Timely premium payment is mandatory; customer denied claim even by the Supreme Court

The Supreme Court has ruled that the timely payment of insurance policy premiums is mandatory. If payment is not made before the risk commences, the insurance company cannot be held liable for compensating the loss.

If you hold any type of insurance policy, paying the premium on time is crucial. The Supreme Court recently delivered a significant verdict on this matter, clarifying that if the required premium is not paid before the insurance risk begins, the insurance company cannot be held responsible for the resulting loss.

Furthermore, the Court stated that under Section 64VB of the Insurance Act, 1938, an insurer cannot assume liability for a risk until the premium is paid or guaranteed in accordance with established rules. In other words, insurance coverage cannot be extended merely based on an official's assurance or an email.

What is the case about?

This case involves New India Assurance Company Limited and Louis Dreyfus Commodities India Private Limited. The company had purchased a marine cargo annual insurance policy in 2010. The policy stipulated an annual business limit of ₹1,200 crore. The premium was to be paid in two installments, corresponding to a business limit of ₹600 crore for a six-month period. However, in November 2010, a fire broke out involving thousands of the company's cotton bales, resulting in a loss of approximately ₹22 crore.

The insurance company refused the claim, arguing that the business volume had already exceeded the stipulated limit before the fire occurred, and the necessary premium for the additional risk had not been paid.

Why did the company seek the claim?

The company contended that an official from the insurance company had assured them via email that the policy would remain valid even if the business limit was exceeded. Additionally, the company maintained that upon payment of the second premium installment, all transit coverages would remain in effect for the duration of the policy. However, the Supreme Court rejected this argument, stating that an email from an official cannot alter the conditions prescribed by law.

What did the Supreme Court say?

In its verdict, the Supreme Court observed that it was mandatory for the company to deposit an additional premium once the insurance policy limit was exceeded. Consequently, an insurance claim cannot be enhanced merely based on an email from an official. The Court acknowledged that the business limit had been surpassed in July 2010, whereas the additional premium was deposited later. Therefore, the insurance coverage could not be considered valid at the time the fire incident occurred.

Points for insurance customers to keep in mind:

Always pay your insurance policy premium on time.
Carefully read the policy terms and coverage limits.
Do not rely solely on verbal assurances or emails.
Update your insurance coverage in a timely manner if the risk or the value of the asset increases.
If you wish to increase your coverage, pay the additional premium first.