Insurer remains liable to third parties when premium-cheque dishonour is not effectively communicated to the vehicle owner.

Prem Bauri died after a pickup van allegedly collided with his motorcycle on 30 August 2007.

His dependants brought a claim under Section 166 of the Motor Vehicles Act, 1988.

The Tribunal awarded ₹16,35,680 with interest at 6% per annum against the insurer.

The insurer appealed, contending that the premium cheque had been dishonoured and the policy cancelled without liability on its part, and that the compensation was excessive.

The claimants responded that the insurer had not proved that notice of the dishonour and cancellation had been communicated to the vehicle owner.

1. Whether the insurer was liable to satisfy the award where the premium cheque was dishonoured but the insurer had not established that the vehicle owner was informed of the dishonour or cancellation

2. Whether the Tribunal’s assessment of compensation required modification, including its deductions and consortium award

The claim was brought under Section 166 of the Motor Vehicles Act, 1988.

The Court treated third-party motor insurance as serving the protective purpose of compensating accident victims and their families, and held that an insurer relying on dishonour of the premium cheque must make its best endeavour to notify the vehicle owner; the Court also stated that the Regional Transport Authority should be informed so it can take steps to prevent an uninsured vehicle from being used on the road.

The insurer relied on Dedappa v. Branch Manager, National Insurance Co., AIR 2008 SC 767, but the judgment does not set out a distinct rule from that decision.

The Tribunal found that the insurer’s witness could not say whether the owner had been informed of the dishonour, and that the address on the courier envelope omitted “Asansol,” which appeared in the owner’s recorded address.

The High Court accepted that the insurer had not shown effective communication to the owner and concluded that the insurer remained liable to the third-party claimants; it emphasised that an uninformed owner could not take steps to pay the premium or keep the vehicle off the road.

On quantum, the Court held that the Tribunal had wrongly deducted only one-fifth for the deceased’s personal expenses and had allowed parental consortium.

It substituted a one-fourth deduction, removed parental consortium, and calculated compensation using annual income of ₹79,000, a 40% addition for future prospects, and a multiplier of 16.

Although its calculation yielded ₹14,11,200, the Court considered ₹14,00,000 just and reasonable, including ₹84,000 for general damages.

The appeal was disposed of by modifying the award.

The insurer remained liable and was directed to deposit ₹14,00,000 with interest at 6% per annum from the date the claim was filed until the date of judgment, within eight weeks of communication of the order.

If the Tribunal’s award had already been deposited, no further deposit was required.

The claimants could withdraw the compensation in equal shares, and any balance was to be returned to the insurer with accrued interest, if any.