Insurer Not Statutorily Liable to Pay Interest under Employees’ Compensation Act Without Express Policy Coverage: Kerala High Court Clarifies Scope of Insurance Liability

“Unlike the Motor Vehicles Act, the Employees’ Compensation Act imposes no statutory liability on insurers — Liability arises purely from contract” – In a significant ruling with wide implications for insurance claims under the Employees’ Compensation Act, the High Court of Kerala at Ernakulam on January 9, 2026, delivered a verdict in The Oriental Insurance Co. Ltd. v. Noor Mohammed S., reaffirming that an insurer’s liability under the Employees’ Compensation Act, 1923, is governed solely by the terms of the insurance contract and not by any statutory compulsion.

Justice S. Manu, allowing the insurer’s appeal in part, held that “the insurer cannot be fastened with the liability to pay interest or penalty unless such liability is specifically included in the policy contract.” The ruling modifies the order of the Commissioner for Workmen’s Compensation by limiting the insurer’s liability to the principal compensation amount, shifting the burden of statutory interest to the employer.

“It is not for Courts to rewrite or overwrite the terms and conditions of insurance contracts” – High Court Rejects Broader Interpretation of Insurer Liability

The case arose from a tragic workplace accident on August 1, 2002, when Noor Mohammed, a welder engaged in dismantling bridge girders for the East Central Railway at Didarganj, New Patna, suffered a fall from a height of seven meters. As a result, he sustained grievous injuries leading to permanent total disability. With paralysis below the T9 vertebrae, he became bedridden. Noor Mohammed sought compensation of ₹10 lakhs under the Employees’ Compensation Act.

The Commissioner awarded him ₹4,61,136 as compensation along with simple interest at 12% from the date of accident. Both the contractor (respondent No. 3) and the insurer, Oriental Insurance Co. Ltd. (the appellant), were directed to jointly pay the compensation and interest, failing which a 30% penalty was also to be imposed.

Workman’s Claim, Employer's Absence, and Insurer's Defence

Noor Mohammed’s claim was that he was employed as a welder by Foundation Engineers, the contractor, and was injured during the course of his employment. The employer did not contest the claim and was declared ex parte. The insurer admitted coverage for seven welders earning less than ₹4,000 per month under the contractor, but objected to the liability for interest and penalty. It argued that the claimant had stated his wages were ₹15,000 per month — beyond the insured wage bracket — and further, that the policy excluded liability for interest and penalties.

The core legal issue revolved around whether an insurer can be held liable for interest and penalty under the Employees’ Compensation Act, despite the express exclusion of such liability in the policy terms.

Policy Document Accepted as Additional Evidence: No Challenge to Genuineness

Crucially, during the appellate proceedings, the insurer sought to introduce the full text of the insurance policy — not produced before the Commissioner — which contained a clear exclusion clause. The Court accepted this document as additional evidence, stating:

“Though the 1st respondent has objected to accepting of the additional evidence, he has no case that the same is not a genuine document or a relevant piece of evidence... In the interest of justice, the additional evidence produced along with the I.A. can be accepted on record.”

Relying on the precedent in General Manager, BSNL v. P.J. Saramma (2017), the Court underscored that substantial legal questions arising from omitted documents, which are genuine and material, may be considered at the appellate stage.

Court Rejects Insurer's Denial of Coverage Based on Wage Discrepancy

One of the insurer’s defences was that the injured worker had claimed ₹15,000 per month as wages, whereas the policy covered workers drawing only ₹4,000. The Court dismissed this argument as legally unsustainable:

“Solely for the reason that the 1st respondent claimed that he was drawing ₹15,000 as monthly wages, the insurance company cannot be permitted to deny the coverage. The Commissioner has accepted the monthly wages of the 1st respondent as ₹4,000 only.”

Thus, once the Commissioner fixed the wage within the policy limit, the insurer could not retrospectively deny liability on that basis.

Insurer’s Liability is Contractual, Not Statutory: Clarifies Court With Reference to Supreme Court Precedents

Justice Manu delved into settled legal principles, citing multiple Supreme Court judgments that differentiate statutory liability under the Motor Vehicles Act from contractual liability under the Employees’ Compensation Act. The Court noted:

“The insurer, unlike under the provisions of the Motor Vehicles Act, does not have a statutory liability. Where a statute does not provide for a compulsory insurance or the extent thereof... the parties are free to choose their own terms of contract.”

Quoting extensively from New India Assurance Co. Ltd. v. Harshadbhai Amrutbhai Modhiya (2006) 5 SCC 192 and Kunnel Engineers and Contractors Pvt. Ltd. v. New India Assurance Co. Ltd. (2023) 15 SCC 776, the Court reiterated that:

“The contract of insurance is governed by the provisions of the Insurance Act. Unless the said contract is governed by the provisions of a statute, the parties are free to enter into a contract as per their own volition.”

The Court firmly rejected the respondent’s reliance on Ved Prakash Garg v. Premi Devi and L.R. Ferro Alloys Ltd. v. Mahavir Mahto, noting that these precedents pertained to different statutory contexts and were clearly distinguished by later Supreme Court judgments.

"Substantial Question of Law Exists": High Court Justifies Interference with Commissioner’s Order

Addressing the respondent’s contention that no substantial question of law arose in the appeal, the Court held:

“Whether the Commissioner was legally correct in directing the appellant company to pay the compensation as well as interest despite there being an exclusion of the liability to pay interest in the policy is a substantial question of law.”

The Court emphasized that statutory interest under the Employees’ Compensation Act may be recoverable from the employer, but not automatically from the insurer unless the policy so provides.

Appeal Partly Allowed – Employer Liable for Interest, Insurer Bound Only to Compensation

Modifying the order of the Commissioner for Workmen’s Compensation, the Kerala High Court ruled that:

“The appellant is liable to pay only the compensation granted by the Commissioner and the 3rd respondent [employer] shall be liable to pay the interest due under the impugned order.”

The verdict reinforces a strict contractual interpretation of insurance liability under the Employees’ Compensation Act and sets a crucial precedent for future claims, particularly on the admissibility of policy exclusions and division of liability between employer and insurer.

Date of Decision: January 9, 2026