Appointment of Sole Arbitrator Following Insurer's Failure to Respond to Notice Involving Fire Loss of Profit Dispute

The Applicant, an electricity generation unit, obtained an "Industrial All Risk Policy" from the Respondents covering material damage, machinery breakdown, and Business Interruption under Fire Loss of Profit (FLOP).

On 04.08.2023, a fire broke out at the Applicant’s plant, causing extensive damage and a six-month shutdown.

While the Respondents admitted liability for "Material Damage" (approx. ₹6.04 Crores), they denied the "FLOP" claim (approx. ₹14.52 Crores), attributing the incident to machinery breakdown/grid failure rather than fire.

The Applicant invoked the arbitration clause (Clause 12 of the policy) via notice dated 24.09.2025.

Despite receiving the notice, the Respondents failed to consent to the appointment of an arbitrator within the statutory 30-day period, prompting the Applicant to move the High Court.

1. Whether a Sole Arbitrator should be appointed under Section 11 of the Arbitration and Conciliation Act, 1996, to adjudicate the dispute regarding the denial of the Fire Loss of Profit (FLOP) claim.

The Court primarily applied Section 11(5) and (6) of the Arbitration and Conciliation Act, 1996, which empowers the Chief Justice or their designate to appoint an arbitrator when the parties fail to agree on a procedure or an appointment.

Section 21 of the Act regarding the commencement of arbitral proceedings upon the receipt of a notice to refer disputes to arbitration.

The Court followed the principle of party autonomy and consensus in the selection of the arbitrator as permitted under the Act.

The Court observed that a valid arbitration agreement existed between the parties under Clause 12 of the insurance policy.

The Applicant successfully demonstrated that a dispute had arisen regarding the classification of the incident (Fire vs. Machinery Breakdown) and the subsequent denial of the FLOP claim.

Since the Respondents failed to respond to the Section 21 invocation notice or consent to an arbitrator within 30 days, the right to approach the Court under Section 11 was triggered.

During the hearing, the Respondents expressed no objection to the appointment of an arbitrator by the Court.

Following a direct query from the bench, both parties reached a consensus on a specific individual to act as the adjudicator.

Based on the consensus between the parties, the Court appointed Hon’ble Shri Justice Arvind Kumar Verma (Retd.) as the Sole Arbitrator to resolve the disputes. The Registry was directed to communicate the order to the appointed Arbitrator, and the remuneration is to be settled through mutual consent of the parties.