The field of insurance arbitration in India is at inception and the recent
judgments have the potential to change the way insurance companies operate.
Regulators must be more proactive in allowing insurance companies to establish
streamlined procedures so that they are not questioned repeatedly in court and
end up paying claims that are not in accordance with the insurance contract
signed by both parties.
This article focuses on court interpretations and declarations on several
Arbitration rules under the Arbitration and Conciliation Act, 1996 which was
established from the UNICITAL Model, as well as certain international judgments
involving insurance claims arbitration.
At least once in our lifetime all of us have come across an insurance contract
either for ourselves or our near and dear ones. Insurance is a stepping stone in
our journey of meeting one's responsibility of protecting and insuring.
Insurance Companies have not exempted themselves from insisting for arbitration
provisions as it is an edge over litigation by providing party autonomy,
procedural flexibility and neutrality.
Insurance contracts are usually standard form of contracts and leads to less
bargaining power for the insured as they have no say in selecting the procedure
for legal remedy and might stand destitute of its rights. The question that
arises is: Can one trust the arbitration clause in insurance contracts?
In this blog post, the author tries to illuminate domestic and international
legal framework and the enigma pertaining to these arbitration clauses related
to the insurers.
Section 2(8) of the Insurance Act, 1938, defines an "Insurance Company' as any
company, association or partnership that can be wound up under the Companies
Act, 1956, or the Indian Partnership Act, 1932. Section 2(9) of the Act defines
an 'insurer' as any individual, body of individuals or any corporate body that
carries on an insurance business. The fundamental principles and characteristics
of an insurance contract includes their standardization, wherein the formation
of insurance contracts does not go through a phase of negotiation and the real
offeror is actually the insured person.
Arbitration clause mirrors consensus idem of parties to iron out the dispute
through arbitration and specifies the procedure to be used for resolution.
Section 8 and 11 of Arbitration and Conciliation incorporates appointment of
arbitrator. However, the contrary can be established if the insurance contract
envisages the clauses where insurance company does not accept the liability.
Vulcan Industries Co. Ltd Vs Maharaja Singh & Anr
. was a case related
to denial of liability of the insurance company. No difference or dispute could
be referred to arbitration as the clause mentioned in the insurance contract.
Supreme Court held that the remedy available in such as case was legal
proceedings to be invoked.
The case discusses that if the arbitration clause coaches in a comprehensive
language and bears away the right to sue by impending that any kind of dispute
arising under insurance policy framework can start a legal proceeding only after
an arbitral award has been awarded. It was held that such clauses cannot be
conditional precedent as if a dispute raised cannot be referred to arbitration
than it must be decided though legal proceedings.
In the absence of an arbitration clause in the policy, an insured can approach a
commercial court or a consumer court. If the policy contains an arbitration
clause, the courts will direct the parties to arbitrate but the same is not the
case when disputes relating to liability are excluded from an arbitration
It was held in United India Insurance Co Ltd & Ors v. Hyundai Engineering and
Construction Co Ltd & Ors
 that when the insurer had denied liability,
then the arbitration clause could not be triggered. In United India Insurance
Co Ltd v. Antique Art Exports Pvt Ltd
, the Supreme Court denied an
arbitral reference since a discharge voucher had already been executed.
Supreme Court in Mayavati Trading v. Pradyuat Deb Burman
clarified that the jurisdiction of the court in deciding an application for
arbitral reference is very narrow and limited to examining only the existence of
an arbitration agreement and all other questions relating to the arbitrability
of the dispute have to be decided by the arbitral tribunal. The presence of the
arbitration clause, however, does not exclude the jurisdiction of the consumer
courts as settled by a full bench of the NCDRC and subsequently confirmed by the
Supreme Court of India in Emaar MGF Land Limited & Anr v. Aftab Singh
The Karnataka High Court in M/s. E-Spring Building Systems (I) Pvt. Ltd., v/s
Regional Manager Tata AIG General Insurance Company Ltd dismissed a petition
under section 11(6) of the Arbitration and Conciliation Act. 1996 seeking
appointment of an arbitrator to enter adjudicate the dispute between the parties
due to the fact that insurer denied the liability itself which doesn't lead the
arbitration clause to come into action.
