In the sea of insurance litigation, the concept of liquidated damages has evolved as a significant tool for the protection of policyholders’ rights. The cases cited from the Supreme Court and the Insurance Tribunal of Lahore exemplify this development, particularly in the context of late settlements of insurance claims. Liquidated damages, in essence, represent a pre-agreed sum payable as compensation for a specific breach of contract, in this case, the delay in settling insurance claims.

The various rulings, specifically those from 2023, reveal a consistent judicial attitude towards upholding the rights of the insured and their beneficiaries. This trend is evident in cases like State Life Insurance Corporation v. Mst. Razia Ameer (2023 SCMR 826), where the Supreme Court emphasized the obligation of insurance companies to settle claims within a stipulated timeframe (typically 90 days as per Section 118 of the Insurance Ordinance, 2000). Failure to do so entitles the claimant to liquidated damages. This principle was reiterated in cases like State Life Insurance Corporation of Pakistan v. Surriya Asghar (2023 CLD 393 Lahore-High-Court-Lahore) and Nargis Bano v. Pak Qatar Family Takaful (2023 CLD 1319 Insurance-Tribunal-Lahore), among others.

The legal matters in which liquidated damages typically appear are those involving delayed settlement of insurance claims. These include life insurance policies, group insurance contracts, and other similar insurance arrangements. The courts have consistently held that insurance companies must adhere to their contractual obligations and settle claims within the agreed timeframe. Failure to do so justifies the award of liquidated damages to the aggrieved party.

A critical aspect of these judgments is the courts’ focus on the principle of “utmost good faith” in insurance contracts, as highlighted in cases like Asma Qamar v. Jubilee Life Insurance (2023 CLD 1283 Insurance-Tribunal-Lahore). This principle obliges both the insurer and the insured to act honestly and disclose all material facts. In situations where insurance companies fail to fulfill their obligations, or where there is misleading or deceptive conduct, the courts have not hesitated to sanction them with the award of liquidated damages.

Furthermore, these rulings demonstrate a shift towards a more policyholder-friendly approach, ensuring that insurance companies do not unjustly benefit from their own delay or mismanagement. This is particularly evident in cases like Haji Basharatuallah v. State Life Insurance (2023 CLD 1215 Insurance-Tribunal-Lahore), where the tribunal went to the extent of calculating liquidated damages up to the final resolution of the matter, thereby emphasizing the insurers’ accountability.

The courts’ attitude towards liquidated damages in the realm of insurance claims is both insightful and indicative of a broader judicial approach aimed at enforcing contractual obligations and protecting the rights of claimants. Based on the cases cited, it is clear that the courts have a firm stance on ensuring timely settlements of insurance claims, as mandated by the Insurance Ordinance, 2000.

In cases like Jubilee Life Insurance v. Sumera Imran (2023 CLD 544 Insurance-Tribunal-Lahore) and Askari General Insurance Company Limited v. Islam Lubricants (Pvt.) Limited (2022 CLD 425 Lahore-High-Court-Lahore), the courts have consistently interpreted Sections 116 and 118 of the Insurance Ordinance, 2000, to impose a duty on insurers to settle claims promptly. The principle underpinning these decisions is that an insurance company cannot retain the due amount for an indefinite period, and any delay in settlement makes them liable to pay liquidated damages or profits incurred on the due amount immediately after the due date.

A review of recent judgments 

Scope and Application in Insurance Claims:

In cases like Postal Life Insurance v. Muhammad Iqbal (2022 CLD 408 Lahore-High-Court-Lahore), the courts have stressed the importance of insurance companies conducting thorough and unbiased investigations into claims. The dismissal of the appeal in this case underscores the court’s stance against insurance companies’ repudiation of claims based on unfounded allegations of concealment by policyholders.

Nomination in Insurance Policies:

The Lahore High Court, in Postal Life Insurance v. Muhammad Ishaque Butt (2022 CLD 309 Lahore-High-Court-Lahore), clarified the nature of nomination in insurance policies. The court held that a nominee’s right is to collect the insurance claim amount as a trustee for all legal heirs. This ruling ensures that the rights of all legal heirs are protected, and the nominee is responsible for the equitable distribution of the insurance proceeds.

Evidence and Proof in Claim Settlement:

In State Life Insurance Corporation of Pakistan v. Mst. Shama Fatima (2022 CLD 279 Lahore-High-Court-Lahore), the court dismissed the insurance company’s appeal for lack of substantial evidence, emphasizing the need for credible evidence in the settlement of insurance claims. This decision reflects the courts’ insistence on the insurance company’s responsibility to provide concrete proof when challenging the legitimacy of claims.

Late Settlement and Liquidated Damages:

The cases, particularly State Life Insurance Corporation of Pakistan v. Mst. Sawarna Bibi (2022 CLD 190 Lahore-High-Court-Lahore), highlight the courts’ approach to liquidated damages in the event of late settlement of claims. The courts are cautious in awarding liquidated damages and emphasize the need for specific evidence and analysis regarding the entitlement to such damages.

