Can an insurer avoid liability towards a Third-party victim because of a breach of policy?

INSURANCE LAW

S.Alagammai

9/9/20261 min read

Not necessarily.

Even where there is a breach of the terms of the insurance policy or permit conditions, the Insurance Company may still be required to pay the compensation awarded to the third-party victim and thereafter recover the amount from the insured/vehicle owner. This is known as the “pay and recover” principle.The principle has been recognised in a catena of judgments of the Supreme Court and seeks to balance two competing interests: ensuring that an innocent third-party victim is not deprived of compensation, while protecting the Insurance Company's contractual rights arising from the breach.

The principle was recently reaffirmed by the Supreme Court in K. Nagendra v. The New India Insurance Co. Ltd. & Ors., 2025 INSC 1270, where the vehicle had deviated from the route prescribed under its permit. The Court upheld the direction requiring the Insurance Company to satisfy the compensation awarded to the victim, with liberty to recover the amount from the vehicle owner thereafter.The Court observed that denying compensation to the victim merely because the accident occurred outside the permitted route would be unjust, while at the same time recognising that the insurer should not ultimately bear a liability falling outside the contractual terms of the policy.[1] The Court held that, “Balancing the need for payment of compensation to the victim vis-à-vis the interests of the insurer,” the application of the pay and recover principle was justified.[3]

Sources

[1] K. Nagendra v. The New India Insurance Co. Ltd. & Ors., 2025 INSC 1270, paras. 9–10.
[2] Id., para. 10.