Must an insurer satisfy a third-party award first and recover from the insured where a fundamental breach of policy conditions is proved?
Motor Vehicles Act, 1988 — s.61 — s.66 — Third-party claim — Fundamental breach of policy conditions — Pay and recover —
Motor Vehicles Act, 1988 — s.147 — Third-party risk — Pay and recover —
Held: An insurer must satisfy a third-party award first and recover from the insured, the principle of pay and recover applying even where a fundamental breach of policy conditions is proved. (¶14)
Motor Vehicles Act, 1988 — s.61 — Unregistered trailer — Liability of the tractor's insurer —
Held further: The insurer of a tractor is liable for third-party compensation though an unregistered trailer was attached to it, the trailer having no independent motor of its own. (¶14)
Motor Vehicles Act, 1988 — s.149 — Driving licence — Onus on the insurer —
Held further: The onus lies on the insurer to prove that the driver held no valid driving licence and that policy conditions were breached. Appeal partly allowed. (¶13, 15)
Must an insurer satisfy a third-party award first and recover from the insured where a fundamental breach of policy conditions is proved?
Yes. An insurer must satisfy a third-party award first and recover from the insured where a fundamental breach of policy conditions is proved. In cases of third-party claims against the insurer, the principle of pay and recovery applies even if the insured has committed a fundamental breach. [¶14]
Is the insurer of a tractor liable for third-party compensation though an unregistered trailer was attached to it?
Yes. The insurer of a tractor is liable for third-party compensation though an unregistered trailer was attached to it. The trailer had no independent motor and was attached to the tractor which caused the accident, so the insurer of the tractor is liable, subject to recovery from the owner. [¶14]
Does the onus lie on the insurer to prove that the driver had no valid driving licence and that policy conditions were breached?
Yes. The onus lies on the insurer to prove that the driver had no valid driving licence and that policy conditions were breached. Where the driver did not possess a valid driving licence and there is a breach of policy conditions, pay and recover can be ordered in cases of third-party risks. [¶13, ¶14]
What did the Madras High Court finally decide in this appeal against the Tribunal's award?
The appeal was partly allowed and the award was modified to a direction to pay first and recover from the owner. The quantum of compensation arrived at by the Tribunal was left undisturbed and payment was directed within four weeks. [¶15, ¶16]
Prepared by the LexStreak Editorial Desk — verify against the judgment.
“13. A perusal of Ex.R5= Ex.P6 – Driving Licence of the Tractor driver by name Saravanan shows that the licence was issued on 11.08.2005 and valid up to 13.08.2008 and the accident occurred on 19.10.2016. The fact remains that as per Ex.R5 = Ex.P6 – Driving Licence shows the licence to driver vehicle throughout India with the descriptions mentioned therein and valid up to 13.08.2008. However, the Tribunal has come to the conclusion that on perusal of the Driving Licence, the same was issued on 11.08.2005 and valid upto 12.08.2008 and rejected the contention of the Insurance Company that the Tractor Driver had no driving licence at the time of accident is unsustainable in law and the said finding is liable to be set aside.”
“14. As per the evidence of PW1, Trailer was attached with Tractor and on perusal of Ex.R2 = Ex.P5 – copy of the Insurance Policy shows that the Insurance Policy was issued only in respect of the Tractor only bearing Reg.No.TN 83 W 5427 and no details of the Trailer attached was neither mentioned nor any premium was received by the Insurance Company covering any liability. At this juncture, it is relevant to refer the judgment of this Court dated 22.02.2021 in CMA.No.1640 of 2017 [Bajaj Allianz General Insurance Co. Ltd., v. Lakshmi and Others] wherein it has been held as follows:”
“15. There is no dispute with regard to the quantum of compensation arrived by the Tribunal under various heads. This Court is of the considered view that the driver of the Tractor bearing Reg.No.TN 83 W 5427 did not possess valid and effective driving licence and the same is in violation / breach of the terms and conditions of policy. Therefore, this Court directs the appellant / Insurance Company to pay first the compensation awarded by the Tribunal, to the claimant and recover the compensation paid from the 2 nd respondent / owner of the vehicle bearing Reg.No.TN 83 W 5427.”
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Unsuccessful Insurance Company has preferred this Civil Miscellaneous Appeal, challenging the negligence on the side of the appellant, vide award dated 16.02.2021 made in MCOP No. 28 of 2017 on the file of the Motor Accidents Claims Tribunal, (Special Subordinate Judge) Tirupattur.
