1. Insurance claim repudiation — Dispute over whether a conditional arbitration clause is triggered when liability is denied in toto — Petition under Section 11, Arbitration and Conciliation Act. (Para 1 , 2 , 3 , 4 , 5 , 6 )
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2018 Supreme(SC) 835
SUPREME COURT OF INDIA
Dipak Misra, CJI., A.M. Khanwilkar, D.Y. Chandrachud, JJ.
United India Insurance Co. Ltd. & Anr. – Appellant(s)
Versus
Hyundai Engineering and Construction Co. Ltd. & Ors. – Respondent(s)
CIVIL APPEAL NO. 8146 OF 2018 (Arising out of SLP(C) No.4260/2018)
Decided On : 21-08-2018
Important Points
IMPORTANT POINT
When an insurer denies its liability and repudiates a claim in toto, there is no dispute for referring to arbitration. If however, the insurer disputes the quantum of the claim a dispute fit for arbitration arises.
When an insurer denies its liability and repudiates a claim in toto, there is no dispute for referring to arbitration. If however, the insurer disputes the quantum of the claim a dispute fit for arbitration arises.
Subject
Arbitration Law - Arbitrability of Disputes
Act Referred
Headnote
Arbitration and Conciliation Act, 1996 – Section 11(6A) – Clause 7 of the Insurance policy – Appellants repudiating the claim of the JV and denying their liability in toto under or in respect of the subject policy – They did not dispute the quantum to be paid under the policy - such dispute alone could be referred to arbitration in terms of clause 7 – instantly the arbitration clause becoming ineffective and incapable of being enforced. (Para 14, 15)
(2018) 6 SCC 534; (1976) 1 SCC 943 – Relied upon
2016 SCC OnLine Mad 9141 : (2016) 3 CTC 761 : (2016) 2 LW 769 – Cited with approval
(2017) 9 SCC 729 – Distinguished
Facts of the case:
The question arising in this appeal is whether clause 7 of the subject Insurance Policy dated 5th September, 2007 posits unequivocal expression of the intention of arbitration or is hedged with a conditionality?
The Single Judge of the High Court had held that post amendment of the Arbitration and Conciliation Act, 1996, with effect from 23rd October, 2015 by insertion of sub-section 6A in Section 11 of the Act, the limited mandate of the Court is to examine the factum of existence of an arbitration agreement.
Respondent Nos.1 and 2 constitute a Joint Venture. Respondent No.3 awarded a contract on 29th September, 2006 for design, construction and maintenance of a bridge across the River Chambal, which was to be completed within a period of 40 months and was commenced on 5th December, 2007 by the JV after respondent No.3 handed over the site to it. After commencement of the work, a Contractor All Risk Insurance Policy dated 5th December, 2007 was obtained from the appellants covering the entire project, valued at Rs.2,13,58,76,000/-.
During the construction of the bridge, on 24th December, 2009, an accident occurred causing significant loss to the contractor. A detailed claim for a sum of Rs.1,51,59,94,543/- was submitted by the JV to the appellants.
The appellants intimated the respondents that the claim put forth by the JV, was found to be not payable, and accordingly, stood repudiated.
The JV informed the appellants that disputes had arisen between the appellants and the JV and in view thereof it was invoking the arbitration clause No.7 contained in the Insurance Policy.
Eventually, respondent Nos.1 & 2 filed a petition under Sections 11(4) & 11(6) of the Act before the High Court.
The Single Judge of the High Court allowed the petition filed by respondent Nos.1 & 2 and appointed an Arbitrator opining that arbitration agreement existed in the form of clause 7 of the Insurance Policy.
Finding of the Court:
There is no arbitrable dispute under clause 7 of the insurance policy.
Result: Appeal allowed.
Legal Category Hierarchy
Table of Contents
2. Whether the arbitration clause is an unequivocal expression of intent or conditional upon admission of liability — Whether the court's mandate is limited to the agreement's existence. (Para 1 , 7 )
3. Arbitration clauses require strict construction — Clause 7 is conditional and only activates if liability is admitted and the dispute is limited to the quantum of payment. (Para 10 , 11 , 12 , 13 , 14 )
4. An arbitration clause conditioned on the admission of liability is not triggered when the insurer repudiates the claim in toto, rendering the dispute non-arbitrable. (Para 12 , 14 )
5. Appeal allowed — Impugned judgment set aside — Petition for appointment of arbitrator dismissed — Liberty granted to respondents to file a civil suit. (Para 15 , 16 , 17 )
