Insurance Policy Is To Be Referred To Arbitration When Only One Head Of The Claims Is Disputed And Not The Entire Liability: Delhi High Court

The High Court of Delhi has held that ordinarily the dispute under insurance policy claims would not be referred to arbitration when the reference is limited to quantum of compensation and the insurer disputes liability.

The bench of Justice Prateek Jalan distinguished between a situation wherein the insurer denied the entire liability and where the entire liability is not disputed but only claims under one of the heads is disputed as being outside the scope of reference.

The Court held that there cannot be any arbitration in the first scenario, however, the second issue would not put the dispute beyond the ambit of the arbitration clause and it would be proper for the respondent to raise such objections before the arbitrator.

Facts

The parties entered into an insurance policy agreement dated 05.01.2018. Clause 7 of the agreement provided for reference to arbitration of any dispute as to the quantum to be paid under the insurance policy for claims of which the liability is otherwise admitted.

A dispute arose between the parties and accordingly, the petitioner sought the appointment of arbitrator, however, the respondent refused its request for the appointment of arbitrator. Consequently, it approached the Court for the appointment of the arbitrator.

Contentions

The respondent objected to the maintainability of the petition on the following grounds:

• The dispute between the parties is of liability and not of quantum, thus, it is beyond the scope of the arbitration clause.
• The dispute that the petitioner is raising is not covered by the insurance policy, thus, the liability regarding the same is not admitted by the respondent. Consequently, the dispute cannot be referred to arbitration.
• The Court at pre-arbitration stage has to also ensure that the dispute so raised falls within the scope of the arbitration clause.

Analysis by the Court

The Court observed that when the scope of arbitration clause is limited to the determination of the quantum of damages and the insurer denies liability, the court in that situation would not refer the parties to arbitration. (See Mallak Specialities v. New India Assurance, 2022 LiveLaw (Bom) 519)

The Court observed that the respondent has not entirely dismissed the claims of the petitioner but only denied arbitration on the grounds that one of the claims raised by the petitioner is not covered by the insurance policy. The Court distinguished the judgments of various courts on the ground that in all those cases, the insurer denied the liability in toto.

The Court distinguished between a situation wherein the insurer denied the entire liability and where the entire liability is not disputed but only claims under one of the heads is disputed as being outside the scope of reference and held that it is not a case of denial of liability but only a case where one of the heads of the claim is disputed as not falling within the policy.

The Court held that there cannot be any arbitration in the first scenario, however, the second issue would not put the dispute beyond the ambit of the arbitration clause and it would be proper for the respondent to raise such objections before the arbitrator.

The Court further observed that in another claim between the same parties, the respondent agreed to the dispute being referred to arbitration.

Accordingly, the Court allowed the petition and appointed a sole arbitrator and directed the arbitration to be conducted under the Aegis of DIAC Rules.

Case Title: Shivalaya Construction Co. Pvt Ltd. v. National Insurance Company Ltd

Citation: 2023 LiveLaw (Del) 453

Date: 26.05.2023

Counsel for the Petitioner: Mr. Shishir Mathur, Ms. Muskan Tyagi, Advocates

Counsel for the Respondent: Mr. Prateek Mishra, Mr. Mohit Kumar, Advocates

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