The Road to Hell is Paved With Good Intentions of the Supreme Court Narasimhan Vijayaraghavan On July 20, 2018, the Supreme Court of India ruled : “We make it clear that the third party insurance cover for new cars should mandatorily be for a period of three years and for two-wheelers,

The Road to Hell is Paved With Good Intentions of the Supreme Court
Narasimhan Vijayaraghavan

On July 20, 2018, the Supreme Court of India ruled : “We make it clear that the third party insurance cover for new cars should mandatorily be for a period of three years and for two-wheelers, it should mandatorily be for a period of five years. This may be taken and treated as a separate product. The decision should be implemented from 1st September, 2018 on the policies sold.”This was in the wake of need for protecting the interest of innocent motor accidents victims, who ‘ more often than not belong to the poor and under privileged sections of society’ as Justice V R Krishna Iyer put it.

As per Sec.146 of Motor Vehicles Act,1988( Act), insurance for motor vehicles, to cover risks to third parties, is mandatory. In the words of the Supreme Court vide Captain Itbar Singh (1958), Kolkilaben Chandravadan (1987) and Swaran Singh (2004), compulsory motor vehicle insurance is to protect victims impacted by motor accidents and not to enable insurance companies to earn premium and to run their business on commercial lines’.

It was but natural that the Apex court felt the need to mandate a long term third party insurance cover, at least for new motor vehicles, since records reveal that one-third of vehicles in India are uninsured, exposing third party victims to look to ‘owners of vehicles for compensation and who may be men of straw’, in the felicitous prose of the top court, and be unable to realise the same.

Be that as it may, this new regime since 1st Sept 2018 was ushered in, amidst fanfare but has been a logistics nightmare and a financial burden on owners. So much so,reportedly Insurance Regulatory & Development Authority, has discontinued the practice of long term insurance covers as of 1st Aug,2020. But, what of the new vehicles already having the benefit of long term covers and what of the binding mandate of Supreme Court?

Very interesting and concerning questions have arisen, as claims relating to motor vehicles having such long term insurance covers are coming home to roost now. Let me illustrate with specific instances.Let us say – A claim has arisen for injured as a pillion rider on a two wheeler or a gratuitous occupant carried in a private car; and the vehicle was having a long term insurance cover;with a comprehensive or package policy in place, for 3/5 years.

As the dispensation goes , the comprehensive cover took care of both own damage or vehicle damage and third party insurance coverage. In addition, it is only under comprehensive or package insurance policies, the risk to pillion riders or gratuitous occupants carried on a private car are covered. For, under Sec.147 of the Act, the risk to pillion riders or gratuitous occupants carried on a private car, are not statutorily required to be covered. This position would remain unaltered, even under the new Chapter XI of MV Act,1988, awaiting to be notified, to take effect, to usher in the new, from the old.

The puzzle or the riddle arises from this scenario. In respect of a 3/5 year comprehensive or package policy, the commencement of cover may be with say Insurer B. It may provide both own damage and third party cover.While the third party cover would be for 3/5 years- the own damage portion would be only on annual basis. The owner of the vehicle may choose to renew the own damage portion- with insurer C- as the rates may be competitive with them.

Imagine a motor accident leading to death/injury to a pillion rider on a two wheeler or a gratuitous occupant carried on a private car- during the secondary subsequent years of the ‘policies of insurance’. While the original 3/5 year policy may cover the third party risks for 3/5 years,from the second year onwards, it may morph into an Act or Liability Only insurance cover vide IRDA circular dt. 16th Nov,2009 vis a vis insurer B. This would be so because the Own Damage cover, independent of third party cover, would be with C.

Now comes the tussle of epic proportions to the unfortunate victims. When the accident takes place, in the second or subsequent years of the policies – third party cover with B would be an Act or Liability only cover. The own damage portion would be a separate cover with C. Obviously, both insurers may seek to wash their hands of liability, to the victims ,be it pillion rider of gratuitous occupant and quite legitimately, it would seem.

Insurer B would submit that from
the second year onwards, the motor insurance policy was an Act or Liability only cover. Hence, they cannot pay for the pillion rider or gratuitous occupant as there was neither a statutory cover ( Sec.147) nor a contractual cover ( being Act/Liability only Insurance cover) for the said victims. Insurer B would rely on Tilak Singh , Laxmi and Bhagyalakshmi judgments of the Supreme Court in this regard. Insurer C would submit that they had covered only Own Damage portion and there was no third party cover at all, it being a pure and simple contractual cover.

Would the victim be left in the lurch? Would this become a practical and legal nightmare, arising out of the well intentioned orders of Supreme Court dt. 20th,July,2018. Is the Road to Hell Paved With such Good Intentions? The factual and legal scenario can and would present such a real and live possibility. Is there a solution available?Do the Courts have the tools, in place, to iron out the creases in this scenario, to protect the interest of the innocent pillion riders and/or gratuitous occupants carried in the private cars?

Here is the possible answer to rescue the victims from facing a nightmarish reality of no compensation from both insurers, B & C. It would make for robust common, logical and legal sense for the claimants to sue, in such cases, the owner of the two wheeler or car and both B and C, as insurers of the motor vehicle. Liability being joint and several, it can be practically apportioned at 50:50 between insurers B and C. Neither B nor C need be allowed to walk free, by cocking a snook that they were not liable under the contracts of insurance, as it stood.

The conundrum arising out of the verdict of the top court mandate, to issue 3/5 year third party insurance covers, can be resolved only by resort to this route. Rest assured, no motor insurer, not even the public sector entities and least of all the private players, would willingly admit, agree and embrace this solution. They would resist, refuse and litigate through the hierarchical courts and it may be we’ll be up to the Supreme Court, to resolve the tangle, once and for all, the problem, they created in the first place. And that may take a long while in our hierarchical scheme of things.

In the meanwhile, the legal fraternity can pat themselves on the back for having one more issue on their table, in the new year, as they laugh all the way the bank, even as the lot of innocent victims, may be compelled to pray hard and long, to get over this man made or supreme court induced viral pandemic,for an effective vaccine or cure.

( Author is practising advocate in the Madras High Court)