While loss of life in a motor accident cannot be recovered, it becomes obligatory on the part of all of us to minimize the miseries of the family that loses a member. Thus, while motor insurance is a legal requirement, it is also a driver’s moral responsibility to ensure that the vehicle he is driving is insured. Under the provisions of the Motor Vehicles Act, all vehicles plying in public places shall have an insurance policy at least to cover third party liability.
Two types of vehicle insurance policies exist: third party insurance and comprehensive insurance. Third party insurance policies cover the liability of the vehicle owner for loss or damage to life or property of third parties. Comprehensive insurance policy covers, in addition to third party liability, loss or damage to the vehicle itself by way of accident, theft, etc and specified perils. From 1971 onwards, the government was the sole trader in general insurance. General Insurance Corporation (GIC) was the holding company for the four subsidiaries marketing non-life insurance policies: New India Assurance, United India Insurance, Oriental Insurance and National Insurance. It has been more than a decade since private players with or without foreign collaboration entered the non-life sector. This already had a positive impact on customer service.
There has been a remarkable improvement both in the pricing of policies and claims settlement practices of public sector companies. Third party liability is mandatory and because of year on year increasing number of road accidents, the third party claims ratio of insurers is very high.
The Motor Vehicle Act, 1988, deals with motor vehicle accidents and related issues. Originally enacted in the year 1939, during British rule in India, the Motor Vehicles Act has undergone a sea of changes between 1939 and 1994. The act has been amended comprehensively in the year 1988. The 1988 amendment makes the Act welfare legislation. It also endeavours to strike a balance between conflicting interests of various sections of the society. Almost all the states in India have enacted Motor Vehicles Rules, to regulate the registration of vehicles, permits to the owners of the vehicles and driving license. Before 1988 for motor vehicle accidents liability of injurers was predominantly a fault based liability.
However, the 1988 amendment to the Act brought in an element of strict liability. Recently, the Delhi High Court has severely criticised insurance companies for their ‘apathy and obstructive attitude’ in settling compensation claims of motor accident victims. “It is a great irony in this country that insurance companies are prompt in settling the claims of the insured vehicles for the damage but create all sorts of obstructions and bottlenecks in settling the claims of victims of the accidents.”
The victims of accident and their family members not only undergo the traumatised and harrowing experience of losing a family member but also they are made to suffer greatest humiliation and embarrassment right from the mortuary till the award of compensation. The precious life of a human being is of little concern in comparison to settlement of a claim for the damaged motor vehicle in the estimation of these insurance companies.
The companies, on getting information about an accident, immediately take steps to appoint surveyor for assessing the damage but the same enthusiasm is shown in settling victims’ claim. Atrociously, no similar pains are taken by these insurance companies to compensate the victims of the accidents in injury cases. As far as the legal position is concerned, in India compensation for the harm is supposed to be ‘full’. That is, damages awarded should restore the victim to a position he would be in, if he had not suffered any harm at the hands of the injurer.
Anguish over poor relief to Motor Victims:
The Supreme Court has expressed its concern over failure of the Motor Accident Claims Tribunals and High Courts to award adequate compensation to the claimants of the accidents. It has asked the tribunals to adopt a proactive approach to ensure that adequate compensations should be awarded to the claimants within a reasonable time. “Unfortunately, despite repeated pronouncements of this court in which guiding principles have been laid down for determination of the compensation payable to the victims of road accidents and/or their families, the Tribunals and even the High Courts do not pay serious attention to the imperative of awarding just compensation to the claimants”.
The bench asked the tribunals to adopt a proactive approach and ensure that the claims filed under the Motor Vehicles Act, 1988 are disposed of with required urgency and compensation is awarded to the victims of the accident. The court passed the order taking into account the fact that the insurance companies have all the wherewithal to contest the claims of the claimants. The insurance companies, with whom the vehicles involved in accidents are insured always have the advantage of assistance of legally trained mind (law officers and panel lawyers).
