The Delhi High Court has held that merely producing a photocopy of an insurance cover note is insufficient to establish the existence of a valid insurance policy when the insurance company produces evidence showing that the document was not issued for the vehicle involved in the accident.

Justice Anish Dayal observed that the principle of preponderance of probabilities applicable to motor accident compensation proceedings cannot, by itself, be invoked to fasten liability upon an insurance company without proof of the underlying contract of insurance.

“Merely production of a photocopy of a cover note cannot be treated as sufficient proof of the existence of a valid policy of insurance,” the Court observed.

It made the observations while dismissing an appeal filed by one Aruna Attri, who had challenged a Motor Accident Claims Tribunal (MACT) award exonerating Oriental Insurance Company Limited from liability to pay compensation following the death of one Lalit Attri in a road accident.

The Tribunal had awarded compensation of Rs. 41.23 lakh, along with interest at 7.5% per annum, to the claimants, while fastening liability jointly and severally upon the truck driver and owner.

The dispute before the Court concerned whether the insurance company could be held liable on the basis of a cover note that it claimed was forged and fabricated.

The claimants contended that the insurance company had failed to promptly pursue its complaint regarding the allegedly fake cover note. They also argued that the same cover note numbers appeared to have been issued in favour of different persons and for different vehicles, suggesting possible wrongdoing by the insurer's officials.

Rejecting the contention that the insurance company's failure to diligently pursue its complaint could establish the genuineness of the cover note, the Court observed that such an omission could not result in the document being treated as genuine.

The Court noted that the insurance company had lodged a complaint regarding the allegedly fake cover note in March 2012, nearly five years after the accident in December 2007. However, it held that the delay, by itself, did not establish the existence of a valid insurance policy covering the offending vehicle.

The Court further noted that the cover note relied upon by the claimants was only a photocopy and that neither the original cover note nor the original insurance policy had been produced. It also noted that there was no evidence of payment of insurance premium in respect of the offending vehicle.

The Court further observed that the claimants could have invoked Section 169 of the Motor Vehicles Act, 1988, to seek production of the relevant documents and forensic or other expert evidence to establish the genuineness of the cover note. However, it said that no such steps were taken.

While dismissing the appeal, the Court highlighted the responsibility of insurance companies to investigate cases involving fake cover notes.

“No doubt, there is a duty cast upon the Insurance Company to take appropriate action upon discovering a false or fake cover note by lodging a complaint and pursuing the matter in accordance with law. Needless to state, the issuance of fake cover notes is a serious issue, as it affects not only compensation proceedings but also the assessment and assumption of risk by the Insurance Company,” the Court said.

It held that once a fake cover note is brought to an insurance company's notice, it must take appropriate steps, including lodging a complaint and pursuing the matter in accordance with law.

“Once a fake cover note is brought to the notice of the Insurance Company, steps must be taken of sanitizing process, as also in public interest, to get to the bottom of why the fake cover note exists in the first place and who was responsible for it. This would help reduce the occurrence and recurrence of such situations. It would also be incumbent upon insurance companies to initiate internal inquiries to investigate why such a cover note has been issued without due process, or procured, and take disciplinary or penal action against errant officers,” the Court said.