Insurers must satisfy compensation claims first and then recover from employers for policy breach.

The deceased, Sh. Mahesh Chandra Mishra, was employed as a driver by Respondent No. 6 on a truck insured by the Appellant. On 18.03.2013, the deceased died in a road accident in Nepal while in the course of his employment

The claimants (Respondents 1-5) filed for compensation under the Employee’s Compensation Act, 1923 ("EC Act").

The Appellant and Employer (Respondent No. 6) contested the claim, citing a prior payout of Rs. 4,75,000/- from a Nepalese insurer and breaches of policy conditions, including an expired driving license and plying the vehicle outside India without additional premium

The Commissioner allowed the claim, deducting the Nepalese payout but holding the Appellant and Employer jointly and severally liable

During the appeal, the Appellant limited its challenge solely to its entitlement to recovery rights against the Employer

1. Whether the Appellant insurer is entitled to recovery rights (“pay and recover”) against the Employer (Respondent No. 6) due to breaches of insurance policy conditions.

The court applied the principle of "pay and recover" as established in the Motor Vehicles Act context and extended to employment liability.

The court relied on Rama Bai v. Amit Minerals [2025 SCC OnLine SC 2067], which synthesized previous rulings like National Insurance Co. Ltd. v. Swaran Singh and Shamanna v. Divisional Manager, Oriental Insurance Co. Ltd. These precedents establish that even if the driver lacks a valid license (violating policy conditions), the insurer must satisfy the award to third parties/claimants first and subsequently recover the amount from the insured owner

The court also referenced Section 17 of the EC Act regarding the validity of compensation payments

The Court noted the Commissioner’s finding that the deceased’s driving license had expired prior to the accident.

While this breach does not allow the insurer to evade its primary responsibility toward the dependants of the deceased employee, it creates a cause of action between the insurer and the employer.

Applying the doctrine of "pay and recover" from Rama Bai, the Court reasoned that since the Employer permitted the deceased to drive without a valid license and plied the vehicle outside territorial limits without premium adjustments, a fundamental breach of policy conditions occurred. Consequently, while the insurer is legally bound to indemnify the liability for the injury/death during employment, the ultimate financial burden must shift to the defaulting employer

The Court held that while the Appellant must satisfy the compensation award to the claimants, it is entitled to recover the said amount from Respondent No. 6 (the employer/owner). The rights of the claimants to receive the compensation remain unaffected, and the Court directed the immediate release of any deposited amounts with accrued interest to them. The appeal was disposed of with these modifications