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.
Section 140 of the Motor Vehicles Act deals with no fault liability
. The term
‘no fault liability' means when an accident has occurred due to use of a motor
vehicle or motor vehicles and has caused either death or some sort of injury,
the owner of the vehicle is still liable to pay compensation even if it isn't
his or her fault. Where death or permanent disablement occurs to any person as a
result of an accident due to the use of a motor vehicle, the owners of the
vehicle shall be liable to pay compensation for such death or disablement in
accordance with the provisions of this section.
The provisions of this Section
make way for a fixed amount of compensation which must be paid depending upon
whether the accident has caused death or disablement. In case of death then the
owners have to pay compensation worth fifty thousand rupees and in case of
disablement then the compensation is fixed at rupees twenty five thousand, these
fixed rates of compensation are as per sub-section(1) of Section 140. It also
must be taken into consideration that when claiming compensation for either
death or disablement the concerned parties needn't prove any sort of wrongful
act, neglect or default on part of the defendant, as they're still liable to pay
In any case for compensation under sub-section( 1) the claimant
shall not be required to plead and establish that the death or permanent
disablement in respect of which the claim has been made was due to any wrongful
act, neglect, or default of owner or owners of the vehicles concerned or of any
other person. This Act is in correspondence with section 92-A of the Motor
Vehicles Act, 1939. An important case pertaining to compensation is National
Insurance company v. Deorao and others
Often in a case of no fault liability
people tend to confuse this with
‘strict liability'. Some of the basic differences that we see in between these
two laws are, in terms of no fault liability
the compensation is fixed as
per sub-section (1), in case of death the compensation is fixed at fifty
thousand rupees and in case of disablement the compensation is fixed at rupees
twenty five thousand. But when we talk about strict liability
is no fixed amount of compensation as strict liability
isn't a codified
When we talk about codification of the laws then one must know that ‘no fault
liability' is a codified law under Sec-140, therefore giving it statutory
on the other hand is not a codified law and comes under tort law,
therefore not giving it statutory powers. Another important aspect would be that
if an individual were to claim compensation under normal tort law in case of a
motor vehicle accident then he/she would be able to do so, though the
compensation received through this process would and will be deducted from the
compensation that was to be awarded by the motor vehicles tribunal. Therefore
these two are altogether different concepts.
The court is of the opinion that
even in case of an accident by a motor vehicle a victim is entitled to get
compensation from the tribunal unless any one of the exceptions would apply. The
tribunal and High Court have, therefore, gone into error in divesting the
claimants of the compensation payable to them. This can be seen in the case Kaushnuma
Begum and others v. New India Assurance Co. Ltd and others
Third Party Insurance
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.
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 , “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
- Third party insurance is compulsory for all motor vehicles. In G. Govindan v.
New India Assurance Co. Ltd.,Third party risks insurance is mandatory under
the statute .This provision cannot be overridden by any clause in the insurance
- Third party insurance does not cover injuries to the insured himself but
to the rest of the world who is injured by the insured.
- 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.
- 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.
- 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).
- Third party insurance involves lawyer's aid.
- 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 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 XXI 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 (Section 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 Section 96 of the 1939 Act which corresponds to Section
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 legislation 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 Section 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 Section 95 of the 1939 Act and Section 146 of the 1988 Act. It is
relevant that under Section 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
Subsequently in 1934, the second Road Traffic Act was enacted. The object of
this legislation was to satisfy the liability of the insured.
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 96(2) (a) which
corresponds to section 149 (2)(a) of the 1988 Act, the insurer could defend
- The third action provided for was contained in Section 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 Section 149 (2)(b) of the 1988 Act. While
enacting the 1939 Act and the 1988 Act, all the three actions were engrafted in
Section 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.
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. 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 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
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:
- Use of vehicle for hire and reward not permit to ply such vehicle.
- For organizing racing and speed testing;
- Use of transport vehicle not allowed by permit.
- Driver not holding valid driving license or have been disqualified for
holding such license.
- Policy taken is void as the same is obtained by non-disclosure of
Section 152 Settlement between insurers and insured persons:
Legal defence available to the Insurance Companies towards third party:
- 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.
- 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
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.
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
 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, cannot absolve insurer from the liability. Recently in a dynamic
judgment in case of Swaran Singh Case
The Supreme Court has almost taken away the said right by holding:
- 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.
- Learner's licence is a licence and will not absolve Insurance Company
- 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
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
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:
- Liability under the Workmen's compensation Act, 1923 in respect of death
or bodily injury to any such employee.
- Engaged in driving the vehicle, or
- The conductor or ticket examiner if it is a public service vehicle or
- 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
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 
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. 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
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.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 sub-section (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.
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,
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.
The insurance company was not liable to indemnify the owner.
Liability in respect of damage to property (Section 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:
- 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
- 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.
165. Claims Tribunals:
- A State Government may, by
notification in the Official Gazette, constitute one or
more Motor Accidents Claims Tribunals (hereafter in this
Chapter referred to as Claims Tribunal) for such area as may be specified in
the notification for the purpose of adjudicating upon
claims for compensation in respect of accidents
involving the death of, or bodily injury to, persons
arising out of the use of motor vehicles, or damages to
any property of a third party so arising, or both.
Explanation: For the removal of doubts, it is hereby declared that the
expression claims for compensation in respect of accidents involving the death
of or bodily injury to persons arising out of the use of motor vehicles
includes claims for compensation under section 140.
- A Claims Tribunal shall consist of such number of members as the
State Government may think fit to appoint and where it consists of two or
more members, one of them shall be appointed as the Chairman
- A person shall not be qualified for appointment as a member of a Claims
Tribunal unless he:
- Is, or has been, a Judge of a High Court, or
- Is, or has been, a District Judge, or
- Is qualified for appointment as a Judge of a High Court.
- Where two or more Claims Tribunals are constituted for any area, the
State Government, may by general or special order, regulate the distribution
of business among them.
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.
The compulsory nature of third party insurance is justifiable as it makes the
process easier for the injured person to recover money from the insured.
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.
- B.M.Gandhi, Law of Torts- with Law of Statutory Compensation, Eastern
Book Company, 2nd edn., 311-330.
- Avtar Singh, ‘Law of Insurance' Eastern Book Company, first
- Motor Vehicles Act,1988
- Motor Vehicles Act,1939
- AIR 1995 J&K 91.
- AIR 1999 SC 1398.
- Chapter 11 (Section 145 to 164).
- AIR 1996 SC 2627.
- Cited on legalserviceindia.com.
- AIR 1998 SC 588.
- Section 147 of the 1988 Act, or section 95 of the 1939 Act.
- AIR 1968 Mad 438.
- Raj Chopra v. Sangara Singh, 1985 ACJ 209 (P & H).
- AIR 1997 Ker 26.
- Avtaar Singh, Law of Insurance.
Authentication No: JL02089756106026-720