Land Acquisition and Liquidated Damages:

In a different context, Zafar Iqbal v. Assistant Commissioner Chunian, District Kasur (2022 CLC 1805 Lahore-High-Court-Lahore), the court dealt with liquidated damages in the case of land acquisition. The judgment reflects the court’s concern over delays in statutory processes and the subsequent impact on landowners, highlighting the judiciary’s role in ensuring fair compensation and timely proceedings in land acquisition cases.

Insurance Appeals and Judicial Scrutiny:

In State Life Insurance Corporation v. Mst. Nusrat Amjad (2021 CLD 1444 Lahore-High-Court-Lahore), the court upheld the award of liquidated damages, emphasizing the insurer’s failure to settle claims within the prescribed period. This decision, among others, demonstrates the courts’ scrutiny of insurance appeals and their inclination to uphold Tribunal decisions when there are no evident jurisdictional defects.

Rejection of Insurance Claims and Court Intervention:

The case of Lasania Oil Mills v. Silver Star Insurance Company Limited (2021 CLD 659 Lahore-High-Court-Lahore) is a notable example where the court upheld the rejection of an insurance claim due to non-compliance with policy clauses. This ruling indicates the courts’ respect for the terms of the insurance contract and the importance of policyholders adhering to policy conditions.

Liquidated Damages in Insurance Claims:

The judiciary consistently upholds the entitlement of claimants to liquidated damages in cases of delayed settlement by insurance companies, as evidenced by decisions like EFU General Insurance Ltd. v. Jahangir Mughul (2021 CLD 1334 Karachi-High-Court-Sindh). The courts emphasize the insurer’s duty to settle claims within the stipulated time frame (usually 90 days as per Section 118 of the Insurance Ordinance, 2000). In cases like Universal Insurance Company Limited v. Hamayun Khan (2019 CLD 1216 Lahore-High-Court-Lahore) and Adamjee Insurance Company Ltd. v. Zia Ullah (2019 CLD 526 Lahore-High-Court-Lahore), the courts detail the computation of liquidated damages, focusing on fair and equitable compensation for delayed settlements.

Breach of Contract and Compensation:

The courts also deal with liquidated damages in cases of contractual breaches, as seen in Masoomi Enterprise Pakistan (Pvt.) Ltd. v. Ping Tan (Fishery Company) (2021 MLD 1009 Karachi-High-Court-Sindh). Here, the courts underscore the entitlement of aggrieved parties to liquidated damages as a form of compensation for the breach. Similarly, in Abdul Qadir v. Mrs. Ameer Zadi (2020 MLD 213 Karachi-High-Court-Sindh), the court outlines the principles for claiming damages under the Contract Act, distinguishing between proving actual damages and the entitlement to liquidated damages.

Insurance Rules and Surveyor Reports:

In cases like EFU General Insurance Ltd. v. Jahangir Mughul, the courts scrutinize surveyor reports and the insurer’s adherence to professional standards, especially under Rule 22 of the Insurance Rules, 2002. The rejection of claims based on insufficient or unprofessional surveyor reports is a key focus, demonstrating the courts’ insistence on thorough and unbiased claim assessment.

Liquidated Damages in Employment Disputes:

In disputes related to employment, such as Dr. Ishaque Muhammad Shah v. National Bank of Pakistan (2021 PLC(CS) 968 Karachi-High-Court-Sindh), the courts evaluate claims for liquidated damages in the context of service rules and superannuation. Here, the courts tend to be more conservative, denying liquidated damages where the termination of employment aligns with applicable rules and procedures.

Real Estate and Construction Delays:

The case of Federal Government Employees Housing Foundation v. Javaid Iqbal (2020 YLR 2306 Islamabad) illustrates the courts’ approach to liquidated damages in real estate transactions, particularly in situations involving delayed construction. The courts examine the terms of agreements and the reasons for delays, often balancing the interests of developers and purchasers.

Other Contractual Disputes:

In Shahzad Nabi v. Naseer Turabi (2020 CLC 300 Karachi-High-Court-Sindh), the court addresses liquidated damages in the context of the forfeiture of earnest money in property transactions. This case highlights the judiciary’s discretion in interpreting and enforcing forfeiture clauses, emphasizing reasonableness and fairness.

Liquidated Damages in Insurance Claims:

A significant number of cases, such as Mst. Razia Ameer v. State Life Insurance Corporation of Pakistan (2018 CLD 289 Lahore-High-Court-Lahore) and State Life Insurance Corporation of Pakistan v. Mst. Shazia Mir Arshad (2017 CLD 1483 Lahore-High-Court-Lahore), revolve around insurance claims. The courts consistently uphold the right to liquidated damages for delays in insurance claim settlements under Section 118 of the Insurance Ordinance, 2000. The judiciary emphasizes the insurers’ obligation to settle claims within the stipulated timeframe, typically 90 days. The courts ensure that claimants, especially in life insurance and group insurance scenarios, are compensated for undue delays.

