Liability of an Insurance Company in Accident Claim

Claims arising out of accidents have become one of the most important issues pertaining to the litigation mechanism. Very often, notion of vicarious liability is accompanied by such claims, relationship between the driver and the owner of the disputed vehicle being the reason for the inclusion of such a liability. One such dispute has come to the light in Uttar Pradesh Road Transport Corporation v. Kusum & Ors Appeal No. 5901 of 2011 [Arising out of S.L.P. (C) No.1969 of 2008], where a significant issue has been resolved by the Supreme Court pertaining to the claims arising out of Motor Vehicles Act, 1988 w.r.t. the transfer of a vehicle, transfer of power to control its functioning to be more specific. When a vehicle is driven by a driver in line with the instructions specified by another person, it would be evident to note that responsibility would, in such a case, lies on such another person. In other terms employer of the driver or the person on whose instruction driver works.

In the instant case, appellant demanded compensation in lieu of the death of her husband along with her three children, who met with an accident caused by the bus working under Uttar Pradesh State Transportation Corporation. The main issue which should be looked into this case is the validity of the certificate of insurance executed between the owner and the insurance company, when the vehicle has been transferred to a third party. Whether the insurance, which was executed by the owner, would be transferred along with the transfer of the bus to the state transportation corporation. And, also there exist another important point which ought to be looked into i.e. the liability of the transportation corporation, as it was the corporation under whose control bus was functioning. Contentions as submitted by the counsel of the counsel on behalf of insurance company could not impress the bench, which subsequently decreed against them. It contended that insurance policy was not transferred when owner of the bus entered into a hire agreement with the corporation. When an agreement is formed between the parties, the terms mentioned therein receive utmost importance and this is what Supreme Court did in this case. It was specifically mentioned within the agreement that liability relating to insure would be of the owner, and not of the corporation, which ultimately absolved the corporation from its vicarious liability for the act of driver . When the nature of the liability has been clearly specified in the agreement, it will leave no room in concluding in relation to what has been provided in the agreement. The issue framed by the court was -

If insured vehicle is plying under an agreement of contract with the Corporation, on the route as per permit granted in favour of the Corporation, in case of an accident, whether the insurance company would be liable to pay the compensation or would it be the responsibility of the Corporation or the Owner?

In this relation it would be important to see the relevant section of the Motor Vehicles Act, 1988 which deals with the transfer of the insurance of certificate of insurance. Section 157 of the act states that -

Where a person in whose favour the certificate of insurance has been issued in accordance with the provisions of this Chapter transfers to another person the ownership of the motor vehicle in respect of which such insurance was taken together with the policy of insurance relating thereto, the certificate of insurance and the policy described in the certificate shall be deemed to have been transferred in favour of the person to whom the motor vehicle is transferred with effect from the date of its transfer.

Section 196 of the Act makes insurance of the vehicle compulsory and Section 146 along with 147 cane be read in relation to the issue of statutory insurance , else the owner along with the driver can be exposed to criminal liability. It was held by the court that if owner had transferred the vehicle, he had transferred along with the certificate of insurance and nowhere is it mentioned in the act that insurer ought to be notified in case such a transfer takes place, which ultimately clear the doubt, and in such circumstances insurer would not be able to escape from its liability to pay the compensation. Court then referred to its judgment in United India Insurance Company Limited v. Santro Devi and Ors. (2009) 1 SCC 558, where it was opined by this court that

"The provisions of compulsory insurance have been framed to advance a social object. It is in a way part of the social justice doctrine. When a certificate of insurance is issued, in law, the insurance company is bound to reimburse the owner. There cannot be any doubt whatsoever that a contract of insurance must fulfill the statutory requirements of formation of a valid contract but in case of a third- party risk, the question has to be considered from a different angle."

Court further, in this case, stated that -

"Section 146 provides for statutory insurance. An insurance is mandatorily required to be obtained by the person in charge of or in possession of the vehicle. There is no provision in the Motor Vehicles Act that unless the name(s) of the heirs of the owner of a vehicle is/are substituted on the certificate of insurance or in the certificate of registration in place of the original owner (since deceased), the motor vehicle cannot be allowed to be used in a public place. Thus, in a case where the owner of a motor vehicle has expired, although there does not exist any statutory interdict for the person in possession of the vehicle to ply the same on road; but there being a statutory injunction that the same cannot be plied unless a policy of insurance is obtained, we are of the opinion that the contract of insurance would be enforceable. It would be so in a case of this nature as for the purpose of renewal of insurance policy only the premium is to be paid. It is not in dispute that quantum of premium paid for renewal of the policy is in terms of the provisions of the Insurance Act, 193."

This case would make it easier to understand the liability of an insurance company, when the owner of a vehicle has transferred it to another part without letting insurance company know about the transaction. Even, defence ofPrivity of Contract between Insurance company and the owner cannot absolve the company from its liability because of a simple reason that it insures the vehicle and its liability is ultimately to the sufferers and not the owner. Moreover, the premium had been paid on a regular basis which makes the claim of the insurance company even weaker.

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