In a significant judgement, the Supreme Court of India addressed the liability of insurance companies in motor accident claims when the insurance policy is cancelled due to non-payment of premiums. The case, National Insurance Company Limited vs. Sunita Devi & Ors., revolved around whether an insurer could be held liable for compensation after cancelling a policy due to a bounced cheque for the premium.
Background of the Case
The incident dates back to 22nd August 2005, when a speeding truck hit a motorcycle, resulting in the death of Dheeraj Singh, a 36-year-old computer engineer. The Motor Accident Claims Tribunal awarded ₹8,23,000 as compensation to the victim’s family. However, the National Insurance Company contested its liability, arguing that the policy for the offending truck had been cancelled due to non-payment of the premium.
The Tribunal and the High Court both upheld the insurer’s liability, directing the company to pay the compensation first and then recover the amount from the vehicle owner. The Insurance Company appealed to the Supreme Court, challenging this decision.
Key Arguments and Evidence
The Insurance Company presented evidence that the premium cheque had bounced due to insufficient funds, leading to the policy’s cancellation. They also proved that the cancellation was communicated to the vehicle owner and the Regional Transport Office (RTO) well before the accident. Despite this, the Tribunal and High Court ruled in favour of the claimants, applying the "pay and recover" principle.
The Insurance Company relied on precedents like National Insurance Company Ltd. vs. Seema Malhotra and Deddappa & Ors. vs. Branch Manager, National Insurance Company Limited, where the Court held that a cancelled policy absolves the insurer of liability. However, in those cases, the Court still directed the insurer to pay the claimants and later recover the amount from the owner.
The Supreme Court examined the facts and legal precedents closely. It noted that the policy was cancelled three months before the accident, and the cancellation was duly communicated. Despite this, the Court upheld the "pay and recover" principle, emphasizing the protection of third-party rights under the Motor Vehicles Act, 1988.
"The statutory liability of the insurer to indemnify third parties subsists unless the policy is cancelled and intimated before the accident."
The Court directed that the 50% compensation already deposited by the Insurance Company and withdrawn by the claimants would not be recovered from them. However, the insurer could recover this amount from the vehicle owner. The remaining 50% was to be recovered by the claimants directly from the owner.
Case Title: National Insurance Company Limited vs. Sunita Devi & Ors.
Case No.: Civil Appeal No. 9854 of 2016