LIABILITY OF  INSURANCE COMPANIES IN MOTOR ACCIDENTS:A BRIEF OUTLINE

Hon'ble Dr. Justice Kaushal Jayendra Thaker (Allahabad High Court)

13 August 6:00 PM

·        The motor vehicle laws have been veritable minefield for all especially Judges manning  tribunals.  it would be fruitful to note that the insurance company's liability under the Motor Vehicle Act, qua third parties has been causing wax problem. This article focuses on both avoidance of its liability and even discusses the question, which may arise for deciding the matter under the Motor Vehicle Act.

·        I hope that this article will help the tribunal judges to decide the matter in its right perspective. How to decide a claim petition where defence of Invalid Licence or Fake Driving Licence  and where defence of breach of policy condition is raised especially in cases involving vehicle insured by the company.

·        Preamble of the Motor Vehicles Act whether the 1939 or 1988 Act,clearly shows that the Act and enactment is for the consolidation of the provision of Law of Torts, pertaining to the Act or omission arising out of use and occupation of the vehicle. In other words, the enactment is to safeguard the interest and welfare of public at large against those who are carrying, using and occupying the particular vehicle for their own benefits.

·        The mind boggling judgements both of the High Courts and the Apex Court partake about 50% of the judicial output covering various aspects of this branch of Tort Codified Law. 

·        In this context, it would be relevant for us to examine the role of the Insurance Companies, as taking of insurance has been made mandatory as per the motor vehicle laws applicable in India.

·        Effort has been made to see from the perspective of the Tribunal the defences which the insurer can take to avoid its liability and try to analyse the judgements as far as the liability of the insurance companies under the Motor Vehicle Act, 1988 and Motor Vehicle Act, 1939 are concerned,The main focus shall be on their liability qua third party's claim

·        The provisions of Chapter XI of the 1988 Act partakes within it laudable object to ensure that third party, who suffered because of accident will be compensated, even if financial condition of the driver or the owner, who caused the accident, was not sound. The provisions have to be construed in a manner so that the laudable object of Chapter XI is fulfilled.

·        Mainly Section 145 of the1988 Act defines certain terms once vehicles are registered and start plying even before plying the vehicle should be registered as per the provisions of the Motor Vehicles Act, 1988 as applicable. The motor accidents cases have been now sought to be regulated by the Tribunals and jurisdiction vests with the Tribunal to decide cases arising by use of vehicle. It would be necessary to have birds' eye view of Sections 147 and 149 of the Act.1988.

·        The defences available to the Insurance Company are enumerated under Section 147 of Motor Vehicle Act, 1988, .

(A)     Defences available to Insurance Companies in motor accident cases:-

·        The provisions of Section 147 of the Motor Vehicles Act 1988 gives power to the Insurance Company to avoid its liability if it can prove that the vehicle was plied in contravention of the policy condition. These would partake within itself defence of vehicle being used as a Goods carrier though meant for passenger vehicle. The vehicle was driven without permit, the policy was cancelled before it was  put into action. They can even plead that the deceased was negligent or had contributed to the accident taking place. They can avoid indemnifying the owner if they prove that there was no permit. The condition of the policy was breached. The validity of policy was over. These are inclusive and not exhaustive defences. The Insurance Company can avoid its liability from any of the grounds mentioned herein above but the Insurance Company will have to prove the factum of breach of policy conditions. They will have to plead and prove and then only they can succeed. If they plead limited liability they will have to demonstrate that no extra premium was paid.

·        Recently, in National Insurance Co. Ltd Vs. Smt. Urmila Devi and another, First Appeal From Order No.1022 of 1999, decided on 2.6.2020, the authour has taken a view that it is for the Insurance Company to prove that the licence was a fake licence. The beneficial piece of legislation has to be interpreted in a manner in which the object of the Act is fulfilled. Relianceis placed onrecent Judgment of the Apex Court in Ram Chandra Singh Vs. Rajaram and others, AIR 2018 SC 3789,it is held that the Insurance Company should prove that the licence of the driver was fake driving licence. In this case, it was not proved that the licence produced by the claimant was not a proper driving licence.

