The Insurance Regulatory and Development Authority of India has recently reviewed and amended the scope of the Arbitration Clause in a General Insurance policy. This comes pursuant to a decision by the Hon’ble Supreme Court of India in the matter of M. Hemalatha Devi & Ors Vs B. Udayasri dated October 05, 2023 wherein the Apex Court observed that consumer disputes categorized as non-arbitrable should not be brought before private fora like ‘arbitration’ unless both parties involved in the dispute willingly choose arbitration as their preferred alternative to seeking redress through public fora. The court held that Judicial authorities were vested with greater power compared to an arbitrator including the power to impose penalty for non-compliance of their orders.
The Supreme Court Judgement can be accessed at: M. Hemalatha Devi & Ors Vs B. Udayasri
Hence, based on the above, the Insurance Regulatory and Development Authority of India has directed that retail / individual policy holders may be kept out from the provisions of the Arbitration Clause as they have alternative forums of the Insurer’s Grievances System, Insurance Ombudsman and Consumer Courts besides the Civil Courts available for redressal of their grievances / disputes.
Further, all policies issued under the Commercial Lines of business shall have an Arbitration Clause as follows:
“The parties to the contract may mutually agree and enter into a separate Arbitration Agreement to settle any and all disputes in relation to this policy.
Arbitration shall be conducted under and in accordance with the provisions of the Arbitration and Conciliation Act, 1996.”
This provision will be in effect for all newly issued policies starting from the date of issuance this circular. Any arbitration clause in existing retail policies will be considered null and void.
For standing policies, the existing arbitration clause will remain in force until the policy’s term ends, unless the policyholder explicitly asks the insurer to replace it with the clause mandated by the Insurance regulator. Insurance Regulatory and Development Authority of India has recommended that insurers inform policyholders of these changes and make appropriate adjustments to the relevant policy terms.
A copy of the Insurance Regulatory and Development Authority of India Circular is enclosed below.
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