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Browse Law School Education ADR: Arbitration Important Arbitration Cases

READ FULL CASE

Now let’s take up another case which is that of Oriental Insurance Company Limited.

BRIEF FACTS

In this case the Respondent (M/s Narbheram Power and Steel Pvt. Ltd.), had entered into an all risk Fire Industrial Policy in respect of its factory situated in Odisha. In October 2013, there was a cyclone named as “Phailin” which affected large parts of the State of Odisha. Because of the said cyclone, the respondent suffered damages which it estimated at almost Rs 4 crore (Rs 3,93,36,224.00). An intimation was given to the Appellant (insurer) and it appointed a surveyor who visited the factory premises. Based on the report, the respondent commented on the surveyor’s report and requested the appellant to settle its claim. As ultimately the claim was not settled, the respondent intimated the appellant that it had invoked the arbitration agreement and requested it to concur with the name of the arbitrator whom it had nominated.

The appellant repudiated the claim and also declined to refer the disputes to arbitration between the parties. 

Then, the respondent filed an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 for appointment of an arbitrator so that he could, along with the arbitrator, nominated by the respondent, proceed to appoint a presiding arbitrator to adjudicate the disputes.

The application was contested by the insurer and the High Court, considered the language employed in Clause 13 of the policy, which reads as follows—

 “13. If any dispute or difference shall arise as to the quantum to be paid under this policy (liability being otherwise admitted) such difference shall independently of all questions be referred to the decision of a sole arbitrator to be appointed in writing by the parties to, or if they cannot agree upon a single arbitrator within 30 days of any party invoking arbitration, the same shall be referred to a panel of three arbitrator, comprising of two arbitrators, one to be appointed by each of the parties to the dispute/difference and the third arbitrator to be appointed by such two arbitrators and arbitration shall be conducted under and in accordance with the provisions of the Arbitration and Conciliation Act, 1996.

It is clearly agreed and understood that no difference or dispute shall be referable to arbitration as hereinbefore provided, if the Company has disputed or not accepted liability under or in respect of this policy.

It is hereby expressly stipulated and declared that it shall be a condition precedent to any right of action or suit upon this policy that the award by such arbitrator/arbitrators of the amount of the loss or damage shall be first obtained.”

Reading this, the High Court opined that the clause was ambiguous and that it needed to be purposively read, failing which the arbitration clause would become meaningless.

ISSUE:

Now, the issue that arose in this case therefore was—Based on the interpretation of the language of Clause 13 of the Insurance policy, whether the dispute can be referred to arbitration?

HELD:

When the matter was sent to the Supreme Court, the Supreme Court set-aside the order of the High Court. On a plain reading of the clause, it appears that the insurer can initiate arbitration proceedings only for dispute on quantum and not on denial of their liability as such. On the other hand, the third part of the clause states that the insurer cannot initiate any action or suit on denial of liability without obtaining an award on quantum.

However, on a detailed interpretation of the clause, The Supreme Court held that the clause clearly spells out that the parties have agreed and understood that no differences and disputes shall be referable to arbitration if the company has disputed or not accepted the liability. But is not a disputation pertaining to quantum.

The Court then relied on the case of The Vulcan Insurance Co. Ltd. v. Maharaj Singh, AIR 1966 SC 1644, AIR 2000 SC 10, (2004) 8 SCC 644—which is a 1966 case, which dealt with a similar arbitration clause. In the said case, the insurer repudiated its liability to pay any amount claimed by the insured party. The Court opined that the dispute raised by the company pertained to its liability to pay any amount of damage whosoever/whatsoever and, therefore, the dispute raised by the appellant company was not covered by the arbitration clause.

The Supreme Court further held in this case that—“ it is not one of the arbitration clauses which can be interpreted in a way that denial of a claim would itself amount to dispute and, therefore, it has to be referred to arbitration. The parties are bound by the terms and conditions agreed under the policy and the arbitration clause contained in it. Therefore, the only remedy which the respondent can take recourse to is to institute a civil suit for mitigation of the grievances.”

RATIO:

Now if you try to derive the ratio from this case—Where there is a rejection of claim but no dispute on quantum of loss, the remedy for the insured is to commence civil proceedings to establish the insurer’s liability in this case. After the liability is established, the insured may resort to arbitration for determining the quantum of its claim.

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