The High Court of Jammu & Kashmir and Ladakh has ruled that an insurance company cannot be held liable for interest or penalties arising from an employer’s delay in paying workers’ compensation, placing that liability squarely on the employer.
The ruling arose from the death of Adil Rangzaib, a casual labourer engaged by a contractor at a dam site in Salamabad, who died in 2017 after slipping into the dam while clearing trash. The Commissioner under the Employees’ Compensation Act, 1923, awarded his dependants compensation of about Rs 8.98 lakh and directed the insurance company to also pay interest under Section 4A of the Act.
The insurer appealed, arguing its liability was limited to what the policy covered, compensation for employees, and did not extend to penalties or interest for the employer’s delay. The Court agreed. It noted that the policy covered twelve employees with wages up to Rs 8,000 per month, and that Rangzaib was included under that coverage, so the insurer had to pay the compensation amount itself. But it held that interest and penalties fell outside the policy terms and had to be borne by the employer.
The Court explained that Section 4A requires employers to pay compensation within one month of an accident, failing which they must pay interest or penalties themselves, unless the insurance contract specifically covers those charges.
By partly allowing the appeal, the Court shifted the burden of interest back to the contractor, reinforcing that insurance cover extends to compensation, not to consequences of an employer’s own default.
The ruling gives Indian employers and HR and compliance teams a clearer marker on where insurance cover ends and direct statutory liability begins under workers’ compensation law, particularly for organisations that rely on contract labour at industrial or infrastructure sites.