Such identical arbitration clauses are added by the insurance companies in their
standardized contracts which make the position of the insured person weaker.
The mist over invoking arbitration clause was removed through the landmark
judgement of Oriental Insurance vs M/s Narbhem Power and Steel Pvt. Ltd. In
this case, the insurance company had denied to invoke the arbitration clause for
the settlement of issue of insurer repudiating the claim. An application was
filed under Section 11(6) of Arbitration and Conciliation Act,1996 (hereinafter
referred as the 'Act') for appointment of an arbitrator.[i]
The Supreme Court held parties are bound by specific provisions of arbitration
clause or contract and the court is not empowered to change the interpretation
and rewrite the clause. Since the agreement lays down that under certain
circumstances there will be no arbitration then the party will have to abide by
it. The court can only interpret commercial agreements. In the said case the
parties have agreed not to refer the dispute or difference pertaining to company
has disputed or not accepted liability to arbitration. The aggrieved party can
only refer to Court after arbitral award has been declared a conditional
precedent has been set in the impinged clause.
Further the visibility has cleared in recent judgement M/S Geo Chemical
Laboratories Vs United Insurance
, the Delhi High Court held that the
party alleging non-existence of valid arbitrable agreement has the onus of proof
to establish that prime-facie case of non-existence of a valid arbitrary
agreement. However, the court urges to refer the dispute to tribunal.[ii]
The arbitration agreement or clause differs with every agreement. The issue
depends upon the admissible and denial of the insurers to the clauses. After the
above pronouncements by the court, lead to different approaches. A safeguard is
provided for the so called non-arbitrable disputes at the stage of section 8 and
11 of the Act.
The parties and the arbitrators, not an arbitral body, usually plan, administer,
and control reinsurance arbitrations, and the procedures are normally
confidential, so they are not subject to public or competitor inspection.
Insurance arbitration may be extremely different from commercial arbitration
practice, especially in this relatively private and self-administered world.
Insurance company can customarily draft an arbitration clause or agreement and
can dictate their terms and conditions or escape liability.
The conflict arises on whether or not all category of disputes can be referred
to arbitration. Though, globally it is perceived that dispute can only be
settled through arbitration if both the parties agree upon.
In 1964, Scott Vs Avery was a case in English law, in which a claim for loss of
profits was not arbitrable under an insurance policy because the expected amount
of profits was a matter between the claimant and his insurers. The claimant
sought arbitration under a standard form contract for insurance in respect of
two losses. The insurers denied the claim on the ground that claims against them
were not subject to arbitration clauses in the standard form contract.
The Court of Appeal held that the arbitration clause did not preclude the
claimant's claim for loss of profits because the profits or loss could be
determined by examining relevant experience, showing losses in previous years.
It also held that disputes can be referred to arbitration only on the grounds
agreed upon by the party providing scope for mischief, fraud etc.
There is no remedy available when insurer does not accept its allegations.
Henceforth, when the insurer accepts its liability and proposes a settlement
claim then there will be no dispute over arbitrability. A claim for damages was
not arbitrable under an insurance policy. An insured sued the insurer for breach
of contract after he claimed that an act committed by an insured was fraudulent
The policy stated that the insurer was liable for any dishonesty or failure to
perform duty by an insured. The Court of Appeal held that the arbitration clause
did not preclude the claim because there was no difference between a claim for
damages and a claim under breach of duty, which was arbitrable[iii].
The arbitration could not be excluded in Raytheon Co. v. National Union Fire
Ins. Co. of Pittsburgh
, however, because the insurance company had "disputed
or not recognized culpability.[iv]" As a result, any disputes that are
inextricably linked to the underlying and possibly latent claims should be
handled through arbitration. The international courts have taken a
pro-arbitration stance, ruling that if a provision refers to arbitration, the
disagreement can be resolved by that method.
