- within Litigation and Mediation & Arbitration topic(s)
- with Senior Company Executives, HR and Finance and Tax Executives
- in Canada
- with readers working within the Transport, Law Firm and Construction & Engineering industries
Clauses in insurance policies imposing a 12-month deadline for filing claims are void, says the Delhi High Court as these contravene §28 of the Indian Contract Act 1872.
Background
The insured held fire insurance policies containing a clause that barred the insurer's liability after 12 months from the loss unless the claim was the subject of a pending action or arbitration.
In April 2001, the Insured lodged an insurance claim for damage to its plant and machinery. Dissatisfied with the quantum of settlement offered by the Insurer, the Insured invoked arbitration and secured an award for the payment of an additional amount. The Insurer challenged the award, arguing that the policy extinguished all liability for claims raised after 12 months from the date of the loss. Relying on the unamended §28 of the Contract Act, the High Court set aside the award. This decision was challenged in appeal by the Insured.
Decision
The High Court held that the 1997 amendment to §28 of the Contract Act was substantive and applicable to insurance policies issued after 1997, including the 2001 policies in question. Relying on Union of India v IndusInd Bank1, the Court noted that the amendment prohibited clauses that extinguish rights or discharge liability on the expiry of a contractually fixed period.
The Court held that a contractual clause that either shortens the limitation period or extinguishes substantive rights upon the expiry of a period shorter than the statutory limitation period, is void. The Court restored the award.
Footnotes
* FAO(OS) 426/2009.
1. (2016) 9 SCC 720.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
