New Delhi: An insurance company is liable to pay third party compensation only to the extent of the passengers in a motor vehicle permitted to be insured by the statute and actually covered by the contract, the Supreme Court has held.
“The insurance taken out for the number of permitted passengers can alone determine the liability of the insurance company in respect of those passengers,” said a Bench consisting of Justice A.K. Mathur and Justice P.K. Balasubramanyan.
In the instant case, 90 passengers travelled in a transport bus as against the capacity of 42 passengers in Himachal Pradesh. The bus met with an accident leading to the death of 26 persons and injury to others. The Motor Accidents Claims Tribunal held the insurance company liable to pay compensation to all passengers.
The Himachal Pradesh High Court upheld the tribunal’s order. National Insurance Co. challenged the High Court order and the Bench decided all similar matters together.
Allowing the appeals, the Bench said “in this situation, the insurance taken out for the number of permitted passengers can alone determine the liability of the insurance company in respect of those passengers.”
Benefit of third parties
The Bench said it was true that the object of the Motor Vehicles Act was intended for the benefit of third parties with a view to ensuring that they received the fruits of the awards obtained by them straightway with an element of certainty and not to make them wait for a prolonged recovery proceeding as against the owner of the vehicle. “But from that, it would not be possible to take the next step and find that the insurance company is bound to cover liabilities not covered by the contract of insurance itself.”
Writing the judgment, Justice Balasubramanyan said the Act made insurance obligatory in the public interest and by way of social security and it also provided that the insurer would be obliged to fulfil his obligation as imposed by the contract. But that would not mean that an insurer was bound to pay the amount outside the contract of insurance itself or in respect of persons not covered by the contract at all.
In this case, the Bench held that the total liability of the insurance company would be only to the extent of 42 passengers in the descending order starting from the highest of the awards and it would be the sum total of those 42 higher awards.
“It will be for the tribunal thereafter to direct distribution of the money so deposited by the insurance company proportionately to all the claimants — here all the 90 — and leave all the claimants to recover the balance from the owner of the vehicle,” the Bench said.
“In such cases, it will be necessary for the tribunal, even at the initial stage, to make appropriate orders to ensure that the amount could be recovered from the owner by ordering attachment or by passing other restrictive orders against the owner so as to ensure the satisfaction in full of the awards that may be passed ultimately,” the Bench said.