Invoking arbitration after full and final settlement of Insurance claim

Invoking arbitration after full and final settlement of Insurance claim

Author: Vishal Tinani, BA.LLB, LL.M

Invoking arbitration after full and final settlement of Insurance claim

It is a vastly illustrated affair that insurance companies may deny to accept partial liability to avoid arbitration—a costly affair for insurers. Most insurance (quantum) disputes can be referred to arbitration, but sometimes chances to invoke arbitration plummets due to discharge voucher (DV’s) execution, stating acceptance of insured’s consent for full and final settlement to hogwash the insured further claim.   

Is it a healthy practice to grant even partial payment subject to the condition of signed and stamped DV? What are the Insured rights in these circumstances? These are some of the points to be considered for fruiting the technical aspects of insurance and arbitration.  

The notion is well accepted; if the insurers deny the claim in full by rejecting its admissibility, there is no remedy available for arbitration (except approaching the High court, consumer forum, commissions, and thereafter Supreme court). Only when the insurance company accepts the liability and offers a settlement, then the dispute on quantum is always referable for arbitration. In case of non-appointment and no mutual consent, the high court, and thereafter the Supreme court is the proper venue for pleading the appointment of arbitrators and even a sole arbitrator.    

What various insurance policy arbitration clause says?  

As stated with minute changes in a number of arbitrators, much of the arbitration provision in the insurance agreement is similar, as stated — “If any dispute or difference arises as to the quantum to be paid under this policy (liability being otherwise admitted), such difference shall independently of all questions be referred to the decision of a sole arbitrator to be appointed in writing by the parties to the contract or if they cannot agree upon a single arbitrator within 30 days of any party invoking arbitration, the same shall be referred to a panel of three arbitrators, comprising of two arbitrators, one to be appointed by each of the parties to the dispute /difference and the third arbitrator to be appointed by such two arbitrators and arbitration shall be conducted under and in accordance with the provisions of the Arbitration and conciliation act, 1996.” (Standard IRDAI Insurance policy arbitration clause)

The dispute resolution clause can be divided into the following three parts: –  

Part 1. The dispute or difference on quantum then the claim can be referred to the arbitration  

Part 2. There shall be no arbitration if the insurer has wholly denied the liability under the policy; and.  

Part 3. Accepting some amount/quantum (executing DV) under duress and compulsion and initiating arbitration for the remaining quantum.

In part 1, it is well perceived that the difference in quantum can be referred for arbitration. In part 2 one may say that insured is remediless as far as invoking Section 11(6) of the Arbitration Act is concerned if the insurer entirely denies the claim. In part 3, the quantum already paid is sometimes subjected to the discharge voucher stating voluntary accord and consent of insured for accepting partial or any payment pursuant to claim. It is to be noted that part 3 is concomitant to part 1. Part 1 must be satisfied and complied with at first instance to invoke the arbitration clause.

Voluntary consent/Accord of discharge voucher and its arbitrability  

It is pertinent to broach that the insured is within its right to request reconsideration of the deductions made even after executing the Discharge Voucher. This objection to the Discharge Voucher is also in compliance with the Circular bearing Reference No. IRDA/NL/CIR/Misc/173/09/2015 issued by Insurance Regulatory and Development Authority of India (“IRDA”) directing/informing the insurers that the execution of discharge voucher does not foreclose the rights of the policyholders to seek higher compensation before any judicial fora or any other forum established by law and that even though the policyholder has signed the Discharge Voucher, the policyholder is not estopped from claiming a higher amount. The same is warranted in the backdrop when IRDAI received complaints from aggrieved policyholders that the insurers are using the said instrument of discharge voucher in the judicial fora with the plea that the full and final discharge voucher extinguish the rights of policyholders to contents the claim before the courts. This narrates the approach taken by the insurance companies during the claim settlement and has been christened in the pleadings of policyholders stating the preconceived emulating method of insurers.

Void DV’s doesn’t bar the insured right to invoke arbitration for further Bona fide claim. 

The insurance company is not permitted by any law to withhold the admitted amount’s payment unless the amount is voluntarily accepted by the insured as a full and final settlement. Moreover, if the protests and non-acceptance are conveyed to the insurer before the cheque gets enchased, then it cannot be held that amount was accepted by the insured as voluntary as the same was accepted under compelling circumstances and under protest. Where disagreement exists before the contract is discharged, then it is not necessary to prove on the face of instrument discharging the same as it is always compelling and involuntary in nature.  

In a recent judgment, United India Insurance Co. Ltd. v Antique Art Exports Pvt Ltd. The Hon’ble Court held that execution of full and final agreement by parties to insurance contract and receipt of a discharge voucher by insurer in itself could not be a bar to arbitration. It further relied upon its decision in National Insurance Co. Ltd vs M/S. Boghara Polyfab Pvt.Ltd on 18 September, 2008, which lays down any discharge voucher executed under threat, coercion, or economic duress and compulsion, such discharge voucher is neither valid nor binding on the insured entity or person, and the dispute relating to the claim survives for consideration and is arbitrable. Where the person to whom the claim is made withholds the admitted amount to coerce and compel the claimant to accept a smaller payment in full and final settlement and gave a discharge voucher, there is no accord and satisfaction in the eyes of the law; and discharge voucher will not come into the way of a genuine and bona fide dispute raised regarding the balance of the claim and seeking reference of such claim to the arbitration. Similarly, in support of said contentions, the reliance was placed on the decisions of this Court in Damodar Valley corporation V. K.K. Kar (1974(1) SCC 141), Ambica construction V. Union of India (2006 (13) SCC 475). M/s Bharat Heavy electrical Ltd., Ranipur V. M/s Amar Nath Bhan Prakash (1982 (1) SCC 141).  

