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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