Third Party Insurance in India

In India, under the provisions of the Motor Vehicles Act, 1988, it is mandatory that every vehicle should have a valid Insurance to drive on the road. Any vehicle used for social, domestic and pleasure purpose and for the insurer's business motor purpose should be insured.

Insurance is a contract whereby one party, the insurer, undertakes in return for a consideration, the premium , to pay the other, the insured or assured, a sum of money in the event of the happening of a , or one of various ,specified uncertain events.

Insurance developed from the fourteenth century as a means of spreading huge risks attendant on early maritime enterprises; life and fire insurance developed later. The main classes of insurance are life and other personal insurance, marine insurance, accident or property insurance and liability insurance when the sum becomes payable when legal liability is incurred as for personal injuries or professional negligence to another.

Motor third-party insurance or third-party liability cover, which is sometimes also referred to as the 'act only' cover, is a statutory requirement under the Motor Vehicles Act. It is referred to as a 'third-party' cover since the beneficiary of the policy is someone other than the two parties involved in the contract i.e. the insured and the insurance company. The policy does not provide any benefit to the insured; however it covers the insured's legal liability for death/disability of third party loss or damage to third party property.

This paper is an endeavour to explain the relevance of third party insurance? What is third party insurance? Who is a third party? Why third party insurance is compulsory for all vehicles under the Motor Vehicles Act, 1988? What are the salient features of third party insurance? These aspects of the third party insurance have been explained with the help of various case laws.

What is Third Party Insurance?

There are two quite different kinds of insurance involved in the damages system. One is Third Party liability insurance, which is just called liability insurance by insurance companies and the other one is first party insurance.

A third party insurance policy is a policy under which the insurance company agrees to indemnify the insured person, if he is sued or held legally liable for injuries or damage done to a third party. The insured is one party, the insurance company is the second party, and the person you (the insured) injure who claims damages against you is the third party.

Section 145(g) "third party" includes the Government. National Insurance Co. Ltd. v. Fakir Chand[1], third party should include everyone (other than the contracting parties to the insurance policy), be it a person traveling in another vehicle, one walking on the road or a passenger in the vehicle itself which is the subject matter of insurance policy.

Salient Features of Third Party Insurance

Ø Third party insurance is compulsory for all motor vehicles. In G. Govindan v. New India Assurance Co. Ltd.[2],Third party risks insurance is mandatory under the statute .This provision cannot be overridden by any clause in the insurance policy.

Ø Third party insurance does not cover injuries to the insured himself but to the rest of the world who is injured by the insured.

Ø Beneficiary of third party insurance is the injured third party, the insured or the policy holder is only nominally the beneficiary of the policy. In practice the money is always paid direct by the insurance company to the third party (or his solicitor) and does not even pass through the hands of the insured person.

Ø In third party policies the premiums do not vary with the value of what is being insured because what is insured is the legal liability' and it is not possible to know in advance what that liability will be.

Ø Third party insurance is almost entirely fault-based.(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)

Ø Third party insurance involves lawyers aid

Ø The third party insurance is unpopular with insurance companies as compared to first party insurance, because they never know the maximum amounts they will have to pay under third party policies.

Motor Vehicles Acts,1939 and 1988

Motor Vehicles Act,1939 (4 of 1939) consolidates and amends the law relating to motor vehicles. This has been amended several times to keep it up to date.The need was, however felt that this Act should, now interalia take into account also changes in the road transport technology, pattern of passenger and freight movements, development of the road network in the country and particularly the improved techniques in the motor vehicles management.

The Motor Vehicles Act,1988 which came into force on 1st July,1988 and which is divided into XIV Chapters, 217 Sections and two schedules, makes it compulsory for every motor vehicle to be insured. Chapters X,XI and XII of the 1988 Act deals with compensation provisions. Sections 140 to 144 (Ch.X) deal with liability with out fault in certain cases. Chapter XI (Ss. 145 to 164) deal with insurance of motor vehicles against third party risks.

Historical Background of third Party Insurance

Chapter VIII of the 1939 Act and Chapter XI of the 1988 Act have been enacted on the pattern of several English statutes which is evident from the report of Motor Vehicles Insurance Committee,1936-1937'In order to find out the real intention for enacting Ss.96 of the 1939 Act which corresponds to Ss.149 of the 1988 Act, it is relevant to trace the historical development of the law for compulsory third –party insurance in England. Prior to 1930, there was no law of compulsory insurance in respect of third party rights in England. As and when an accident took place an injured used to bring action against the motorist for recovery of damages.