·        Recently in The New India Assurance Co. Ltd. Vs. Smt. Barisa and others, First Appeal From Order No. 2473 of 2009, decided on 23.3.2020,the author has decided that the Insurance Company cannot succeed by only contending that there was breach of policy condition when the owner has verified the policy as well as the copy of the licence. Thus, to succeed before the Tribunal, the Insurance Company must prove that the vehicle was plied in breach of policy condition otherwise they cannot succeed.

·        The insurer has to prove that there was breach of policy condition and to prove this fact they have to lead evidence before the Tribunal to prove their contention.. The liability of the insurance company is co-extensive for applications for compensation under Sections 140, 163-A and 166 of the Act,1988. Section 145 corresponds to Section 93 of Motor Vehicle Act, 1939 and it is made compulsory for taking certificate of insurance under the Act.  liability under Section 145 is relating to death or bodily injury to any person and the definition of property in Section 145(e)   of the Act is an inclusive definition.

·        The Insurance Company cannot be saddled with liability to pay in the following circumstances:-

          Tort feasor not liable and insurance company cannot be ordered to pay.

          The Opponent who have not contributed to the accident. In the light of the latest decision of Honorable Supreme Court in case o “New India Assurance Co. Ltd. v/s. Bismillah Bai (2009) 5 SCC 112, Ss. 140, 166, 147 and 149, liability of Insurance Company insuring vehicle not responsible for or not contributing to accident, in the present case, a Jeep colliding with a truck, truck involved in the accident not insured. Tribunal recording that driver of Jeep not negligent in driving Jeep and not contributing to accident. High Court fastening liability on insurer Jeep. Un-sustainability. Held, only because truck was not insured, appellant could not be made liable to pay compensation where liability being incurred by driver and owner of truck and not by driver and only Jeep.” Thus, only the tort feasor can be directed to pay the compensation. Tort feasor not liable and insurance company cannot be ordered to pay.

·        The Apex Court in Smt.Yallawwa and Others v/s. National Insurance Co. Ltd.and another, reported in 2007 A.C.J. 1934, held that insurance company has right to raise defences in the application filed under Section-140 of the Motor Vehicle Act,1988 and can contend that even at the interim stage they are not liable as there was breach of policy condition

          The Supreme Court in Sant Lal Vs. Rajesh and others, AIR 2017 SC 4054, held that licence to drive light motor vehicle will take within its sweep tractor attached with trolley and even if no endorsement is obtained Insurance Company cannot be exonerated referred to AIR 2017 SC 2857, New India Assurance Co. Ltd. Vs. Shanti bopanna and others,

(B)     Pay and Recover Orders:

·        Pay and recover orders were earlier not recognized, however the liability of the Insurance Company to make payment even in respect of persons not covered by the insurance policy continues under the provisions of sub-section (1) of section 149 of the Act, as if would be entitled to recover the same if it could prove that one of the conditions of the policy had been breached by the owner of the vehicles United India Insurance Co. Ltd. Vs. K.M. Poonam, JT 2011 (3) SC 149

·        The liability of the insurer arises only when the liability of the insured has been fixed for the purpose of indemnifying the insured under the contract of insurance Oriental Insurance Co. Ltd. Vs. Sunita Rathi, AIR 1998 SC 257. 

·        If the certificate of insurance is wrongly granted either by reason of any mistake or fraud committed by either of the parties or by its officers, the remedy may be to initiate a separate proceeding for realization of the amount so paid by it from the owner of the vehicle, but keeping in view the letter and spirit of the Motor Vehicles Act a third party claimant should not suffe and he cant be put to loss. 

(C)     Liability of Insurer for Compensation on the basis of No Fault          Liability under Section 163A

·        Section 163A was introduced in the year 1994. It was a speedy remedy for claimants so  as to opt to elect to get either compensation under Section 163-A or Section 166 of the Act but not under both.

·        Remedy for payment of compensation both under Section 163A and Section 166 being final and independent of each other as statutorily provided, a claimant cannot pursue his remedies thereunder simultaneously. The claimant must elect to go either for a proceeding under Section 163A or under Section 166 of the Act, but not under both Oriental Insurance Co. Ltd. Vs. Dhanbai Kanji Gandhiv, AIR 2011 SC 11.