They contest the claim petitions by raising all possible technical objections for ensuring that their clients are either completely absolved or their liability is minimized and in the process, adjudication of the claims filed by the victims and/or their legal representatives is delayed for years together, the bench pointed out. On the other hand, the sufferings of the dependents of those who killed in motor accidents and the survivors who disabled are manifold. Sometime these can be measured in terms of money but most of the times it is not possible to do so.
If an individual is disabled as a result of road accident, the cost of treatment, care and rehabilitation is likely to be very high. A very large number of people involved in motor accidents are pedestrians, children and women and, on account of sheer ignorance, poverty and other disabilities, majority of them are unable to engage competent lawyers for putting their cause before the Tribunals and the Courts. The third-party compensation is a statutory liability of the Insurance Company. The Insurance Company cannot absolve from it unless there is a ‘material’ breach of contract.
Insurers can’t shun mandatory TP cover:
Insurance companies have to mandatorily sell a minimum number of motor third-party liability policies. This aims to ensure that insurers do not shun proposals for the mandatory, yet unprofitable, third-party cover. The insurance bill wants to make motor-third party insurance more accessible to buyers, as this is a statutory cover. Under the Motor Vehicle Act, every automobile owner has to purchase an insurance cover which will meet the liability arising out of claims from third-party accident victims. Insurance companies are unsure of what the impact of the amendment will be. At present, there is a rural obligation on insurance companies, under which they are required to ensure that they generate up to 7% of their total premium from the rural business. There are penalties prescribed if they do not achieve this level of business.
However, there is no quota on the basis of products. The third-party insurance portfolio, which provides compensation to victims of road accidents, is loss making as total compensations awarded by the motor accident claims tribunal are more than the premium collected.
The losses are largely because of claims by commercial vehicle accident victims. To ensure that no single company becomes the victim of adverse selection, insurance companies pooled together their premium and claims from third-party insurance and share the losses.
Now that Motor Third party pool has been dismantled and a new Declined Risk pool is in place to take care of third party proposals with all the general insurers. Third party claims can be managed well by better co-ordination between insurance companies and motor tribunal in terms of analytics and data.
Pillion Rider:
The Supreme Court said that “A pillion rider who dies or gets injured in a road accident is not entitled to third party insurance claim.” The bench passed the ruling while quashing the Rs 1.18 lakh compensation awarded by the Motor Accidents Claims Tribunal (MACT) in Kerala to the kin of a woman pillion rider who died after falling from the scooter on which she was travelling.
The deceased Thankamani was pillion riding a scooter on October 20, 1993 when she accidentally fell down and died. Her family filed a claim for insurance compensation. But Oriental Insurance Company, the insurer, raised a contention that the policy did not cover the risk of injury or death for Thankamani as she was a gratuitous passenger. Hence, it was not liable to pay any compensation for her death. However, the MACT rejected the insurance company’s claim and awarded the Rs 1.18 lakh compensation.
The Kerala High Court later upheld the MACT’s decision following which the insurer Oriental Insurance Company filed the appeal in the apex court. Upholding the insurance company’s plea, the apex court said that in terms of Section 147 of the Motor Vehicle Act, only in regard to reimbursement of the claim to a third party, a contract of insurance must be taken by the owners of the vehicle.
Owner can’t avail of TP compensation:
An owner travelling in his car, insured against third party claims, will get no compensation from the insurance company even if he gets injured in an accident involving the vehicle, the Supreme Court has ruled. This is like adding salt to the injury as persons, other than the owner, injured in the accident would be entitled to compensation from the insurance company under the third party claim.
One Dhanraj of Madhya Pradesh was travelling along with certain other persons in his jeep on August 26, 2000. The jeep met with an accident in which the owner and others were injured. On the claim petition filed by Mr Dhanraj, the motor accident claims tribunal directed the driver of the vehicle and the New India Assurance Co. to pay compensation to him. On appeal by the insurance company, the high court held that as the petitioner was the owner of the vehicle, he was not entitled to any compensation.
