Ordinarily the Dispute under Insurance Policy Claims Would not be Referred to Arbitration when the Reference is Limited to Quantum of Compensation: Delhi HC
In a significant ruling, the High Court of Delhi has shed light on the scope of arbitration clauses in insurance policy disputes.
Justice Prateek Jalan clarified that when an insurer denies liability entirely, the dispute cannot be referred to arbitration.
“However, if the insurer disputes specific claims falling outside the policy’s coverage, while admitting overall liability, such disputes are within the purview of arbitration. This distinction is crucial in determining the appropriate forum for resolving disputes in insurance policy agreements”, the court highlighted.
A recent case before the Delhi High Court involved a dispute between two parties who had entered into an insurance policy agreement. The agreement contained an arbitration clause that mandated arbitration for disputes concerning the quantum of compensation, provided liability was otherwise admitted. The petitioner sought the appointment of an arbitrator, but the respondent rejected the request, arguing that the dispute pertained to liability and was outside the scope of the arbitration clause.
The court carefully examined the language and intent of the arbitration clause. Citing a precedent Mallak Specialities v. New India Assurance, the court emphasized that if an insurer denies liability in its entirety, arbitration is not appropriate.
However, in the present case, the respondent disputed specific claims on the basis that they were not covered by the insurance policy, while admitting liability overall.
The court drew a crucial distinction between scenarios where an insurer denies all liability and cases where specific claims fall outside the policy’s coverage. “It held that disputes falling within the latter category do not exceed the scope of the arbitration clause”, the cour added.