In July 2025 the English high court found that a quantum‑only arbitration clause can only be invoked before litigation commences and the insurer admitted liability.
The clause, commonly used in commercial lines insurance policies, will be familiar to readers: “If any difference shall arise as to the amount to be paid under this Certificate (liability being otherwise admitted) such difference shall be referred to an arbitrator to be appointed by the parties in accordance with the statutory provisions in that behalf for the time being in force. Where any difference is by this condition to be referred to arbitration the making of an award shall be a condition precedent to any right of action against the Insurer.”
The insured claimants argued that there was a substantial dispute as to the breadth of cover agreed and the application of limits, and that liability had not “otherwise been admitted” as required by the arbitration clause. They pointed out that the condition precedent for the arbitration agreement to be engaged was that all other issues were “admitted”, not denied but ultimately determined against the insurer.
Referring to previous authority, the court said it was clear that a dispute about the application of limits is a dispute about the liability of the insurer. Accordingly, liability could not be said to have been admitted. There was no suggestion in any authority that the arbitration clause might suddenly “kick in” at a later stage in the litigation process.
The court held that the arbitration agreement only operates if, at the point when the claim is brought, the precondition for its operation has been fulfilled. If the insurer has not admitted liability, there is no operative agreement to arbitrate, and either party may commence proceedings in court.
The court said that the operation of the arbitration clause was binary: “If it bites, it operates as an exclusive jurisdiction clause. It is a one‑stop shop, but only for claims which are otherwise admitted. For any other type of claim, another venue (here the English Court) must be used.”
The point at which compliance with the precondition is to be tested is the date on which the particular proceedings are brought. If the condition precedent is not fulfilled at the commencement of proceedings, the obligation to arbitrate does not arise later simply because the insurer makes a further admission or an issue is resolved by the court. The court said, “That would be a recipe for mischief and mayhem.”
The court held, and the general proposition was conceded, that if the insured had properly commenced proceedings against their insurers, they were entitled to pursue those proceedings all the way to judgment, even if the policy contained an arbitration clause. It would be highly unsatisfactory if a claim under such a policy could not be heard at a single trial.
The court declined to deal with the hypothetical question whether, if a coverage dispute has been resolved solely on the basis of declarations, and fresh proceedings are then required to determine pure issues of quantum arising out of those declarations, that further claim would fall within the arbitration agreement.
The judgment is consistent with applicable South African principles, and the same result is likely to follow. Compulsory arbitration is forbidden for personal lines insurance by the Policyholder Protection Rules.