According to the Motor Vehicles Act, of 1988, it is a requirement for every vehicle in India to have a current insurance policy to operate on the road. Each vehicle utilized for domestic, recreational, or business purposes as well as for personal usage should be insured. Insurance is a contract wherein one party, the insurer, agrees to pay the other, the insured or assured, a quantity of money in the event of the occurrence of one or more specified uncertain events in exchange for a consideration, the premium.
Life and fire insurance was developed later. Insurance first emerged in the fourteenth century as a way to spread the enormous risks associated with early maritime businesses. Life and other personal insurance, marine insurance, accident or property insurance, and liability insurance are the major types of insurance. Liability insurance pays out when a person is found legally liable for someone else’s injuries or death as a result of their negligence.
A statutory necessity under the Motor Vehicles Act is third-party liability coverage, also known as motor third-party insurance or “act only” coverage. The beneficiary of the policy is someone other than the two parties to the contract—the insured and the insurance company—which is why it is known as a “third-party” plan. The insurance does not offer the insured any benefits, but it does provide coverage for the insured’s legal liability for third-party loss or property damage due to third-party death or disability.
Under the damages system, two types of insurance are very different from one another. The first is first-party insurance, referred to as liability insurance by insurance providers, and the second is third-party liability insurance.
A third-party insurance policy is one in which the insurance provider commits to defending the insured if he is held accountable for harm or loss caused to a third party. The insured is one party, the insurance company is another, and the third party is the injured party who sues the insured for damages. The Government is a “third party” under Section 145(g). According to National Insurance Co. Ltd. v. Fakir Chand, the term “third party” should refer to any individual (other than the contracting parties to the insurance policy), whether they be a pedestrian, a driver, or a passenger in the vehicle that is the subject of the insurance policy.
FEATURES OF THIRD-PARTY INSURANCE
Insuring third parties is required for all motor cars. Third-party risk insurance is required by law, according to G. Govindan v. New India Assurance Company Limited No provision of the insurance policy may conflict with this rule. Insurance for third parties does not cover harm done to the covered person, the only harm done to others by the insured.
The wounded third party is the actual beneficiary of third-party insurance; the insured or policyholder is only formally the beneficiary of the policy. In reality, the insured individual is never even involved in the payment; the insurance company always makes the payment directly to the third party (or his attorney). Because the insured item in third-party policies is the legal liability, which cannot be predicted in advance, the premiums do not change following the item’s worth.
The majority of third-party insurance policies are fault-based (which means you have to prove the fault of the insured first and also that injury occurred from the fault of the insured to claim damages from him). Third-party insurance includes legal representation. Because they are unsure of the utmost amounts they will be required to pay under third-party policies, insurance companies dislike third-party insurance more than first-party insurance.
MOTOR VEHICLES ACTS, 1939 & 1988
The 1939 Motor Vehicles Act (4 of 1939) codifies and changes the existing motor vehicle laws. This has had numerous revisions to stay current. However, it was felt that this Act now needed to, among other things, take into account developments in road transport technology, patterns of passenger and freight movements, the expansion of the nation’s road network, and particularly the enhanced methods for managing motor vehicles.
Every motor vehicle must be insured according to the Motor Vehicles Act, of 1988, which went into effect on July 1st and is composed of XIV Chapters, 217 Sections, and two schedules. The 1988 Act’s chapters X, XI, and XII deal with compensation provisions. In some circumstances, liability without fault is addressed in Sections 140 to 144 (Ch. X). Sections 145 to 164 of Chapter XI deal with third-party risk insurance for motor vehicles.
HISTORICAL BACKGROUND OF THIRD-PARTY INSURANCE
According to the Motor Vehicles Insurance Committee’s report from 1936–1937, Chapter VIII of the 1939 Act and Chapter XI of the 1988 Act were both passed following several English Statutes. It is important to look back at how the legislation requiring mandatory third-party insurance in England has changed over time to understand the true motivation behind the passage of Ss. 149 of the 1988 Act and Ss. 96 of the 1939 Act. In England, there was no legislation requiring third-party rights insurance before 1930. An injured party used to file a lawsuit against the driver as soon as an accident occurred to collect damages.
