Sudhir Gudal, director, Magus Corporate Advisors Pvt Ltd tells Raj Pradhan and Rushab Dhandokia

Moneylife Digital Team

ML: How can arbitration be used for redressing grievances?

SG: Arbitration can be invoked by an insured policyholder only if the insurance company has accepted its liability under the policy and the dispute is only on the quantum. Thus, if the insurance company rejects/repudiates the claim, then, the option of arbitration is not available. In case of repudiation of claims, the policyholder can approach the grievance cell of the insurance company, the grievance cell of IRDA, the insurance ombudsmen, consumer disputes redressal forums or civil courts, depending on the type of insurance policy.

ML: Is arbitration being actively used?

SG: Policyholders are unaware of it. Also, insurers are reluctant to accept arbitration, as the costs of arbitration are increasing. Once the liability has been admitted by the insurance company, it sends a discharge voucher, which clearly says that the settlement amount offered is towards ‘full and final settlement of claim’. If the policyholder discharges the voucher conditionally saying, ‘I accept the offered amount but as part settlement of claim’, the insurer does not settle the claim. They insist on receiving an unconditional discharge of the settlement voucher accepting the claim settlement as ‘full and final’. Recently, through several judgements, the courts have opined that once the claim settlement amount has been accepted as ‘full and final settlement’, there is no future liability on the insurer and the contract comes to an end. Sometimes, insurers play on the emotions and the financial capacity of the policyholder.

ML: What is the advantage of going for arbitration?

SG: The tribunal analyses the matter very clearly and arrives at a more precise speaking order. Section 34 of the Arbitration Act provides the opportunity to either party to appeal against the arbitration award in the high court. However, the grounds for appeal are very limited. It has been experienced that arbitration awards are reasonably respected by the insurance companies.

ML: What are the drawbacks of arbitration in the insurance sector?

SG: Delays and costs. Arbitration was introduced to ensure faster settlement of disputes. The high court at the time of appointment of arbitrators, used to insist that the arbitration has to be completed within four months. Unfortunately, it has failed in India. The time taken for completing an arbitration is between one and two years and the cost involved for the entire arbitration may get to be as high as Rs10 lakh to Rs15 lakh. Arbitrators are generally former judges of the high court and Supreme Court. The Arbitration and Conciliation Act, 1996 prescribes that all arbitrators, in a tribunal, have to charge the same fees. In case it is a single arbitrator, he may charge between Rs50,000 and Rs1 lakh per hearing and in case of a three-bench arbitrators, each arbitrator charges between Rs30,000 and Rs1 lakh per hearing. The fees include reading fees and hearing fees. Apart from these costs, the lawyers’ fees also need to be paid. As consultants, we discourage policyholders to go for arbitration for claims below Rs10 lakh.