In New India Assurance v Ampoules & Vials Manufacturing Co1, the Bombay High Court has held that there can be no arbitration under a quantum-only arbitration clause in circumstances where an insurer refuses to make additional payments on the ground that a discharge voucher (DV) has already been executed.
Arbitration clauses in Standard Fire and Special Perils Insurance Policies are commonly limited to disputes regarding the quantum of the claim and not liability under the Policy.
Ampoules & Vials (Insured) had purchased a Standard Fire and Special Perils Policy from New India Assurance (Insurer) for its factory premises. A fire occurred in the Insured's factory and the Insured lodged a claim of ₹3.55 Crores with the Insurer.
The Insurer settled the claim at ₹1.59 Crores following the execution of a DV by the Insured and its Bank. The DV confirmed that the Insured's receipt of this amount was in full and final settlement of the Insured's claim.
The Insured then sent an arbitration notice. The Insurer replied that the amount had been paid in full and final settlement of the claim and that it was not liable to make any additional payment to the Insured. The Insured then unilaterally appointed an arbitrator who proceeded with the arbitration and pronounced an award against the Insurer. This award came to be challenged before the Bombay High Court under §34 of the Arbitration & Conciliation Act 1996.
Findings of the Bombay High Court
The Bombay High Court set aside the arbitral award ruling that the sole arbitrator could not have proceeded with the arbitration unless and until the prescribed procedure to appoint an arbitrator had been followed by the parties. The award was therefore set aside on grounds that the composition of the tribunal was not in accordance with law.
The Court interestingly also held that the sole arbitrator, in any event, lacked the jurisdiction to adjudicate the dispute as it was one regarding liability under the Policy and not the quantum of the claim. The Court noted that the Insurer had contested the jurisdiction of the tribunal on the ground that the Insurer had been completely discharged of its liability for the Insured's claim once the DV had been executed to record accord and satisfaction by way of a final settlement of the claim.
The Court interpreted the Insurer's denial to pay any additional amount pursuant to the execution of a DV to be a dispute regarding liability and not quantum. It therefore held that there could be no arbitration in circumstances where the arbitration clause envisaged disputes only in relation to the quantum of the claim.
The judgment of the Bombay High Court is a fresh outlook on what constitutes a quantum-only dispute under a fire policy. Insurers have traditionally disputed arbitrability after the execution of a discharge voucher on grounds that the claim has been extinguished. These arbitrations have been treated as quantum-only arbitrations, but the Bombay High Court has categorised a claim for additional sums under a Policy after the execution of a discharge voucher as a liability dispute that cannot be arbitrated under a quantum-only arbitration clause. It will be interesting to see how a higher forum, including the Supreme Court of India, views and construes the conclusions in this judgment.
1 Arbitration Petition No 592 of 2013.
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