The Supreme Court on 18 August 2026 held that an insurer cannot be held liable for a loss occurring when the insured's actual turnover had exceeded the sum assured under a policy, unless the insured had paid an additional premium in advance to cover the enhanced risk. The ruling reaffirms the indemnity principle in commercial insurance: liability is strictly co-extensive with the premium-backed coverage, and no windfall recovery beyond the contractually secured sum is permissible.

This judgment crystallises two foundational insurance-contract doctrines that CLAT PG tests with regularity.

**Principle of Indemnity (Section 31, Indian Contract Act read with insurance law):** A contract of insurance indemnifies the insured only to the extent of the actual loss, and crucially, only within the ceiling of the sum assured. The sum assured is not a bonus—it is the outer boundary of contractual risk the insurer has accepted in exchange for a specific premium. If the insured's exposure grows (here, through increased turnover), the insurer's liability does not automatically expand. The insured must seek an endorsement and pay an additional premium before the loss occurs.

**Advance Premium as Condition Precedent:** The Court treated pre-payment of premium as a condition precedent to extending coverage. This is consistent with the doctrine that an insurer's promise to cover enhanced risk is executory until the premium consideration is furnished. Without that consideration, there is no binding obligation—mirroring the classical rule under Section 2(d) of the Indian Contract Act that consideration must move at the desire of the promisor.

**Commercial Policy Context:** In stock-throughput or turnover-based policies, the sum assured is often declared as an estimate at inception. If actual turnover overshoots the declared figure, the insured carries the underinsurance risk for the excess. This ruling makes clear that post-loss attempts to argue implied coverage will fail.

For CLAT PG, the examiner routinely tests whether aspirants can identify the correct legal proposition governing indemnity, uberrimae fidei, and the consideration requirement in insurance contracts.