When the Union Cabinet approved the Motor
Vehicles Amendment Bill 2016, it was hailed by all as a progressive enactment. The Bill provided for stringent penalties for
road traffic violations. The Bill also made compliance with safety requirements
mandatory. There were also provisions for protection of ‘Good Samaritans’,
enhancement of compensation payable to victims of ‘Hit and Run’ cases, and
creation of ‘Motor Vehicle Accident
Fund’ etc. Certainly these are all praiseworthy endeavours which suit the best
interests of road-users. The media reports, including the official report in
the Press Information Bureau, highlighted these aspects, and applauded the Bill
for its concerns for road safety.
However,
camouflaged in these provisions was a disturbing provision, which did not court
the attention of many. The Bill seeks to introduce ‘limited liability’ of
insurers with respect to third party claims. Section 147 of the Bill deals with
the requirements of third party insurance policy. Section 147(2) of the Bill
reads as follows :
(2) Notwithstanding
anything contained under any other law for the time being in force, for the purposes
of third party insurance related to either death of a person or grievous hurt
to a person, the Central Government shall prescribe a base premium and the
liability of an insurer in relation to such premium for an insurance policy
under subsection (1) in consultation with the Insurance Regulatory and
Development Authority:
Provided that the
payment to a person by an insurer, under the third party insurance policy,
shall be a sum of not exceeding ten lakh rupees in case of death and not
exceeding ten five lakh rupees in case of grievous hurt, as may be
prescribed by the Central Government from time to time.
It means
that the liability of the insurer to satisfy third party claims can be fixed by
the Central Government through rule-making. The liability will be corresponding
to the different rates of base premium fixed by the Central Government in
consultation with the IRDA. The proviso says that the liability so fixed shall
not exceed Rs.10 Lakhs in case of death and Rs. 5 lakhs in case of bodily injury.
This in short means that the claimants in a motor accident cannot seek to
recover any amount in excess of Rs. 10 lakhs or Rs.5 lakhs in cases of death or
bodily injury, as the case may be. The excess amount of compensation, if any
awarded by the Tribunal, will have to be recovered from the owner or driver of
the offending vehicle.
As per the
present Act, the liability of the insurer to satisfy third party claims is
unlimited. It is made clear by the present Section 147(2) which reads as
follows :
Subject to the
proviso to sub-section (1), a policy of insurance referred to in sub-section
(1), shall cover any liability incurred in respect of any accident, up to the
following limits, namely:—
(a) save as provided
in clause (b), the amount of liability incurred;
(b) in respect of
damage to any property of a third party, a limit of rupees six thousand:
In case of
death or bodily injury, the insurer had to cover the liability to the extent of
actual amount of liability incurred. The only limitation was with respect to
claims with respect to damage to property of third party caused by motor
vehicle, which is limited to Rs. 6,000/-.
However,
the proposed amendment seeks to introduce ‘limited liability of insurer’, which
totally frustrates the social welfare intent behind compulsory third party
insurance.
The
philosophy of third party insurance.
To understand the philosophy of compulsory third party
insurance, it is profitable to travel back a bit in time to common law. In
common law, in order to provide succor to the victims of increasing number of
motor accidents, statutory enactments were made to amend the traditional norms
of tort law. Thus, English Fatal Accidents Act 1846 was passed to get over the
principle in tort law that a tortious claim would extinguish upon the expiry of
the claimant, thereby enabling the legal heirs of a deceased victim of road
traffic accident to claim compensation. However, it was found that in several
cases the owner of the motor vehicle did not have adequate means to satisfy the
award of compensation, and therefore the claimants found it difficult to
actually enjoy the benefits of the award. In order to prevent the award of
compensation remaining as a mere paper relief, the Parliament thought it fit to
statutorily mandate that all motor vehicles should be provided with insurance
coverage for third party risks. Still, another difficulty persisted, inasmuch
as there was nothing in law entitling the claimant to bring an action against
the insurer of the vehicle, as the claimant was a total stranger to the
insurance contract, and there was no privity of contract between the claimant
and the insurer. Therefore, the Third Parties (Right against Insurers) Act 1930
was passed conferring the right on claimants to initiate action against the
insurers for claiming compensation. Yet, there was another issue to be
addressed, as there were possibilities of insurer limiting his liability in the
insurance contract, and providing for several escape clauses therein to evade
liability. Hence, the conditions of insurance policy and limit of coverage had
to be statutorily prescribed so as to avoid such a mischief. Likewise, the
situations wherein the insurer could avoid liability for breach of conditions
were also statutorily prescribed.
In India, Motor Vehicles Act was modeled on the English Statues and
provided for dealt with compulsory insurance coverage as regards third party
claims. The main objectives of compulsory third party insurance, as explained
by 85th Report of the Law Commission of India are as follows –
- to enable a claimant to claim whatever
sum he is in law entitled to, despite the inability of the owner or driver
to pay.