Deciding the appeal against the high court order by Mr Dhanraj, an apex court bench said, “Where the insured, that is the owner of the vehicle, has no liability to a third party, the insurance company has no liability also. An owner of the vehicle can only claim provided a personal accident insurance has been taken out. In this case, there is no such insurance.” The question before the bench, which pursued the policy, was that whether a comprehensive policy would cover the risk of injury to the owner of the vehicle also.
Change of Ownership:
The Supreme Court has ruled that insurance companies are liable to pay compensation to claimants even if ownership of the vehicle in question changes. “The liability to pay compensation is based on a statutory provision. Compulsory insurance of the vehicle is meant for the benefit of the third parties. The liability of the owner to have compulsory insurance is only in regard to third party and not to the property.
Once the vehicle is insured, the owner as well as any other person can use the vehicle with the consent of the owner. Section 146 of the Motor Vehicles Act,1988 does not provide that any person who uses the vehicle independently, a separate insurance policy should be taken. The purpose of compulsory insurance in the Act has been enacted with an object to advance social justice. The court allowed a bunch of appeals filed by the Uttar Pradesh State Road Transport Corporation (UPSRTC) challenging the award passed by Motor Accident Claims Tribunal, Barabanki. It had fastened the liability on the appellant corporation and the owner of the vehicle to pay compensation to the claimants.
The issue before the court was if an insured vehicle was plying under an agreement of contract with the corporation whether the insurance company would be liable to pay compensation or would it be the responsibility of the corporation or the owner of such vehicle in case of an accident? It was a vexed question with no unanimity in the judgments of various high courts and it has not been considered directly so far by the apex court.
If the Corporation had become the owner, and the vehicle having been insured at the instance of original owner, it will be deemed that the vehicle was transferred along with the insurance policy in existence to the Corporation and thus insurance company would not be able to escape its liability to pay the amount of compensation. In one such case, the owner of a mini bus had entered into an agreement with the UPSRTC for plying the vehicle as per the permit issued in favour of the Corporation. On account of the amendment in the Motor Vehicles Act, 1988 the Corporation hired the vehicle and used the same on the routes as per the permit granted to it.
No information of policy cancellation:
An Insurance company cancelled the policy as the cheque given by the owner of the vehicle for the stipulated premium got dishonored. But meanwhile, the vehicle met with an accident before the intimation of cancellation of the policy to the insured. Can the company be absolved of its liability to pay the compensation to the third parties? The Supreme Court has ruled that the companies cannot be absolved of its responsibility and are liable to pay compensation to the third parties in such situations.
A bench comprising Justices RM Lodha and HL Gokhale said, “Where the policy of insurance is issued by an authorized insurer on receipt of cheque towards payment of premium and such cheque is returned dishonoured, the liability of authorized insurer to indemnify third parties in respect of the liability which that policy covered subsists. The court in its order said, the liability of the insurance companies cannot be absolved “unless the policy of insurance is cancelled by the authorized insurer and intimation of such cancellation has reached the insured before the accident”.
It rejected the plea of the United India Insurance which said that no liability can be fastened on the insurers qua third party if the policy of insurance is rendered void for want of consideration to the insurer. In the present case, one M Nagaraj was travelling in a bus on May 11, 2004. But due to the negligent application of brake by the driver, the back door of the vehicle suddenly opened and Nagaraj standing near the door fell down. He sustained grievous injuries and subsequently died. His claimants filed a petition before the MACT Bangalore seeking compensation of 15 lakhs.
The company in its plea said that the insurance policy was issued on April 14, 2004. It was for the period April 16, 2004 to April 15, 2005 and not valid. This was on account of the fact that the premium which was paid through the cheque had got dishonoured. Against such background, it was not the liability of the insurer to cover the third party risk. The Tribunal, however, said the company was liable to pay the compensation. The intimation of cancellation was given to the owner on May 21, 2004 that is subsequent to the date of accident, the tribunal had noted.
