Intimation of insurance policy cancellation must reach the insured to discharge insurer liability toward third parties.

The claimants (first respondents) were traveling in an Eicher goods vehicle on November 13, 2019, when a lorry insured by the appellant dashed into them from behind, causing grievous injuries

The appellant Insurance Company contested liability on two grounds: first, that the Eicher vehicle was stopped abruptly (contributory negligence); and second, that the insurance policy had been cancelled prior to the accident because the premium cheque was dishonored on April 5, 2019

The appellant claimed to have sent a cancellation notice to the owner on April 16, 2019, and the RTO on May 16, 2019

The Motor Accidents Claims Tribunal, Erode, held the lorry driver solely negligent and ordered the insurer to pay compensation and then recover it from the owner, finding no proof that the cancellation notice was actually served on the insured

1. Whether the accident occurred due to the contributory negligence of the driver of the Eicher goods vehicle

2. Whether the Insurance Company is liable to pay compensation to third parties when the premium cheque is dishonored and the policy is purportedly cancelled, but service of notice of such cancellation on the insured is not proven

The Court applied Section 147(5) and 149(1) of the Motor Vehicles Act, 1988, regarding the liability of insurers to satisfy awards for third-party risks

It relied heavily on the precedent set by the Supreme Court in United India Insurance Co. Ltd. v. Laxmamma and others (2012 ACJ 1307), which established that an insurer remains liable to indemnify third parties despite a cheque dishonor unless the policy is cancelled and intimation of such cancellation reaches the insured before the accident

The court interpreted Section 27 of the General Clauses Act, noting that the presumption of service via registered post is not absolute without proof of acknowledgement or an endorsement on a returned cover

Regarding negligence, the Court found that the Tribunal properly weighed the oral evidence of PW-1 to PW-4 alongside documentary evidence, including the FIR [Ex.P1] and the final report [Ex.P7], noting the insurer failed to provide contra-evidence to disprove the eyewitness accounts

On the issue of policy cancellation, the Court observed that while the appellant produced a letter and a registered post receipt, there was "absolutely no acknowledgement or return cover available" to prove service

Following the Laxmamma doctrine, the Court reasoned that the mere dispatch of a notice is insufficient; the cancellation must be effectively communicated to the insured before the date of the accident to terminate third-party liability

Since the insurer failed this evidentiary test, the statutory obligation to satisfy the third-party claims remained intact.

The Court held that the negligence was entirely attributable to the driver of the insured lorry

It further held that the appellant Insurance Company failed to prove that the intimation of policy cancellation reached the insured prior to the accident, thus they must deposit the awarded compensation (Rs. 88,000/-, Rs. 3,00,500/-, and Rs. 2,73,500/- respectively) with 7.5% interest within four weeks, with the right to recover the same from the vehicle owner preserved