But in many cases it was found that the owner of the offending vehicle had no means to pay to the injured or the dependant of the deceased and in such a situation the claimants were unable to recover damages. It is under such circumstances that various legislations were enacted. To meet the situation it is for the first time the Third Parties' Rights Against Insurance Act,1930' was enacted in England. The provision of this Act found place in S.97 of the 1939 Act which gave to the third party a right to sue insurer directly. Subsequently, the road traffic Act,1930' was enacted which provided for compulsory insurance for Motor Vehicles. The provisions of this Act were engrafted in S.95 of the 1939 Act and S.146 of the 1988 Act. It is relevant that under S.38 of the English Act of 1930, certain conditions of insurance policy were made ineffective so far as third parties were concerned .The object behind the provision was that the third party should not suffer on account of failure of the insured to comply with those terms of the insurance policy.

Subsequently in 1934, the second Road Traffic Act was enacted. The object of this legislation was to satisfy the liability of the insured. Under this enactment three actions were provided .The first was to satisfy the award passed against the insured. The second was that, in case the insurer did not discharge its liability the claimant had the right to execute decree against the insurer. However, in certain events, namely, what was provided in section Ss.96(2)(a) which corresponds to section 149 (2)(a) of the 1988 Act, the insurer could defend his liability.

The third action provided for was contained in S.10(3) of the Road Traffic Act. Under this provision, the insurer could defend his liability to satisfy decree on the ground that insurance policy was obtained due to misrepresentation or fraud. This provision also found place in S.149 (2)(b) of the 1988 Act. While enacting the 1939 Act and the 1988 Act, all the three actions were engrafted in S.96 of the 1939 Act and Section 149 of the 1988 Act. However neither the 1939 Act, nor the 1988 Act conferred greater rights on the insurer than what had been conferred in English Law. Thus, in common law, an insurer was not permitted to contest a claim of a claimant on merits, i.e. offending vehicle was not negligent or there was contributory negligence. The insurer could contest the claim only on statutory defences specified for in the statute. Thus while enacting Chapter VIII of the 1939 Act or Chapter XI of the 1988 Act, the intention of the legislature was to protect third party rights and not the insurers even though they may be nationalized companies.

Prohibition on use of motor vehicles without statutory insurance policy, object of is to enable the third party suffering injuries from use of the motor vehicle to get damages irrespective of the financial capacity or solvency of the driver or the owner.

Relevant Provisions of Motor Vehicles Act,1988

Chapter 11 (Section 145 to 164) provides for compulsory third party insurance, which is required to be taken by every vehicle owner. It has been specified in Section 146(1) that no person shall use or allow using a motor vehicle in public place unless there is in force a policy of insurance complying with the requirement of this chapter.[3] Contravention of the provisions of section 146 is an offence and is punishable with imprisonment which may extend to three months or with fine which may extend to one thousand rupees or with both (section 196).Section 147 provides for the requirement of policy and limit of liability. Every vehicle owner is required to take a policy covering against any liability which may be incurred by him in respect of death or bodily injury including owner of goods or his authorized representative carried in the vehicle or damage to the property of third party and also death or bodily injury to any passenger of a public service vehicle. According to this section the policy not require covering the liability of death or injuries arising to the employees in the course of employment except to the extent of liability under Workmen Compensation Act. Under Section 149 the insurer have been statutorily liable to satisfy the judgment and award against the person insured in respect of third party risk.

Insurance Companies have been allowed no other defence except the following:

(1) Use of vehicle for hire and reward not permit to ply such vehicle.
(2) For organizing racing and speed testing;
(3) Use of transport vehicle not allowed by permit.
(4) Driver not holding valid driving license or have been disqualified for holding such license.
(5) Policy taken is void as the same is obtained by non-disclosure of material fact.

Section152. Settlement between insurers and insured persons.
(1) No settlement made by an insurer in respect of any claim which might be made by a third party in respect of any liability of the nature referred to in clause (b) of sub-section (1) of section 147 shall be valid unless such third party is a party to the settlement.

(2) Where a person who is insured under a policy issued for the purposes of this Chapter has become insolvent, or where, if such insured person is a company, a winding up order has been made or a resolution for a voluntary winding up has been passed with respect to the company, no agreement made between the insurer and the insured person after the liability has been incurred to a third party and after the commencement 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 commencement aforesaid shall be effective to defeat the rights transferred to the third party under this Chapter, but those rights shall be the same as if no such agreement, waiver, assignment or disposition or payment has been made.

Legal defence available to the Insurance Companies towards third party:

The Insurance Company cannot avoid the liability except on the grounds and not any other ground, which have been provided in Section 149(2). In recent time, Supreme Court while dealing with the provisions of Motor Vehicle Act has held that even if the defence has been pleaded and proved by the Insurance Company, they are not absolve from liability to make payment to the third party but can receive such amount from the owner insured. The courts one after one have held that the burden of proving availability of defence is on Insurance Company and Insurance Company has not only to lead evidence as to breach of condition of policy or violation of provisions of Section 149(2) but has to prove also that such act happens with the connivance or knowledge of the owner. If knowledge or connivance has not been proved, the Insurance Company shall remain liable even if defence is available.