·        Recently, the Apex Court while deciding a matter which arose out of proceedings under Section 163 A has held that the Insurance Company cannot agitate the issue of negligence and or in absence of proving that somebody else was driving the vehicle. The driving licence question having not been raised before the Tribunal or the High Court, the High Court could not have upturned the Judgement, Chandrakanta Tiwari Vs. New India Assurance Company Ltd, 2020 (0) AIJEL-SC 66311.

(D)     Liability of Insurance Company in case of Gratuitous    Passengers & Pillion Riders

·        If the applicant was pillion rider on the motor cycle and as per the insurance policy, if no extra premium has been charged for the pillion rider and if the risk is not covered of the pillion rider, then as per the decision in "Civil Appeal No. 2291/2000" in case of "United India Insurance Co. Ltd., Simla v/s. Tilak Sing and ors." reported in "2006 A.C.J.  1441" and in "2006 A.C.J. 328 (Rajsthan) in case of "Varji and ors v/s. United India Insurance Co. Ltd. and Ors." pillion rider is not covered under the insurance policy, hence insurance company is not liable as no extra premium was paid. Under the old Act, in the case of New India Assurance Co. Ltd. Vs. Shanti Bai (Smt) and Others (1995) 2 SCC 539,

·        Hon'ble Apex Court in case of United India Insurance Co. Ltd., Simla v/s.  Tilak Sing and Ors. reported in 2006 A.C.J. 1441, it has been observed at para No.16 that:-

"In our view, although the observations made in Asha Rani's case (supra) were in connection with carrying passengers in a goods vehicle, the same would apply with equal force to gratuitous  passengers in any other vehicle also. Thus, we must uphold the contention of the appellant-insurance company that it owed no liability towards the injuries suffered by the deceased Rajinder Singh who was a pillion rider, as the insurance policy was a statutory policy, and hence it did not cover the risk of death of or bodily injury to gratuitous passenger."

·        Sections 146 and 147(1) of the Act and proviso- Third party insurance -if it is an Act policy persons who would be covered, under the policy has to be seen. The question would be Whether insurer is obliged to indemnify owner of goods vehicle when employees engaged by hirer of the vehicle with the owner of the goods, dies in accident-

“The categories of employees which have been enumerated in clauses (a), (b) and (c) of proviso (I) to Section 147(1) are the driver of a vehicle, or the conductor of the vehicle if it is a public service vehicle or in examining tickets on the vehicle, if it is a goods carriage, being carried in the vehicle, but not obliged to cover other categories of employees.” Sanjeev Kumar Samrat Vs. National Insurance Co. Ltd. (2014) 14 SCC 243

·        Section 147- Representative(s) who is owner of goods- If he is covered by insurance policy in question then accident involving a goods vehicle, a lorry- Amongst deceased victims, two were of clerical cadre working as Gumasts  and were accompanying the other persons with their goods-Premium paid for covering risk of persons “employed in connection with the operation and/or loading/unloading of motor vehicle”-Disjunctive clauses indicated by use of “and/or”- Whether deceased covered? -Held High Court clearly fell in error in holding that insurer is not liable – In clause IMT 17 for which premium was paid : persons employed in connection with the operationare clearly covered and above coverage provided by policy to “persons employed in connection with loading/unloading of motor vehicle”-Obviously, deceased would be covered by expression “persons employed in connection with the operation” and operation of aforesaid clause has wrongly been restricted and limited only to persons employed in connection with loading/unloading of motor vehicle. Hanumanagouda Vs. United India Insurance Co. Ltd (2014) 9 SCC 341

·        Reference is required to be made to ratio laid down by Hon'ble Apex Court in the case of National Insurance Com. Ltd. vs. Swaran Singh, reported in AIR 2004 SC 1531, in Para No.105

except that in respect of liability for death or bodily injury.

