On August 21, 2018, the Supreme Court passed a judgment in the matter of United India Insurance Co. Ltd. v. Hyundai Engineering and Construction Co. Ltd. (SLP(C) No. 4260/2018) dealing with the issue whether clause 7 of the subject Insurance Policy dated September 5, 2007, posits unequivocal expression of the intention of arbitration or is hedged with a conditionality?

Brief facts of the aforesaid judgment are:

- Hyundai Engineering and Construction Co. Ltd. (“Respondent”) was awarded a contract for design, construction and maintenance of a bridge. In relation to the same a Contractor All Risk Insurance Policy (“Policy”) was obtained from the United India Insurance Co. Ltd. (“Appellant”).

- An accident occurred during the construction of the bridge, post which a claim was submitted to the Appellants. In relation to this, a report submitted by the Surveyor and Loss Adjuster noted that the accident occurred due to faulty design and improper execution of the project. Another report was filed by a Committee of Experts set up by the Ministry of Road Transport and Highways, Government of India.

- Taking both these reports into consideration, the Appellants stated that no amount was payable under the Policy. Further correspondences were exchanged between the Appellants and the Respondents but the claim was not reconsidered by the Appellants.

- Thus dispute arose between the parties and the Respondents invoked the arbitration clause in the Policy.

- Clause 7 of the Policy stated that no difference or dispute shall be referred to arbitration if the Appellants disputed or did not accept its liability under the Policy.

It was held that  “an arbitration clause will get activated or kindled only if the dispute between the parties is limited to the quantum to be paid under the policy. The liability should be unequivocally admitted by the insurer. That is the pre-condition and sine qua non for triggering the arbitration clause. To put it differently, an arbitration clause would enliven or invigorate only if the insurer admits or accepts its liability under or in respect of the concerned policy.” (Para 12)