Laws laid down by supreme court

INSURANCE AGAINST INSURED IF PAYMENT NOT MADE/CHEQUE DISHONOURED

                                                            

                                                                LAW ON INSURANCE

INSURANCE AGAINST INSURED IF PAYMENT NOT MADE/CHEQUE DISHONOURED

Under a contract of insurance the insured gave a cheque to the insurer towards the first premium amount, but the cheque was dishonored by the drawer bank due to insufficiency of funds in the account of the drawer. Is the insurer liable in such a situation to honor the contract of insurance?

The insurer even if it had issued a cover note is entitled to cancel the policy if it fails to cash the cheque for premium. The concept of contract in essence envisages a proposal, acceptance and passing of consideration. In the absence of any consideration there can be no contract and that is all what is recognized by section 64-VB of the Insurance Act.

INSURANCE AGAINST THIRD PARTY CLAIMANT VALID

Despite the bar created by Section 64- VB of the Insurance Act, the appellant, an authorized insurer, issued a policy of insurance to cover the bus without receiving the premium therefore. By reason of the provisions of Sections 147(5) and 149(1) of the Motor Vehicles Act, the appellant became liable to indemnify third parties in respect of the liability which that policy covered and to satisfy awards of compensation in respect thereof notwithstanding its entitlement (upon which we do not express any opinion) to avoid or cancel the policy for the reason that the cheque issued in payment of the premium thereon had not been honored.

 

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