Acceptance Of Insurance Claim Under Protest Not 'Accord And Satisfaction': Bombay High Court

The Bombay High Court on 18 March held that when a claimant accepts the amount offered by an insurer under protest, such acceptance does not bar the claimant from seeking a higher amount before an arbitral tribunal.

Justice Gauri Godse upheld an arbitral award enhancing the compensation payable to the insured after finding an error in the surveyor's assessment. The Court rejected the insurer's contention that the insured's acceptance of the amount amounted to accord and satisfaction. It observed:

“However, in the present case, there is no admitted claim, and the controversy concerns the application of the principle of accord and satisfaction in light of the claimant's letter dated 16th October 2018 and the discharge voucher signed under protest. I have already recorded reasons that the said letter and the discharge voucher cannot be accepted as a full and final settlement of the claim. Hence, in view of the well established legal principles as discussed in the above paragraphs, the said letter and the discharge voucher cannot be accepted as accord and satisfaction of the claim.”

The respondent, Add On Retail Pvt Ltd, held an insurance policy issued by Oriental Insurance Company Ltd. covering stock stored at its godown.

On 23 February 2017, a fire destroyed the entire stock. The company immediately informed the insurer and estimated its loss at approximately Rs. 15 crore.

The insurer appointed a surveyor who inspected the site the next day. Add On submitted all required documents and filed a claim for Rs. 11,74,56,576 by 10 March 2017. However, the final survey report was released only on 11 November 2017, nearly nine months later, and no payment followed.

Instead, the insurer appointed a second surveyor. After a further eleven months, the revised assessment dated 16 October 2018 drastically reduced the assessed loss from Rs. 11,74,57,294 to Rs. 6,15,28,050.

By that time, Add On was facing severe financial distress as its bank had initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and taken symbolic possession of its property.

Faced with financial pressure, Add On consented to the revised assessment on 16 October 2018. On 2 November 2018, it signed the discharge voucher under protest and accepted the reduced amount. Dissatisfied with the settlement, Add On invoked arbitration.

By an award dated 2 August 2023, the arbitrator granted Rs. 3,04,87,713 towards loss of fabric stock and 25 percent of Rs. 1,49,29,335 for accessories, along with interest at 8 percent per annum from 27 December 2018 until the date of the award and 12 percent per annum thereafter, in addition to litigation costs. The insurer challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996.

The insurer argued that Add On had voluntarily accepted the reduced amount and executed the discharge voucher, which constituted a full and final settlement of the claim. It contended that the arbitral award was patently illegal because the arbitrator granted additional compensation despite the settlement.

Add On, on the other hand, submitted that it had objected to the reduced assessment at every stage and had accepted the amount only under protest. It relied on circulars issued by the Insurance Regulatory and Development Authority of India, which state that discharge vouchers obtained under coercion, duress, or compulsion do not amount to accord and satisfaction. It also relied on National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd. (2009) to contend that acceptance of a reduced amount under protest does not bar subsequent claims.

The Court held that the letter dated 16 October 2018 could not be considered in isolation and must be read together with earlier communications in which Add On had objected to the reduced assessment. It noted that the insurer had significantly delayed the claim process by taking nine months to issue the initial survey report and then appointing a second surveyor, resulting in a further delay of eleven months and a substantially reduced valuation.

The Court observed that by that stage Add On was in severe financial distress and had little option but to accept the reduced amount. In such circumstances, the acceptance could not be treated as voluntary or as a full and final settlement of the claim.

The Court further noted that the arbitrator had carefully examined both survey reports and that the figures awarded remained within the limits of the insurer's own assessments. It also observed that the second surveyor had admitted during cross examination that the stock value was Rs. 10,17,82,021, though it had been assessed at only Rs. 6,73,33,561.

Accordingly, the Court refused to interfere with the award, holding that the arbitrator had rightly corrected the discrepancy.