Insurer Bound By Contract Entered Into By Authorized Agent On Its Behalf, Premium Paid By Insured To Agent Binds Company: J&K High Court

Upholding the liability of an insurance company for compensation despite a dishonoured premium cheque, the Jammu and Kashmir & Ladakh High Court has recently ruled that that the insurance company cannot evade its responsibility if an authorized agent collects the premium in cash but issues a personal cheque that later bounces.

“It would be deemed as if the amount of the premium had been collected by the insurance company, even though the agent may have instead of depositing the premium with the company, issued a cheque from his own account which ultimately got dishonored”, Justice Sanjay Dhar observed.

The court was hearing an appeal by the appellant/insurance company assailing the award passed by the Motor Accident Claims Tribunal, Kishtwar granting compensation to injured, a 13-year-old student who suffered severe injuries when he was hit by a tipper truck. The vehicle's insurer challenged the award, arguing that the policy had been cancelled due to the dishonoured premium cheque.

Vehicle owner on the other hand stated that he had paid the premium amount in cash to the insurance company's agent. He further argued that the agent, acting on behalf of the insurance company, had issued a cheque in his own name, resulting in the dishonor. The insured respondent also claimed that he never received any intimation regarding the cancellation of the policy.

Adjudicating upon the matter Justice Dhar, observed that if an authorized agent of the insurer issues a policy upon receiving the premium cheque, their liability to compensate third parties remains unless the policy has been cancelled with prior intimation to the insured.

However, the court clarified that the burden of proof lay with the insurance company to demonstrate that the insured had been properly informed about the policy's cancellation. In this case, the insurance company failed to produce the relevant documents during the proceedings, which led the court to uphold the tribunal's finding that the insurer had not adequately provided evidence of the cancellation intimation.

Observing that the insurance company cannot avoid liability for the agent's actions, as contracts entered into through an agent have the same legal consequences as if entered into by the principal, the bench recorded,

“In the instant case, admittedly, the premium was collected by the agent of the appellant/Insurance company from the attorney holder of the owner, whereafter the policy of insurance came to be issued. Therefore, it would be deemed as if the amount of the premium had been collected by the insurance company, even though the agent may have instead of depositing the premium with the company, issued a cheque from his own account which ultimately got dishonored.”

Expounding further on the matter the Court emphasised that the Principal is bound by the acts of his agent and as such, the appellant/Insurance company cannot wriggle out of its liability by stating that it is the agent who had committed fraud with the company. Whatever contracts the insurance company has entered into with the third parties through the agent are enforceable against the company as if these contracts have been entered into by the insurance company itself, it underscored.

In view of the said legal position, the bench found the appeals meritless and accordingly dismissed the same.

Case Title: United India Insurance Vs Sajjad Hussain

Citation: 2023 LiveLaw (JKL) 178

Counsel For Petitioner: Mr. Vishnu Gupta, Advocate and

Ms. Damini Singh Chouhan, Advocate

Counsel For Respondent: Mr. Ankush Manhas, Advocate

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