Driving License:

Earlier not holding a valid driving license was a good defence to the Insurance Company to avoid liability. It was been held by the Supreme Court that the Insurance Company is not liable for claim if driver is not holding effective & valid driving licence. It has also been held that the learner's licence absolves the insurance Company from liability, but later Supreme Court in order to give purposeful meaning to the Act have made this defence very difficult.

In Sohan Lal Passi's v. P. Sesh Reddy[4] it has been held for the first time by the Supreme Court that the breach of condition should be with the knowledge of the owner. If owner's knowledge with reference to fake driving licence held by driver is not proved by the Insurance Company, such defence, which was otherwise available, can not absolve insurer from the liability. Recently in a dynamic judgment in case of Swaran Singh [5], the Supreme Court has almost taken away the said right by holding;
(i) Proving breach of condition or not holding driving licence or holding fake licence or carrying gratuitous passenger would not absolve the Insurance Company until it is proved that the said breach was with the knowledge of owner.
(ii) Learner's licence is a licence and will not absolve Insurance Company from liability.
(iii) The breach of the conditions of the policy even within the scope of Section 149(2) should be material one which must have been effect cause of accident and thereby absolving requirement of driving licence to those accidents with standing vehicle, fire or murder during the course of use of vehicle.

This judgment has created a landmark history and is a message to the Government to remove such defence from the legislation as the victim has to be given compensation.

Nature and Extent of Insurer's Liability (section 147)

According to the provisions of this section the policy of insurance must be issued by an authorized insurer.It must be as per requirements as specified in subsection (2).It must insure against liability in respect of death or bodily injury or damage to property of a third party. Third party includes owner of the goods or his authorized representative carried in the vehicle and any passenger of a public service vehicle.

The policy of insurance must cover:
1.Liability under the Workmen's compensation Act,1923 in respect of death or bodily injury to any such employee
(a) engaged in driving the vehicle, or
(b) the conductor or ticket examiner if it is a public service vehicle ,or

2. any contractual liability.
Section 147 has to be given wider, effective and practical meaning so that it may benefit various categories of persons entitling them to claim compensation from the insurer or the insured or both. Insurer's liability commences as soon as the contract of insurance comes into force. The liability remains in existence during the operation of the policy. If the existing policy is renewed the risk is covered from the moment the renewal of the policy comes into force. If the accident occurs before the renewal comes into existence, the insurer cannot be made liable. It is the primary duty of the vehicle owner to prove that his vehicle was insured with a particular company. If he fails to comply with it he will have to pay the entire amount of compensation in the case. In case where there is a dispute in respect of the vehicle having been insured by an assurance company, the tribunal must give its finding in the matter, it is its duty to do so. After a certificate of insurance is issued it does not lie in the mouth of the insurer to deny his liability. If the insurer has been a victim of fraud he can recover the amount from the insured by a separate action against him.

Oriental Insurance Co. v. Inderjit Kaur [6]

If the insurer has issued a policy to cover the bus without receiving the premium therefore, he has to indemnify third parties in respect of the liability covered by the policy. He cannot avoid the liability arguing that he was entitled to avoid or cancel the contract.

Liability for injury to certain persons or class of persons (other than gratuitous passengers and pillion riders)

The policy under the Act covers only third party risks.[7] Insurer is not liable for any harm suffered by a passenger traveling in a private car neither for hire nor for reward. Similar is the position of a pillion rider on a scooter.

K. Gopal Krishnan v. Sankara Narayanan[8]

In this case Madras High Court observed that a scooter-owner is not bound to take out a third party risk policy to cover the claim of the pillion rider that is carried gratuitously. If he is injured , the insurance company would not be liable unless policy covering such risk is obtained by the scooter-owner. A private carrier registered as such with R.T.O. and also in insurance policy , cannot be used for carrying any passenger or goods for hire or reward. However if it is so used and the employees of a party hiring the private vehicle belonging to the insured are injured in an accident the insurance company will not be liable.

Insurer's liability to Vehicle-owner

A contract of insurance is a personal contract between the insurer and the insured. It is for the purpose of indemnifying the insured for damage caused due to accident by the vehicle , to a third party. To make the insurer liable the policy of insurance must be in the name of the owner of the vehicle.[9]Owner of the vehicle as defined in Section 2(30) is a person in whose name the motor vehicle stands registered.

