Subsequent surveyors not ordinarily feasible: SC

In a recent decision on the practice of appointment of surveryors for quantification of loss by insurance companies, the Supreme Court has declared that it is not open to the insurance company to keep on appointing surveyors till it obtains a report on computation which is favorable to it unless the earlier reports are patently erroneous etc. The Court was dealing with a case where the insurance company has appointed three surveyors, one after the other until it got a report wherein its liability was least determined.

The insured had staked a claim of Rs. 1.90 crores. The first surveyor estimated the loss at Rs.1,73,92,310/-. On the receipt of this report, a joint surveyor was appointed which estimated the loss at Rs.1,67,80,925/-. The insurer being of the view that the report is perfunctory appointed yet another Surveyor which estimated the loss at Rs.1,05,00,817/-. This final report estimating the loss at Rs.1,05,00,817/- was accepted by the National Consumer Forum and it was against this decision that the insured came up in the Supreme Court wherein the main issue framed for its consideration was "whether the insurance company can repeatedly appoint Surveyors after Surveyors for getting the loss/damage assessed before settling the claim of the insured?"

The Court referred to Section 64-UM(2) of the Insurance Act, 1938 which provided for licensing of Surveyors and loss assessors. The Court noted that Subsection (2) of the provision "mandates that no claim in respect of a loss which has occurred in India and requiring to be paid in India equal to or exceeding twenty thousand rupees in value on any policy of insurance be admitted for payment, unless insurer obtains a report on the loss that has occurred from a person who holds a license issued under sub-section (1) of Section 64 UM of the Act as a Surveyor or loss assessor. The proviso to subsection(2) however, retains the right of the insurer to settle a claim for an amount different from that assessed by the surveyor. This proviso impliedly permits an insurer to obtain a second or further report where considered appropriate or expedient in the circumstances of a case, based upon which the claim could be settled for a different amount than as assessed earlier."

Stating the principles for determination of loss estimation, the Supreme Court stated as under;

The assessment of loss, claim settlement and relevance of survey report depends on various factors. Whenever a loss is reported by the insured, a loss adjuster, popularly known as loss surveyor, is deputed who assess the loss and issues report known as surveyor report which forms the basis for consideration or otherwise of the claim. Surveyors are appointed under the statutory provisions and they are the link between the insurer and the insured when the question of settlement of loss or damage arises. The report of the surveyor could become the basis for settlement of a claim by the insurer in respect of the loss suffered by the insured. There is no disputing the fact that the Surveyor/Surveyors are appointed by the insurance company under the provisions of Insurance Act and their reports are to be given due importance and one should have sufficient grounds not to agree with the assessment made by them. We also add, that, under this Section the insurance company cannot go on appointing Surveyors one after another so as to get a tailor made report to the satisfaction of the concerned officer of the insurance company, if for any reason, the report of the Surveyors is not acceptable, the insurer has to give valid reason for not accepting the report. Scheme of Section 64-UM particularly, of sub-sections (2), (3) and (4) would show that the insurer cannot appoint a second surveyor just as a matter of course. If for any valid reason the report of the Surveyor is not acceptable to the insurer may be for the reason if there are inherent defects, if it is found to be arbitrary, excessive, exaggerated etc., it must specify cogent reasons, without which it is not free to appoint second Surveyor or Surveyors till it gets a report which would satisfy its interest. Alternatively, it can be stated that there must be sufficient ground to disagree with the findings of Surveyor/Surveyors. There is no prohibition in the Insurance Act for appointment of second Surveyor by the Insurance Company, but while doing so, the insurance company has to give satisfactory reasons for not accepting the report of the first Surveyor and the need to appoint second Surveyor.

In our considered view, the Insurance Act only mandates that while settling a claim, assistance of surveyor should be taken but it does not go further and say that the insurer would be bound whatever the surveyor has assessed or quantified, if for any reason, the insurer is of the view that certain material facts ought to have been taken into consideration while framing a report by the surveyor and if it is not done, it can certainly depute another surveyor for the purpose of conducting a fresh survey to estimate the loss suffered by the insured. In the present case, the insurer has stated in the counter affidavit filed before the National Commission and even before us, why the appointment of second Surveyor was necessitated and also has given valid reasons for appointing second Surveyor and also has assigned valid reason for not accepting the report of Joint Surveyor. The correspondence between the insurer and the Surveyors would indicate the particulars differed by the insurer for differing with the assessment of loss made by the Surveyors. The option to accept or not to accept the report is with the insurer. However, if the rejection of the report is arbitrary and based on no acceptable reasons, the courts or other forums can definitely step in and correct the error committed by the insurer while repudiating the claim of the insured. We hasten to add, if the reports are prepared in good faith, due application of mind and in the absence of any error or ill motive, the insurance company is not expected to reject the report of the Surveyors.

Intermittently the Court also took note that "the Insurance Regulatory Authority (`IRDA’ for short) has formulated Insurance Surveyors and Loss Assessors (Licensing, Professional Requirements and Code of Conduct) Regulations, 2000, which regulate the licensing and the work of surveyors. These regulations stipulate that the surveyor shall investigate, manage, quantify, validate and deal with losses arising from any contingency and carry out the work with competence, objectivity and professional integrity by strictly adhering to the Regulations."

Have a look at the decision.