In case of fake driving license:
In a major judgment to help innocent road accident victims, the Supreme Court ruled that an insurance company was liable to pay compensation to the victims even if the driver of the vehicle, which met with an accident, had a fake driving license. This ruling was given by a double judges Bench while imposing a cost of Rs 20,000 on United India Insurance Company for filing “unnecessary appeals” to deprive the claimants of compensation.
It was a case where the Insurance Company tried to wriggle out of its commitment to pay compensation to third party accident victims on the ground that the driver of the vehicle involved in the accident had a fake license. The Bench, while giving this judgment, cited an example of a vehicle being stolen, while being drive by the thief meets with an accident and it was found that the thief had no license at all. “Can the insurance company disown liability? The answer has to be an emphatic “no”. To hold otherwise would be to negate the very purpose of compulsory insurance.” To help the injured or the relatives of the person killed the legislature had made insurance, at least third party insurance, compulsory, the Bench said and added ” the aim and purpose being that an insurance company would be available to pay.”
Killer Bus Owners:
A Delhi court asked insurance companies to redraft their policies in a manner which will put the burden of paying compensation to accident victims on the owners of “killer” Blueline buses. The menace of the rogue buses does not stop and they go on killing mercilessly helpless victims on the unsafe roads of Delhi as the law as well as conditions of insurance policies let them (bus owners to escape any penalty) easily.
Coming down heavily on Blueline (private) buses which have been killing people on roads daily, the court said, in accident cases the accused gets bail within a few hours and insurance companies pay compensation to the victims while the real gainer is always the bus owner who gets his vehicle released and starts plying it again on road. “I feel deeply hurt and anguished to see file after file placed before the Motor Accident Tribunals for assessment of compensation for the victims of blueline buses,” the court observed.
The most disturbing trend in such matters where Blueline buses cause fatal accidents is the insensitivity and inhuman approach of the drivers of such buses…who do not even bother to stop the buses on seeing the victims lying dead or injured on road, they run away from spot. The court passed these observations while deciding claim of 70-year-old Munni, whose son Deepak Mishra was crushed to death by a Blueline bus being driven in a rash and negligent manner by Narender Kumar at Paharganj on December 23, 2006. It said that once the owners of buses were asked to pay compensation then they would understand the agony and sufferings of family members of the accident victims.
Staff Driving Co. Car:
The Supreme Court ruled that unless there is a specific contract, an insurance company is not under an obligation to pay compensation to a person or an employee who dies in a road accident while driving the vehicle of his employer. Such a liability would also arise only if the claim was made under Section 163A of the Act and not under Section 166 of the Motor Vehicle Act, said a Bench of two judges while upholding an appeal filed by Oriental Insurance Company. The bench passed the ruling on an appeal filed by the insurance company challenging an Uttarakhand High Court order which had directed the insurer to pay compensation to the claimants of an employee who died while driving the car of his employer.
According to the insurance company, deceased Chandra Variyal, regional manager of a company, was driving the car of his employer when he died in a road accident. However, the family disputed the contention and claimed that Variyal was merely seated in the vehicle and the car was being driven by the company’s driver Mahmood Hasan who drove the vehicle in a rash and negligent manner resulting in the death.
The family filed a claim under Section 166 of the Act and sought compensation for the death on the ground that it occurred due to the negligent driving of the driver. However, the Motor Accidents Tribunal held that the vehicle was being driven by Variyal and hence the insurance company was not liable for paying the compensation. But on an appeal from the claimants, the High Court held that the insurer was under an obligation to pay the compensation to the deceased’s family, following which the insurance company approached the apex court.
On perusal of the documents, the apex court said that there was no finding to prove the family’s claim that the driver was driving the vehicle in a negligent manner resulting in the accident. The Bench noted that it was the deceased regional manager who was driving the vehicle and hence without any specific contract, the insurance company was not under any obligation to pay the compensation.
