Insurance Policy Cheque Dishonoured - Liability of insurer to indemnify third parties continues

Bombay High Court Upholds Insurer's Liability Despite Premium Cheque Dishonor - Insurance company must pay compensation for motor accident claims unless policy cancellation is pre-notified

In a significant ruling, the Bombay High Court has upheld the decision of the Motor Accident Claims Tribunal, Pune, directing New India Assurance Co. Ltd. to compensate the family of Kanakdas Shetty despite the dishonour of the premium cheque issued for the truck's insurance policy. The judgment was delivered by Justice Dr. Neela Gokhale on September 22, 2025.

The case stems from a tragic accident on May 3, 2012, when Kanakdas Shetty, traveling with his family, succumbed to injuries after a truck collided with their car. The truck, owned by Respondent No. 4, was insured by the appellant insurance company. The insurance policy was under scrutiny due to the dishonour of a premium cheque, but the court emphasized that liability under the Motor Vehicles Act, 1988, persists unless cancellation is communicated before an accident.

The insurance company argued that the policy lapsed due to the dishonoured cheque and claimed it informed the truck owner post-accident. However, the court highlighted precedents from similar cases, including Oriental Insurance Company Ltd. v. Nanjappan and United India Insurance Company Ltd. v. Laxmamma, asserting that an insurer's liability to third parties remains unless the insured is notified of policy cancellation before the incident.

Justice Gokhale's judgment affirmed the Tribunal's decision requiring the insurer to pay Rs. 58 Lakhs compensation to Shetty's family, with allocations set as 50% to the widow, and 25% each to the son and daughter. The judgment also allowed the insurer to recover the compensation from the truck owner, reinforcing the principle that insurers can initiate recovery proceedings without separate suits.

The court dismissed cross objections from both the insurer and the truck owner, denying requests for enhanced compensation and remand for fresh trial. The ruling underscores the judicial stance that insurance companies cannot evade liability through post-accident cancellations, reinforcing protection for third-party claimants in motor accident cases.

Bottom Line:

Liability of insurer to indemnify third parties under a motor insurance policy continues unless the policy was cancelled and intimation of such cancellation reached the insured before the accident occurred.

Statutory provision(s): Motor Vehicles Act, 1988

New India Assurance Co. Ltd. v. Mrs. Vinuta Kanakdas Shetty, (Bombay) : Law Finder Doc Id # 2782339