INSURANCE AGAINST THIRD PARTY RISK
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.
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.
There are two types of Third-Party Insurance:
1. Third Party Liability Car Insurance
2. Third Party Liability Two-Wheeler Insurance
Benefits and Features of Third Party Insurance:
1. Legal Cover and Monetary Help
The legal liability of the insured person is covered under third-party
insurance policy in event of temporary or permanent disability or demise
of a third person or damage to the third-party property. Third Party
Insurance policy takes care of legal liability and financial burden of the
policyholder despite the policyholder or the insurance company being a
direct beneficiary. This is the most crucial feature of Third-Party
Insurance policy.
2. Easy of Process to Purchase Third Party Insurance
Third Party Insurance policy is easy to purchase/renew. You can also
purchase or buy these policies from the comfort of your home by buying
the policy online. Therefore, you can easily access it anytime.
3. Beneficial to the Policyholder in case of Unfortunate Event
The coverage offered under Third Party Liability Insurance is evidently a
cost-effective protection to the policyholder in the unforeseen event of
liability towards a third party due to their disability or demise. Whether
taken as a main policy or as an Add-on, it benefits you fully. Although the
income of the insured is considered
1. 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 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 at Chapter VIII of the 1939 Act or Chapter XI of the 1988
Act, the intention of the leisure 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 has been statutorily liable to satisfy the judgment and
award against the person insured in respect of third-party risk.
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 absolving 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 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.
S. Sudhakar 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.
Held— The insurance company was not liable to indemnify the owner.
Conclusion
Thus, the third-party liability insurance under the motor Vehicles Act,
1988 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 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.
