Cover Note Has Statutory Sanctity – Insurer Cannot Unilaterally Alter Vehicle Classification To Escape Liability: Punjab & Haryana High Court

“Evidence Recorded Before Tribunal Must Prevail Over FIR Recitals When Contrary”, Punjab and Haryana High Court delivered a significant ruling clarifying the statutory status of a cover note under the Motor Vehicles Act, 1988, and the evidentiary value of FIR vis-à-vis oral testimony before the Tribunal. Deciding an appeal against the award dated 10.02.2015 passed by the Motor Accident Claims Tribunal, Hissar, Justice Sudeepti Sharma held that the Insurance Company alone was liable to satisfy the compensation, modifying the Tribunal’s finding which had fastened liability upon the owner of the tractor.

The Court authoritatively ruled that a cover note falls within the definition of “certificate of insurance” under Section 145(b) of the Motor Vehicles Act and carries statutory sanctity. It further held that the insurer cannot unilaterally alter the classification of the vehicle to the prejudice of the insured or third parties without lawful cancellation of the cover note.

The appeal was allowed and the liability shifted from the owner to the Insurance Company.

Background of the Case

The accident occurred on 26.12.2012. The deceased, Gordhan, had accompanied the driver on a tractor bearing registration No. HR-08-P-1577. As per the claim petition, he had alighted from the tractor and was standing by the roadside when the driver allegedly drove rashly, causing the tractor to overturn, resulting in Gordhan’s death.

The claim petition was filed under Section 166 of the Motor Vehicles Act, 1988. The Tribunal awarded compensation of Rs. 10,79,000/- but exonerated the Insurance Company, fastening liability upon the owner on the ground that the tractor was insured for agricultural purposes while it was allegedly being used for transporting bricks, i.e., for commercial purposes.

Aggrieved by the fastening of liability, the owner preferred the present appeal before the High Court.

Legal Issues at Hand and Court’s Observations

The High Court examined three crucial legal questions:

“Whether the Tribunal erred in relying upon the FIR over oral evidence recorded before it?”

“Whether the Insurance Company could escape liability on the ground that the tractor was used for commercial purposes contrary to the policy terms?”

“What is the legal effect of a cover note vis-à-vis a subsequently issued insurance policy?”

FIR Versus Oral Testimony – Evidentiary Value

The Tribunal had relied heavily on the contents of the FIR, which stated that the deceased was sitting on the mudguard and fell between the tractor and trolley due to overloading. However, the eye-witness Om Parkash (PW2), examined before the Tribunal, supported the version that the deceased had alighted and was standing aside.

Justice Sudeepti Sharma found that the Tribunal’s approach was legally flawed.

The Court observed that it is a settled proposition that when oral evidence recorded before the Tribunal runs contrary to the contents of the FIR, the testimony before the Tribunal must be independently appreciated. Reliance was placed upon National Insurance Co. Ltd. v. Chamundeswari (2021 INSC 592).

The Court held that the Tribunal had “totally ignored the evidence of the eye witness and relied upon the FIR while fixing the liability,” which amounted to misapplication of settled law.

Cover Note as Certificate of Insurance – Statutory Sanctity

The turning point of the case was the inconsistency between:

“Ex. R3 – the Cover Note describing the vehicle as ‘Commercial Vehicle Only’,” and

“Ex. R2 – the Insurance Policy describing it as ‘Agricultural Tractor’.”

The accident took place on 26.12.2012. The cover note was issued on 28.06.2012. The policy was also dated 28.06.2012 but altered the vehicle classification.

Referring to Section 145(b) and Section 147 of the Motor Vehicles Act, the Court emphatically held:

“A cover note falls within the definition of ‘certificate of insurance’ and forms part of the insurance contract. It cannot be treated as an extraneous document divorced from the insurance contract.”

The Court further declared:

“A cover note constitutes binding contract between the insured and the insurer and remains operative and enforceable unless duly cancelled in accordance with law. The insurer cannot, at its own volition and without notice or proof of cancellation, alter the fundamental terms of the contract to the prejudice of the insured or third parties.”

In the absence of any evidence showing lawful cancellation of the cover note prior to the accident, the statutory effect of the cover note continued to subsist.

Burden of Proving Breach Lies on Insurer

The Insurance Company argued that the tractor was transporting bricks and therefore used for commercial purposes beyond the agricultural policy terms.

Rejecting this contention, the Court reiterated the settled principle:

“The burden of proving breach or violation of the terms and conditions of the insurance policy lies squarely upon the Insurance Company. Such burden must be discharged by leading cogent and admissible evidence. A finding of breach cannot be founded upon bald assertions or presumptions.”

No evidence was produced to prove cancellation of the cover note or established breach of policy conditions. Hence, the insurer could not avoid statutory liability under Section 147(5) of the Act.

The Court also relied upon the Supreme Court judgment in National Insurance Co. Ltd. v. Abhaysing Pratapsingh Waghela (2008) 9 SCC 133, wherein it was held:

“If a Cover Note is issued, it remains valid till it is cancelled.”

The High Court concluded that the Tribunal had failed to appreciate this settled legal position.

Compensation – Quantum Not Interfered With

The Tribunal had assessed the deceased’s income at Rs. 6,600 per month in absence of documentary proof and applied multiplier of 16 considering his age of about 30 years, awarding total compensation of Rs. 10,79,000/- including conventional heads.

The High Court found no infirmity in the computation and did not interfere with the quantum. The only modification was with respect to liability.

Allowing the appeal, the High Court modified the award dated 10.02.2015 to the extent that the Insurance Company was held solely liable to satisfy the compensation awarded to the claimants.

The judgment reinforces three critical principles:

“A cover note carries statutory sanctity and cannot be unilaterally altered.”

“Oral evidence before the Tribunal must prevail over FIR recitals when contradictory.”

“The burden of proving breach of policy squarely lies on the insurer.”

This ruling strengthens third-party protection under the Motor Vehicles Act and ensures that insurers cannot escape liability through technical reclassification without lawful cancellation.

Date of Decision: 12.02.2026