NCDRC: Insurer Cannot Repudiate Fire Claim on Mere Suspicion; Proof of Fraud Essential

April 23, 2026 : The National Consumer Disputes Redressal Commission (NCDRC), New Delhi, has ruled that an insurance company cannot repudiate a fire insurance claim based on mere suspicion in the absence of cogent evidence establishing fraud or wilful misconduct by the insured.

The ruling came in M/s Shri Hira Industries v. United India Insurance Company Ltd. & Ors. (Consumer Complaint No. 1470 of 2019), where the Commission partly allowed a complaint challenging the repudiation of a fire insurance claim arising from an incident dated 22 July 2018.

According to the record, the complainant, a proprietary concern engaged in manufacturing cottonseed oil and cotton cake, had obtained a Standard Fire and Special Perils Policy covering cotton bales stored in a warehouse. The stock was hypothecated to Axis Bank Ltd., with supervision carried out by Star Agriwarehousing and Collateral Management Ltd. under a collateral management arrangement.

A fire broke out in the early hours between 2:30 a.m. and 3:00 a.m., and firefighting operations continued for several hours. An FIR was registered treating the incident as accidental, and the complainant subsequently lodged a claim of ₹3.89 crore with the insurer.

The insurer repudiated the claim on 25 March 2019, relying on surveyor and forensic reports. It alleged misrepresentation and fraud, contending that the fire was deliberately caused. Among other grounds, it argued that complete destruction of cotton bales within a short period was improbable, noted the absence of electrical connection in the godown, and pointed to discrepancies in stock records and recovery of iron strips.

However, the Commission found that these conclusions were based largely on conjecture rather than substantive evidence. It noted that forensic analysis did not detect any hydrocarbons or external accelerants in the debris, and the police investigation indicated that the fire could have resulted from friction between iron strips. Importantly, there was no material linking the complainant to any deliberate act.

Rejecting the insurer’s reasoning, the Commission held that suspicion alone cannot justify repudiation. It observed that the surveyor’s inferences lacked evidentiary backing and emphasized that once the occurrence of fire is established, the burden shifts to the insurer to prove fraud or wilful misconduct.

The Commission also highlighted that cotton is highly inflammable and that complete destruction of stock in a severe fire cannot be ruled out merely on assumptions regarding burning patterns or duration.

On issues relating to stock discrepancies and transportation, the Commission found that records maintained under the supervision of the collateral management agency had not been contradicted by any evidence. It also accepted the explanation regarding the reduced recovery of iron strips, noting that debris removal had taken place prior to their measurement.

While rejecting the grounds for repudiation, the Commission upheld the surveyor’s assessment of loss in terms of quantum. It accepted the finding that the burnt material largely consisted of lower-grade cotton based on laboratory reports, and therefore did not interfere with the valuation.

Accordingly, the complaint was partly allowed, and United India Insurance Co. Ltd. was directed to pay ₹98,68,302 along with interest at 7% per annum from 24 December 2018, along with ₹20,000 towards litigation costs, subject to adjustment of dues payable to Axis Bank Ltd.

The Bench comprised Presiding Member AVM J. Rajendra (Retd.) and Member Justice Anoop Kumar Mendiratta.