Dispute Is Non-Arbitrable When There Is Denial Of Claim By Insurance Co. Under Policy- Bombay High Court

The Bombay High Court has recently held that when an Insurance Company has not accepted the liability under the Insurance Policy and has repudiated the claim as "No Claim", then such denial of claim would not itself amount to an arbitrable dispute. The Insurance Policy clearly provided that if the Insurance Company has disputed or not accepted the liability under the policy, there shall be no reference to Arbitration.

A Bench of Justice Bharati Dangre of the Bombay High Court was hearing an application filed under Section 11 of the Arbitration and Conciliation Act, 1996 for appointment of Sole Arbitrator by the applicant Star Export House, who took insurance policy from the New India Assurance Company Ltd..

A specific Standard Fire and Special Perils Policy was taken by the applicant company on payment of premium and the property was insured against any destruction or damages by the perils specified. The Insurance Policy contemplated events like Storm, Cyclone, Hurricane, Typhoon, Tempest, Tornado, Flood and Inundation

The Insurance Company undertook to pay to the insured the value of the property, or the amount of such damage or, reinstate or replace such property, in any case of it's destruction.

The Applicant contended that due to heavy rains, insured material was destroyed and a claim of over 13 Crores was raised before the Insurance Company.

The Insurance Company forwarded a Surveyor for assessment of loss suffered by the applicant on account of the flood. Later, the Insurance Company repudiated the claim of the applicant, despite the fact that the Surveyor had assessed 2 Crores payable to the applicant.

The applicant said that disputes have arisen between the parties, whereby substantial amounts are due and payable by the respondent to the applicant. In terms of the Policy agreement, the applicant applied before the High Court for appointment of Sole Arbitrator or an Arbitral Tribunal for adjudication of claims of the applicant.

Advocate Siddharth Jain for the applicant submitted before the Court that when there is a discernable intention of the parties in the agreement to refer disputes to arbitration, then an application under section 11 is maintainable. It was submitted that deficiency of specific words in agreement, which otherwise fortifies the intention of the parties to arbitrate their disputes, cannot legitimize annulment of the arbitration clause.

Advocate Rushab Vidhyarthi appearing for the Insurance Company said that reference to arbitration can be made under the said clause only when the insurance policy is accepted and there exists a dispute about the quantum to be paid. However, in the present case, the insurance company had repudiated the claim fully as 'No Claim' and since the dispute does not pertain to the quantum of the compensation/liability, the remedy of arbitration cannot be invoked.

It was said that in absence of a dispute raised by the applicant being an Arbitrable dispute, there is no reason for referring it to the Arbitrator and the relief sought for appointment of a sole arbitrator to resolve the dispute, has to be necessarily turned down.

"[T]he occurrence of water logging and inundation on 06.08.2019 in the insured's factory is true but liability would not exist under the policy in view of points mentioned in Para 13 above (non- cooperation of the applicant in Salvage disposal and exaggeration of the claim by including many items which do not fall within the purview of the policy). We recommend repudiation of claim on the basis of above observation", said the Survey Report of the Insurance Company.

The Clause 13 in the Insurance Policy, inter alia, provided that if any dispute arises as to the quantum to be paid under the policy (liability being otherwise admitted) such difference shall independently of all other questions be referred to the decision of a sole arbitrator. Further, it specifically said that no difference or dispute shall be referable to arbitration, if the Company has disputed or not accepted liability under the policy.

The High Court was deciding whether the dispute which has arisen between the parties could be referred for Arbitration, which ultimately would depend upon an assertion whether the insurer has disputed/not accepted the liability in respect of the policy.

"The Surveyor's report which in any case is not binding upon the Insurance Company clearly recommended repudiation of the claim, on the basis of the observations made in the report, the Insurance Company repudiated the claim by categorizing it as "No Claim". It is evidently clear that the Insurance Company never disputed the quantum but disputed its liability in respect of the policy drawn by the applicant, thus making the dispute non-arbitrable in the wake of the policy", held the High Court.

"It can be clearly seen that the Insurance Company has disputed and not accepted the liability under the policy, the dispute is not arbitrable, as it do not revolve around the quantum to be paid under the Policy", it said while rejecting the application for appointment of Arbitrator.

Cause Title- M/s. Mallak Specialities Pvt Ltd. v. The New India Assurance Co.Ltd.

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