·        Section 3 of the Act casts an obligation on a driver to hold an effective driving licence for the type of vehicle which he intends to drive. Section 10 of the Act enables Central Government to prescribe forms of driving licenses for various categories of vehicles mentioned in subsection (2) of said section. The various types of vehicles described for which a driver may obtain a license for one or more of them are: (a) Motorcycle without gear, (b) motorcycle with gear, (c) invalid carriage, (d) light motor vehicle, (e) transport vehicle, (f) road roller, and (g) motor vehicle of other specified description. The definition clause in Section 2 of the Act defines various categories of vehicles which are covered in broad types mentioned in subsection (2) of Section 10. They are 'goods carriage', 'heavy goods vehicle''heavy passenger motor vehicle', 'invalid carriage', 'light motor vehicle', 'maxi cab', 'medium goods vehicle', 'medium passenger motor vehicle', 'motor cab', 'motorcycle', 'omnibus', 'private service vehicle', 'semitrailer', 'tourist vehicle', 'tractor', 'trailer', and 'transport vehicle'. In claims for compensation for accidents, various kinds of breaches with regard to the conditions of driving licenses arise for consideration before the Tribunal. A person possessing a driving license for 'motorcycle without gear', for which he has no license. Cases may also arise where a holder of driving license for 'light motor vehicle' is found to be driving a 'maxi cab', 'motor cab' or 'omnibus' for which he has no licence. In each case on evidence led before the Tribunal, a decision has to be taken whether the fact of the driver was possessing license for one type of vehicle but found driving another type of vehicle, was the main or  contributory cause of accident. If on facts, it is found that accident was caused solely because of some other unforeseen or intervening causes like mechanical failures and similar other causes having no nexus with driver not possessing requisite type of licence, the insurer will not be allowed to avoid its liability merely for technical breach of conditions concerning driving licence. Meaning thereby, even if driver of offending vehicle was not qualified to ply the offending vehicle or was not having the required badge to ply such vehicle then also insurer is liable to pay amount of compensation. Before passing any order, Tribunal has to decide whether the fact of the driver possessing licence for one type of vehicle but found driving another type of vehicle, was the main or contributory cause of accident. If on facts, it is found that accident was caused solely because of some other unforeseen or intervening causes like mechanical failures and similar other causes having no nexus with driver not possessing requisite type of licence, the insurer will not be allowed to avoid its liability merely for technical breach of conditions concerning driving licence. Reference is also required to be made to the recent decision of Hon'ble Apex Court in the case of S. Iyyapan v/s United India Insurance Com. Ltd., dated 01.07.2013 wherein after referring to several judgments of Hon'ble Apex Court, the driver was holding a valid driving license to drive light motor vehicle. There is no dispute that the motor vehicle in question, by which accident took place, was Mahindra Maxi Cab. Merely because the driver did not get any endorsement in the driving licence to drive Mahindra Maxi Cab, which is a light motor vehicle, the High Court has committed grave error of law in holding that the insurer is not liable to pay compensation because the driver was not holding the licence to drive the commercial vehicle. The impugned judgment is, therefore, liable to be set aside.

·        Even in the case of New India Assurance Co. Ltd. v. Roshanben Rahemansha Fakir, reported in AIR 2008 SC 2266, it has been held that when driver of offending vehicle was holder of licence of three wheeler i.e. auto rickshaw delivery van and his licence was not meant for driving 'transport vehicle' but for goods carrying public carrier, in such case Insurer is not liable but directed the insurer to first pay entire amount of compensation with a further direction to recover the same from the insured (these directions were issued under Article 142 of Constitution of India).

In which circumstances, Insurer is liable to pay compensation when injured claimant or deceased was travelling in the goods vehicle:

·        It is the duty of the insurer to prove that injured claimant or deceased was traveling in the goods vehicle and, therefore, it is not liable to pay amount of compensation, unless, same has been prove, insurer is liable to pay amount of compensation.

·        To decide whether, injured claimant or deceased was traveling in the goods vehicle or not, Panchnama of scene of accident plays very vital role. If, after reading Panchnama, it appears that there were goods loaded in the vehicle or were found lying at the sight of accident then it can be presumed that vehicle was used for carrying goods. However, there are some points, which are required to be considered before fastening liability on insurer, which are:

1.       Whether injured claimant or deceased was travelling in the cabin of the goods vehicle or not.

“If, injured claimant or deceased was travelling in the cabin of the goods, insurer is liable otherwise not. Reference be made to ratio laid down by Hon'ble Apex Court in the case of National Insurance Co. Ltd. v/s Cholleti Bharatamma, reported in AIR 2008 SC 484. 58 MACP Reference ManualBY SHRI MULIA JUDGE GUJARATcan be referred

2.       Whether the insurer is liable in a case where the injured claimant or deceased was travelling in the goods vehicle as the labourer of the owner or the hirer:

