Insurer Has Third Party Liability If Cancellation Of Policy Over Dishonour Of Premium Cheque Is Not Intimated To Insured Before Accident: Karnataka HC

A single judge bench of Justice HP Sandesh while allowing the appeal preferred filed by a claimant against the order of Claims Tribunal which exonerated the Insurance company from liability, observed,

"the Tribunal while considering the issue of liability, only considered the bank's memo regarding the dishonour of cheque and comes to the conclusion that the Insurance Company has intimated about the dishonour of cheque as well as cancellation of policy to the owner of the offending vehicle but not discussed whether it was served or not and simply comes to the conclusion that the policy was not in force...No material before the Court that they have intimated the same to the insured."

The insurance company had submitted that where the remittance made by the policyholder is not realised by the insurer, the policy shall be treated as void ab-initio.

However, the bench noted that the Company had not produced acknowledgment receipt regarding intimation sent to the insured nor it was their claim that the insured was personally informed.

The bench further cited public interest element in such cases, stating: "The public interest that a policy of insurance serves must, clearly, prevail..." Reliance was placed on Oriental Insurance Co. v. Inderjit Kaur & Ors., where it was held that even if Insurer was entitled to avoid the policy for not having received the premium, it is liable for third party risk as the public interest served by an insurance policy must prevail over the insurer's interest.

Accordingly, the Court held,

"In the case on hand also I have already pointed out that no document is placed for having given the intimation and the same was acknowledged by the insured and unless the same is reached the insured the Insurance Company cannot avoid the liability and I have already pointed out that the Tribunal has not discussed anything about reaching of notice to insured. Under the circumstances, the contention of the Insurance Company cannot be accepted and the Tribunal has committed an error in fastening the liability on the insured instead of insurer. Hence, the claimant has made out the case to fasten the liability on the Insurance Company."

Case Title: SRIKANTA M.R v. GEETHA & Others

Case No: M.F.A. NO.7043/2014

Citation: 2022 LiveLaw (Kar) 505

Date of Order: 2nd December 2022

Appearance: K V Shyamaprasada, advocates for appellant

O. Mahesh, Advocates for R2.