Rights of Third Parties in the Motor Accidents under the Insurance Act
Introduction
In India, the Motor Vehicles Act, 1988 includes provisions to compensate for the loss suffered by a third party in a motor vehicles accident. Insurance is a contract whereby one party agrees to compensate the loss or discharge another person’s liability. Motor insurance covers all the rights and liabilities of a third party under the same Act. Additionally, the Insurance Act, 1938, via its section 32-D, creates an obligation of the insurer in respect of insurance business in third party risks of motor vehicles. Over the years, there have been landmark cases that have reiterated the same concept. One of the most important cases is the Govindan v. New India Assurance Co. Ltd. [(1999) 3 SCC 754], which held that “third party insurance is compulsory under the law, should not be overridden by any clause in the policy.”
Meaning of third-party insurance
A third-party insurance policy is one under which an insurance company [in this case, an “authorised insurer” as defined under Section 145(a) of The Motor Vehicles (Amendment) Act, 2019] agrees to indemnify the insured person in case he is held legally liable for injuries or damages caused to a third party.[1] It is essentially a form of liability insurance purchased by an insurer for protection against another third party’s claims.[2]
As per Section 145(i) of The Motor Vehicles (Amendment) Act, 2019, a “third party” includes the Government, the driver and any other co-worker on a transport vehicle. Additionally, the Act, under Section 146, makes it compulsory to not use any vehicle in a public place without any valid third-party insurance.[3]
Relevant provisions related to third party-insurance
The concept of third-party insurance is under Chapter XI – Insurance of Motor Vehicles Against Third-Party Risks of The Motor Vehicles Act, 1988 between Sections 145 and 164. The new provisions inserted in Chapter XI under the Act of 2019 include:
- Sec.149- Settlement by the insurance company and procedure thereof
- Sec.159- Information to be given regarding accident
- Sec.162- Scheme for golden hour
- Sec.164- Payment of compensation in case of death or grievous hurt.
- Sec.164(A)- Scheme for interim relief for claimants
- Sec.164(B)- Motor vehicles Accident Fund
- Sec.164(D)- Power of State Government to make rules
Features of third-party insurance
-
Third-party insurance is mandatory for all motor vehicles
The act under section 146 states that all motor vehicles must not utilise any vehicle in public without legitimate third-party insurance.[4]
Third-party insurance does not cover injuries of the insured but the one who is injured by the insured
An authorised insurer insures a person or class of people against:
- death , or
- a real injury to an individual, or
iii. to any traveller of public service vehicle and any harm to property conveyed by, or
- to any property of third-party vehicle caused by the utilisation of vehicle in a public place.
-
Beneficiary of third-party insurance is the injured third party
The insured or the policyholder is only nominally the beneficiary of the policy. Such arrangements will cover any risk regarding any mishap up to the limit of the amount of liability incurred.
-
The premiums do not vary with the value of what was insured
In third party policies, the premium does not differ with the value of what was insured on the grounds that what is safeguarded is the legal responsibility, and it is beyond the realm of imagination to expect to know ahead of time what that liability will be. Third-party insurance is based on fault.[5]
-
Third-party insurance is not popular with insurance companies
There are two types of policies in the motor insurance sector. One is first-party insurance, and the other is known as third party insurance. India has a mandate regarding the latter one.
Rights of Third Party against insurers on the insolvency of the insured
-
Right to receive information
Insured or any person against whom a claim is made in relation to liabilities incurred to any other person by insured or, as the case may be, any other person shall not refuse to provide the information to the person claiming.
The person cannot refuse to disclose information regarding whether he is insured or was insured or would have been insured with respect to the liability of the policy issued against him. The third party also has the right to be informed whether any right was transferred or vested to him under Sec 150, or whether there exists a contract of insurance affecting his rights.
-
Right to remain unaffected
This right arises in the following cases,
- where any judgment or award has been passed against the insured person
- when policy unlawfully restricts the insurer’s liability
- in case of settlement between the insurer and the insured person.