According to the claimant – P.Anilkumar, on 19.10.2016, when the claimant was proceeding in his motor cycle bearing Reg.No. TN 23 BW 1290 on the extreme left side of the road towards Muniyakollai – Ramanaickenpettai, at about 11.00 a.m. a Tractor bearing Reg.No. TN 83 W 5727 belonging to the 1st respondent therein / 2nd respondent herein driven in a rash and negligent manner, in high speed, lost control and dashed against the claimant / 1 st respondent herein. Due to the impact, the claimant sustained grievous multiple injuries on his right leg below knee, right cheek and all over the body and sustained fracture on his right proximal Tibia and right zygomatic bone. Immediately after the accident, the claimant was taken to Government Hospital, Vaniyambadi, given first aid and from there, he was taken to Kafeel Multi Specialty Hospital, Vaniyambadi, wherein surgery was done to the claimant on his right leg by fixing iron rod and he was treated as in-patient in the said hospital from 19.10.2016 to 23.10.2016. The claimant filed the claim petition claiming compensation to a sum of Rs.10,00,000/-.
The 1st respondent therein / 2nd respondent herein / owner of the Tractor remained exparte before the Tribunal.
The 2nd respondent therein / appellant Insurance Company has filed a counter statement denying the manner of accident and the alleged nature of injuries sustained by the claimant in the accident. It is further stated that at the time of accident, Tractor was attached with an unnumbered, unregistered and uninsured Trailer. The 1st respondent / owner of the Tractor had given the Tractor on hire to one Nagaraj, who is running a Coir Mill at Vadakkupattu Village and the said Nagaraja had engaged one driver by name Saravanan, who had driven the Tractor with Trailer. The 1 st respondent therein had violated the policy conditions by letting the Tractor on hire and further, the Tractor driver did not possess valid driving licence at the time of accident. Further the driving licence of the Tractor driver got expired and now renewed at the time of accident. The accident occurred only due to the negligence of the claimant and since there is violation of policy conditions, the Insurance Company is not liable to pay compensation to the claimant and prayed for dismissal of the claim petition.
Before the Tribunal, on behalf of the claimant, the claimant examined himself as PW1 and marked Exs.P1 to P12. On behalf of the respondent / Insurance Company, RW1 and RW2 were examined and Exs.R1 to R5 were marked.
Upon appreciation of evidence adduced on either side, the Tribunal found that as per Ex.P1-FIR, criminal case was registered against the Tractor driver. The claimant, who was examined as PW1, deposed that only the driver of the Tractor had drove the same in a rash and negligent manner and caused the accident. The Insurance Company has not chosen to examine any independent witness to rebut the case of the injured claimant and concluded that the accident was caused only due to the rash and negligent driver of the Tractor driver. As per Ex.P1-FIR, the Tractor bearing Reg.No.TN 83 W 5427 was involved in the accident and as per Ex.P2- Wound Certificate, the claimant had sustained injuries due to the road accident. As per Ex.P12-Disability Certificate, the Medical Board assessed the disability of the claimant as 10% based on the injuries sustained by the claimant. The Tribunal has fixed Rs.3,000/- for each percentage of disability and awarded Rs.30,000/- for 10% under the Disability Head. The Tribunal, considering the Wound Certificate- Ex.P2 and Discharge Summary – Ex.P3 awarded a sum of Rs.30,000/- under the head Pain and Suffering. The Tribunal has also awarded compensation under various other heads, which are tabulated below: Heads of Compensation Amount awarded by the Tribunal (Rs.) Disability (3,000 x 10) 30,000 Pain and Suffering 30,000 Extra Nourishment 5,000 Attender Charges 3,000 Transportation Charges 3,000 Loss of Amenities 10,000 Loss of Income during injury 18,000 Medical Expenses 76,548 Total 1,75,548
The Tribunal has also found that as per Ex.P5- Insurance Policy of the Tractor, which was insured with the 2 nd respondent therein, the policy was valid till the midnight of 27.03.2017 and the accident occurred on 19.10.2016 at about 11.00 a.m., and therefore, the accident was covered by the Insurance Policy. Though the Insurance Company had contended in their counter statement that the driving licence of the claimant had expired on 13.08.2008, the Tribunal, on perusal of the driving licence of the Tractor driver under Ex.R5, found that the same was issued on 11.08.2005 and valid upto 12.08.2018 and therefore, the contention of the Insurance Company that the Tractor driver has no driving licence at the time of accident stands falsified. The Tribunal also found that in the FIR- Ex.P1, the presence of Trailer was not mentioned and Ex.P7 – Motor Vehicles Inspection Report does not reveals the presence of Trailer. In order to establish the contention of the Insurance Company that the Tractor has been let on hire, they have not chosen to examine the owner of the Tractor. The letter addressed to the owner of the Tractor came to be marked as Ex.R4 is not sufficient to establish the factum that the Tractor has been let on hire and concluded that the Insurance Company shall indemnity the 1 st respondent / owner and directed to pay compensation to the claimant. Aggrieved over the same, the Insurance Company has preferred the present appeal.
