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This article is written by Gyaaneshwar Joshi, a student of the Faculty of Law, Jamia Millia Islamia, New Delhi. This article discusses the various provisions under the Indian Motor Vehicle Act that provide for mandatory insurance of motor vehicles in the country.     

Introduction

Motor vehicle insurance comes under miscellaneous categories of insurance. The business of insurance is wide enough that insurance companies have maintained separate departments to provide lucrative insurance plans to the policyholders. 

The first car appeared in 1894 and the first insurance policy was issued in 1897. According to the Ohio Historical Society, Gilbert J. Loomis was the first person who bought an automotive liability insurance policy in 1897. The first policy covered only the claims for insurance in case of simple damage to the car, but later the policy got revamped and few other plans were introduced like liability for the third party, accidental damage to a car, burglary, and fire. The trend of motor insurance was first introduced in the United Kingdom with the Road Traffic Act, 1930. Under the provisions of this Act, third-party insurance was made mandatory in the UK considering the increased number of vehicle accidents in the post first world war era. 

In India, the legislation regarding motor vehicle insurance was first passed as the Motor Vehicles Act, 1939 with a motive that victims of motor accidents should not go without compensation owing to the financial capacity of the first party. 

Motor vehicle insurance : an Indian perspective

Motor vehicle insurance was made compulsory under the Motor Vehicles Act, 1939 which was subsequently amended in 1988. Motor Insurance is generally referred to as auto insurance, vehicle insurance, and car insurance which provides coverage related to property damage, bodily injury, medical expenses, and other sorts of compensation in legal proceedings. After the passing of the Motor Vehicles (Amendment) Act, 1988; the third party insurance policy was made mandatory for all the vehicles to be used on the roads. Hence, it is compulsory under the rules of Section 146 of the Motor Vehicles Act, that any vehicle either used for domestic or commercial purposes has to be mandatory insured. 

There are three parties entitled under the insurance policy contract:

  1. Insured or the vehicle owner, who acts as a first-party
  2. The insurance company or insurer who is liable to pay the damages to the injured acts as a second party, and 
  3. The third party will be the ‘other vehicle owner’ in case an accident or injury has occurred.

Insurance is a time-bound contract between an insurer and insured, under which the insurer pledges to indemnify the insured against any amount of loss in exchange for an advance payment of a premium. The money to indemnify that loss comes from the pool of premium of all the insured. 

Every risk of loss is covered by a third party in the sense that they are other than the ‘first party,’ that is. the insurer and the ‘second party’, that is, the insured. According to the risk covered by an insurance contract, different types of policies are issued having their benefits that are provided to the first party or the owner of the vehicle. There are two types of insurance policies issued under motor insurance:

1. Third-party policy

Section 145(g) of the Motor Vehicles Act, 1988 defines ‘third party’ as any person excluding the contracting parties to the insurance policy. The third-party policy is a statutory requirement under the Motor Vehicles Act, 1988. Third-party liability coverage is a part of an insurance policy that protects a person in case he gets sued or asked for compensation from a third party. This policy compensates for all types of physical injury to the injured or any damage that occurred to someone else’s property by the accident from the owner’s vehicle. However, it does not cover the repairing cost of the owner’s car or in case the owner suffered any car-related injuries. 

Under this policy, the insurer or the insurance company has to pay all sums of liability to the third party, the costs, and the expenses for which the insured becomes liable. Third-party liability could be following – bodily injury liability and property damage liability. If the insured has taken this policy, he may get compensation from the insurer up to the value of insurance which may be higher than the minimum amount prescribed under the Motor Vehicles Act, 1988.

  • In the case of G. Govindan v. New India Insurance Co. Ltd (1999), it was held that third liability insurance is mandatory under the law and should not be overridden by any clause given in the policy. 
  • In the case of Oriental Insurance Co. Ltd. v. Sudhakaran K.V (2008), the court held that the pillion rider in a two-wheeler is not treated as a third party when the accident has taken place owing to rash and negligent riding of the scooter. The Supreme Court held that the legal obligation arising under Section 147 of the Act, 1988, could not be extended to an injury or death of the owner of the vehicle or the pillion rider. 

2. Comprehensive policy

The comprehensive policy is extensive motor insurance which is not compulsory to be taken as per vide Supreme Court order dated 1 August 2018, which was implemented from 1 August 2020. Earlier, it was mandatory to have long-term comprehensive insurance for the first five years of the two-wheeler vehicle purchase and three years for four-wheeler purchase, and later the onus goes on to the policyholder whether he wants to continue with the scheme or not. But after the Supreme Court order, the Insurance Regulatory and Development Authority of India (IRDAI) has decided to scrap this long-term comprehensive policy and continues with a one-year mandatory third party insurance policy that has to be compulsorily taken before any vehicle purchase, and further to be extended.

Now, taking the comprehensive policy is an optional coverage that provides overall protection to the car against both the personal damage of the vehicle along with third party vehicles as in third party liability coverage. Therefore, this policy can be referred to as one step ahead of the third party insurance policy, because it not only offers third party coverage but also covers the cost of damage to the owner’s vehicle. 