- to prevent the insurer from escaping
liability on ground of breach on the part of the insured of any term of
the contract.
- to entitle the claimant to recover
compensation directly from the insurer, modifying the general law of
contract that a third party cannot sue on contract[1].
The motive and philosophy behind compulsory insurance has
been explained by the Supreme Court in Skandia Insurance Co.Ltd v. Kokilaben
Chandravan[2]
in the following terms. :
Ordinarily it is not the concern of the legislature whether the owner of
the vehicle insures his vehicle or not. If the vehicle is not insured any legal
liability arising on account of third party risk will have to be borne by the
owner of the vehicle. Why then has the legislature insisted on a person using a
motor vehicle in a public place to insure against third party risk by enacting
S.94. Surely the obligation has not been imposed in order to promote the
business of the insurers engaged in the business of automobile insurance.
The provision has been inserted in order to protect the members of the
Community travelling in vehicles or using the roads from the risk attendant
upon the user of motor vehicles on the roads. The law may provide for
compensation to victims of the accidents who sustain injuries in the course of
an automobile accident or compensation to the dependants of the victims in the
case of a fatal accident. However, such protection would remain a protection on
paper unless there is a guarantee that the compensation awarded by the Courts
would be recoverable from the persons held liable for the consequences of the
accident. A Court can only pass an award or a decree. It cannot ensure that
such an award or decree results in the amount awarded being actually recovered,
from the person held liable who may not have the resources. The exercise
undertaken by the law Courts would then be an exercise in futility. And the
outcome of the legal proceedings which by the very nature of things involve the
time cost and money cost invested from the scarce resources of the Community
would make a mockery of the injured victims, or the dependents of the deceased
victim of the accident, who themselves are obliged to incur not inconsiderable
expenditure of time, money and energy in litigation. To overcome this ugly
situation the legislature has made it obligatory that no motor vehicle shall be
used unless a third party insurance is in force.
Thus, it is clear
from the above exposition of law made by the Supreme Court that the intention
behind compulsory third party insurance is not to promote the profit motive of
insurers, but to provide for protection to innocent victims of road accidents.
The real intent is to ensure that the compensation awarded by the Tribunal is
made a reality by enabling the claimants to actually recover it without much
hassles. That intent is totally frustrated by the proposed amendment.
Inadequacy of
limited liability
Even the upper
ceiling proposed in the Bill is too low, and will be inadequate to satisfy
claims in a realistic manner. The law of compensation has been liberalized by
recent judgments of Supreme Court. Applying the latest principles, the upper
ceiling of Rs. 10 lakhs in case of death and Rs 5 lakhs in case of bodily
injury seem a pittance.
For
example, in case of a construction worker who sustained 58% whole body
disability, the Supreme Court awarded a total compensation of Rs.6,72,000/-
with interest @ 9% ( See Bahvikatti vs. T.Ramesh and another (2014)
10 SCC 789). A vegetable vendor who
sustained 85% disability was awarded total compensation of Rs.17,90,100/- with
interest @ 9% by the Supreme Court in Syed Sadiq vs. Divisional Manager, United India Insurance (2014) 2 SCC 735.
In case of death of a carpenter aged 33 years, his
dependants were awarded a total compensation of Rs.21,53,000/- with interest @
9% by the Supreme Court in Neetha
vs. MSRTC
(2015) 3 SCC 590.
So, it can be seen that even in cases of daily wage
earners not drawing regular salary, the compensation awarded applying latest
principles of law evolved by Supreme Court is much higher than the ceiling
limit proposed in the Bill. When it comes to salaried persons, the total
compensation would obviously be much higher. To illustrate, the Kerala High
Court awarded total compensation of about Rs. One Crore plus interest and costs
as compensation for death of a software professional.(See New India Assurance vs. Lettish
Remy 2015 (1) KLJ 76). It would be
a grave travesty of justice if the liability of insurer in such cases are
limited to only Rs.10 lakhs and the claimants are forced to chase the owner for
realizing the balance compensation. The
proposed ceiling limit is abysmally low, when seen in the context of recent
judicial trend in awarding compensation. The awards of Tribunal would be
reduced to mere paper awards in most cases if that be the situation.
Last year the Central Government had permitted 49%
Foreign Direct Investment in general insurance sector. The third party
insurance sector used to be occupied by state instrumentalities till the
arrival of private entities recently. The introduction of the hitherto alien
concept of ‘limited liability of insurer’ seems to be a step taken to promote
the profit motive of private players. Whatever that be, it certainly defeats
the purpose and intent of third party insurance. The said proposed provision
has been deceptively hidden by the other provisions of the Bill which dealt
with road safety, and hence much public discussion has not happened regarding
this. To safeguard the best interests of road users, the enlightened members of
lawyer fraternity and civil society should lead effective discussions on this
issue to ensure that the proposed amendment does not fructify.
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