The learned counsel appearing for the appellant / Insurance Company would submit that the Tribunal failed to consider the fact that the alleged vehicle to have caused the accident was infact a Tractor with a trailer attached bearing Reg.No.TN 8 W 5727. PW1 has categorically admitted in his cross examination that the vehicle bearing Reg. No. TN 83 W 5427 was infact a Tractor with a Trailer attached. As per Ex.R4 – letter from the owner of the Tractor to the Insurance Company wherein it was categorically admitted that the Tractor was let on hire by her husband Selvam for two days to one Nagarajan and the said Nagarajan had attached the Trailer to the said vehicle and used it for transporting coconut fibre. As per Section 61 of the Motor Vehicles Act, 1988, every Trailer has to be registered and in such circumstances, the Tribunal erred in fixing liability on the Insurance Company of the vehicle bearing Reg.No.TN 83 W 5427, having failed to appreciate the fact that any vehicle in order to ply on the road needs to be registered and insured at the time of accident. The Tribunal also failed to appreciate the fact that once a Trailer is attached to a Tractor, it becomes a transport vehicle and not permitted to ply on the road with a permit under Section 66 of the Motor Vehicles Act. The Tribunal ought to have held that since there is a violation of the terms and conditions of the policy, in view of the fact that an unregistered and uninsured Trailer was attached to the Tractor bearing Reg.No.TN 83 W 5427, the Motor Accidents Claims Tribunal ought to construed such a violation as breach of the Terms and Conditions of the Policy and ought to have ordered the Insurance Company to pay first and then recover the same from the owner of the Vehicle bearing Reg.No.TN83 W 5427. The learned counsel would further submit that the driver of the Tractor did not hold valid and effective driving licence at the time of accident and in such circumstances, no liability can be attributed on the Insurance Company and liability can be fixed only on the owner of the vehicle.
Inspite of notice served on the respondents 1 and 2, who are the claimant and owner of the vehicle and their names printed in the daily cause list, none appeared on their behalf.
This Court considered the submissions made by the learned counsel for the appellant and perused the entire materials available on record.
The appellant is not disputing with regard to the manner of accident and the accident had occurred due to the negligent act of the Tractor driver, which belongs to the 2nd respondent. The main grievance of the appellant is that at the time of accident, the Tractor was attached with an unnumbered, unregistered and uninsured Trailer. Further the driving licence of the Tractor driver in Ex.P6 = Ex.R5 in the name of one Nagarajan was mentioned and the same was expired on 13.08.2008 itself and the said driving licence was not renewed at the time of accident and therefore, the owner of the Tractor has violated the policy conditions.
It is seen from the records that the 1 st respondent therein / 2nd respondent herein, namely S.Logeswari is the owner of the Tractor bearing Reg.No.TN 83 W 5427 and the same has been evident from Ex.P4 – copy of the RC Book of the Tractor bearing Reg.No. TN 83 W 5427. As per Ex.P5- Insurance Policy of the Tractor, which was insured with the appellant herein, it was valid till 27.03.2017 and the accident took place on 19.10.2016 at about 11.00 a.m. The claimant/ PW1, in his cross examination, has categorically admitted that the Tractor was attached with a Trailer, which was loaded with coconut fibre.
A perusal of Ex.R5= Ex.P6 – Driving Licence of the Tractor driver by name Saravanan shows that the licence was issued on 11.08.2005 and valid up to 13.08.2008 and the accident occurred on 19.10.2016. The fact remains that as per Ex.R5 = Ex.P6 – Driving Licence shows the licence to driver vehicle throughout India with the descriptions mentioned therein and valid up to 13.08.2008. However, the Tribunal has come to the conclusion that on perusal of the Driving Licence, the same was issued on 11.08.2005 and valid upto 12.08.2008 and rejected the contention of the Insurance Company that the Tractor Driver had no driving licence at the time of accident is unsustainable in law and the said finding is liable to be set aside.
