Insurer denied claim over roof repair. SC said: that's not a 'risk increase'.

The insurer said the roof repair increased the fire risk. The Supreme Court asked: since when is fixing a leak a crime?

On a March afternoon in 2018, a customs-bonded warehouse in Raigad, Maharashtra, went up in flames. Inside were goods belonging to importers — electronics, textiles, machinery — stored under lock and customs seal. The fire gutted the structure. The air was thick with the smell of smoke and melted plastic; the customs seal had melted onto the concrete floor, a puddled witness to the heat. The stock was destroyed. And then began a fight that would take five years, three courts, and nine forensic reports to settle.

The question at its heart was deceptively simple: when an insurer says a policyholder's roof repair amounted to a "risk increase" that voids the policy, what must the insurer actually prove?

When the fire broke out

M/s Mudit Roadways ran a customs-bonded warehouse — a facility licensed under the Customs Act where imported goods are stored before customs clearance. On 14 March 2018, a fire broke out. The warehouse and the goods inside were destroyed. The insured filed a claim for Rs.6,57,55,155.

New India Assurance rejected the claim on 15 July 2019. Two reasons were given. First, the insurer said the fire-affected area was not covered under the policy. Second, the insurer claimed the fire was caused by the insured's own negligence — specifically, welding work during roof repair that allegedly sent sparks into the warehouse. The insurer pointed to General Condition Clause 3(a) of the fire insurance policy, which says coverage can be voided if the insured makes an alteration that increases the risk of loss or damage. Roof repair with a welding torch, the insurer argued, was exactly that kind of alteration.

Seven reports said short circuit. One said welding sparks.

Nine reports were prepared on the fire's cause by different agencies — forensic experts, government departments, independent investigators. Seven of them concluded the fire was caused by an electrical short circuit. One report attributed it to welding sparks from the roof repair. One was inconclusive. The report the insurer relied on to deny the claim was the one that blamed welding sparks. The other seven — consistent, multiple, from independent sources — pointed elsewhere. The stack of nine reports sat on the bench, their pages dog-eared from use, their conflicting conclusions a testament to the difficulty of reconstructing a fire from charred remains.

The insured approached the National Consumer Disputes Redressal Commission (NCDRC — the consumer court that hears complaints against service providers). On 10 August 2022, the NCDRC ruled in favour of Mudit Roadways, finding deficiency in service and directing the insurer to pay. New India Assurance appealed to the Supreme Court.

What the Supreme Court was asked

The insurer raised two arguments before the Supreme Court. First, that the fire-affected area fell outside the policy's geographical coverage. Second, that the roof repair work constituted a breach of General Condition 3(a) — an alteration that increased risk — and that the insured's negligence during that repair caused the fire.

The insured countered that the premises was clearly covered under the policy, as documentary evidence showed. On the roof repair, the insured argued that fixing a leak is maintenance, not an alteration. And on the cause of the fire, the insured pointed to the seven reports that said short circuit — meaning the insured had nothing to do with starting the fire.

Why the repair was not a 'risk increase'

The Supreme Court bench — Justice Hrishikesh Roy and Justice Sanjay Karol — examined the policy's General Condition Clause 3(a). That clause allows the insurer to void coverage if the insured makes an alteration that increases the risk of loss or damage. But the Court drew a crucial distinction: essential repair work to prevent water leakage from the rooftop is not an alteration. It is maintenance. The courtroom fell silent as the bench posed its pointed question: since when is fixing a leak a crime?

The Court held that repairing a leaky roof to protect stored goods cannot be reasonably construed as an alteration that increases risk. In the Court's own words from the ratio: "essential repair work on an insured premises' rooftop to prevent water leakage cannot be reasonably construed as an alteration that increases the risk of loss or damage under Clause 3(a) of a fire insurance policy, and therefore does not vitiate the insurance coverage." If every routine repair could void a policy, insurance would become meaningless — the insured would be penalised for taking care of the very property the insurer agreed to cover.

On the cause of the fire, the Court applied the principle from Canara Bank v. United India Insurance Co. Ltd. (2020): when the insured did not cause the fire, the insurer cannot escape liability regardless of the exact cause. Whether the fire was from a short circuit or welding sparks becomes immaterial — as long as the insured was not the instigator. The Court elaborated that the precise cause of a fire, whether short circuit or any alternative factor, is immaterial to the insurer's liability, provided the insured is not the instigator of the fire.

The Court also noted that the surveyor's report relied upon for repudiation was inconclusive and contradicted by seven other reports from independent agencies and government departments. A single inconclusive report, the Court said, cannot be treated as determinative of the cause of loss. The principle was clear: where a surveyor's report relied upon for repudiation is inconclusive and contradicted by multiple consistent reports from independent agencies and government departments, the surveyor's report cannot be treated as determinative of the cause of loss.

The insurer's second argument fell too

On the coverage issue, the Court examined the documentary evidence and held that the fire-affected premises was indeed covered under the policy. The insurer's argument that the area fell outside coverage was unsustainable on the facts.

The Court also addressed a procedural point that practitioners should note: an insurance company cannot introduce supplementary arguments or additional reasoning during the hearing beyond those detailed in their letter of repudiation. If the repudiation letter says X, the insurer cannot later argue Y in court. The grounds for denial are locked at the time of repudiation. This principle, drawn from the ratio, ensures that the insured knows exactly what case they must meet and prevents insurers from shifting goalposts during litigation.

Why the customs duty mattered

One additional layer in this case: the warehouse was a customs-bonded facility. Under the Public Warehouse Licensing Regulations, 2016, the warehouse licensee is a custodian of the goods, not the importer. If the goods are destroyed, the licensee is duty-bound to pay customs duties to the government under the Customs Act, 1962. That statutory obligation — the weight of a liability that persists even after the goods have turned to ash — was a real financial burden on the insured.

The insurer argued that paying the customs duty component of the claim would amount to unjust enrichment — the insured would get money for a liability they hadn't actually suffered. The Supreme Court rejected this. The Court held that the licensee's statutory obligation to pay customs duties on destroyed goods is a real, enforceable liability. A customs-bonded warehouse licensee who is a custodian (not importer) of goods is duty-bound under Public Warehouse Licensing Regulations to pay customs duties on destroyed goods, and this liability is legitimately insurable without constituting unjust enrichment. The customs duty component of the claim was ordered to be discharged directly to the Customs Department, preventing any double recovery.

THE PLAY: When an insurer repudiates a claim on the ground that the insured's repair work increased risk, ask: was the work maintenance or alteration? If it was essential upkeep — fixing a leak, patching a wall, replacing a pipe — the insurer's argument likely fails. Also check: did the insurer's repudiation letter match its courtroom arguments? And did a single inconclusive report outweigh multiple consistent ones?

The appeal was dismissed. The insured got its claim. The insurer paid. And the roof repair that started it all? Just a roof repair.