not
fall under the cover of the Insurance Policy, a claim
relating to fire insurance policy to succeed it is necessary
that there must be a fire in the first place.

• In the absence of fire the claim cannot succeed. In the


present case
(1) there was no fire and
(2) in any case it was not the proximate cause of the
damage.
RESPONDENT

• Supported the judgment of the National Commission by stating that


"Flashover, can be defined as a phenomenon of a developing fire (or
radiant heat source) radiant energy at wall and ceiling surfaces
within a compartment. In the present case, the paint had burnt due
to the said flashover. Such high energy levels, would undoubtedly,
have resulted in a fire, causing melting of the panel board.“
• Surveyor P.C. Gandhi Associates has stated that "Fire of such a short
duration cannot be called a 'sustained fire' as contemplated under
the policy". The duration of the fire is not relevant. As long as there
is a fire which caused the damage the claim is maintainable, even if
the fire is for a fraction of a second. The term 'Fire' in clause (1) of the
Fire Policy 'C' is not qualified by the word 'sustained'.
RESPONDENT

• Cited In Leyland Shipping Company Limited vs. Norwich Union Fire


Insurance Society Limited [1917] 1 K.B. 873, the facts of the case were that a ship
was insured against perils of the sea during the first world war by a time policy
containing a warranty against all consequences of hostilities. The ship was
torpedoed by a German submarine twenty five miles from Havre. With the aid of
tugs she was brought to Havre on the same day. A gale sprang up, causing her to
bump against the quay and finally she sank. The House of Lords upheld the
claim for damages observing that the torpedoing was the proximate cause of the
loss even though not the last in the chain of event after which she sank.
• In Yorkshire Dale Steamship Company Ltd. vs. Minister of War Transport
(The Coxwold) [1942] AC 691, [1942] 2 All ER 6, during the Second World War a
ship in convoy was sailing carrying petrol for use of the armed forces. There was
an alteration of the course of the ship to avoid enemy action, and an unexpected
and unexplained tidal set carried away the ship and she was stranded at about
2.45 a.m. It was held that the loss was the direct consequence of the warlike
operation on which the vessel was engaged.
INTERPRETATION OF THE COURT

• Court interpreted the doctrine “Causa Proxima” in such a way


that in certain circumstances, it is not necessary that the result of
the cause must be directly related to the cause, when some effect
taken place just because of that cause and in result, some loss was
happen then it will considered as Causa Proxima.
• In the leading case of Pawsey V. Scottish Union and National
(1907) as follows; Proximate cause means the active, efficient
cause that sets in motion a train of events which brings about a
result, without the intervention of any force started and working
actively from a new and independent source.
• It is the immediate cause and not the remote cause. Here, that
flashover is the reason for the short circuit, it was consider under
fire insurance policy.
JUDGMENT OF THE CASE

• It is evident from the chain of events that the fire was the
efficient and active cause of the damage. Had the fire not
occurred, the damage was also would not have occurred
and there was no intervening agency which was an
independent source of the damage.
• The Supreme Court upheld the decision of the national
commission that insurance company is liable to pay the
compensation in respect of loss occur in the factory.

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