Yet, it was frequently discovered that the owner of the at-fault car lacked the financial resources to compensate the injured or the dependents of the deceased, and in such circumstances, the claimants were unable to get damages. Several laws were passed as a result of these conditions. The Third Parties Rights Against Insurance Act, of 1930 was first passed in England to address the dilemma. The provision of this Act was included in Section 97 of the 1939 Act, which granted third parties the ability to bring direct claims against insurers. The Road Traffic Act of 1930 was subsequently passed, mandating mandatory insurance for motor vehicles.
Section 95 of the 1939 Act and S.146 of the 1988 Act both incorporated this Act’s provisions. It is pertinent to note that certain insurance policy conditions were rendered unenforceable as far as third parties were concerned by Sec 38 of the English Act of 1930. The purpose of the clause was to ensure that the third party would not suffer as a result of the insured’s failure to adhere to the insurance policy’s requirements.
The second Road Traffic Act was subsequently passed in 1934. This legislation’s goal was to fulfil the insured’s responsibility. Three actions were available under this law. The first step was to pay the judgment that was entered against the insured. The second was that the claimant had the right to execute a decree against the insurance if it did not release its liability. The insurer could, however, disclaim obligation in certain circumstances, including those covered by section Ss. 96(2)(a), which is equivalent to section 149(2)(a) of the 1988 Act.
Section 10(3) of the Road Traffic Act contained the third measure that was contemplated. According to this clause, the insurer could argue that the insurance coverage was obtained through deception or fraud, negating his obligation to pay the judgment. This clause was included in Section 149(2)(b) of the 1988 Act as well. All three measures were incorporated into S.96 of the 1939 Act and Section 149 of the 1988 Act during the enactment of the two laws. Yet, neither the 1939 Act nor the 1988 Act gave the insurer more rights than those already granted by English Law.
Hence, under common law, an insurer was not allowed to dispute a claimant’s assertion that the at-fault car was not at-fault or that there was contributory negligence. Only statutory defences provided for in the statute could be used by the insurer to dispute the claim. Hence, even though the insurers may be nationalized businesses, the legislature’s goal when passing Chapter VIII of the 1939 Act or Chapter XI of the 1988 Act was to defend the rights of third parties, not the insurers.
The purpose of the law prohibiting the use of motor vehicles without a required insurance policy is to allow a third party injured by the use of a motor vehicle to get compensation, regardless of the owner’s or driver’s financial situation.
RELEVANT PROVISIONS OF MOTOR VEHICLES ACT, 1988
Chapter 11 (Sections 145 to 164) mandates that every vehicle owner purchase third-party insurance. According to Section 146(1), it is prohibited to operate or permit the operation of a motor vehicle in a public area without insurance coverage that complies with this chapter’s requirements is in effect. A violation of section 146’s rules is a crime that carries a maximum three-month prison sentence, a maximum $1,000 fine, or a combination of the two (section 196).
The requirement of coverage and limit of responsibility are outlined in Section 147. Every vehicle owner is required to purchase insurance protecting him from any liability that may arise concerning death or bodily injury, including the owner of goods or his authorized representative transported in the vehicle, damage to a third party’s property, and death or bodily injury to any passenger of a public service vehicle. The insurance is not required to cover liability for deaths or injuries that occur to employees while they are working, except for liability under the Workmen’s Compensation Act, according to this provision. According to Section 149, the insurer has a legal obligation to pay the judgment and award made against the person insured for third-party risk.
Insurance companies are only permitted to use the following defences:
- Usage of a vehicle for hire and reward is not authorized.
- To plan races and speed tests;
- To use a transport vehicle against the terms of a license.
- Drivers who lack a valid driver’s license or who have been barred from obtaining one.
- The policy adopted is invalid since it was acquired by concealing a crucial truth.
SECTION 152: SETTLEMENT BETWEEN INSURERS AND INSURED PERSONS
- A settlement reached by an insurer regarding a potential third-party claim regarding the liability of the kind mentioned in clause (b) of sub-section (1) of section 147 must not be effective unless the potential third party is a party to the settlement.