“If it is proved that injured claimant or deceased was travelling in the goods vehicle as the labourer of the owner of the goods then insurer is liable to pay amount of compensation, provided additional premium of labourer/collie is paid by the owner but insurer is not liable in the such cases where injured claimant or deceased was travelling in the goods vehicle as the labourer of the hirer. Reference be made to the ratio laid down in the case of Sanjeev Kumar Samrat v/s National Insurance Co. Ltd, reported in AIR 2013 SCW 301, wherein it is held that:“ the Act policy does not cover all kinds of employees. Thus, on a contextual reading of the provision, schematic analysis of the Act and the Workmen's Compensation Act, 1923 it is quite limpid that the statutory policy only covers the employees of the insured, either employed or engaged by him in a goods carriage. It does not cover any other kind of employee and therefore, someone who travels not being an authorized agent in place of the owner of goods, and claims to be an employee of the owner of goods, cannot be covered by the statutory policy”.

3.       Whether insurer is liable in the case where injured claimant or deceased was travelling in the goods vehicle as the owner or representative of the goods:

“If it is proved that the injured claimant or deceased was travelling in the goods vehicle as the owner or representative of the goods, insurer is liable to pay amount of compensation otherwise not. Reference be made to ratio laid own in the case of New India Insurance Company v/s Darshana Devi, reported in AIR 2008 (Supp) SC 1639.”

4.       Whether injured claimant or deceased was travelling in Tractor/ trolley is entitled to get amount of compensation:

“Normally, Tractor trailer/ trolley is used for agricultural purpose and if it found that same was used for agricultural purpose and same is covered by the 'Farmer Comprehensive Policy' or the 'Farmer Package Policy', in such situation, insurer is liable to pay compensation. If the above referred two conditions are not fulfilled, insurer can not be held responsible to pay amount of compensation.”

·        It is also to be noted that in the Annexure of Indian Motor Tariff, list of Miscellaneous and Special types of vehicles is given. As per the said list tractors can be used for Agricultural and if Trolley is attached to such Tractor, same may be used for carrying goods. As per the said list there is one another kind of Tractor, which is 'Traction Engine Tractor'. If is found that tractor is not used for the purpose of agricultural work and if it used for carrying goods, such tractor trolley must be insured for such purpose and if is not insured as such, insurer is not liable to pay any amount of compensation.

·        It to be noted that when insurance policy contains 'Avoidance Clause', then in such situation, insurer is liable to pay compensation under the principle of 'Pay and Recover'. Reference may be made to the ratio laid down in the case of New India Assurance Co. Ltd. v. Vimal, Devi, reported in 2010 ACJ 2878 and ratio laid down by the Hon'ble Full Bench of Hon'ble Gujarat High Court in the case of Shantaben Vankar v/s Yakubbhai Patel, reported in 2012 ACJ 2715.

·        However, it is to be noted that the issue with respect to passing an order of 'Pay and Recover' is to be decided on facts of each case. There is divergence of opinions as to whether the tribunal can exercise such power in my view there is no express bar nor any decision of the Apex court prohibiting High court and Tribunal from exercising such powers.

·         Reference be made to judgment delivered in the case of National Insurance com. Ltd. v/s Parvathneni, reported in 2009 (3) GLH 377 (SC). Liability of insurer to pay compensation in the cases where injured claimant or deceased was travelling in the private car as occupants or travelling on two wheeler as pillion rider1. In the recent decision, Hon'ble Apex Court in the case of National Insurance Company Ltd. v. Balakrishnan, reported in AIR 2013 SC 473 has held in para No.21 that:

“comprehensive/package policy" would cover the liability of the insurer for payment of compensation for the occupant in a car. There is no cavil that an "Act Policy" stands on a different footing from a "Comprehensive/Package Policy". As the circulars have made the position very clear and the IRDA, which is presently the statutory authority, has commanded the insurance companies stating that a "Comprehensive/Package Policy" covers the liability, there cannot be any dispute in that regard. We may hasten to clarify that the earlier pronouncements were rendered in respect of the "Act Policy" which admittedly cannot cover a third party risk of an occupant in a car. But, if the policy is a "Comprehensive/Package Policy", the liability would be covered”.

