In a recent ruling, the Delhi High Court provided important guidance on the applicability of arbitration clauses in insurance policy disputes. When an insurer completely denies liability, 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 insurance policy disputes.
The case before the Delhi High Court involved a dispute between two parties who had entered into an insurance policy agreement containing an arbitration clause. The clause 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 fell outside the scope of the arbitration clause.
The Court has carefully examined the language and intent of the arbitration clause, drawing on a precedent set by the case of Mallak Specialities v. New India Assurance. The court emphasized that if an insurer denies liability entirely, arbitration is not appropriate.
In the present case, the respondent disputed specific claims that they were not covered by the insurance policy, while admitting liability overall. This distinction played a crucial role.
The court highlighted a prior instance where the respondent had consented to arbitration in a separate claim involving the same parties. Taking into account the limited denial of claims based on policy coverage by the respondent, the court granted the petitioner’s request and appointed a sole arbitrator.
The Delhi High Court’s ruling in this case provides a valuable clarity on the scope of arbitration clauses in insurance policy disputes. By differentiating between complete denial of liability and disputes related to specific claims falling outside the policy’s coverage.
