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.

Introduction:
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.

Domestic Perspective:
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[1]. 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 clause.

It was held in United India Insurance Co Ltd & Ors v. Hyundai Engineering and Construction Co Ltd & Ors [2] 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[3], the Supreme Court denied an arbitral reference since a discharge voucher had already been executed.

Supreme Court in Mayavati Trading v. Pradyuat Deb Burman [4] has 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[5]

The Karnataka High Court in M/s. E-Spring Building Systems (I) Pvt. Ltd., v/s Regional Manager Tata AIG General Insurance Company Ltd[6] 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.[7] 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[8], 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.

International Precedent:
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 and dishonest.

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 [9], 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 insurer.

Conclusion:
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

End-Notes:

1. 1976 AIR 287
2. AIR 2018 SC 3932
3. Civil Appeal No. 3284/2019
4. AP No. 565 of 2018
5. Civil Appeal No. 23512–23153 of 2017
6. 2006 ACJ 1488
7. S.L.P. (C) No. 33621 of 2017
8. ARB. P. 479/2020
9. Civil Appeal Nos.23512-23513 OF 2017