Businesses that deal in goods often take out Marine Cargo Annual Turnover Policies — insurance that covers their goods in transit and storage up to an expected annual turnover. But what happens when the actual turnover exceeds the insured amount during the policy year — and a loss occurs after that point? Can the business claim full insurance if it never paid the enhanced premium for the additional turnover? The Hon'ble Supreme Court has given a clear answer: the insurer is not liable for the loss at that point.

What Happened

A company had taken a Marine Cargo Annual Turnover Policy for an expected turnover of ₹1,200 crore, with premium payable in two equal instalments. During the policy period, a fire broke out at a Container Freight Station where the company had stored 41,481 cotton bales. By the time the fire occurred, the company's actual turnover had already exceeded the ₹1,200 crore sum insured — but the company had not informed the insurer of the excess turnover or paid the additional premium that would have been due.

The NCDRC had directed the insurer to pay. The Supreme Court reversed this — the insurer's liability was capped at the sum insured for which premium had actually been paid.

Section 64VB of the Insurance Act — No Premium, No Risk

The Court's decision rested squarely on Section 64VB of the Insurance Act, 1938, which provides that no insurer can assume any risk unless the premium is received in advance. This provision is not merely procedural — it is a fundamental condition of insurance liability. Where the risk being claimed against exceeds the sum for which premium has been received, the insurer simply has not accepted that additional risk.

The Core Principle for Business Insurance

An insurance policy covers only the risk for which premium has been paid. Where an annual turnover policy is taken for a projected turnover, and the actual turnover exceeds that projection, the additional risk created by the excess turnover is not covered — unless the policyholder informs the insurer and pays the additional premium. This is not a technicality — it is the fundamental contractual and statutory basis of insurance.

What This Means for Businesses

Many businesses take turnover-based insurance policies at the start of the year based on projected figures. As the year progresses and actual turnover grows — especially in a good year — the business may unknowingly find itself underinsured. The time to discover this is not when a loss occurs.

Practical Guidance for Businesses

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Review your turnover-based insurance policies mid-year. If your actual turnover is tracking above the insured amount, inform your insurer and pay the additional premium. This is usually straightforward and inexpensive relative to the risk of being uncovered.

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Read your policy carefully for the mechanism by which turnover excess is to be reported and additional premium paid. Most annual turnover policies have a declaration or adjustment clause — understand it before a loss happens.

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If your claim has been rejected on the ground that the loss occurred after your turnover exceeded the sum insured — verify whether your policy contained a reinstatement clause or a mechanism for mid-year adjustment that the insurer failed to inform you about. If so, the rejection may be challengeable before the consumer forum.

Case Reference
New India Assurance Company Limited & Ors. v. M/S Louis Dreyfus Commodities India Pvt. Ltd. | Hon'ble Justice Sanjay Karol & Hon'ble Justice Nongmeikapam Kotiswar Singh | August 18, 2026 | Hon'ble Supreme Court of India

Frequently Asked Questions

Questions people commonly search on this topic

Is an insurance company liable if a loss occurs after the insured's turnover exceeds the policy limit? +
No, according to the Supreme Court. If the insured's turnover has exceeded the sum insured under an annual turnover policy and enhanced premium has not been paid in advance for the additional exposure, the insurer is not liable for a loss occurring at that point. Section 64VB of the Insurance Act requires premium to be paid before risk is assumed.
What is Section 64VB of the Insurance Act? +
Section 64VB of the Insurance Act, 1938 provides that no insurer shall assume any risk unless the premium is received in advance. This means an insurer's liability is strictly limited to the risk for which premium has actually been paid. It cannot be held liable for losses arising from risks that exceed the paid premium coverage.
What is a Marine Cargo Annual Turnover Policy? +
A Marine Cargo Annual Turnover Policy is an insurance product taken by businesses that deal in goods — covering transit and storage risks based on expected annual turnover. Premium is calculated on projected turnover. If actual turnover exceeds the projection, additional premium must be paid to cover the additional risk.
How can a business avoid being underinsured on a turnover policy? +
Review your policy mid-year. If actual turnover is tracking above the insured amount, inform your insurer and pay the additional premium before a loss occurs. Keep a record of this communication. Do not wait until a loss occurs to discover you were underinsured — at that point it is too late to cure the coverage gap.