In R/Special Civil Appl. No.10523 of 2021-GUJ HC- Payment of prior premium is sine qua non of coming into force of any contract of insurance between insured and insurer: Gujarat HC asks Insurance Company to pay outstanding claim of eligible farmers, who suffered crop loss in 2019, as and when it receives premium subsidy from State
Justice A.P. Thaker [30-09-2022]

Read Order: UNIVERSAL SOMPO GENERAL INSURANCE CO. LTD v. STATE OF GUJARAT 

Mansimran Kaur

Ahmedabad,  October 7, 2022:  Whosoever is insisting to settle the claim first, without making any prior premium to the insurance company is insisting on nothing but to see that the cart is put before the horse, the Gujarat High  Court has observed.

“It is a matter of common sense and knowledge that the payment of prior premium is a Sine qua non of coming into force of any contract of insurance between the insured and insurer, observes Gujarat High Court”, Justice A.P. Thaker asserted  while allowing the instant petition by observing that the stand taken by the State Government in not releasing the “premium subsidy” and at the same time, insisting the petitioner company to make payment to the farmers was not sustainable in the eyes of law. 

The petitioner instituted the present petition under Article 226 and 227 of the Indian Constitution. The Central Government notified Pradhan Mantri Fasal Bima Yojana in the year 2016 for the benefit of the farmers against the loss/ failure of the crop due to natural calamities, paste and disease. The said scheme came to be revised by the Central Government from time to time. The object of the scheme was to provide insurance coverage to the farmers regarding unforeseen loss of crop, due to inundation and other perils. It was implemented through the agricultural department of the State Government.

The petitioner was the insurance company for the year 2019-20 for various districts such as Surendranagar, Amreli, Anand and Patan etc. It was alleged by the farmers that in the year 2019, due to heavy rain and flood in the whole district of Surendranagar and Morbi, most of the crops of the farmers were damaged and therefore they had allegedly suffered huge crop loss in both the districts. 

Many of the farmers who intimated their claims were not paid. Therefore they approached this Court by filing a writ application. This Court by an order  dismissed the petition, however directed the State Government to look into the representations of the farmers. On that basis the State Government issued the impugned order dated May 12, 2021 by which it was directed to the petitioner to pay the claims by overriding the guidelines issued by the Central Government. This order of the Government was challenged by way of this petition, and with the further direction to the State Government to release the pending subsidy of Rs.216,93,31,438. 

It was contended by the petitioner that they made several representations to the Government for releasing the subsidy. The petitioner referred to various communications in the petition, requesting the State Government for release of the share of the premium and the subsidy thereof as per the scheme framed by the Central Government. According to the petitioner, due to non receipt of the premium of subsidy amount from the State Government, payment to the farmers was delayed. 

After considering the submissions of the parties, the Court noted that there was no dispute regarding the facts of implementation of the scheme in question by the Central Government. The scheme provides that the said Central Government and the State Government shall give equal share of premium to the insurance company for the implementation of the scheme. The said premium is to be paid by way of subsidy. 

“It is a matter of common sense and knowledge that the payment of prior premium is a Sine qua non of coming into force of any contract of insurance between the insured and insurer. The contract of insurance would be effective only on making payment of the premium. Whosoever is insisting for first settlement of claim without making any prior premium to the insurance company is nothing but insisting to see that the cart is put before the horse”, the Bench said.

In the present case, as revealed from the communications of the Central Government to the State Government and the material placed on record, it clearly appeared  that the State Government was insisting on making payment to the concerned farmers on the basis of a scheme of insurance without payment of any prior premium. 

Such instances of the State Government were nothing but an exercise to put a cart before the horse. When the Central Government had consistently directed the State Government to release the “premium subsidy”, the State Government ought to have followed such directions. The entire stand taken by the State Government in not releasing the “premium subsidy” and at the same time, insisting the petitioner company to make payment to the farmers is not sustainable in the eyes of law, the Court noted. 

At the same time, it is the bounden duty of the petitioner to see to it that on receipt of the premium subsidy, it shall immediately make payment to the eligible farmers in respect of damages caused to them. At the same time, the question regarding making payment for any other purpose like non availability of facilities of laying claim or non availability of staff etc. can be considered by the competent authority for initiating any penal action against the insurance company. But only with a view to initiate such penal action and to impose penalty, the State Government is not entitled to stop the making of premium subsidy which is sine qua non for the contract of the insurance itself, the Court further noted. 

Considering the facts and circumstances of the present case, it clearly transpired that the action and the stand taken by the State Government was not sustainable in the eyes of law.In light of the observations made above, the present petition was allowed.