As per the evidence of PW1, Trailer was attached with Tractor and on perusal of Ex.R2 = Ex.P5 – copy of the Insurance Policy shows that the Insurance Policy was issued only in respect of the Tractor only bearing Reg.No.TN 83 W 5427 and no details of the Trailer attached was neither mentioned nor any premium was received by the Insurance Company covering any liability. At this juncture, it is relevant to refer the judgment of this Court dated 22.02.2021 in CMA.No.1640 of 2017 [Bajaj Allianz General Insurance Co. Ltd., v. Lakshmi and Others] wherein it has been held as follows:
“11.In case of third party claim, whether the Insurance Company should be multed with liability to pay and then recovery in cases of fundamental breach was point for consideration before the Hon-ble Supreme Court in Shamanna and another v. The Divisional Manager, The Oriental Insurance Co.Ltd, and others reported in (2018) 9 SCC 650. The Hon-ble Supreme Court, after considering various judgments including Swaran Singh case, held that in cases of third party claim against the insurer, even if the insured has committed the fundamental breach, the principle of pay and recovery will apply. The Apex Court in Shamanna case held that, “7.As per the decision in Swaran Singh case[National Insurance Co. Ltd. v. Swaran Singh, (2004) 3 SCC 297 : 2004 SCC (Cri) 733] , onus is always upon the insurance company to prove that the driver had no valid driving licence and that there was breach of policy conditions. Where the driver did not possess the valid driving licence and there are breach of policy conditions, “pay and recover” can be ordered in case of third~party risks. The Tribunal is required to consider as to whether the owner has taken reasonable care to find out as to whether the driving licence produced by the driver, does not fulfil the requirements of law or not will have to be determined in each case”. 8. The Supreme Court considered the decision of Swaran Singh case [National Insurance Co. Ltd. v. Swaran Singh, (2004) 3 SCC 297 : 2004 SCC (Cri) 733] in subsequent decision in National Insurance Co. Ltd. v. Laxmi Narain Dhut [National Insurance Co. Ltd.v. Laxmi Narain Dhut, (2007) 3 SCC 700 : (2007) 2 SCC (Cri) 142] , wherein this Court held that the decision in Swaran Singh case [National Insurance Co. Ltd. v. Swaran Singh, (2004) 3 SCC 297 : 2004 SCC (Cri) 733] has no application to cases other than third~party risks and in case of third~party risks the insurer has to indemnify the amount and if so advised, to recover the same from the insured. The same principle was reiterated in Premkumari v. Prahlad Dev [Premkumari v. Prahlad Dev, (2008) 3 SCC 193 : (2008) 1 SCC (Civ) 822 : (2008) 1 SCC (Cri) 694]. 9. For the sake of completion, we may refer to few judgments where the breach of policy conditions was fundamental and the Supreme Court taking contrary view that the insurance companies were not liable to pay the compensation. In National Insurance Co. Ltd. v. Bommithi Subbhayamma [National Insurance Co. Ltd. v. Bommithi Subbhayamma, (2005) 12 SCC 243] , the Supreme Court reversed the judgment of Andhra Pradesh High Court in making the insurance company liable for payment of compensation in respect of gratuitous passengers carried in the goods vehicle. 10. In Oriental Insurance Co. Ltd. v. Brij Mohan [Oriental Insurance Co. Ltd. v. Brij Mohan, (2007) 7 SCC 56 : (2007) 3 SCC (Cri) 304], the claimant was travelling in the trolley attached to tractor carrying earth to brick kiln. It was found that the tractor and the trolley were not used for “agricultural works”, the only purpose for which the tractor was insured, when the claimant sustained the injuries. The Supreme Court though held that the insurance company is not liable to pay compensation, however, invoked the power vested in the Supreme Court under Article 142 of the Constitution of India in directing the insurance company to satisfy the award by paying compensation to the insured/claimant and realise the same from the owner of the tractor. 