Can Insurance Company Recover The Compensation From Insured If The Cheque Towards Premium Dishonoured?
The Aurangabad Bench of Hon’ble High Court of Bombay in its judgement dated 15th April, 2019 in the matter of ‘SBI Insurance Company Versus Madhubala & Anr.[1]’ has held that in case the cheque towards premium gets dishonoured; the Insurance Company is not liable to indemnify the owner of the offending vehicle (insured) as the same amounts to ‘breach of promise’ under the insurance agreement. Can Insurance Company Recover Compensation From Insured?
Facts:
On
19th November, 2015 the deceased was riding his motorcycle when the
offending private bus driving from the wrong side of the road, hit him
resulting into his death. The deceased was a carpenter by profession earning
Rs. 400/- per day and was the sole bread-earner of the family. Therefore, the
dependents of the deceased (claimants) filed claim petition under section 166
of Motor Vehicles Act, 1988 (“MV Act”)
against the owner, driver and insurer of the offending bus.
The
claim petition was not resisted by the owner and driver of the offending
vehicle but the insurer of the offending bus denied its liability to pay the
compensation on the ground that insurance policies of the offending bus were
cancelled as the cheque issued towards the premium of the policies of insurance
got dishonoured. The defence of contributory negligence was also pleaded.
The
Learned Motor Accident Claims Tribunal, Latur in MACP No. 307/2015 vide its
order dated 7th March, 2018 awarded compensation of Rs.11,93,200/-
to the claimants and joint and several liability was saddled on the owner,
driver and insurer of the offending bus.
Aggrieved
by the orders of the Learned Tribunal, the insurer namely SBI Insurance Company
Ltd. (“Insurance Company”) preferred
First Appeal before the Hon’ble Bombay High Court challenging the award only on
the ground that “because the policies of insurance issued by the insurer of the
offending vehicle were cancelled by the Insurance Company after the occurrence
of the incident on account of bouncing of the cheques issued towards the
premium, the Insurance Company is not liable to indemnify the owner of the
offending vehicle. Therefore, the Insurance Company has right to recover the
compensation from the owner of the offending vehicle, paid to claimants, towards
the satisfaction of the award passed by the Tribunal”[2]
Issues – Can Insurance Company Recover Compensation From Insured?
- The Hon’ble High Court considered the
following Question of Law: - Whether
the Insurance Company has right to recover the compensation amount paid to
claimants towards satisfaction of the award passed by the Tribunal from the
insured (owner of the offending vehicle), if the cheque towards premium got
dishonoured?
Submissions:
Learned
counsel appearing on behalf of the Appellant Insurance Company submitted that
the Insurance policy were issued on 10th November, 2015 valid and
effective from the said date. However, the cheque towards premium of insurance
policy issued by the owner of the offending vehicle involved in the accident
got dishonoured on account of insufficiency of funds. Resultantly, the
Insurance Company cancelled the insurance policy and issued notice on 14th
December, 2015 to the owner of the offending vehicle and R.T.O to that effect.
He further contended that as the insurance policy was cancelled and the owner
of the offending vehicle was duly intimated; the contract of insurance between
the Insurance Company and owner of the offending vehicle stood terminated,
therefore, the Insurance Company is not liable to indemnify the owner of the
offending vehicle and has right to recover the compensation amount paid to the
claimants by the Insurance Company from the owner of the offending vehicle.
However, at the time of arguments the defence of contributory negligence was waived
off by the Learned counsel.
On
the contrary Learned counsel for the owner of the offending vehicle submitted
that on the date of the accident neither the policy of the insurance was
terminated nor the cheque issued towards the premium was dishonoured not even
the factum of termination/cancellation of the policy of insurance was conveyed
to the owner of the offending vehicle, in fact on the date of accident the
policy of insurance was subsisting as the same was valid and effective.
Resultantly, it was contended that Insurance Company is bound to indemnify the owner
of the offending vehicle as well as the third party and has no right to recover
the same from the owner of the offending vehicle.
Judgment – Can Insurance Company Recover Compensation From Insured?
The
Hon’ble High Court held that liability of the authorised insurer to indemnify
the third party in respect of the liability covered under the policy subsists
when the policy of insurance has been issued on receipt of cheque towards the
payment of premium even when the cheque gets dishonoured and the Insurance Company
has to satisfy the award in light of provisions of Section 147(5) and 149(1) of
the MV Act unless the insurance policy is cancelled by the authorised insurer
and insured has been informed about the same before accident.
The
Hon’ble Bench laid reliance on “Oriental
Insurance Co. Ltd. versus Inderjeet Kaur”[3]
wherein the apex court held that once a certificate of insurance is issued,
the Insurance Company would not be absolved of its obligation to third parties.
Reliance
was also placed on “United India
Insurance Company Limited Versus Laxmamma and others”[4]
in which the Hon’ble Supreme Court was pleased to confirm the award against
the Insurance Company regarding its liability to pay the compensation to the
third party claimants. However, gave liberty to the insurer to prosecute its
remedy to recover from the insured the compensation amount paid to the
claimants.
The
Hon’ble Bench further held that the Hon’ble Supreme Court of India has evolved
the doctrine of ‘public interest’ by virtue of which the Insurance Company was
liable to indemnify the third party in respect of liability covered under
policy despite bar of Section 64-VB of the Insurance Act, 1983 that states no
risk is to be assumed unless premium is received.
The
Hon’ble Bench further held that contract of insurance is based on reciprocal
promises and on account of dishonoured cheque towards premium leads to breach
of promise as a result the insurer was liable to pay compensation to the third
party but has right to recover the paid amount from owner of the offending
vehicle.
Conclusion:
So the answer to Can Insurance Company Recover Compensation From Insured? would include the fact that ‘reciprocal promise’ is the fundamentality of the contract of insurance wherein the insured promises to pay the consideration (premium) for contract of indemnity in lieu of promise to indemnify in case of liability. Failure to pay premium resultantly leads to breach of promise consequently, the insured waives its right to be indemnified. However, the Insurance Company is bound to discharge its statutory liability to indemnify the third party claimants as it is not privy to the insurance contract.
In
the final analysis, it can be rightly concluded that the Hon’ble High Court has
harmoniously balanced the essence of Motor Vehicles Act, 1988 and Insurance
Act, 1938 protecting ‘public interest’ as well as the interests of the
Insurance Company to rightfully recover the compensation amount if the insurer
fails to comply with its part of the responsibility of paying the premium.
Contributed By – Richa K. Gaurav
[1] First
Appeal No. 1839 of 2018
[2]
Para 5; ‘SBI Insurance Company Versus Madhubala & Anr. First Appeal No.
1839 of 2018’ adjudicated by The High Court of Judicature at Bombay, Bench at
Aurangabad.
[3]
(1998) 1 SCC 71
[4] (2012) 5 SCC 234
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