Chanakya National Law University: Extent of Insurer's Liability Under Motor Vehicles Act
Chanakya National Law University: Extent of Insurer's Liability Under Motor Vehicles Act
Chanakya National Law University: Extent of Insurer's Liability Under Motor Vehicles Act
Submitted by:
Kundan Kumar
Roll no. 1627
B.B.A. L.LB.
Semester 1st
Session 2016-2021
ACKNOWLEDGEMENT
I express my warm thanks to Prof. Sushmita Singh for his support and guidance
at Chanakya National law University.
I would also like to thank responsible authorities who provided me with the
facilities being required and conductive conditions for my project.
Thank you
CONTENTS
Sr. No
1
2
3
4
5
6
7
8
9
TOPIC
Research Methods
Aims & Objectives
Hypothesis
Research Methodology
Introduction
What is Third Party Insurance?
Salient Features of Third Party Insurance
PG NO.
5
6
6
10
16
17
18
HYPOTHESIS
The researcher strongly believes that:
1. Motor Vehicles Act is very important to reduce road accidents.
2. Motor Vehicles Act is necessary to satisfy the liability of the insured.
3. The insured can claim for a greater liability by making a contract with the
insurer.
RESEARCH METHODOLOGY
The researcher will be using only doctrinal methods of research. The researcher
will be using various books, articles present in the library for doctrinal research.
INRODUCTION
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.
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
lawyers
aid
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
without fault in certain cases. Chapter XI (Ss. 145 to 164) deal with insurance of
motor vehicles against third party risks.
But in many cases it was found that the owner of the offending vehicle had no
means to pay to the injured or the dependent 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
defenses 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.
(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.
Driving License:
Earlier not holding a valid driving license was a good defense 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 license. It has also been held that the learner's license absolves the
insurance Company from liability, but later Supreme Court in order to give
purposeful meaning to the Act have made this defense 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 license held by driver
is not proved by the Insurance Company, such defense, 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 license or holding fake
license 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 license is a license 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 license 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 defense from the legislation as the victim has to be given
compensation.
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.
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.
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]
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
CITATIONS
[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