Case: United India Insurance Co. Ltd Vs. Laxmamma &amp; Others

M. Nagaraj (husband of respondent no. 1 and father of respondent nos. 2 and 3) was travelling in a bus bearing registration no. KA 018116 on May 11, 2004. At about 8.50 a.m. on that day due to negligent application of brake by the bus driver, the back door of the bus suddenly opened and M. Nagaraj standing near the door fell down. He sustained grievous injuries and subsequently died. The respondent nos. 1 to 3, to be referred as claimants, filed a claim petition before the Motor Accident Claims Tribunal, Bangalore (for short,seeking compensation of Rs. 15 lakhs. The present appellant, insurer was impleaded as respondent no. 2 while the owner of the bus was impleaded as respondent no. 1. The owner and the insurer contested the claim petition on diverse grounds. The insurer raised the plea in the written statement that the insurance policy dated April 14, 2004 issued by it covering the said bus for the period April 16, 2004 to April 15, 2005 was not valid as the premium was paid through cheque and the cheque got dishonoured and, therefore, there was no liability on it to cover the third party risk.4. The Tribunal on recording the evidence and after hearing the parties held that the claimants were successful in proving that on May 11, 2004 at 8.50 a.m. the deceased M. Nagaraj was travelling in the bus and he fell down from the bus through the door by sudden application of brake negligently by the driver and died due to the injuries sustained in that accident. The Tribunal also recorded the finding of fact on examination of the documentary and oral evidence that cancellation of policy because of non-payment of the premium was done by the insurer after the accident had taken place and intimation of cancellation was given to the owner on May 21, 2004 whereas accident took place on May 11, 2004. The Tribunal, thus, held that the insurer was liable to the claimants. The Tribunal in its award dated June 28, 2006 held that claimants were entitled to compensation in the sum of Rs. 6,01,244/- and apportioned that amount amongst claimants. Aggrieved by the award of the Tribunal, the insurer preferred appeal before the High Court. The High Court dismissed theappeal on November 11, 2008. It is from this order that the present appeal has arisen.

Court's reasoning:
19. In our view, the legal position is this : where the policy of insurance is issued by an authorized insurer on receipt of cheque towards payment of premium and such cheque is returned dishonoured, the liability of authorized insurer to indemnify third parties in respect of the liability which that policy covered subsists and it has to satisfy award of compensation by reason of the provisions of Sections 147(5) and 149(1) of the M.V. Act unless the policy of insurance is cancelled by the authorized insurer and intimation of such cancellation has reached the insured before the accident. In other words, where the policy of insurance is issued by an authorized insurer to cover a vehicle on receipt of the cheque paid towards premium and the cheque gets dishonored and before the accident of the vehicle occurs, such insurance company cancels the policy of insurance and sends intimation thereof to the owner, the insuranceliability to indemnify the third parties which that policy covered ceases and the insurance company is not liable to satisfy awards of compensation in respect thereof.20. Having regard to the above legal position, insofar as facts of the present case are concerned, the owner of the bus obtained policy of insurance from the insurer for the period April 16, 2004 to April 15, 2005 for which premium was paid through cheque on April 14, 2004. The accident occurred on May 11, 2004. It was only thereafter that the insurer cancelled the insurance policy by communication dated May 13, 2004 on the ground of dishonour of cheque which was received by the owner of the vehicle on May 21, 2004. The cancellation of policy having been done by the insurer after the accident, the insurer became liable to satisfy award of compensation passed in favour of the claimants.