The dispute or contention by the insurer that there is a discharge of the contract by the issue of full and final settlement voucher is a matter for an arbitral tribunal to examine and decide, and cannot be held as a threshold bar to arbitration; and that the question whether there were accord and satisfaction, or whether there was a discharge of a contract by performance, is itself a question that is clearly arbitrable.

Unfair trade practice of discharging contract of insurance involuntarily.

In given case of coercion, duress or undue compulsion of discharge voucher must prima facie satisfy the judicial fora, once satisfied that the discharge voucher was obtained by fraud, misrepresentation, coercion, undue influence, or like coercive bargaining circumstances, then insured has every right to seek to plead the invocation of the arbitration clause. The approach taken by the Supreme Court is also patterned in the cases before the National Commission. In Oriental Insurance Co. Ltd. v. Government Tool Room and Training Centre reported in (2008) CPJ 267 (NC), the Hon’ble National Commission directed the insurance companies to abandon this practice of not paying the claim amount without a full and final discharge voucher and considered it as an unfair trade practice and further directed the Insurance Regulatory Development Authority (IRDA) to take appropriate action so that the insured’s option/choice to approach the legal forum for just settlement of his claims is not curtailed or defeated.

In National Insurance Company Ltd. v. Rajan Sood reported in IV (2014) CPJ 415 (NC), the Hon’ble National Commission rejected the similar plea of the Insurance Company asserting the defence of written consent and executed discharge voucher, the insured who had lost household goods in a fire accident and had been waiting for settlement of his claim for years accepted the cheque offered by the Insurance Company under economic duress and impecunious financial condition. Considering the binding nature of it, Hon’ble National Commission held that the settlement relied upon by the Insurance Company is not a settlement out of free consent, and the Insurance Company cannot take advantage of the involuntary and coerced settlement.    

To further elucidate, para 51 of the oriental Insurance co Ltd and Anr V. Dicitex Furnishing Ltd (SLP (C) No. 34186 of 2015) to consider what civil court would have done in a case where the defendant puts forth the defense of accord and satisfaction based on a discharge voucher signed and returned by insured in final settlement for release of the sum of claim payment from the Insurance company, and the policyholder alleges that it was obtained by fraud/coercion undue influence and therefore not valid. If no fraud, coercion, or undue influence is found or established, it will accept the voucher accordingly to the contract’s discharge and reject the claim without going into the merits. On the other side, if it is established that the discharge voucher had been obtained by fraud/undue influence/coercion. The same would be ignored, examine whether the plaintiff had made out the claim on merits, and decide the matter accordingly. This position taken here by the court is also applicable when there is a provision for arbitration.

Likewise, in master construction and Genus power (Supra), the court cautioned that a “bald Plea” of coercion, without any supporting documents/ material, is insufficient; it is necessary the claimant must bring prima facie bona fide contention as the chief justice/his designate must look into the credibility and reliability.  


Many policyholders withhold their rightful claim once burdened by the vehement defense of discharge voucher executed in the full and final settlement. However, the defense does not warrant the avoidance of arbitration in full. Once there is a partial acceptance of the claim, the remaining claim for quantum paid cannot be excused for invoking the arbitration merely or solely on the ground that a settlement agreement or discharge voucher has been executed by the insured subject to bona fide claim as warranted in para 24 (Page 284) in Boghara ployfab private Ltd.   

The genesis is that there are decisions of courts (Associated construction V. Pawanhans helicopters Ltd (2008) 16 SCC and Boghara Polyfab (Supra) which upheld the concept of economic duress in executing discharge voucher. In more places than one, the court recognized that an aggrieved party could be the victim of economic concern, which results in its signing a document that discharges the other party of its obligations. 

Present plunging market carrying the symptom of amelioration, chances are high as every that companies/organization hit by the claims will seek full retention of claim not only due to the economically distressed situation but also assimilating present substandard economics into an excuse of economic duress for executing discharge vouchers, which in turn may bring the parties to the arbitration table, it is to be noted that the existence of an arbitration clause in the contract of insurance is not disputed, and is vindicated.



2) National Insurance Co. Limited v. Boghara Polyfab Private Limited. SC/4056/2008: 2009(1) SCC 267 

3) Section 11 in The Arbitration Act, 1996 

4) Section 15 in The Arbitration Act, 1996 

5) Section 16 in The Arbitration Act, 1996 

6) Section 20 in The Arbitration Act, 1996 

7) Damodar Valley corporation V. K.K. Kar (1974(1) SCC 141) 

8) Ambica construction V. Union of India (2006 (13) SCC 475) 

9) M/s Bharat Heavy electrical Ltd. Ranipur V. M/s Amar Nath Bhan Prakash (1982 (1) SCC 141) 

10) National Insurance Company Ltd. v. Rajan Sood reported in IV (2014) CPJ 415 (NC) 

11) oriental Insurance co Ltd and Anr V. Dicitex Furnishing Ltd (SLP (C) No. 34186 of 2015) 

12) Union of India & Ors vs M/S. Master Construction Co on 25 April, 2011 

13) Associated construction V. Pawanhans helicopters Ltd (2008) 16 SCC 

14) New India Ass. Co. Ltd vs Genus Power Inf. Ltd on 4 December, 2014 

15) Mirc Electronics Ltd vs The Oriental Insurance Company on 15 February, 2016


17) The arbitration and conciliation act, 1996