6. How should an arbitration clause be interpreted when it contains specific conditions?
Arbitration clauses must be strictly construed. Any expression must unequivocally express the intent of arbitration, and if the clause stipulates that arbitration cannot occur under certain demonstrably clear circumstances, those conditions must be upheld. (Para 10 , 12 )
7. When is an arbitration clause triggered in an insurance policy that requires liability to be admitted?
Such a clause is conditional and only activates if the dispute is limited to the quantum to be paid and the insurer has unequivocally admitted or accepted liability under the policy. (Para 12 )
8. Is a dispute arbitrable if the insurance company repudiates the claim in toto?
No. If the insurer denies liability entirely rather than disputing the quantum, the dispute falls into an excepted category, making the arbitration clause ineffective and the matter non-arbitrable. (Para 11 , 12 , 14 )
9. What is the legal remedy for an insured party when a claim is repudiated under a policy with a conditional arbitration clause?
When the arbitration clause is not triggered due to the denial of liability, the only available remedy for the claimant is to institute a civil suit to establish the company's liability. (Para 11 , 15 )
JUDGMENT
A.M. Khanwilkar, J.
1. The conundrum in this appeal is whether clause 7 of the subject Insurance Policy dated 5th September, 2007 posits unequivocal expression of the intention of arbitration or is hedged with a conditionality? The learned Single Judge of the High Court of Judicature at Madras vide impugned judgment and order dated 30th November, 2017 in O.P. No.537/2017 had held that post amendment of the Arbitration and Conciliation Act, 1966 (for short, “the Act”), with effect from 23rd October, 2015 by insertion of sub-section 6A in Section 11 of the Act, the limited mandate of the Court is to examine the factum of existence of an arbitration agreement. No more and no less. The learned Single Judge placed reliance on the two-Judge Bench decision of this Court in Duro Felguera, S.A. Vs. Gangavaram Port Limited, (2017) 9 SCC 729 and another decision of its own High Court in Jumbo Bags Ltd. Vs. New India Assurance Co. Ltd., 2016 SCC OnLine Mad 9141 : (2016) 3 CTC 761 : (2016) 2 LW 769. The appellants, however, placed reliance on a three-Judge Bench decision of this Court in Oriental Insurance Company Limited Vs. Narbheram Power and Steel Private Limited, (2018) 6 SCC 534 where this Court had an occasion to construe a similar clause of an insurance policy as in the present case. Relying on this decision, it is urged that the impugned judgment cannot be countenanced and that the High Court ought to have dismissed the original petition filed by the respondents under Sections 11(4) & 11(6) of the Act read with Rule 2 of the Appointment of Arbitrators by the Chief Justice of Madras High Court Scheme, 1996, to declare the arbitrator nominated by the respondents herein as the sole arbitrator; or in addition, appoint one arbitrator on behalf of the appellants herein so as to adjudicate all the disputes inter se between the parties in terms of the Act.
2. Shorn of unnecessary facts, be it noted that the respondent Nos.1 and 2 constitute a Joint Venture (“JV”). Respondent No.3 awarded a contract on 29th September, 2006 for design, construction and maintenance of a bridge across the River Chambal, which was to be completed within a period of 40 months and was commenced on 5th December, 2007 by the JV after respondent No.3 handed over the site to it. After commencement of the work, a Contractor All Risk Insurance Policy (“CAR Policy”) dated 5th December, 2007 was obtained from the appellants covering the entire project, valued at Rs.2,13,58,76,000/-. The policy contained clause 7, which reads thus:
“7. If any difference shall arise as to the quantum to be paid under this Policy (liability being otherwise admitted) such difference shall independently of all other questions be referred to the decision of an arbitrator to be appointed in writing by the parties in difference, or if they cannot agree upon a single arbitrator to the decision of two disinterested persons as arbitrators of whom one shall be appointed in writing by each of the parties within two calendar months after having been required so to do in writing by the other party in accordance with the provisions of the Arbitration Act, 1940, as amended from time to time and for the time being in force in case either party shall refuse or fail to appoint arbitrator within two calendar months after receipt of notice in writing requiring an appointment the other party shall be at liberty to appoint sole arbitrator and in case of disagreement between the arbitrators, the difference shall be referred to the decision of an umpire who shall have been appointed by them in writing before entering on the reference and who shall sit with the arbitrators and preside at their meetings.
It is clearly agreed and understood that no difference or dispute shall be referable to arbitration as herein before 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