Moreover, the claim under Section 166 made by the family could not be entertained as the onus rested on the claimants to prove that the death occurred due to the negligence of the driver. The court said that only when a claim is made under Section 163, a person is not required to establish the charge of negligence. Accordingly, the court reversed the decision of the High Court and ruled that the insurance company was not under an obligation to pay the compensation.
Gratuitous Passengers:
The Motor Vehicle Act 1988 & its subsequent amendment in 1994 do not specify the liability of the insurance company towards gratuitous passengers. In the New India Assurance Company v. Satpal Singh and Ors (AIR 2000 SC 235) where A 10 year old girl met with a fatal accident in 1990 while travelling in a truck. Her father brother and sister made a joint claim under the Motor Vehicles Act, 1988. The Motor Accident Claims Tribunal awarded compensation of Rs. 25,000. This was challenged by both parties and the Division Bench of the High Court doubled the compensation.
The issue was whether the insurer had a liability towards a gratuitous passenger such as the girl under the 1988 Act prior to its amendment in 1994? The apex court ruled that under the 1988 Act an insurance policy covering third party risk was not required to exclude gratuitous passengers in a vehicle, no matter that the vehicle is of any type or class.
Whether the amended Section 147 was intended to cover gratuitous passengers or only third party risks? The Court first discussed the cases prior to the amendment such as the Asha Rani case and the Devi Reddy case. The Court examined the effect of the amendment to Section 147, coming to the conclusion that it was unambiguous.
The Court held that prior to the amendment, the words ‘any person’ could be held not to include the owner of the goods or his, authorized representative travelling in the goods vehicle. Post the 1994 amendment, Parliament was held to have remedied that construction. However, the Court refused to extend this rationale to covering gratuitous passengers for whom no insurance policy was envisaged, and for whom no insurance premium was paid. They based this interpretation on the observation in the Asha Rani case that true purport of the words ‘any person’ was to be found in the liability of the insurer for third party risk, which was sought to be provided for by the enactment.
Earning Capacity:
A division bench of the Mumbai High Court ordered the Bollywood actor Salman Khan to pay compensation totaling to Rs 19 lakh to relatives of the deceased victim and four others, who were injured when his Land cruiser ran over footpath dwellers in the north-west suburb of Bandra besides the Rs 10 lakh compensation for the deceased, Khan has been ordered to pay Rs 3 lakh each to the two seriously injured victims and Rs 1.5 lakh each to the other two, who have suffered minor injuries.
Insurers feel that motor accident victims may claim higher compensation citing this award. So far, the Motor Accident Claims Tribunal has been awarding compensation based on the victim’s earning capacity. Insurers are not reassured by the fact that it is Salman Khan and not the insurance company, which has been directed to pay the compensation. According to insurance officials, once the victim’s entitlement to the compensation is established, the insurer may be held liable if the vehicle owner doesn’t have deep pockets to meet the award.
One of the petitions made in the PIL was that the compensation paid to the victims should be linked not to their earning capacity, but to the vehicle owner’s paying capacity. Considering that the victims were footpath dwellers with measly earnings their relatives could have expected at best a modest compensation from the Motor Accident Claims Tribunal. On the other hand, insurance companies have been complaining that they are paying double the premium they collect in the form of third party claims in motor accidents.
Breach of Policy Conditions:
In the National Insurance Co. Ltd. v. Swaran Singh (2004) 3 SCC 297 (at page 337) the Supreme Court held that -“The insurer and the insured are bound by the conditions enumerated in the policy and the insurer is not liable to the insured if there is violation of any policy condition.
But the insurer who is made statutorily liable to pay compensation to third parties on account of the certificate of insurance issued shall be entitled to recover from the insured the amount paid to the third parties, if there was any breach of policy conditions on account of the vehicle being driven without a valid driving license. It has been construed and determined the scope of sub-clause (ii) of sub-section (2) of Section 149 of the Act.
