Motor Third Party Insurance Awards.

INSURERS ARE NOT AGGRIEVED PARTY IN MOTOR THIRD PARTY AWARDS ?

There remains a doubt in the minds of many including the insurers practicing the compulsory motor insurance for years whether it is open to the insurer to prefer an appeal against the award of the Motor Accidents Claims Tribunal (MACT) questioning the quantum of the compensation as well as regards the negligence of the offending vehicle where an insured has not preferred an appeal under Section 173 of MV Act, 1988 against an award given by the MACT. In effect a motor accident claim is a tortuous claim directed against the tortfeasors who are the insured and the driver of the vehicle and the insurer comes to the scene as a result of statutory liability created under Motor Vehicle Act (M.V. Act). Insurers take the liability of insured that may arise by use of motor vehicle in public road. The case is always between the claimant and the insured and only these two parties can be aggrieved of any award pronounced by Court or Tribunal. The insurers have to compensate the liability awarded against the vehicle owners. The legislature has ensured by enacting Section 149 of the Act that the victims of motor vehicle accident are fully compensated and protected. Insurers as such cannot escape from its liability either by including exclusionary clauses in insurance contract or by finding new ways that Legislation does not want to permit them.

Over the years it has become the practice that the owners of the vehicle do not contest the case or they at the most file the written statement and do not argue or challenge it by leading evidences because they know that even if any award is passed against them, their insurers will satisfy the award. It becomes very difficult for the insurers to fight these cases but the beneficial legislation enacted with a view to confer the benefits to the road accident victims do not intend to favour insurers simply because tortfeasors are not contesting their cases. In most of the cases the insurers are not able to argue with sufficient evidence in trial court to prove their case and are not able to convince the judiciary on income and negligence aspect and huge awards are passed against the vehicle owners that insurers has to satisfy without any legal recourse. The M V Act provides for unlimited liability against bodily injuries for road accident victims unlike victims in industrial accidents or rail or air accidents. From time to time insurers have knocked the legal doors to get some relief and to avail the right of appeal on the understanding that section 173 of the MV Act gives a right of appeal to any person aggrieved by an award of Trial Court but the courts have been consistent in their approach except a contrary view taken on the issue of maintainability of appeal at the instance of insurers in United India Vs Bhushan Sachdeva and Others in 2002. The double bench of Supreme Court held in this case that as the insured has failed to contest the claim and in that view of the matter, the insurer could be a person aggrieved. The Court viewed in this case that insurers that deal with public fund can fall within the ambit of any person aggrieved by an award of a claim tribunal as used in section 173 of the MV Act. The larger bench of Supreme Court in Nicholleta Rohtagi case however set this decision aside.

The three-bench decision of Supreme Court in Nicolletta Rohtagi and Others now makes it very clear that the right of appeal on motor compensation is not an inherent right or common law right, but it is a statutory right. The law provides that an appeal can be filed only on limited grounds and these grounds cannot be enlarged on any premise other than those enumerated in Section 149 (2) of Motor Vehicle Act of 1988. Thus, in common law, an insurer is not permitted to contest a claim of 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 and not on any other ground, which is available to an insured. Insurers cannot even raise the breach of any policy condition, which do not find place in Sub section 2 of Section 149 of MV Act. If insurer were permitted to contest the claim on other grounds it would mean adding more grounds of contest to the insurer than what the statute has specifically provided for. If the Parliament had intended to include the breach of other conditions of the policy as a defence, it could have easily provided any breach of policy conditions in section 149(2).

The Parliament enacted the MV Act in consonance with the hardships faced by the victims of the motor vehicle accidents. Legislature insisted and made it incumbent on the user of a motor vehicle to be armed with an insurance policy covering third party risks, which is in conformity with the provisions enacted by the Legislature. It is so provided in order to ensure that the injured victims of automobile accidents or the dependants of the victim of fatal accidents are really compensated in terms of money and not in terms of promise.

