In a crucial clarification on motor accident compensation law, the Supreme Court of India has held that an insurance company cannot outright deny a claim to a third-party victim solely on the grounds that the driver of the offending vehicle possessed an expired license at the time of the accident. The Court reiterated that the insurer’s primary duty is to compensate the victim first and then recover the amount from the insured vehicle owner for the breach of policy conditions.
This significant clarification came from a bench comprising Justice K. Vinod Chandran and Justice N.V. Anjaria, which applied the “pay and recover” doctrine to protect the interests of an accident victim’s family.
Factual Background of the Case
The question arose from an appeal filed by Rama Bai, the mother of Nand Kumar, who died in a vehicular accident on October 13, 2011. Nand Kumar was a conductor on a truck that collided with a tractor-trolley. The driver’s license had expired on June 20, 2010, and was only renewed on November 3, 2011, meaning it was not valid on the date of the accident.
Both the Motor Accident Claims Tribunal in Raipur and the High Court of Chhattisgarh had exonerated the insurance company from the liability to pay compensation. While the High Court enhanced the compensation amount to Rs. 5,33,600, it directed that the driver and the owner of the truck were liable to pay, holding that the expired license constituted a fundamental breach of the insurance policy.
The Supreme Court’s Analysis: A Clarification of Law
The appellant’s primary argument before the Supreme Court was that the High Court had erred by not applying the well-established “pay and recover” principle. The insurance company countered this by citing a case where the Supreme Court had previously expressed reservations about directing an insurer to pay when it was not legally liable.
The Supreme Court bench clarified the legal position by balancing the two aspects: the breach of the policy and the right of the third-party victim.
The Court first acknowledged that the insurer had a valid legal defense. It noted that under Section 149(2)(a)(ii) of the Motor Vehicles Act, a driver not being duly licensed is a valid ground for the insurer to avoid its liability against the insured. The High Court’s finding on this was affirmed: “we do not find any error in the finding recorded by the learned Claims Tribunal that on the date of accident, respondent No.1 was not possessing valid and effective driving license leading to breach of conditions of insurance policy…”
However, the Court then clarified that this defense does not automatically absolve the insurer of its duty towards an innocent third-party victim. Citing a series of its own precedents, including Shamanna and Another v. Divisional Manager, Oriental Insurance Company Limited, the bench found that the principle of “pay and recover” has been consistently applied to ensure that victims receive timely compensation and are not left stranded due to disputes between the insurer and the insured.
The Final Verdict
Delivering the final verdict, the Court provided its conclusive clarification, stating, “In the above circumstances, going by the series of decisions of this Court, it is only proper that the insurer be directed to satisfy the award, which however can be recovered by the insurer from the insured-owner of the vehicle.”
Consequently, the appeal was allowed. The Supreme Court set aside the High Court’s order exonerating the insurance company and directed it to pay the full compensation of Rs. 5,33,600 with interest to the claimant, while granting it the liberty to recover this amount from the owner of the truck. This judgment solidifies the legal position that the protection of third-party victims is paramount in motor accident claims.
