Godown Fire: Reconciling Stock Records and Bank Statements
A wholesale grocery distributor's godown catches fire at 2 a.m. Stock of pulses, edible oil and packaged goods is destroyed. The policy covers stock for a sum insured of Rs 80 lakh and includes an average clause. The insured claims Rs 95 lakh. The stock register, saved up to 15 days before the fire, shows Rs 72 lakh. Purchase invoices for the last 15 days total Rs 24 lakh. Sales invoices for the same period total Rs 6.6 lakh at selling price. The insured's gross profit margin is 10%. A bank hypothecation stock statement dated one month before the fire shows stock of Rs 60 lakh. The insured sold damaged oil tins as scrap for Rs 2.5 lakh without informing the insurer. The fire brigade report attributes the fire to an electrical short circuit; an FIR was lodged. The surveyor must reconcile the records, determine the stock at risk and assess the payable loss.
1. Reconstruct the stock at risk on the date of fire and comment on the insured's claim of Rs 95 lakh.
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Reconstruction. Opening stock per saved register = Rs 72 lakh. Add purchases = Rs 24 lakh. Sales of Rs 6.6 lakh are at selling price; with a 10% gross margin, cost of sales = Rs 6.6 lakh / 1.10 = Rs 6 lakh. Stock at risk = 72 + 24 - 6 = Rs 90 lakh.
Comment. The claim of Rs 95 lakh exceeds the reconstructed stock by Rs 5 lakh and is not supported. The bank hypothecation statement of Rs 60 lakh is one month old and may reflect timing, lower stock or understatement; it is not conclusive but must be reconciled. The surveyor should ask for the stock register for the missing 15 days, purchase and sales invoices, GST returns and bank statements. If the insured cannot explain the gap, the surveyor should adopt the reconciled figure and report the overclaim.
2. Compute the net loss payable applying the average clause and salvage. What is the effect of the insured selling salvage without the insurer's consent?
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Gross loss. Stock at risk = Rs 90 lakh. Salvage realised = Rs 2.5 lakh. Net loss = Rs 87.5 lakh.
Average. Sum insured Rs 80 lakh / stock at risk Rs 90 lakh = 8/9. Admissible before excess = Rs 87.5 lakh x 8/9 = Rs 77.78 lakh (approximately).
Salvage breach. The salvage belongs to the insurer under the policy. The insured should not have sold it without consent. The surveyor should record the breach, verify that Rs 2.5 lakh is a fair realisation and credit it. If the sale was at an undervalue, the insurer may claim the difference from the insured or reduce the claim accordingly. The breach does not automatically void the whole claim unless the policy so provides and the insurer was prejudiced; the surveyor should report the facts and let the insurer decide.
3. List the key documents the surveyor should collect and identify three red flags in this claim.
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Documents. Policy and endorsements; claim form; FIR; fire brigade report; stock register and bin cards; purchase invoices for 15 days; sales invoices; GST returns; bank hypothecation stock statements; financial statements; salvage sale invoice and weighment records; photographs and video; witness statements; electrical inspection report; and the insured's explanation for the gap.
Red flags. (i) Claim of Rs 95 lakh against reconstructed stock of Rs 90 lakh; (ii) sale of salvage without intimation, which affects the insurer's salvage rights; (iii) bank stock statement of Rs 60 lakh, materially below the claimed stock, requiring reconciliation. Other red flags: no stock register for the last 15 days, purchases concentrated just before the fire, and sales invoices that do not reconcile with GST.