Minor breaches of license conditions, such as want of medical fitness certificate, requirement about age of the driver and the like not found to have been the direct cause of the accident, would be treated as minor breaches of inconsequential deviation in the matter of use of vehicles. Such minor and inconsequential deviations with regard to licensing conditions would not constitute sufficient ground to deny the benefit of coverage of insurance to the third parties.
Even where the insurer is able to prove breach on the part of the insured concerning the policy condition regarding holding of a valid license by the driver or his qualification to drive during the relevant period, the insurer would not be allowed to avoid its liability towards the insured unless the said breach or breaches on the condition of driving license is/are so fundamental as are found to have contributed to the cause of the accident. The Tribunals in interpreting the policy conditions would apply ‘the rule of main purpose’ and the concept of ‘fundamental breach’ to allow defences available to the insurer under Section 149(2).”
In addition to these legislative changes, Indian courts, in some landmark judgments have expanded the scope of liability. Various legal doctrines have been interpreted liberally as to increase the scope of liability. Moreover, Indian courts have increasingly become more sensitive to the plight of victims of road accidents. Part of the approach can be attributed to the interpretation of law by courts.
They have adopted innovative approach towards the liability of insurers as well. Again, the idea is to provide better compensation to the victims. One out of every three vehicles on Indian roads does not have the mandatory third-party liability insurance. Third-party (TP) liability insurance is a policy that provides compensation to accident victims and it is illegal for a vehicle owner to drive without this cover.
The number of uninsured vehicles has surged, with insurance companies refusing to issue standalone third-party insurance as it is a loss-making business. Thus, vehicle owners often have no option but to break the law. Although the insurance regulator has told insurance firms not to turn down proposals for TP covers, insurers continue to disregard the directive. Some state-owned non-life insurance companies have gone to the extent of issuing circulars to branches asking them to reject proposals for motor insurance that seek standalone third-party insurance cover.
Even proposals for buying comprehensive covers for older vehicles are being turned away. The proposals are being rejected on the grounds that the meager premium does not help make good the high compensation insurance companies are paying for accident victims. The liability of the Insurance Company is exclusive and absolute and it cannot escape its liability of payment of compensation to Third Parties or claimants.
Admittedly, owner of the vehicle should not violate any of the terms and conditions of the policy or provisions of the Act. The owner has to take the insurance so as to meet such type of liability which may arise on account of use of the vehicle. Thus, legally or otherwise liability has to be fastened on the Insurance Company only.
The incorporation of the principle that compensation should be obtainable without the necessity of proving negligence on the part of the person who caused the accident, no doubt, involves an alteration of the existing laws. But the alteration is both just and necessary. The persons generally involved in motor accidents are pedestrians, children, women and illiterates. Some of them are too poor to have the help of a competent lawyer in establishing negligence in claim cases.
These cases are contested strenuously by the insurance companies raising all sorts of technical objections for minimising their own liability. The result is that proceedings before the Claims Tribunal drag on for a long time before any award is passed. Sometimes the time consuming costly litigation makes the award of compensation, when and if it is made, virtually meaningless. Claims Tribunals are constituted for expeditious disposal of motor vehicles claims but in actual practice there is no expeditious disposal.
The inordinate delay in the disposal of these claims is mainly on account of the difficulty and the time taken in trying the issue of negligence in the use of the vehicle. The Supreme Court has said that the government should create a special fund by imposing cess on sale of petrol or a one-time premium on sale of new motor vehicles in order to provide adequate compensation in road accident cases in the country. Noting that India has the “dubious distinction” of a country with one of the largest number of motor accidents deaths/injuries, a 3-judge bench headed by Justice RV Raveendran also passed a slew of directions to the Centre and state governments to ensure prompt and proper compensation to such victims.
The apex court said while the government can create the special accident fund, a more realistic and alternative would be to amend the “third party” insurance claim clause by including all victims “other than the owner” as beneficiaries and increase the compensation amount to victims of “hit-and- run” cases.