- If a person covered by a policy created following this Chapter has gone bankrupt, or if, in the case of a business, a winding-up order has been issued or a resolution authorizing a voluntary winding-up has been adopted concerning the company, no agreement made between the insurer and the insured person after the liability to a third party has been incurred and after the start of the insolvency or winding up, as the case may be, nor any waiver, assignment, or other disposition made by or payment made to the insured person after the start aforesaid shall be effective to defeat the rights transferred to the third party under this Chapter; instead, those rights will be the same as if no such agreement, waiver, assignment or disposition or payment has been made.
LEGAL DEFENSE AVAILABLE TO THE INSURANCE COMPANIES TOWARDS THIRD PARTIES:
The Insurance Company may not escape liability other than on the grounds outlined in Section 149, and not on any other basis. In a recent case involving the provisions of the Motor Vehicle Act, the Supreme Court found that, even though the insurance company has pleaded and proven a defence, they are still liable for paying the third party but may be able to collect that money from the owner insured.
One court after another has ruled that the insurance company is responsible for demonstrating the existence of a defence, and that company must not only present evidence of a policy condition breach or a violation of Section 149(2) but also demonstrate that the owner knew or had knowledge of the act in question. Even if a defence is present, the Insurance Company will still be held accountable if knowledge or complicity cannot be proven.
In the past, the Insurance Company might defend itself by claiming that the policyholder did not have a valid driving license. The Supreme Court ruled that an insurance company is not responsible for a claim if the driver does not have a current, valid driver’s license. The learner’s license has also been held to release the insurance company from responsibility, although a later Supreme Court decision to give the Act a meaningful definition has made this defence more challenging.
For the first time, the Supreme Court ruled in Sohan Lal Passi v. P. Sesh Reddy that a condition must be broken with the owner’s knowledge. The owner’s knowledge of the driver’s fictitious license, if proven by the insurance company, will not relieve the insurer of obligation, despite the defence being otherwise available. In a recent decision in the matter of Swaran Singh, the Supreme Court nearly abolished the aforementioned right by the ruling;
- Until it is established that the violation in question was committed with the owner’s knowledge, proving a conditional breach, driving without a license, possessing a fake license, or carrying unpaid passengers will not release the insurance company.
- A learner’s permit is a permit and will not exonerate the insurance company of responsibility.
- To exempt accidents involving standing vehicles, fire, or murder committed while using a vehicle from the requirement of a driving license, the policy’s conditions, even those covered by Section 149(2), must have been materially violated.
This decision has made history and sent a message to the government that such a defence should be eliminated from the law because the victim must receive recompense.
NATURE AND EXTENT OF INSURER’S LIABILITY (SECTION 147)
A licensed insurer must issue the insurer following the provisions of this section. It must meet the criteria described in sub-section (2). It is required to carry insurance to protect itself from liability for third-party property damage, physical injury, and wrongful death. Any passenger in a public service vehicle is considered a third party, as is the owner of the goods or his authorized representative who is transported in the vehicle.
The insurance policy must provide coverage for:
- Liability under the Workmen’s Compensation Act of 1923 in respect of death or bodily damage to any such employee while they are operating the vehicle.The conductor or ticket examiner if the vehicle is a public service vehicle.
- Any obligation under a contract: To benefit other kinds of people and grant them the right to make a claim for compensation from the insurer or the insured or both, Section 147 must be given a wider, more effective, and more practical meaning. The moment the insurance contract is put into effect, the insurer becomes liable. When the policy is in effect, the liability is still present. If the current policy is extended, the risk is covered as soon as the extension takes effect. The insurer is not liable if the accident takes place before the renewal takes effect. The major responsibility for demonstrating that a car was insured with a specific firm is on the vehicle owner. He will be required to pay the whole sum of the case’s compensation if he disobeys it. Where there is a disagreement about whether the car was insured by an assurance business, the tribunal is required to determine the matter.
It does not lie in the insurer’s mouth to dispute his liability once a certificate of insurance has been granted.
If the insurer has fallen victim to fraud, he may file a second lawsuit against the insured to recoup the loss.
Inderjit Kaur v. Oriental Insurance Co.
The insurer must defend third parties against the responsibility covered by the policy if he has issued a policy to cover the bus without receiving the premium. He cannot escape responsibility by claiming that he had a right to breach or terminate the contract.
