Case Note & Summary
The case arises from a motor accident on 11/05/2007 where Nilesh Kshirsagar and his wife Sheetal died in a collision with a vehicle owned by respondent No.2. The offending vehicle was insured with ICICI Lombard General Insurance Co. Ltd. The father of Nilesh and father-in-law of Sheetal filed two claim petitions under Section 166 of the Motor Vehicles Act, 1988 before the Motor Accident Claims Tribunal, Satara (M.A.C.P. No.219/2007 and M.A.C.P. No.229/2007). The Insurance Company contended that the owner had issued a cheque for Rs.9,195/- towards premium for the period 28/02/2007 to 27/02/2008, but the cheque was dishonoured due to insufficient funds. Consequently, the Insurance Company cancelled the cover note from its inception, arguing that there was no valid contract of insurance and thus no liability. The Tribunal, however, held the accident was due to rash and negligent driving and awarded compensation, directing the Insurance Company to pay. The Insurance Company appealed. The High Court framed the issue of whether the insurer is liable despite cheque dishonour. The court noted that under Section 149 of the Motor Vehicles Act, the insurer's liability to third parties is statutory and cannot be avoided merely by cancellation of the policy. Relying on precedents including the Supreme Court's decision in New India Assurance Co. Ltd. v. Rula (2000) 3 SCC 195, the court held that the insurer must pay the third-party claimants and then recover the amount from the insured owner. The appeals were dismissed, upholding the Tribunal's award but clarifying the insurer's right to recover.
Headnote
A) Motor Accident Claims - Third-Party Liability - Cheque Dishonour - Pay and Recover - The insurer is liable to pay compensation to third-party victims even if the premium cheque is dishonoured and the policy is cancelled, but the insurer can recover the amount from the insured owner - The court held that the insurer must satisfy the award and then recover from the owner, following the principle of 'pay and recover' (Paras 7-13).
Issue of Consideration
Whether an insurance company is liable to pay compensation to third-party claimants when the premium cheque issued by the insured is dishonoured and the cover note is cancelled ab initio.
Final Decision
Both appeals are dismissed. The Insurance Company is directed to pay the awarded compensation to the claimants and is entitled to recover the same from the insured owner in accordance with law.
Law Points
- Insurance contract
- cheque dishonour
- third-party liability
- pay and recover
- Motor Vehicles Act
- 1988
- Section 166
- Section 149