For the aforesaid reasons if an insurer is to file an appeal the challenge in appeal should necessarily confine to only those specified defences which are based on the conditions of the policy and that are available to insurers U/S 149(2).  This sub-section provides that an insurer to whom notice of bringing of proceedings is given shall defend such an action if

A.    There has been breach of a specified policy condition namely:

        i.            A condition excluding the use of vehicle

a)      For hire or reward when vehicle is on the date of the contract of insurance a vehicle not covered by a permit to ply for hire or reward or

b)      For organised racing and speed testing or

c)      For a purpose not allowed by the permit under which the vehicle is used, where the vehicle is a transport vehicle, or

d)     Without side car being attached where the vehicle is a motor cycle; or

      ii.            A condition excluding driving by a named person or persons or by any person who is not duly licensed, or by any person who has been disqualified for holding or obtaining a licence during the period of disqualification; or

    iii.            A condition excluding liability for injury caused or contributed by conditions of war, civil war, riot or civil commotion or

B.     The policy is void on the grounds that it was obtained by the non-disclosure of a material fact, which was false in some material particular.

No insurers can avoid his liability to any person entitled to the benefit of any judgment or award for reasons other than referred above and they can’t mock the courts to appeal against the awards on merits of the case however if in the course of an inquiry of a claim the Tribunal is satisfied that there is collusion between the claimant and insured and the insured fails to contest the claim than the Tribunal for reasons to be recorded in writing, direct the insurer shall be impleaded as a party to the proceedings and the insurer so impleaded shall thereupon have, without prejudice to the provisions contained in Sec 149(2) the right to contest the claim on all or any of the grounds that are available to the person against whom the claim has been made. This right is available to insurers under section 170 of the MV Act but to avail this an application should be moved before the Tribunal and on that there should be a reasoned order in writing by the Tribunal. This was observed by Apex Court in Shankarayya and Others Vs United India where it was held that only if the condition precedent mentioned in section 170 are found to be satisfied and for that purpose the insurance company has to obtain an order in writing from the Tribunal and which should be a reasoned order by the Tribunal. Unless this procedure is followed, the insurance company cannot have a wider defence on merits.

Insurers in past have tried to make a joint appeal along with owner of vehicle and driver to fight the case on merits but failed in their attempt as in Narendra Kumar and another Vs Yarenissa it was held that insurers couldn’t join such appeals. The double bench of Supreme Court in Chinnama George and others Vs K.K.Raju and others reconfirmed this decision.

The point for right of appeal is now very clear. Insurers have limited statutory defenses to contest with otherwise the case is between the tortfeasors and the claimants. If there is collusion between the person making the claim and the person against whom the claim is made or when the person against whom the claim is made has failed to contest the claim then insurers had a case but even in such a situation they have to bring these facts to the notice of the Trial Court. They should move an application in writing through their advocates before the Tribunal stating these facts. Such application necessarily has to be bona fide and filed at the stage when the insured is required to lead his evidence.  If permission is granted in writing by a reasoned order the case is open to the insurers to file an appeal against an award on merits, if aggrieved. In any case where an application for permission is erroneously rejected the insurer can challenge only that part of the order while filing appeal on grounds specified in Sec 149(2).

The insurer cannot mock the law by way of appeal even in case when fraud has been committed to claim the compensation. The right course in case where the compensation has been obtained by fraud is to apply for rectification of the award.

The M.V. Act impress that insurers can never be the aggrieved party to an award unless there is collusion between the insured and the claimant. They are bound by the contractual obligation to meet the statutory liability of the insured. This Beneficial Legislation does not permit them to put fine prints in their contractual document to avoid this liability. The intention of the legislation is to provide quick relief to the victims of road accident and once the case against tortfeasor and the claimant has been pronounced none other then them should come between the claimant and the law. Insurers have sufficient time from the time a claim is reported till it is closed to lead evidences to find out the income, dependency and age of the victim suffering bodily injuries and if they are not able to lead material evidences before the trial court they should not feel aggrieved if they are not permitted to prove those factors in higher court.

Vinay Verma, 

M.COM; FICWA; FIII; ACS; PGDMM; PGDIM