Liability for injury to specific persons or class of persons (other than gratuitous passengers and pillion riders): Only third-party risks are covered by the policy under the Act. The insurer is not responsible for any injuries sustained by passengers in a private vehicle, whether they are travelling for employment or payment. The position of a scooter passenger is comparable.
K. Gopal Krishnan v. Sankara Narayanan
The Madras High Court made the following ruling in this case: A scooter owner is not required to obtain third-party liability insurance to meet the claim of the pillion passenger who is carried uncompensated. If he gets hurt, the insurance company would not be responsible unless the scooter owner acquired a policy covering such risk. A private carrier that has been registered as such with the R.T.O. and in an insurance policy is not allowed to transport people or products for pay or reward. But, if it is thus used and a person renting the insured’s private vehicle sustains injuries in an accident, the insurance company won’t be held responsible.
INSURER’S LIABILITY TO VEHICLE-OWNER
An insurance policy is a private agreement between the insured and the provider. It serves to compensate the insured for harm done to a third party as a result of an accident involving the insured’s car. The insurance contract must be in the owner of the vehicle’s name to hold the insurer accountable.The person whose name the motor vehicle is registered is the owner of the vehicle, as specified in Section 2(30).
The term also applies to anyone who owns a vehicle under a hire-purchase agreement, a lease agreement, or hypothecation, regardless of whether they have exercised their option to buy the vehicle or not.
According to Section 157(1), the policy of insurance and the certificate of insurance must be assumed to have been transferred in favour of the purchaser of the vehicle with effect from the date of its transfer when the owner of a vehicle transfers ownership of the vehicle. The rights and obligations of the aforementioned insurance policy and certificate are also deemed to have been transferred in this purported transfer. To make the necessary changes to the certificate and insurance policy, the transferee must apply to the insurer within 14 days after the transfer date, per sub-section (2).
Even when the car has been transferred, the insurer cannot be held responsible if the certificate of insurance and the policy have not been done so. It is important to keep in mind that an insurance policy is a private agreement between the parties that provides for the indemnification of the insured in the event of an accident covered by the policy. When a vehicle is moved from one insured to another, the insurance contract expires. Without a specific agreement with the insurance provider, the transferee in this situation is not eligible to receive the policy’s benefits. The liabilities of the vehicle’s buyer would not be covered when the insurance policy expires.
S.Sudhakaran v. A.K.Francis
A car sale agreement already existed. The owner disregarded the legal requirements for transferring a vehicle. He did, however, permit the transferee to use the car. The insurance policy was still with the owner. It was held that the insurance provider was not required to reimburse the owner.
SECTION 147(2): LIABILITY IN RESPECT OF DAMAGE TO PROPERTY
Under the 1939 Act, the total maximum liability for damage to a third party’s property is Rs 6,000, regardless of the type of vehicle. Section 147 (2) of the 1988 Act establishes the following liability position:
- The insurer is responsible for the full amount of the responsibility in the event of a third party’s death or personal harm.
- Similar to the 1939 Act, the insurer’s responsibility for damage to third parties’ property is capped at Rs. 6000.
Liability of Insurer beyond the limits mentioned in the Act
Section 147 establishes the insurer’s liability limits. There are no restrictions on the insurer taking on a bigger obligation, that is, liability for a higher sum than that specified in the Act. As a result, a contract between the insured and the insurer is a possibility.
The interest of a third party who suffers an accident or harm due to the insured’s negligence is protected by third-party insurance. So, the insurance company will take steps to limit any liability that the third party may have against the insured. The Motor Vehicles Act of 1988 mandates third-party insurance. Due to the third-party insurance requirement, any insurance policy provision cannot override it.
It is the responsibility of the insurers to pay any judgments and awards made against the covered parties for third-party risks. A State within the meaning of article 12 of the Constitution is the insurance company. Because their acts are governed by Article 14 of the Constitution, they are unable to decline, discriminate against, or deny third-party insurance coverage to vehicles operated by the State. The requirement of third-party insurance is acceptable since it streamlines the procedure of an injured party obtaining compensation from the insured. The excuse that the defendant or perpetrator has gone bankrupt is inadmissible. If he owns a car, he is legally required to pay the wounded person either directly or through his insurance provider.