Survey Report Based On Memory Alone Cannot Determine Insurance Claim: Delhi High Court Sets Aside Award

The Delhi High Court has set aside an arbitral award, holding that an arbitral tribunal cannot rely solely on a defective surveyor's report while ignoring material evidence placed on record. The court observed that although a surveyor's report is an important piece of evidence in insurance disputes, it is not sacrosanct and cannot be treated as conclusive when it suffers from serious infirmities.

Justice Jasmeet Singh observed,

“The Award is squarely based on a survey report which, though an important piece of evidence, is not a sacrosanct document and cannot be accepted at face value when it is clearly defective. The Arbitrator could not have relied solely on the survey report to deliver its findings while disregarding other vital evidence placed on record.”

The petitioner, Cosco Blossoms Pvt Ltd, is a floriculture company engaged in exporting flowers to foreign markets including Europe and Japan. For its operations, the company maintained greenhouses spread over about 15 acres at Village Goyla in Gurgaon, Haryana.

The petitioner had obtained two insurance policies from Oriental Insurance Company Ltd. The dispute arose under a fire and miscellaneous insurance policy covering greenhouse equipment and related assets.

On June 2 and June 4, 1998, severe winds and rainfall struck the petitioner's greenhouses, damaging polyethylene sheets covering the structures. According to the petitioner, about 90 sheets were damaged. A surveyor appointed by the insurer assessed the damage at 14.5 sheets, and a subsequent surveyor reassessed the loss for 15 sheets and recommended compensation of ₹3,17,935 after applying policy deductions.

The dispute was referred to arbitration under the policy. The sole arbitrator awarded Rs 3,17,935 along with interest at 10% per annum. Dissatisfied with the quantum and the reliance placed on the surveyor's report, the petitioner challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996.

The petitioner argued that the arbitrator had relied entirely on the surveyor's report despite serious defects in the methodology. It was pointed out that during cross-examination the surveyor admitted that he had not actually calculated the total number of damaged sheets, had not prepared any inventory, and that the report had been prepared on the basis of memory.

It was further contended that the arbitrator ignored stock registers and witness testimony showing that about 90 sheets had been replaced after the storm. The petitioner also alleged non-disclosure by the arbitrator under Section 12 of the Act.

Per contra, the insurer argued that the petitioner had replaced the sheets before informing the company, violating the policy condition requiring immediate intimation of loss, and that the surveyor's report had rightly been relied upon by the arbitrator.

The court noted that the scope of interference under Section 34 of the Act is limited, but interference is permissible where the award ignores vital evidence or is perverse.

Examining the record, the court found that the surveyor had admitted in cross-examination that no proper inventory or measurement of damaged sheets was prepared and that the report was based largely on memory. The court held that such deficiencies seriously undermined the credibility of the report.

Referring to apex court's ruling in National Insurance Co. Ltd. v. Hareshwar Enterprises, the court observed:

“The recommendation/report of the surveyor is only evidentiary in nature and not a binding or sacrosanct document. When the report is perfunctory, casual or suffers from infirmity, the same has to be rejected by the Arbitrator.”

The court further held:

“A survey report based merely on memory, without proper calculation, verification, inventory preparation or measurements, cannot form the sole basis for determining the quantum of insurance claim, especially when the petitioner has placed on record documentary evidence in the form of stock registers showing replacement of 90 sheets. These stock registers maintained in ordinary course of business have not even been discussed in the Award.”

On the issue of delay in informing the insurer, the court held that the policy requirement of giving notice “forthwith” must be construed as meaning as soon as reasonably possible, and not necessarily instantaneously.

Since the storms occurred on June 2 and June 4, 1998, and the insurer was informed on June 5, the requirement stood satisfied.

“From a perusal of the aforesaid clause it is clear that the insured is required to inform the insurer 'forthwith' about the loss sustained by it and in the context of this Clause 'forthwith' means 'as soon as possible'… the petitioner company has informed the respondent 'forthwith' about the loss suffered.”

However, the court rejected the petitioner's challenge based on Section 12, noting that the objection regarding the arbitrator's impartiality had been raised only three days before the award was passed, despite the arbitrator having been appointed years earlier.

Holding that the arbitrator had based the award primarily on a defective surveyor's report while ignoring material evidence, the court concluded that the award suffered from perversity.

Accordingly, the arbitral award dated March 17, 2012 was set aside.