11. In the present case, to deny the benefit of “pay and recover”, what seems to have substantially weighed with the High Court is the reference to larger Bench made by the two~Judge Bench in National Insurance Co. Ltd. v. Parvathneni [National Insurance Co. Ltd. v. Parvathneni, (2009) 8 SCC 785 : (2009) 3 SCC (Civ) 568 : (2009) 3 SCC (Cri) 943] which doubted the correctness of the decisions which in exercise of jurisdiction under Article 142 of the Constitution of India directing insurance company to pay the compensation amount even though insurance company has no liability to pay. In Parvathneni case [National Insurance Co. Ltd. v. Parvathneni, (2009) 8 SCC 785 : (2009) 3 SCC (Civ) 568 : (2009) 3 SCC (Cri) 943] , the Supreme Court pointed out that Article 142 of the Constitution of India does not cover such type of cases and that if the insurance company has no liability to pay at all, then, it cannot be compelled by order of the court in exercise of its jurisdiction under Article 142 of the Constitution of India to pay the compensation amount and later on recover it from the owner of the vehicle. The above reference in Parvathneni case [National Insurance Co. Ltd. v. Parvathneni, (2009) 8 SCC 785 : (2009) 3 SCC (Civ) 568 : (2009) 3 SCC (Cri) 943] has been disposed of on 17~9~2013 [National Insurance Co. Ltd. v. Parvathneni, (2018) 9 SCC 657] by the three~Judge Bench keeping the questions of law open to be decided in an appropriate case. 12. Since the reference to the larger Bench in Parvathneni case [National Insurance Co. Ltd. v. Parvathneni, (2009) 8 SCC 785 : (2009) 3 SCC (Civ) 568 : (2009) 3 SCC (Cri) 943] has been disposed of by keeping the questions of law open to be decided in an appropriate case, presently the decision in Swaran Singh case [National Insurance Co. Ltd. v. Swaran Singh, (2004) 3 SCC 297 : 2004 SCC (Cri) 733] followed in Laxmi Narain Dhut [National Insurance Co. Ltd. v. Laxmi Narain Dhut, (2007) 3 SCC 700 : (2007) 2 SCC (Cri) 142] and other cases hold the field.” 12. The learned counsel appearing for the appellant submitted that from the cross examination of PW~2, it has been elucidated that only trailer wheel run over the deceased. Since the trailer has not been registered and had not been insured under the appellant Insurance Company, there is no privity of contract between the Insurance Company and the owner of the trailer, which later been seized by the Motor Vehicles Inspector for plying on the road without proper registration. This argument is not appealling for the reason that the trailer had no independent logomotive motor. It was attached to the tractor and as per the evidence the tractor hit the motorcyclist and run over the motorcyclist. Therefore, as the insurer of the tractor, the appellant herein/Insurance Company is liable to pay the compensation to the claimants. However, having proved the fundamental breach of policy condition and violation of statutory provisions, the principle of pay ane recovery has to be applied as per the dictum of the Hon-ble Supreme Court since the claimants are the third parties. Therefore, the appeal is partly allowed giving liberty to the appellant to recover from the insured after satisfying the award by paying to the claimants.” By applying the ratio laid down by this Court in the aforesaid judgment, in the case on hand, since there is a violation of terms and conditions of the policy and in view of the fact that an unregistered, unnumbered and uninsured Trailer was attached to the Tractor, the Tribunal ought to have ordered the Insurance Company to pay first and then to recover the same from the owner of the vehicle bearing Reg.No.TN 83 W 5427.
There is no dispute with regard to the quantum of compensation arrived by the Tribunal under various heads. This Court is of the considered view that the driver of the Tractor bearing Reg.No.TN 83 W 5427 did not possess valid and effective driving licence and the same is in violation / breach of the terms and conditions of policy. Therefore, this Court directs the appellant / Insurance Company to pay first the compensation awarded by the Tribunal, to the claimant and recover the compensation paid from the 2 nd respondent / owner of the vehicle bearing Reg.No.TN 83 W 5427.
In the result, this Civil Miscellaneous Appeal stands partly allowed and the award dated 16.02.2021 made in MCOP No. 28 of 2017 on the file of the Motor Accidents Claims Tribunal Tirupattur, (Special Subordinate Judge) is modified to the effect that the appellant / Insurance Company shall pay first the compensation awarded by the Tribunal along with interest and costs, to the claimant and recover the compensation paid from the 2 nd respondent / owner of the vehicle bearing Reg.No.TN 83 W 5427. The Appellant Insurance Company shall pay the compensation to the claimant, less amount already deposited before the Tribunal if any, within a period of four weeks from the date of receipt of a copy of this order. On such deposit, the claimant / 1 st respondent is entitled to withdraw the same, on filing appropriate application before the Tribunal. The manner and mode of disbursement of compensation shall be as per the order of the Tribunal. No costs. 08-09-2026
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