Breach of Contract and Liquidated Damages:

In contractual disputes, such as Shaheen Insurance Company Limited v. Cell Star (Franchise Mobilink) Sumandri Road, Jhal Chowk Faisalabad (2018 CLD 131 Lahore-High-Court-Lahore), the courts delve into the specifics of insurance policies to determine the applicability of liquidated damages. The judiciary scrutinizes the terms of the contract and the validity of the insurer’s reasons for claim rejection. Similarly, in Askari Bank Limited v. Saga Sports (Pvt.) Ltd. (2017 CLD 162 Lahore-High-Court-Lahore), the courts underline the necessity of providing irrefutable evidence to support a claim for liquidated damages in financial disputes.

Principles of Natural Justice in Insurance Claims:

The Lahore High Court, in several cases, has emphasized the principles of natural justice, particularly where insurance claims are repudiated. In State Life Insurance Corporation of Pakistan v. Mst. Shazia Mir Arshad, the court underscored the importance of providing a hearing to the aggrieved party before repudiating an insurance claim, aligning with the principles of fair play and justice.

Jurisdictional Aspects in Insurance Claims:

In Mst. Anwar Begum v. State Life Insurance Corporation of Pakistan (2017 CLD 650 Lahore-High-Court-Lahore), the court addressed jurisdictional issues in insurance claims, affirming the appropriate forum for filing such claims under specific legal provisions like the Insurance Act, 1938.

Execution of Decrees and Liquidated Damages:

The Lahore High Court in cases like Muhammad Ashraf v. State Life Insurance Corporation of Pakistan (2016 PTD 1899 Lahore-High-Court-Lahore) and Begum Rashida Jamil v. State Life Insurance Corporation of Pakistan (2016 CLD 1678 Lahore-High-Court-Lahore) dealt with the execution of decrees involving liquidated damages. These decisions focus on the accurate calculation of liquidated damages as per the terms of the decree and the importance of satisfying the entire decretal amount.

Proof of Liquidated Damages:

The courts have consistently held that the burden of proof lies on the party claiming liquidated damages. This principle is evident in Atlas Cables (Pvt.) Limited v. Islamabad Electric Supply Company Limited (2016 CLD 1833 Islamabad), where the judiciary highlights the need for proving actual loss to claim damages.

Distinction Between Liquidated Damages and Penalty:

In Atlas Cables (Pvt.) Limited v. Islamabad Electric Supply Company Limited, the court distinguishes between liquidated damages and penalty, noting that liquidated damages represent a genuine pre-estimate of loss, whereas a penalty serves as a deterrent against contractual breach.


(1)  The Pakistani judiciary’s approach to liquidated damages is multifaceted, covering a range of legal matters, primarily in insurance claims and contractual disputes. The courts prioritize fairness, adherence to legal standards, and the protection of parties’ rights. They ensure that liquidated damages are awarded judiciously, based on substantial evidence, contractual obligations, and legal principles.

(2)In conclusion, these cases collectively illustrate the Lahore High Court’s approach to ensuring fair and just adjudication in insurance claims, particularly in life insurance. The courts emphasize the need for insurance companies to adhere to contractual obligations, conduct unbiased investigations, and settle claims promptly. Additionally, the rulings reflect a broader judicial policy geared towards safeguarding the rights of policyholders and their beneficiaries, along with ensuring that liquidated damages are awarded judiciously based on substantial evidence and legal analysis.

(3) These cases typically arise in scenarios where there is a dispute over the settlement of insurance claims, be they related to life insurance, group insurance, or other insurance policies. The courts have shown a strong inclination to protect the interests of the insured and their beneficiaries, particularly in situations where insurance companies delay payments without justifiable reasons.

The courts have also emphasized the need for evidence and proof in determining the exact time when the payment becomes due and the entitlement of claimants to liquidated damages. This is particularly evident in the cases from the Lahore High Court, where it was held that the sum of liquidated damages does not automatically follow as soon as the payment on a policy becomes due in the estimation of the claimant. Rather, the issue regarding the grant or refusal of liquidated damages is a matter of evidence, and a decree can be passed only once a claim is established on a balance of probabilities.

Additionally, the courts have highlighted the importance of framing specific issues regarding the grant or refusal of liquidated damages under Section 118 of the Insurance Ordinance, 2000. This procedural rigor ensures that insurers are not unfairly penalized for liquidated damages in cases where they have a bona fide defense or where no deliberate evasion or contumacy in denying a legitimate claim is proved.

In conclusion, the cited cases demonstrate a judicial approach that is keen on ensuring that insurance companies adhere strictly to their contractual obligations and settle claims within a reasonable time frame. This approach underscores the principle of good faith in insurance contracts and reflects a policyholder-friendly judicial attitude, ensuring that the rights of the insured are adequately protected against undue delays by insurers.

By The Josh and Mak Team

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