Amendment of Arbitration Clause in General Insurance Policies

Introduction

In response to the reference made by the Hon’ble Supreme Court of India, the Insurance Regulatory and Development Authority of India (IRDAI) conducted a comprehensive review of the existing Arbitration Clause that prevails across various lines of business in the General Insurance Industry. After thorough consultation with stakeholders, IRDAI has determined that the existing Arbitration Clause has certain limitations and requires amendments. Additionally, it has been recognized that retail/individual policyholders have alternative forums available to address their grievances/disputes, including the Insurer’s Grievances System, Insurance Ombudsman, Consumer Courts, and Civil Courts.

Scope of Amendments: Retail and Commercial Lines of Business

In exercise of its powers under Clause (i) sub Section (2) of Section 14 of the IRDA Act, 1999, the Authority hereby issues the following directives:

1. Retail Lines of Business

All policies issued under the Retail Lines of Business shall not contain any Arbitration Clause. This ensures that retail/individual policyholders can access alternative grievance redressal mechanisms.

1. Commercial Lines of Business

All policies issued under the Commercial Lines of Business must include the following Arbitration Clause:
“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 clause provides a framework for commercial policyholders to engage in arbitration if they choose to do so.

Transitory Provisions

In order to facilitate a smooth transition, the following transitory provisions have been put in place:

1. New Policies Issued on or After the Date of this Circular

For all new policies issued on or after the date of this circular:

• The Arbitration Clause shall be deemed deleted from all retail policies.
• The clause mentioned in point II above shall be deemed the Arbitration Clause in General Conditions for all commercial insurance policies.

1. Existing Policies

For all existing policies:

• The existing Arbitration Clause shall remain valid until the term of the policy, unless a policyholder specifically requests the insurer to replace it with the clause mentioned in point II above.
• The clause mentioned in point II shall replace the existing Arbitration Clause in all commercial policies from the date of renewal falling on or after the date of this circular.

Responsibility of Insurers

Insurers are required to take necessary steps to inform policyholders about this amendment and make relevant amendments to their policy provisions accordingly.

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Importance of Amendments to the Arbitration Clause

The amendments to the Arbitration Clause in General Insurance Policies are of significant importance to ensure fair and efficient dispute resolution within the industry. The changes address the limitations of the existing clause and take into consideration the specific needs of different lines of business and policyholders. By establishing separate provisions for retail and commercial policies, the amended Arbitration Clause provides practical solutions for resolving disputes.

Implications for Retail Lines of Business

Under the revised policy, retail/individual policyholders are exempted from the Arbitration Clause. This means that for policies issued under the Retail Lines of Business, policyholders have the option to seek redressal through alternative channels. These channels include the Insurer’s Grievances System, Insurance Ombudsman, Consumer Courts, and Civil Courts. By keeping retail/individual policyholders out of the Arbitration Clause, their rights and access to appropriate forums for dispute resolution are protected.

Provisions for Commercial Lines of Business

In contrast to the retail policies, all policies issued under the Commercial Lines of Business are required to include an Arbitration Clause. The revised clause allows the parties involved in the contract to mutually agree and enter into a separate Arbitration Agreement to settle any disputes arising from the policy. The arbitration process will be conducted in accordance with the provisions outlined in the Arbitration and Conciliation Act, 1996. This ensures that commercial policyholders have a clear framework for resolving disputes through arbitration if they choose to do so.

Transitory Provisions for Smooth Transition

To ensure a smooth transition, the circular provides transitory provisions for both new and existing policies. For new policies issued on or after the date of this circular, the Arbitration Clause is deemed deleted from all retail policies. The Arbitration Clause mentioned in the circular is considered the Arbitration Clause in the General Conditions for all commercial insurance policies.
For existing policies, the existing Arbitration Clause remains valid until the policy term unless policyholders specifically request the insurer to replace it with the clause mentioned in the circular. From the date of renewal falling on or after the date of this circular, the clause mentioned in the circular replaces the existing Arbitration Clause in all commercial policies.

Responsibility of Insurers

Insurers have the primary responsibility to ensure compliance with the directives outlined in the circular. They are required to take necessary steps to inform policyholders about the amendment and make relevant changes to their policy provisions. By promptly communicating the updates to policyholders, insurers can ensure a smooth transition and avoid any confusion or disputes.

Conclusion

The IRDAI has implemented new amendments to the Arbitration Clause in General Insurance Policies to address limitations and improve grievance redressal. The changes distinguish between retail and commercial lines of business, facilitating a smooth transition. Insurers must comply and inform policyholders promptly. Separate provisions for each line of business ensure access to appropriate grievance redressal. These amendments highlight the industry’s commitment to improving dispute resolution.
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