In a significant ruling, the Rajasthan High Court at Jodhpur addressed the legal obligations of an insurance company under an ‘Act Only Policy’ in the context of a motor accident claim. The case stems from an incident on May 5, 2011, where several individuals, including Girdhari, Dayal, Sunita, Rajbala, and Surendra, were grievously injured, and Surendra tragically lost his life when a jeep (RJ23 UA 0302) overturned due to alleged rash and negligent driving by the driver, Jagdish Prasad.
The injured parties and the deceasedโs representatives filed separate claim petitions before the Motor Accident Claims Tribunal (MACT), Parbatsar, which were consolidated for adjudication. The vehicle involved in the accident was insured by HDFC Ergo General Insurance Company Ltd. under an ‘Act Only Policy.’ The primary contention in the case revolved around whether the insurance company could be held liable for compensating the occupants of the vehicle, who were not covered as third parties under the said policy.
Legal Issues Involved:
1. Coverage of Occupants under ‘Act Only Policy’: The key legal issue was whether the insurance company, which had issued an ‘Act Only Policy’ for the vehicle, could be held liable to compensate the occupants who were injured or deceased as a result of the accident.
2. Validity of Pay and Recover Doctrine: The tribunal initially directed the insurer to pay the compensation to the claimants and then recover the amount from the vehicle’s owner and driver. The insurance company challenged this directive, arguing that the occupants were not covered under the policy, and therefore, they should not be required to pay at the first instance.
Court’s Observations and Decision:
The court, presided over by Justice Nupur Bhati, meticulously examined the legal framework and the facts of the case. The court made a clear distinction between ‘Act Only Policy’ and ‘Comprehensive/Package Policy,’ citing precedents from the Supreme Court. The court emphasized that an ‘Act Only Policy’ does not cover the liability for occupants of a vehicle, as these occupants are not considered third parties under the Motor Vehicles Act, 1988.
In its judgment, the court quoted the Supreme Court’s ruling in National Insurance Co. Ltd. v. Balakrishnan (2013) and United India Insurance Co. Ltd. v. Tilak Singh (2006), which established that occupants of a private vehicle do not fall under third-party risk coverage in an ‘Act Only Policy.’ The court further cited the case of Balu Krishna Chavan vs. The Reliance General Insurance Company Ltd. (2022), reaffirming that the principle of ‘pay and recover’ should not be applied when the insurer is exonerated from liability.
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The Rajasthan High Court ultimately allowed the appeals filed by HDFC Ergo General Insurance Company Ltd., modifying the MACT’s order. The court held that the insurer was completely exonerated from any liability to satisfy the compensation awards. Instead, the responsibility was placed squarely on the vehicle’s owner and driver to pay the compensation within six weeks. The court warned that failure to do so would result in the compensation amount accruing interest at a rate of 7.5% per annum.
