When An Insurance Policy Is Cancelled Before An Accident, Who Pays? SC Draws A Middle Line

The Supreme Court recently passed a judgment that clarified a long-standing question that often comes in motor accident cases: what happens when an insurance policy is cancelled before an accident takes place?

On August 8, 2025, a Bench of Justices K. Vinod Chandran and N.V. Anjaria ruled that while an insurer is legally not liable if a policy stands cancelled and the cancellation is properly communicated before an accident, the courts can still step in to protect victims by directing the insurer to pay first and recover dues later from the vehicle owner.

The ruling came in a case that has been in the courts for nearly two decades representing Dheeraj Singh, a 36-year-old computer engineer, who was killed in August 2005 after his motorcycle was hit from behind by a truck in Haryana. The Motor Accident Claims Tribunal (MACT) held the truck driver solely negligent and awarded compensation of Rs 8.23 lakh to Singh’s widow, Sunita Devi, and other family members.

The insurer of the truck, National Insurance Company, challenged this award arguing that the truck’s insurance policy was not in force at the time of the accident. The owner’s premium cheque had bounced months earlier, and the company had formally cancelled the policy on May 4, 2005, informing both the owner and the Regional Transport Officer.

Since the accident occurred in late August that year, the insurer maintained it could not be held responsible for compensation.

Pay and Recover Approach

When the case later went to Delhi High Court, the judges upheld the Tribunal’s direction requiring the insurer to pay the claimants first, with liberty to recover the amount from the truck’s owner. The matter was later brought before the Supreme Court.

On strict legal terms, the Court accepted the insurer’s case. It referred to some previous cases, namely the ‘National Insurance vs. Seema Malhotra (2001), Deddappa vs. Branch Manager, NICL (2008), and United India Insurance vs. Laxmamma (2012), all of which underline that once a policy is cancelled following non-payment of premium and proper intimation, the insurer cannot be bound by it.

Yet, those same judgments also show a consistent thread: courts have often relied on their discretionary powers to ensure victims are not left without compensation. In the Deddappa and Laxmamma case, the apex court invoked what has come to be called the “pay and recover” approach. Under this, the insurer is directed to pay accident victims first, with the right to recover the money later from the vehicle owner.

That same principle has now been applied again wherein the Bench noted that National Insurance had already deposited 50 per cent of the compensation with interest under interim court orders, and the claimants had withdrawn it long ago. Forcing them to return the money now, the judges said, would be “not only harsh, but would amount to setting the clock back.”

The Court, therefore, ruled that the amount already received by the family would not be touched. Instead, the insurer could recover that sum from the truck’s owner. The remaining 50 per cent of the award, with interest, was left for the claimants to pursue directly against the vehicle owner.

In doing so, the apex Court tried to reconcile two competing considerations: the legal protection an insurer has when a contract of insurance does not exist, and the equitable protection that accident victims need when faced with lengthy proceedings.