Motor Vehicle Act, 1988 prescribes an insurer to pay a third party any amount not exceeding sum assured or any amount payable in respect of costs or any sum payable in respect of interest on that sum, in relation to a liability, if the insurer has obtained any judgment or award in his favour against the insured person. Thus, the claim of third parties cannot be brought down due to any judgment or award passed against the insured person. The above right is not absolute and therefore, the said right cannot be exercised until or unless the insured person was not notified by court regarding the proceeding.
-
Transfer of right of insured, against the insurer, to the third party
Generally, the liability raised against the insurer by the third party in relation to an event which is secured by way of insurance policy will be fulfilled by the insurer. However, in case of insolvency of the insured person, his rights against the insurer under the policy shall be transferred to, and vest in the third party to whom liability was so incurred.[6]
-
Hit and Run Cases
In case of hit and run accidental deaths, a fixed sum of rupees two lakhs is compensated, while in the case of grievous hurt, a fixed sum of rupees fifty thousand is compensated [7]. But if the said compensation amount is already paid to legal heirs or person injured under any other provision of act then such compensation amount will be refunded back to the insurer[8].
Insurance Companies are allowed no other defence except the following:
(1) Use of vehicle for hire and reward not permit to ply such vehicle.
(2) For organising racing and speed testing;
(3) Use of a transport vehicle not allowed by permit.
(4) Driver not holding a valid driving license or have been disqualified for holding such permit.
(5) Policy taken is void as the same is obtained by non-disclosure of material fact.[9]
Landmark Case
-
K. Gopal Krishnan v. Sankara Narayanan [AIR 1968 Mad 438]
In this case, the Madras High Court held that a scooter owner is not allowed to buy a third-party risk policy to cover the allegation of a pillion rider who is carried without charge. If he is hurt, the insurance provider will not be liable until the scooter owner obtains a policy covering those risks.
A private carrier registered with the RTO and covered by an insurance policy cannot transport passengers or goods for hire or compensation. However, if used in this way and the members of a party employing the insured’s private car are involved in an accident, the insurance provider is not responsible.
Liability to the Vehicle Owner :
The insurance scheme must be in the car owner’s name to hold the insurer liable as defined in Section 2(30) [10], i.e. a person in whose name the motor vehicle stands registered. The term also includes a person who is in possession of a vehicle under a hire-purchase arrangement, a lease agreement, or a hypothecation agreement, whether or not he has exercised his option to purchase the vehicle.
When a car is passed from one owner to another, the insurance policy on the vehicle expires. Without an express arrangement with the insurance provider, the value of the policy does not apply to the transferee. When the insurance policy expires, it will no longer be eligible to cover the risk of the vehicle’s owner.
-
S. Rajaseekaran vs. Union of India (UOI) and Ors. [2014(4)ABR810]
The Petitioner, an Indian orthopaedic surgeon through his professional practice realised that many road accidents causing loss of human lives and other bodily injuries could be avoided if there were more effective legislations. In light of the experience, the Petitioner filed a writ petition under Article 32 of the Constitution seeking the court’s intervention, primarily in enforcing the prevailing laws and seeking directions for enacting more appropriate legislative measures. The Petitioner also sought directions from the court to uplift the existing infrastructure and facilities concerning post-accident care and management to minimise loss of life and physical injuries to victims of road accidents. The court directed IRDAI (Insurance Regulatory and Development Authority of India) to notify that “all general insurers (except the stand-alone health insurers and the specialised insurers) shall offer only three-year motor third-party insurance policies for new cars and five-year motor third party insurance policies for new two-wheelers with effect from 1st September 2018.“
Recent Amendments concerning Third-party insurance policy
- The Supreme Court has made it compulsory for all car owners to have a three-year, third-Party insurance policy and two-wheeler owners to have a five-year policy.
- No cap on liability of insurers.
