Insurer Has to Compensate Third Party Claim Despite Premium Cheque Bounce

The Supreme Court announced that an insurance company is liable to compensate third party claims even if the vehicle owner’s cheque for premium bounces. It stated that the insurance company can reject the claim only if the insurance company has cancelled the policy for such dishonour of the cheque and intimation of such cancellation reached the insured before the accident.

This judgment by the Supreme Court is made in the case of a claimant for whom the insurer was bound to indemnify the claim but rejected to compensate. A case was filed by a claimant for her husband’s death. The insurance policy was issued to her husband on April 14, 2004 by the authorised insurer United India Insurance Company. The insurance was taken by the person for the period April 16, 2004 to April 15, 2005.

The person paid the premium through cheque on April 14, 2004 and met with an accident on May 11, 2004. The insurer cancelled the insurance policy on May 13, 2004 for bouncing cheque which was sent back to the owner and was received by his wife on May 21, 2004.

The apex court said that, the insurer has to satisfy the compensation by the provisions of Sections 147(5) and 149(1) of the Motor Vehicle Act, unless the policy of insurance is cancelled by the authorised insurer and the insurance company has to intimate the cancellation before the accident. Finally, the argument was rejected and case was closed by awarding the deceased’s family a compensation of Rs. 6,01,244 by the insurer.

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