It is unusual for an insurer to force its insured to arbitrate an insurance dispute but in this recent judgment the insurer successfully obtained an order compelling the insured to arbitrate their loss dispute rather than to litigate in the High Court.
The insurers relied on a common policy term regarding arbitration when liability under the policy had been admitted:
“ARBITRATION If any difference shall arise as to the amount to be paid under this Policy (liability being otherwise admitted) such difference shall be referred to an arbitrator or arbitrators to be appointed by the parties concerned in accordance with the applicable statutory provisions in force. The making of an award shall be a condition precedent to any right of action against the Insurer to recover such amount in dispute.”
The insurers also relied on Section 6(1) and 6(2) of the Arbitration Act of 1965, which provides:
“(1) If any party to an arbitration agreement commences any legal proceedings in any court (including any inferior court) against any other party to the agreement in respect of any matter agreed to be referred to arbitration, any party to such legal proceedings may at any time after entering appearance but before delivering any pleadings or taking any other steps in the proceedings, apply to that court for a stay of such proceedings.”
(2) If on any such application the court is satisfied that there is no sufficient reason why the dispute should not be referred to arbitration in accordance with the agreement, the court may make an order staying such proceedings subject to such terms and conditions as it may consider just.”
The insurers had admitted liability under the policy. The difference that arose between the parties was the amount to be paid.
The court referred to the judgment in Crompton Street Motors CC t/a Wallers Garage Service Station v Bright Idea Project 66 (Pty) Ltd t/a All Fuels:
“The language of s6(2) directs a court acting under that section to stay proceedings where such an application is made unless sufficient countervailing reasons exist for the dispute not to be referred to arbitration. The words ‘no sufficient reason why the dispute should not be referred to arbitration denote that the standard position is that a stay should be granted upon request. The onus of satisfying the court that the matter should not be referred to arbitration and instead heard by the High Court is on the party who instituted legal proceedings……The discretion of the court to refuse arbitration in the circumstances should be exercised judicially, and only when a ‘very strong case’ has been made out. This high threshold for refusal is because the party who does not want the matter referred to arbitration ‘is seeking to the deprive the other party of the advantage of arbitration to which the latter is entitled’.”
The burden to prove that the dispute should not be referred to arbitration lay squarely on the insured’s shoulders. The insured unsuccessfully argued that disputes involving limits of cover are for the exclusive domain of the courts. Even if the amount to be paid requires legal interpretation on the facts of the case, the legal interpretation had to be the subject for arbitration.
The insured also sought to convince the court to exercise its discretion under Section 3(2)(b) of the Arbitration Act not to refer the matter to arbitration. The court said that central to the exercise of the discretion to allow a party to opt out of arbitration is the sanctity of the contract, and the onus was on the insured to advance good cause to escape the agreement. The insured had not alleged potential bias on the part of the arbitrator, for example, which is a factor mostly considered in avoiding arbitration, and had shown no good cause at all.
In the circumstances, the courts referred the outstanding loss amount dispute for determination by way of arbitration.