Insurance companies can't reject claim by delaying cheque presentation

The Bombay High Court ruled that an insurer cannot reject a claim by delaying the deposit of a valid premium cheque, holding the insurance company liable for deficiency in service

Gayatridham Phase Co-operative Housing Society had taken a standard fire and special perils policy from New India Assurance. The insurer issued the policy on July 25, 2004, and it was valid till  April 25, 2005. 

Before the expiry date, the society paid the renewal premium of ₹18,910 on July 17, 2005, by a cheque drawn on The Thane District Central Cooperative Bank. The insurer issued the renewed policy for the period July 25, 2005, to July 24, 2006. 

On July 26, 2005, torrential rains struck Mumbai, causing severe damage across the city. To avoid liability, the insurer did not deposit the premium cheque until July 30, 2005. When Gayatridham Society lodged a claim on August 7, 2005, the insurer appointed a surveyor to assess the loss. Subsequently, however, the insurer repudiated the claim on the ground that the policy stood cancelled because the premium cheque had been dishonoured by the bank due to insufficient funds. This assertion by the bank was false. The cheque had not been dishonoured but was returned for re-presentation at a later date since it could not be processed owing to the breakdown of infrastructure and the disruption of services on account of torrential rains. 

Aggrieved by this action, the society approached the Maharashtra State Consumer Disputes Redressal Commission (state commission) with a joint complaint against the insurer as well as the bank. It relied on a letter from its bankers confirming that the society’s account had sufficient funds. The society contended that its own bank ought to have honoured the cheque and further argued that the insurer’s bankers, namely State Bank of India, should have re-presented the cheque once normalcy was restored. 

The state commission noted that the insurer had failed to produce any evidence to substantiate its contention that the cheque was dishonoured due to a lack of funds in the society’s account. It pointed out that the insurer would not have appointed a surveyor if the policy had in fact been cancelled. Rejecting the insurer’s submissions, the state commission awarded ₹5 lakh as compensation, directing payment within 60 days and providing for interest at 9 per cent in the event of delay.

The insurer did not challenge the order. However, the Society as well as Thane District Co-operative Bank filed appeals questioning the decision of the state commission. The bank contended that there was no deficiency on its part and blamed the insurer. 

The National Consumer Disputes Redressal Commission (national commission) allowed the appeals. It exonerated Thane District Cooperative Bank and held that only New India Insurance was liable for negligence and deficiency in service. The national commission directed that the claim be paid according to the assessment made by the court-appointed valuer, since the insurer had failed to produce the surveyor’s report. It considered 80 per cent of the court valuer’s estimate to be fair and equitable and ordered the insurer to pay ₹34,78,002. 

New India Assurance thereafter filed a writ petition before the Bombay High Court challenging the order that held it liable to settle the claim. In its judgement dated December 15, 2025, delivered by Justice Somasekhar Sundaresan, the high court agreed with the argument advanced by the Society’s advocate, Ashutosh Marathe, that the insurer had received the premium cheque well in time and had even issued the renewed policy. Upholding the decision of the national commission, the court held the insurer liable, indicted it for breach of the principle of utmost good faith, and dismissed the petition with further costs of ₹25,000 payable to the Society.

    

The writer is a consumer activist