Insurance Must Cover Real-Life Realities: Supreme Court Awards Rs 50 Lakh Lump Sum to Accident Victim

The Supreme Court has said that the purpose of insurance is to ensure that a person is covered in real terms against unfortunate events that are a part of life and cannot be avoided.

A Bench of Justices Ahsanuddin Amanullah and R. Mahadevan set aside a Delhi High Court order that required an insurer to keep replenishing a deposit towards the claimant's attendant charges for the rest of his life. Instead, Court awarded a lump sum compensation of Rs 50 lakh as a full and final settlement.

The judgment came in an appeal filed by Reliance General Insurance Company Ltd against a January 15, 2020 order of the Delhi High Court, which had enhanced the compensation awarded by the Motor Accident Claims Tribunal (MACT), Rohini, Delhi, in 2018.

What did the Delhi High Court direct regarding attendant charges?

The high court had directed the insurance company to deposit Rs 10 lakh in the claimant's bank account, over which the insurer would have a lien. Monthly payments equivalent to the notified minimum wages were to be released from this amount towards attendant charges.

The high court further directed that whenever the deposited amount was exhausted, the insurer would replenish it with another Rs 10 lakh. This process was to continue for the claimant's entire lifetime.

Why did the insurance company challenge the order?

Counsel for the insurance company argued that the high court's direction was vague and incapable of practical implementation as it was based on future possibilities and uncertainties.

It was submitted that the order created uncertainty for both sides because the compensation liability remained open-ended. The insurer also contended that the court could not predict how long the company itself would remain in existence to continue fulfilling such obligations.

According to the insurer, compensation should have been quantified and awarded as a one-time lump sum amount that could then be utilised for the benefit of the injured claimant.

The company also relied on previous Supreme Court decisions, including Lalan D. @ Lal vs The Oriental Insurance Company Ltd (2020), and Rushi alias Ruchi Thapa vs. Oriental Insurance Company Limited (2025), to argue that compensation should be capped.

What was the claimant's condition?

Counsel for the claimant submitted that he was in an extremely unfortunate condition. Though alive, he was effectively cut off from society as he was unable to recognise people, take decisions, or perform even basic daily activities independently.

It was argued that the claimant required round-the-clock care, which would necessitate at least two attendants every day. Even on a conservative estimate, no attendant would be available for less than Rs 10,000 per month, counsel submitted, urging the Court to adopt a realistic approach while determining compensation.

Why did the Supreme Court award Rs 50 lakh compensation?

After considering the rival submissions, the Bench observed that the claimant's condition clearly showed that he required a full-time attendant 24 hours a day, seven days a week.

"The picture which emerges is clear. The respondent No.1 is in a condition which undeniably indicates that he has to be dependent on a full-time attendant 24/7," Court noted.

The Bench further observed that the matter was particularly concerning because the claimant was over 55 years of age and caring for him was far more difficult than caring for a child.

Emphasising that compensation cannot be assessed mechanically, Court said it has always undertaken a realistic evaluation of such claims.

"The purpose for insurance is to ensure that the person insured is covered in real terms for an eventuality which may be unfortunate, but is an incidence of life and cannot be shred away from," Court said.

Taking into account the need for at least two attendants, the likely cost of such care, daily expenses and medical requirements, the Bench held that a lump sum compensation of Rs 50 lakh would be appropriate.

How will the compensation amount be utilised?

Court directed that Rs 45 lakh be invested in a fixed deposit with a nationalised bank carrying the highest available interest rate and an auto-renewal facility.

The claimant's brother, who has been taking care of him and is acting as his next friend, will be permitted to withdraw Rs 5 lakh immediately to meet urgent expenses.

Court further directed that if additional funds are required in future, withdrawals may be made from the main corpus at reasonable intervals, but not exceeding Rs 2 lakh at a time.

Are previous compensation judgments binding?

Rejecting the insurer's argument based on earlier judgments, Court observed that decisions relating to compensation are not binding formulas and can only serve as guidance.

The Bench held that such decisions are "at best, persuasive in nature" and every compensation claim must be decided on its own facts and circumstances.

"In the present case, we have arrived at a figure being well conscious of the ground realities and the need to sufficiently compensate the respondent No.1, so as to ensure that the remainder of his life is spent with some dignity," Court said.

Case Title: Reliance General Insurance Company Ltd Vs Avtar Singh

Bench: Justices Ahsanuddin Amanullah and R Mahadevan 

Date of Judgment: March 23, 2026