Supreme Court Directs Insurer To Compensate Claimants But Permits Recovery From Vehicle Owner; Bars Recovery From Claimants For Amount Already Withdrawn

A bench of Justices K. Vinod Chandran and N.V. Anjaria heard an appeal by a general insurance company challenging the High Court of Delhi's confirmation of an award by the Motor Accident Claims Tribunal in a fatal motor accident claim. The narrow issue concerned the insurer's liability where its policy was allegedly cancelled after the premium cheque bounced, and whether the insurer could be fastened with payment of compensation to third‑party claimants.

The Court held that, while cancellation of an insurance policy for non‑payment of premium may in law absolve an insurer from liability once intelligible notice had been given, equity and precedent justified ordering payment to the victims with a right of recovery against the vehicle owner. The Court noted earlier rulings and applied the “pay and recovery” approach. The Court, in its reasoning, observed: The Court therefore disposed of the appeal by confirming that recovery could be pursued from the owner, but directed that no amount already deposited and withdrawn by the claimants would be recovered from them.

Background The dispute arose from a road accident on 22 August 2005 in which the deceased, riding a motorcycle, was hit from behind by a speeding truck and run over. The Claims Tribunal found the truck driver solely responsible, assessed the deceased’s monthly income at ₹3,364, applied a multiplier of 17 and awarded total compensation of ₹8,23,000. The insurer contended before the Tribunal and the High Court that its policy in respect of the offending vehicle had been cancelled after the cheque for premium was dishonoured and that it therefore stood discharged of liability. The Tribunal recorded the insurer’s uncontroverted evidence that the premium cheque had bounced and that the insurer had sent a cancellation intimation to the owner and the RTO; nonetheless the Tribunal directed the insurer to pay the award in the first instance and permitted it to recover from the owner. The High Court dismissed the insurer’s appeal.

The Supreme Court reviewed binding authorities, including National Insurance Co. Ltd. v. Seema Malhotra, Deddappa v. Branch Manager, National Insurance Co. Ltd., and United India Insurance Co. Ltd. v. Laxmamma, and reiterated the established “pay and recovery” principle: where a policy is rescinded for non‑payment of premium but third parties would be prejudiced, the insurer may be directed to satisfy the award and then recover from the insured. Noting that the insurer had already deposited one‑half of the awarded sum with interest and that claimants had withdrawn it, the Court exercised equitable jurisdiction to provide that no recovery would be permitted from the claimants in respect of that deposited half; the insurer retained the legal remedy to recover that amount from the vehicle owner, and the balance of the award remained payable by the owner in accordance with law. The appeal was disposed accordingly.

Case Details: Case No.: CIVIL APPEAL NO. 9854/2016 Case Title: National Insurance Company Limited v. Sunita Devi & Ors. Appearances: For the Petitioner(s): Amit Kumar Singh, Advocate For the Respondent(s): Sudhir Naagar, Advocate‑on‑Record