Policy Cancelled? SC Says Insurer May Still Pay Claimants Before Recovery

The Supreme Court has held that if an insurance policy covering third-party risk is cancelled due to non-payment of premium or a bounced cheque, the insurer is not legally bound to pay motor accident compensation. However, the Court can still direct the insurer to pay the claimants first and later recover the amount from the vehicle owner.

A Bench of Justice K. Vinod Chandran and Justice N.V. Anjaria was hearing an appeal by an insurance company against a Delhi High Court order, which upheld the Motor Accident Claims Tribunal’s decision directing the insurer to first pay compensation and then recover it from the owner.

Case Background
In 2005, Dheeraj Singh, a 36-year-old Computer Engineer, died when a speeding truck hit his motorcycle. The Tribunal awarded his family ₹8.23 lakh as compensation. The insurance company argued that the policy for the truck had been cancelled months before the accident due to a dishonoured premium cheque, and both the owner and the RTO were informed.

Despite this, the Tribunal ordered the insurer to pay first, granting it recovery rights against the owner. The High Court upheld this view, prompting the insurer to approach the Supreme Court.

Court’s Reasoning
The Court noted that the accident happened three months after the policy was cancelled. The insurer had already deposited 50% of the award with interest, which the claimants had withdrawn. Considering fairness and avoiding hardship, the Bench ruled that this amount would not be recovered from the claimants but could be recovered from the truck owner.

For the remaining 50%, the Court said the claimants must recover it directly from the vehicle owner as per law.

Case Title: National Insurance Company Limited v. Sunita Devi & Ors. (2025 INSC 951)