·        In view of the observations made by Hon'ble Apex Court in the case of Balakrishnan (supra), occupant of private car or the pillion rider of two wheeler is entitled to recover amount of compensation from insurer, provided the offending vehicle is covered with the 'Comprehensive/ Package Policy'. Reference may also be made to ratio laid down in the case of Oriental Insurance Company Ltd. v. Surendra Nath Loomba, reported in AIR 2013 SC 483.

·        In the case of Oriental Insurance Company Ltd. v/s Rajni Devi, (2008) 5 SCC 736, wherein Hon'ble Apex Court has categorically held that in a case where third party is involved, the liability of the insurance company would be unlimited. It was also held in the said decision that where, however, compensation is claimed for the death of the owner or another passenger of the vehicle, the contract of insurance being governed by the contract qua contract, the claim of the claimant against the insurance company would depend upon the terms thereof. It was held in the said decision that Section 163A of the MVA cannot be said to have any application in respect of an accident wherein the owner of the motor vehicle himself is involved. The decision further held that the question is no longer res integra. The liability under Section 163A of the MVA is on the owner of the vehicle. So a person cannot be both, a claimant as also a recipient, with respect to claim. Therefore, the heirs of the deceased could not have maintained a claim in terms of Section 163A of the MVA. Above referred ratio is applicable in the case where the deceased/injured not being the owner of the vehicle and if he borrows the such vehicle from its real owner, in such case the deceased cannot be held to be employee of the owner of the vehicle although he is authorised to drive the said vehicle by its owner, and therefore, under such circumstances, he steps into the shoes of the owner of the vehicle. Similar views are taken in by the Hon'ble Apex Court in the case of New India Assurance Co. Ltd. v. Sadanand Mukhi (2009) 2 SCC 417 and Ningamma v/s United India Insurance Co. Ltd., reported in AIR 2009 SC 3056.

What if the cheque given for payment of premium of insurance policy is dishonoured:

·        Reference may be made to the ratios laid down in the cases of Deddappa v/s National Insurance Com. Ltd., reported in (2008) 2 SCC 595  and United India Insurance Com. Ltd v/s Laxmamma, reported in 2012 ACJ 1307 (SC). In both these judgments, it has been held that when cheque given for payment of premium of policy, is dishonored and on that count Insurance Company cancels the policy by intimating the insured of such dishonor of cheque before the date of accident, then in such situation Insurance Company cannot be held liable to pay amount of compensation .

Whether Finance Company, which has advanced loan for the purpose of purchase of vehicle under the 'Hire Purchase Agreement' can be said to be the owner of the Vehicle:

1. Hon'ble Apex Court in the case of Godavari Finance v/s Degala Satyanarayananamma, reported in 2008 ACJ 1612 has held in para 13 as under:

“In case of a motor vehicle which is subjected to a Hire Purchase Agreement, the financier cannot ordinarily be treated to be the owner. The person who is in possession of the vehicle, and not the financier being the owner would be liable to pay damages for the motor accident .”

·        The Apex Court has recently in the year 2018 has decided several cases wherein issue of liability of Insurance Company has been discussed. The below chart will give a bird's eye view on the said subject....

·        Recently, the Apex Court reiterated the view taken by it in case of Uttar Pradesh State Road Transport Corporation Vs. Kulsum and others (2011) I SCC 142 [Kulsum] holding that the Insurance Company would have to indemnify UPSRTC as the employees were and the vehicle was deemed to be owned by UPSRTC. The Judgment of Kailash Nath Kothari, namely, Rajasthan State Road Transport Corporation Vs. Kailash Nath Kothari (1997) 7 SCC 481, was based on fix liability and, therefore, the vehicle under 2(19) of the Act, a person in whose possession, the vehicle is would be the owner and has disapproved the Judgment in Kothari (supra) as it was under the old Act.

·        In United India Insurance Co. Ltd Vs. Satinder Kaur @ Satwinder Kaur, 2020(0)AIJEL-SC 66336, the Apex Court has recently held that the Insurance Company can agitate quantum also awarded by the Tribunal.

·        In Nirmala Kothari Vs. United Insurance Co. Ltd., 2020 (0) AIJEL-SC 65985, the Apex Court has held that Insurance Company would be liable if the owner has taken proper care to verify the licence of the driver employed by him and, hence, negatived the contention of the Insurance Company regarding exoneration as there was no wilful negligence on the part of the owner of the vehicle in employing the driver.