Recourse To Other Measures
One can knock the door of Consumer forums as both the insured and beneficiaries
of the policy fall within the ambit of Consumer[v]. Also, Section-3 of Consumer
Protection Act, 1986 and Section -100 of Consumer Protection, 2019 envisages
that the provision of Consumer Protection Act will be in addition to and not in
the derogation of the provisions of any other law time being enforce.
Both the Consumer Protection act, 2019 and the Commercial Courts Act, 2015 cover
insurance as well as reinsurance disputes which have decreased the timelines for
adjudication of disputes under these matters. The Commercial Courts Act, 2015
provides for summary judgement in a suit which makes the dispute resolution
process speedier. The insured person can also approach the Insurance Ombudsman
for referring disputes that do not exceed 20,00,000 rupees in value.
The Insurance Act, 1938 and the Insurance Regulatory and Development Authority
Act, 1999 are the primary legislations regulating the Indian insurance sector.
Appeals against the orders issued by IRDAI regulating the licensing and
functioning of insurers can be referred to Securities Appellate Tribunal.
The Insurance (Amendment) Act of 2021 was notified earlier this year, to
increase the foreign direct investment limit in Indian insurance companies and
pursuant to this Act, the Ministry of Finance issued the Indian Insurance
Companies (Foreign Investment) Amendment Rules 2021 to amend specific provisions
of the Indian Insurance Companies (Foreign Investment) Rules 2015.
In a recent landmark judgement of M/S Emaar MGF land limited Vs Aftab Singh
, it was held that arbitration clause cannot oust the jurisdiction of
consumer forum as in view of the objects and section-3 of the 1986 Act are at a
liberty to proceed with the provisions of consumer protection act rather than
relegating the parties to an arbitration proceeding under section 8 of the
Act.[vi] Therefore, it is not necessary for a NCDRC being a judicial authority
to refer the dispute to arbitration.
It is completely on the discretion of the consumer forum to go ahead with the
case or refer it to arbitration even when the liability is being ousted by the
The business of Insurance Company is to provide relief in times of distress.
This article focuses on insurance arbitration contracts and give out detailed
explanations about insurance contracts, companies as well as rights and
liabilities if the insures and the insurer. However, a close examination of this
arbitration clause reveals its lack of coherence and consistency from both a
global and an Indian standpoint.
The most fundamental problem in our domestic legal framework is that the insured
can only bring a claim to arbitration if there is a dispute about the amount of
the claim, not if there is a denial of culpability. Though, a recourse to
consumer courts and commercial courts can be sought for denial of services such
as repudiation of claims, conceive and implementation of arbitration clause but
still a strict implementation of the Law is still in question.
Agencies such as IRDAC (Insurance Regulatory and Development Authority) should
take into account the act of insurers and claims that are not rendered as it not
only effects insured or the beneficiaries but also hampers the money flow in the
economy and only adds to distress and mental agony being caused to the insured
or his/ her beneficiaries.
Instead of creating their own contracts and changing the purpose of the
contractual terms, courts should interpret the precise provisions as they are
and declare the contract void if they are proven to be illegal. In India, the
use of a counter offer letter to a settlement intimation letter is less common;
nevertheless, if the insured provides justification for a counter offer by
analyzing the surveyor report and insurer calculation, it can be utilised if the
matter proceeds to arbitration in another venue.
This article deals with both the perspectives, Indian as well as Foreign.
Parties that have had a bad experience with arbitration should avoid include it
once the contract is signed. If a clause exists, the parties are obligated to
accept it, and the courts will consider how to enforce the agreements with the
rule of law on the ground
- 1976 AIR 287
- AIR 2018 SC 3932
- Civil Appeal No. 3284/2019
- AP No. 565 of 2018
- Civil Appeal No. 23512–23153 of 2017
- 2006 ACJ 1488
- S.L.P. (C) No. 33621 of 2017
- ARB. P. 479/2020
- Civil Appeal Nos.23512-23513 OF 2017