Supreme Court Rules Against Arbitration in Insurance Dispute Due to Lack of Evidence

The case of United India Insurance Co. Ltd. vs. Antique Art Exports Pvt. Ltd. is a crucial judgment in the realm of insurance claims and arbitration. The Supreme Court examined whether an arbitration clause in an insurance contract could be invoked when the insurer alleged that a claim had already been settled with due accord and satisfaction.

Background of the Case

The respondent, Antique Art Exports Pvt. Ltd., operated a factory in Panipat, Haryana and had obtained two fire insurance policies from United India Insurance Co. Ltd. covering risks associated with their premises.

On September 25, 2013 and October 25, 2013, two separate fires occurred in the factory, allegedly due to short circuits. The company lodged claims for damages with the insurance provider. The insurer appointed surveyors and investigators to assess the losses. After evaluating the claims, the insurer offered:

• ₹2,20,36,840 for the first fire (September 25, 2013).
• ₹2,81,44,413 for the second fire (October 25, 2013).

The insured initially accepted the compensation and signed a full and final settlement discharge voucher. However, after 11 weeks, they contested the settlement, claiming they had signed the agreement under coercion and undue influence.

Legal Issues Before the Supreme Court

The key legal issues in this case were:

• Whether the respondent’s acceptance of the settlement barred them from invoking arbitration.
• Whether the claim of coercion and undue influence was substantiated with evidence.
• Whether the High Court erred in appointing an arbitrator despite the insurance company’s objection.

Arguments by the Petitioner (United India Insurance Co. Ltd.)

• The insurance company argued that the settlement was made in full and final satisfaction, as evidenced by the signed discharge voucher.
• The insured had accepted the settlement voluntarily without any protest at the time of signing.
• The claim of coercion was raised only after 11 weeks, making it an afterthought and legally unsustainable.
• The insurer relied on past Supreme Court judgments stating that a mere allegation of coercion or undue influence is insufficient to reopen a settled claim.

Arguments by the Respondent (Antique Art Exports Pvt. Ltd.)

• The insured argued that they were under severe financial distress at the time of settlement and had no choice but to sign the discharge voucher.
• They contended that the insurance company had coerced them into accepting a lower settlement than what they were entitled to.
• Since the agreement contained an arbitration clause, the dispute should be referred to an arbitrator for proper adjudication.

Supreme Court’s Analysis and Judgment

The Supreme Court examined whether the insured had provided sufficient evidence to support their claim of coercion. The Court made the following critical observations:

• “A mere plea of fraud, coercion, or undue influence is not enough; the party alleging must provide prima facie evidence to substantiate their claim.”
• “The insured accepted the compensation and issued a discharge voucher without any demur or protest. It was only after 11 weeks that they alleged coercion.”
• “There was no supporting documentary evidence to prove that the settlement was made under undue influence.”
• “Execution of a full and final settlement agreement bars arbitration unless fraud or coercion is established beyond doubt.”

Final Judgment

The Supreme Court ruled as follows:

• The insured had voluntarily accepted the settlement and could not invoke arbitration after 11 weeks of silence.
• The High Court’s decision to appoint an arbitrator was set aside.
• The insured’s claim was dismissed, and the discharge voucher was upheld as legally binding.

Significance of the Judgment

This ruling has significant implications for insurance claims and arbitration:

• Full and final settlement agreements must be challenged immediately, not after a long delay.
• Courts will not entertain claims of coercion unless supported by credible evidence.
• Arbitration cannot be invoked once a claim has been voluntarily settled and discharged.

Conclusion

The Supreme Court’s decision in United India Insurance Co. Ltd. vs. Antique Art Exports Pvt. Ltd. reinforces the sanctity of settlement agreements in insurance disputes. It establishes that mere allegations of coercion are insufficient to nullify a signed discharge voucher, thereby ensuring that insurance contracts are honored in good faith.

Petitioner Name: United India Insurance Co. Ltd..
Respondent Name: Antique Art Exports Pvt. Ltd..
Judgment By: Justice A.M. Khanwilkar, Justice Ajay Rastogi.
Place Of Incident: Panipat, Haryana.
Judgment Date: 28-03-2019.

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