Fire Claim With a Missing Stock Register
A garment retailer in Berhampur insures his shop stock under a standard fire and special perils policy for a sum insured of ₹12 lakh. A fire in the rented shop destroys most of the stock. The insurer's surveyor finds that the stock statement given to the bank on the fire date shows ₹9 lakh, but purchase invoices and GST returns reconstructed from the accountant's office suggest a closing stock of about ₹18 lakh. The shop's stock register was burnt, and the last two months' entries are missing. The policy has an average clause and a condition requiring the insured to keep proper books of account. The retailer claims ₹11.5 lakh, including damaged racks. The insurer is inclined to repudiate the claim for breach of condition and non-disclosure, arguing that the stock was under-insured. The retailer says the records were destroyed in the same fire and offers surviving supplier invoices and bank statements.
1. Is outright repudiation for breach of the records condition justified? Explain the competing considerations.
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Outright repudiation for 'no stock register' is not well founded on these facts, but the claim is not automatically payable in full.
A fire policy requires the insured to keep records, but the stock register was destroyed by the insured peril itself. The insurer's proper course is to reconstruct the stock position from independent evidence: GST returns, supplier invoices, bank statements, purchase and sales records with the accountant, and the surveyor's physical assessment. Failure to produce a perfect register is a documentation problem, not proof of fraud. Repudiation would be stronger if the insurer could show wilful suppression or that the missing records were deliberately withheld.
However, the insured must still prove the loss and the value at risk. The inconsistency between the ₹9 lakh stock statement and the reconstructed ₹18 lakh figure is central. The insurer can apply the average clause if the sum insured is less than the value at risk. It should give written reasons and a calculation, not a bare rejection. The claim should be assessed on evidence, with the insured given a chance to rebut the surveyor's valuation.
2. If the insurer establishes a value at risk of ₹18 lakh, calculate the likely indemnity. Show the steps and explain what else must be deducted.
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If the value at risk is accepted as ₹18 lakh, the average clause reduces the claim.
Formula: payable loss = assessed loss × (sum insured ÷ value at risk).
Assessed loss = ₹11.5 lakh; sum insured = ₹12 lakh; value at risk = ₹18 lakh. Payable = 11.5 × (12 ÷ 18) = 11.5 × 0.6667 = ₹7.67 lakh (approximately).
Then deduct the policy excess (for example, ₹5,000) and the salvage value of damaged stock (for example, ₹20,000). If those figures apply, the net payment is about ₹7.42 lakh. If the damaged racks are not insured stock, their value must be removed before applying the average clause.
The alternative ₹9 lakh stock statement would make the sum insured adequate, but that figure is contradicted by the purchase and GST records. The insurer must justify the value at risk it uses. The insured can challenge the ₹18 lakh figure with a stock reconciliation, returned goods, credit sales and damaged stock not yet removed. The average clause is not a penalty; it is a proportional indemnity rule.
3. What should the retailer do next, both for this claim and for future risk management?
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Next steps for the retailer:
- Submit a written reconstruction of stock: opening stock, purchases, sales, returns, closing stock, supported by GST returns, invoices and bank statements. Explain the two missing months and identify who holds duplicate records.
- Ask the insurer for the surveyor's report and a written, reasoned repudiation or settlement calculation. Do not accept an oral rejection.
- Escalate to the insurer's grievance officer, then IRDAI's Bima Bharosa and the Insurance Ombudsman if the dispute is about quantum or unfair rejection.
- Preserve damaged stock and salvage; do not dispose of it before the surveyor's final assessment.
For the future, the shop should keep duplicate stock records off-site, submit monthly stock statements, and consider a declaration policy or a higher sum insured with periodic adjustment. A fire policy is not a substitute for records; the insurer prices and settles on disclosed risk.