A person in possession of a vehicle under a hire-purchase agreement or an agreement of lease or hypothecation is also covered by the definition, no matter he has exercised his option to purchase the vehicle or not.

Section 157(1) makes it clear that when the owner of a vehicle transfers the ownership of the vehicle , the policy of insurance and the certificate of insurance shall be deemed to have been transferred in favour of the purchaser of the vehicle with effect from the date of its transfer.This deemed transfer shall include transfer of rights and liabilities of the said certificate of insurance and policy of insurance.

According to subsection (2) the transferee has to apply within 14 days from the date of transfer to the insurer for effecting necessary changes in the certificate and in the policy of insurance.

If the certificate of insurance and the policy are not transferred , the insurer could not be made liable even though the vehicle is transferred. It is to be remembered that an insurance policy is a personal contract between the parties for indemnifying the insured in case of an accident covered under the policy. If the vehicle is transferred by an insured to another person, the insurance policy lapses upon the transfer. In such a case the benefit of the policy is not available to the transferee, without an express agreement with the insurance company. When the insurance policy lapses it would not be available to cover the liability of the purchaser of the vehicle.

S.Sudhakaran v. A.K.Francis,[10]

There was an agreement for sale of a vehicle. The owner did not comply with the statutory provisions regarding transfer of a vehicle.He, however ,allowed the vehicle to be used by the transferee .The owner had retained the insurance policy with him.

Held— The insurance company was not liable to indemnify the owner.

Liability in respect of damage to property [S.147(2)]

For damage to property of a third party under 1939 Act the limit of liability is Rs 6000 in all, irrespective of the class of the vehicle. Under 1988 Act the position as laid down by section 147 (2) in regard to liability is as under:
(i) For death or personal injury to a third party, the liability of the insurer is the amount of liability incurred, i.e. for the whole amount of liability.
(ii) For damage to property of a third party the liability of the insurer is limited to Rs. 6000 as was under the 1939 Act.

Liability of Insurer beyond the limits mentioned in the Act

Section 147 lays down the limits of liability of the insurer. However there is no bar for the insurer undertaking a higher liability i.e. liability for a greater amount than that mentioned in the Act. Thus the insured and the insurer can contract and can provide for a higher liability.

Conclusion
Thus I have studied and analysed the third party liability insurance under the motor Vehicles Act, 1988.Third party insurance protects the interest of a third party who becomes the victim of accident or injury caused by the fault of the insured. So any liability arising on the insured by the third party is mitigated by the insurance company. Third party insurance is compulsory under the motor vehicles Act,1988. As the third party insurance is mandatory so it cannot be overridden be any clause in the insurance policy.

It is the duty of insurers to satisfy the judgments and awards against persons insured in respect of third party risks. The insurance company is a State' within the meaning of article 12 of the Constitution. For this reason it cannot deny , discriminate or refuse third party insurance cover to State run vehicles because their actions are guided by Article 14 of the Constitution.[11]

The compulsory nature of third party insurance is justifiable as it makes the process more easy for the injured person to recover money from the insured. The defendant or wrongdoer cannot be exempted on the ground that he has become insolvent. If he owns a vehicle he bound to pay to the injured directly or through his insurance company.

Bibliography
1.B.M.Gandhi,Law of Torts- with Law of Statutory Compensation', Eastern Book Company, 2nd edi,311-330
2.Avtar Singh, Law of Insurance' Eastern Book Company, first edition,134-139
3.www.legalserviceindia.com
4.Course material supplied for Law of Insurance
5.Motor Vehicles Act,1988
6.Motor Vehicles Act,1939

End-notes
[1] AIR 1995 J&K 91
[2] AIR 1999 SC 1398
[4] AIR 1996 SC 2627
[5] Cited on legalserviceindia.com
[6] AIR1998 SC 588
[7] Section 147 of the 1988 Act, or section 95 of the 1939 Act.
[8] AIR 1968 Mad 438
[9] Raj Chopra v. Sangara Singh, 1985 ACJ 209 (P & H)
[10] AIR 1997 Ker 26
[11] Avtaar Singh, Law of Insurance

Role of Surveyor in Insurance claim
Personal Injury:
Personal injury cases are brought about by physical injury or mental anguish caused by actions or negligence of another party. Personal Injury cases can include Auto Accidents, Defamation of Character, Product Defects and Medical Malpractice to name just a few.

An analysis of law relating to Accident Claims in India:
With the development of civilization, act of negligence have become actionable wrong. In the English Law any person or the legal representative of deceased person who expired on account of negligent act of other can besides instituting criminal proceeding, recover damages under the Law of Torts.

Road Traffic Injury and Accidents:
Being involved in a road traffic accident can leave you with anything from whiplash and bruising to serious head and spinal injuries.

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