Supreme Court Directs Insurance Company to Pay Compensation First and Recover from Vehicle Owner

The Supreme Court of India, in Rani & Ors. vs. National Insurance Company Ltd. & Ors., ruled in favor of the claimants by directing the insurance company to first pay the compensation and then recover it from the owner of the offending vehicle. The case arose from a motor accident in Karnataka, where a lorry without a valid permit caused the death of one individual and serious injuries to another. This judgment is significant as it reinforces the principle that insurance companies cannot evade liability solely on the ground that the insured vehicle did not have a valid permit.

Background of the Case

The accident took place on March 17, 2009, when a lorry bearing registration number MH-43-U-3365, driven negligently, collided with a motorcycle. The motorcycle rider, Satish, died due to the injuries sustained in the accident, while the pillion rider, Anand, suffered severe injuries. The legal representatives of the deceased and the injured victim filed separate claims before the Motor Accident Claims Tribunal (MACT), Bangalore.

The MACT ruled in favor of the claimants and awarded compensation, holding the insurance company liable to pay. However, the insurer challenged this decision before the Karnataka High Court, arguing that since the lorry did not possess a valid permit for Karnataka, it was not liable under Section 149(2)(a)(i)(a) of the Motor Vehicles Act, 1988.

Petitioner’s Arguments

The claimants contended:

• The accident was solely caused due to the negligent driving of the lorry driver.
• The insurance company should be held liable since the lorry was insured at the time of the accident.
• The compensation awarded by the High Court was inadequate and needed to be enhanced.
• Even if the insurance company had a valid argument regarding the permit, the principle of ‘pay and recover’ should be applied to ensure timely compensation.

Respondent’s Arguments

The insurance company defended its stance, stating:

• The lorry lacked a valid permit to operate in Karnataka, which absolved the insurer from liability under the Motor Vehicles Act.
• It would be difficult for the insurer to trace the vehicle owner and recover the amount.
• They opposed the ‘pay and recover’ mechanism, arguing that they should not be burdened with upfront payment.

MACT’s Decision

The Motor Accident Claims Tribunal (MACT) ruled in favor of the claimants, awarding compensation:

• Rs. 4,53,000/- to the legal representatives of Satish for his death.
• Rs. 1,72,700/- to Anand for injuries sustained in the accident.
• Interest at the rate of 6% per annum from the date of filing until realization.

The insurance company was directed to pay the compensation. However, dissatisfied with this decision, the insurer challenged it before the High Court.

High Court’s Decision

The Karnataka High Court, while hearing the appeal, ruled:

• The insurance company was not liable since the lorry did not have a valid permit for Karnataka.
• It directed the owner of the vehicle to pay the compensation.
• Despite this, the High Court enhanced the compensation for the legal heirs of Satish to Rs. 16,00,000/- based on an increased assessment of his monthly income.

Aggrieved by this, the claimants appealed to the Supreme Court, arguing that the insurance company should still be made to pay and recover from the vehicle owner.

Supreme Court’s Key Observations

The Supreme Court took note of past judgments and observed:

“Even if there is a violation of permit conditions, the insurance company cannot be completely absolved of its liability. The principle of ‘pay and recover’ applies to protect the interests of accident victims.”

Regarding compensation enhancement, the Court stated:

“The High Court arbitrarily increased the notional income of the deceased without substantial evidence. We find no justification to further enhance the compensation.”

Final Judgment and Conclusion

The Supreme Court ruled:

• The compensation awarded by the MACT and the High Court was upheld.
• The insurance company was directed to first pay the compensation to the victims and then recover the amount from the vehicle owner.
• No further enhancement of compensation was granted.

This judgment reinforces the principle that insurance companies cannot evade liability solely based on permit violations. The ‘pay and recover’ mechanism ensures that victims receive compensation promptly while allowing insurers to recover their dues from the responsible vehicle owners.

Petitioner Name: Rani & Ors..
Respondent Name: National Insurance Company Ltd. & Ors..
Judgment By: Justice Dipak Misra, Justice A.M. Khanwilkar, Justice D.Y. Chandrachud.
Place Of Incident: Karnataka, India.
Judgment Date: 31-07-2018.

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