Reference Limited To Quantum Of Compensation; Dispute Non-Arbitrable If Insurer Disputes Liability: Bombay High Court

The Bombay High Court has ruled that where the arbitration clause only provided for reference of dispute relating to quantum of compensation payable under the insurance policy, the plea taken by the insurance company, disputing its liability under the policy, would make the dispute non-arbitrable. The bench of Justice Bharati Dangre reiterated that an arbitration clause has to be interpreted strictly. The Court observed that the insurer's unequivocal admission of liability under the policy is sine qua non for triggering the arbitration clause, in absence of which the dispute between the parties fell under the excepted category, making the arbitration clause ineffective and incapable of being enforced. The applicant- M/s. Mallak Specialities, is an export house who took an insurance policy from the respondent- New India Assurance Co. After the insured property of the applicant was destroyed due to heavy rains, the applicant raised an insurance claim before the Competent Authority of the insurance company. The claim raised by the applicant was repudiated by the insurance company. Thereafter, the applicant invoked the arbitration clause contained in the insurance policy and filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act) before the Bombay High court, seeking appointment of an arbitrator. The applicant M/s. Mallak Specialities submitted before the High Court that the insurance claim raised by it was covered under the insurance policy and that the respondent company had wrongfully repudiated the genuine claims of the applicant. The applicant added that the Surveyor sent by the respondent company for assessing the loss suffered by the applicant, had given a specific finding that the applicant had suffered loss due to heavy rainfall. Thus, it argued that the dispute between the parties regarding the quantum of compensation must be referred to arbitration. The respondent- New India Assurance Co., contended that as per the arbitration clause contained in the insurance policy, a dispute between the parties can be referred to arbitration only when the insurance claim is accepted by the insurance company and there exists a dispute regarding the quantum of compensation. It added that the insurance claim raised by the applicant was repudiated by the company, therefore, there was no dispute between the parties regarding the quantum of the compensation or liability. Thus, it averred that since the dispute raised by the applicant/claimant was not an arbitrable dispute, the arbitration clause cannot be invoked. Perusing the report submitted by the Surveyor, the Court noted that the Surveyor had concluded that the occurrence of water logging, which had allegedly destroyed the applicant's goods, was true. However, the Surveyor had opined that the applicant/insured had breached the conditions of the policy by failing to allow and cooperate in Salvage disposal; further, the applicant had exaggerated its claim amount. On the basis of its findings, the Surveyor had recommended the insurance company to repudiate the applicant's insurance claim. The Court observed that on the basis of the said report, the insurance company had repudiated the applicant's claim, holding that no liability arose under the insurance policy, adding that it was a case of 'No Claim'. The bench reckoned that as per the relevant clause contained in the insurance policy, the dispute regarding quantum of compensation payable under the policy must be referred to arbitration. However, it noted that the said clause specifically provided that if the insurance company has disputed the liability or has not accepted its liability under the insurance policy, the matter cannot be referred to arbitration. The Court observed that though the Surveyor's report is not binding on the insurance company, the insurance company proceeded to repudiate the applicant's claim on the basis of the observations made in the report. Thus, the bench concluded that the insurance company never disputed the quantum of compensation payable under the policy, rather it disputed its liability under the policy. Therefore, the Court held that the dispute between the parties was non-arbitrable. The bench added that in order to determine whether a particular clause is an arbitration clause or not, it is the intention of the parties which has to be discerned. "True it is that, the form of Arbitration Agreement is not specified in the Act and whether there exist an Arbitration Agreement has to be discerned from the intention of the parties. The test to determine so would be the intention of the parties for making a reference for Arbitration. Deficiency of words in the agreement, which otherwise fortify intention of the parties to arbitrate their disputes cannot legitimize annulment of Arbitration Clause and therefore what is important for appointment of an...

Reference Limited To Quantum Of Compensation; Dispute Non-Arbitrable If Insurer Disputes Liability: Bombay High Court

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Reference Limited To Quantum Of Compensation; Dispute Non-Arbitrable If Insurer Disputes Liability: Bombay High Court

Parina Katyal

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