Cover Note Holds the Weight of Policy Unless Cancelled: Gauhati High Court Fastens Liability on Insurer in Motor Accident Case

"If a cover note is issued, it remains valid till it is cancelled... and has the same legal effect as an insurance policy under Section 147 of the Motor Vehicles Act." — Gauhati High Court

Gauhati High Court affirming that a cover note issued by an insurer has the same binding legal effect as an insurance policy, unless it is cancelled or properly repudiated in accordance with the law. Dismissing an appeal filed by United India Insurance Company, the Court upheld an award of ₹1,10,600 in compensation to an injured woman, holding the insurer liable under a cover note that was never cancelled nor notified as invalid.

The judgment was rendered by Justice Robin Phukan, sitting at the High Court of Assam, Nagaland, Mizoram and Arunachal Pradesh, in its Guwahati Bench.

"The issuance of a cover note, if not cancelled, binds the insurer. Failure to notify its invalidity under Section 147(5) renders the insurer liable to third parties," the Court observed.

Insurer Cannot Evade Liability By Merely Claiming Absence of Formal Policy

“Burden is on the insurer to disprove liability once issuance of cover note is admitted”

The appeal arose from a motor accident claim filed by Mustt. Sahida Bibi, who sustained serious injuries on 16 September 2010, when she fell from a speeding auto-rickshaw (Reg. No. AS-18-C-1656) and its wheel crushed her left leg. The Motor Accident Claims Tribunal (MACT), Goalpara, awarded her ₹1,10,600 as compensation on 11 July 2017, directing the insurer, United India Insurance Co., to pay with interest.

In appeal, the insurer disputed the very existence of a valid insurance policy, arguing that the cover note relied on by the claimant was not followed by an actual policy and that no record of it existed in their Ahmedabad division.

However, the Court found that while the insurer's witness denied the existence of a policy, he failed to deny issuance of the cover note itself, nor was there any evidence that it was ever cancelled or invalidated in compliance with Section 147(5) of the Motor Vehicles Act.

“Though the insurer claimed no policy was issued, it never denied the issuance of the Cover Note No. ARO/2009-237502. In absence of cancellation or statutory notice to the authority, liability attaches.” [Para 12.5]

“A Cover Note Is a Certificate of Insurance”: Section 147 of MV Act Applies in Full Force

“The insurer’s failure to notify cancellation within seven days as required under Section 147(5) binds it to the cover note”

Section 147(1) of the Motor Vehicles Act, 1988, lays down the requirements for a valid insurance policy, and Section 147(5) provides that if a cover note is not followed by a policy, the insurer must notify the registering authority within seven days. The insurer failed to do so, which the Court found fatal to its defence.

The Court relied heavily on the Supreme Court's ruling in National Insurance Co. Ltd. v. Abhaysing Pratapsing Waghela, (2008) 9 SCC 133, where it was held:

“If a cover note is issued, it remains valid till it is cancelled. A cover note comes within the purview of certificate of insurance and is legally equivalent to an insurance policy.”

Since no notice of cancellation was issued, and no fraud or forgery was pleaded, the Court held that the cover note stood valid, and the insurer was fully liable.

Factual Findings on Rash Driving and Injury Remain Unchallenged

“The Tribunal’s finding that the accident occurred due to rash and negligent driving stands unassailed”

The Court further noted that the Tribunal’s finding on the rash and negligent driving of the auto-rickshaw was not challenged in appeal, nor was there any evidence rebutting the injury suffered by the claimant, who presented X-ray reports showing a transverse fracture of the femur.

“The finding that the accident occurred due to the rash and negligent driving by the driver of the insured vehicle was not challenged in appeal. Hence, it is binding.” [Para 13.1]

Compensation Fair and Justified—Interest Rate Enhanced from 6% to 9%

“Given the 15-year delay in compensation, interest must be enhanced in line with Supreme Court precedents”

The insurer had also contested the quantum of compensation, but the Court found the ₹1,10,600 award to be just and reasonable, comprising:

• ₹600 – Medical expenses

• ₹10,000 – Incidental expenses

• ₹1,00,000 – Pain, shock, and suffering

The Court, however, modified the interest rate from 6% to 9% per annum, in line with the Supreme Court's rulings in:

• Municipal Corporation of Delhi v. Uphaar Tragedy Victims Association, (2011) 14 SCC 481

• Kalpanaraj v. TN State Transport Corporation, (2014) C.R. 693 (SC)

“Given the 15-year pendency, and in view of settled law, 9% per annum interest is justified.” [Para 21]

Court Rejects Appellant’s Attempt to Shift Burden to Vehicle Owner

“Insurer must prove non-liability—it cannot escape by blaming the owner or driver without evidence”

United India Insurance also argued that the owner failed to prove existence of a valid policy, but the Court dismissed this attempt, relying on the Supreme Court's decisions in Pappu v. Vinod Kumar Lamba, (2018) 3 SCC 208 and Amrit Paul Singh v. TATA AIG, (2018) 7 SCC 558.

The Court ruled that once the insurer admits or fails to deny issuance of a cover note, the onus to disprove liability falls squarely on it—not the vehicle owner.

“The burden is on the insurer to rebut liability once a cover note is on record and not cancelled. The owner had already pleaded valid insurance and licence.” [Para 22.2]

Insurer Liable Under Uncancelled Cover Note—Appeal Dismissed

Upholding the Tribunal’s judgment, the Gauhati High Court directed United India Insurance Co. Ltd. to deposit ₹1,10,600 within 30 days, along with 9% annual interest from 06.09.2016, the date of cross-examination of the claimant.

“The cover note was never cancelled, nor any statutory notice issued. The insurer is thus liable. The appeal is dismissed.” [Para 23–25]

The ruling reinforces a critical principle in motor accident jurisprudence—an insurer cannot evade liability merely by denying the existence of a formal policy when a valid cover note exists, especially where no steps were taken to cancel or notify its invalidity.

Date of Decision: 22 October 2025