- There has been a ten-time increase in insurance compensation, from Rs 50, 000 to Rs 5 lakh.
- The procedure for claims has been simplified. Now, insurance companies have to pay the claims within a month, if the victim’s family agrees to accept Rs. 5 lakhs compensation.
- The latest bill has also increased the minimum compensation for hit-and-run cases from Rs. 25,000 to Rs. 2 lakhs in case of death and Rs. 12,500 to Rs. 50,000 in case of grievous injury.
Conclusion
Third-party insurance safeguards the interests of a third party who is injured or killed due to the insured’s negligence. As a result, any liability levied by a third party on the insured is mitigated by the insurance provider. Under the scope of Article 12 [12] of the Constitution, the insurance company is a state. As a result, it cannot deny, discriminate against, or refuse third-party insurance coverage to State-run vehicles because Article 14 [13] of the Constitution regulates their acts.
FOOTNOTES:
[1] Sangeeta Chakravarty, Third Party Insurance in India, LEGAL SERVICE INDIA (Apr. 5, 2021, 00:25 AM), http://www.legalserviceindia.com/article/l264-Third-Party-Insurance.html.
[2] Third-Party Insurance, INVESTOPEDIA (Apr. 4, 2021, 12:00 AM),
https://www.investopedia.com/terms/t/third-party-insurance.asp.
[3] Vijay Chauhan & Oorja Jain, India: Rights And Liabilities Of Third Party In Motor Insurance, MONDAQ (Apr. 5, 2021, 00:35 AM), https://www.mondaq.com/india/insurance-laws-and-products/942010/rights-and-liabilities-of-third-party-in-motor-insurance/
[4] Khurana And Khurana, India: Rights And Liabilities Of Third Party In Motor Insurance, MONDAQ (Apr. 5, 2021, 10:45 AM), https://www.mondaq.com/india/insurance-laws-and-products/942010/rights-and-liabilities of-third-party-in-motor-insurance/
[5]Sangeeta Chakravarty, Third Party Insurance in India, LEGAL SERVICE INDIA (Apr. 5, 2021, 10:45 AM), http://www.legalserviceindia.com/article/l264-Third-Party-Insurance.html.
[6]Vijay Chauhan & Oorja Jain, India: Rights And Liabilities Of Third Party In Motor Insurance, MONDAQ(Apr.5,2021,00:35AM), https://www.mondaq.com/india/insurance-laws-and-products/942010/rights-and liabilities-of-third-party-in-motor-insurance.
[7] Section 161, Motor vehicle (Amendment) Act, 2019
[8] Section 162, Motor Vehicle (Amendment) Act, 2019
[9] Sangeeta Chakravarty, Third Party Insurance in India, LEGAL SERVICE INDIA (Apr. 5, 2021, 00:25 AM), http://www.legalserviceindia.com/article/l264-Third-Party-Insurance.html.
[10] ‘Owner’ has been defined to mean “a person in whose name a motor vehicle stands registered and, where such person is a minor, the guardian of such minor, and in relation to a motor vehicle which is the subject of a hire purchase agreement, or an agreement of lease or an agreement of hypothecation, the person in possession of the vehicle under that agreement”.
[11] Requirement of policies and limits of liability.
(1) In order to comply with the requirements of this Chapter, a policy of insurance must be a policy which- (a) is issued by a person who is an authorised insurer; and
(b) insures the person or classes of persons specified in the policy to the extent specified in sub-section (2).
[12] Krishnendra Joshi, ‘State’ under Article 12 of the Constitution of India, IPLEADERS (Apr. 5, 2021, 06:36 PM), https://blog.ipleaders.in/state-article-12-constitution-india/.
[13] Equality before law, CONSTITUTION OF INDIA (Apr. 5, 2021, 06:36 PM),
https://www.constitutionofindia.net/constitution_of_india/fundamental_rights/articles/Article%2014.
Author: Prarthana Vasudevan,
Christ (Deemed to be University), 1st year B.A. L.L.B
