Court Rules Arbitrator Exceeded Scope by Accepting Surveyor's Report Contrary to Policy Terms
In a significant ruling, the Delhi High Court has set aside an arbitral award in the case of "Oriental Insurance Company Ltd. v. Jindal India Limited," finding that the arbitrator overstepped by accepting a surveyor's report that deviated from the terms of the insurance policy. The judgment was delivered by Mr. Justice Avneesh Jhingan, addressing the contentious issues surrounding the calculation of Business Interruption Loss (BIL) under an Industrial All Risk Policy.
The dispute arose when a fire broke out in Jindal India Limited's aluminium foil division in September 2017, prompting an insurance claim for business interruption loss. The initial surveyor appointed by Oriental Insurance assessed the loss at approximately Rs. 13.31 crores, contrary to Jindal's claim of over Rs. 19.31 crores. A second surveyor, appointed after concerns over the first assessment, valued the loss at Rs. 3.84 crores, which Oriental Insurance paid out. Dissatisfied, Jindal sought arbitration, claiming Rs. 13.53 crores.
The arbitrator sided with Jindal, rejecting the second surveyor's report and upholding the first surveyor's assessment, which was contested by Oriental Insurance for not adhering to the policy terms. The insurer argued that the first surveyor improperly calculated the standard turnover and the Gross Profit Rate (GPR), which should have been based on the financial year preceding the loss.
Justice Jhingan noted that while courts typically refrain from re-evaluating evidence under Section 34 of the Arbitration and Conciliation Act, intervention is warranted when an award contradicts the contract's terms. The court found that the first surveyor's method of calculating the GPR was inconsistent with the policy, which clearly mandated using the GPR from the fiscal year immediately before the incident without adjustments for business trends.
The court's decision underscores the importance of adhering strictly to contract terms in arbitration and insurance claims. This judgment is anticipated to impact future insurance disputes, emphasizing the limits of arbitral discretion when policy terms are explicit.
The judgment reaffirms the principle that arbitral awards must not transgress the boundaries of the underlying contract, ensuring that the interpretation and application of policy terms are consistent and legally sound.
Bottom Line:
Insurance law - Arbitral award cannot be sustained if it goes beyond the terms of the insurance policy, particularly regarding the calculation of Gross Profit Rate (GPR) and standard turnover.
Statutory provision(s): Arbitration and Conciliation Act, 1996 Section 34, Insurance Act, 1938 Section 64UM
Oriental Insurance Company Ltd. v. Jindal India Limited, (Delhi) : Law Finder Doc id # 2876748