The comprehensive policy covers loss and damage to the vehicle in a comprehensive sense which means all benefits are provided in one policy, but in a practical sense, all risks are not fully covered under this policy. There are only major risks that are covered like:

  1. Damage to cars and their bodies due to riots, strikes, earthquakes, floods, storms, etc.,
  2. Loss or theft of the insured vehicle,
  3. Third parties liability, 
  4. Repair charges,
  5. Medical expenses for the driver.

However, this policy does not cover few things such as:

  • Depreciation,
  • Electrical or mechanical breakdown,
  • Wear and tear of the vehicle,
  • Damage caused to the person, who is driving a vehicle without having a valid driving license,
  • Damage caused due to drunken driving or under the influence of drugs,
  • Loss or damage to the vehicle caused due to war or mutiny.

In the case Prabhu Dayal Agarwal v. Saraswati Bai (1975), the insurer had issued a comprehensive policy to the owner of the car, which stated that the insurer shall indemnify in the event of an accident caused by the use of motor vehicle, and liable to pay the claimant’s cost and expenses in respect of death or bodily injury to any person. In this case, the gratuitous passenger traveling in the car was killed. Therefore, the court held that since the insurer had undertaken the liability wide enough to cover such a situation, he is liable to pay for the same.

What does the Motor Vehicles Act state about motor insurance

The Motor Vehicle Act regulates almost all aspects of road transport vehicles. The Act provides detailed guidelines on licencing of the drivers and conductors, registration of motor vehicles, traffic regulations, related insurances, liabilities, and penalties. It also makes mandatory a valid driving licence for every driver and no vehicle can be driven without being registered under the Motor Vehicle Act.

The Motor Vehicles Act 1988, like the earlier Act of 1939, is a comprehensive enactment in respect to various matters relating to traffic safety on the roads and the minimization of road accidents. Chapter XI of the Motor Vehicles Act (Section 145 to 164) contains provisions concerning ‘Insurance of Motor Vehicles against Third-Party Risks’. According to Section 146(1) of the Act, “No person can use, except as passenger, or cause or allow any other person to use a motor vehicle in a public place, unless an insurance policy against third party risks is in force, concerning the use of the vehicle.” However, under Section 146(2) of the Act, the stated requirement of insurance is not mandatory in respect of any vehicle owned by the Central Government or a State Government and used for government purposes unconnected with any commercial enterprise. 

Therefore, under the provisions of the Motor Vehicle Act, no person can either himself use, or allow another person to make use of a motor vehicle unless there is in force an insurance policy taken on that vehicle. Section 196 of the Act defines the punishment for driving a motor vehicle in contravention of the provisions of Section 146, which shall be of imprisonment extended up to three months, or a maximum fine of one thousand rupees, or both.

Application for compensation

A new forum called Motor Accidents Claims Tribunals (Claims Tribunal) has been created under the Motor Vehicles Act for a cheaper and speedier remedy to the victims of motor vehicles accidents. It substitutes civil courts and unlike the civil courts, in this case, no payment of ad valorem court fee is required. The Claims Tribunal is bound to follow a summary procedure and appeal from the decision of the Claims Tribunal lies directly to the High Court.

According to Section 165 of the Motor Vehicle Act, 1988, the Claims Tribunals are constituted to adjudicate upon claims of compensation in respect of accidents arising out of the motor vehicle. Section 166 of the Act defines how an application for compensation may be made. It can be made by:

  1. A person who has sustained the injury.
  2. Owner of the damaged property.
  3. When a death has been caused by the accident, then it can be made by any of the legal representatives of the deceased.
  4. An agent duly authorized by the person injured.

Every application of compensation shall be made to the Claims Tribunal having jurisdiction over the area in which the accident occurred. The time limit of making the application for compensation is six months from the occurrence of the accident. 

It has been held in the case National Insurance Company Limited v. Lachhibai (1997) that the tribunal has the inherent power to review its award under Section 169 of the Motor Vehicles Act.

The compulsion of car insurance in India

The Motor Vehicles Act, 1988 makes the insurance of motor vehicles compulsory. The owner of every motor vehicle is bound to insure his vehicle. Hence, all motor vehicles to be used in public places need to be insured against third-party risk. The objective of the insurance is to protect the interest of a third party, who suffers from the use of the vehicle. If the vehicle is insured against third-party risks, the injured party can claim compensation from the insurance company. Even if the driver or the owner of the vehicle is not in a position to pay compensation to the accident victim, the insurer will pay compensation on behalf of the owner of the insured vehicle. 

Section 147 of the Motor Vehicles Act, 1988 provides about the requirements of a valid policy of insurance, and also the limits up to which the insurer will be liable in respect of an insurance policy. If a vehicle is not insured against third-party risks, the liability of the driver and the owner of the vehicle can still be there, although no insurer could be made liable in such a case.

In the case of National Insurance Co. Ltd. v. Swaran Singh & Ors (2004), the Supreme Court held that the Motor Vehicles Act which provides compulsory insurance of vehicles is a kind of social welfare legislation that provides relief to the victim in the form of compensation of accidents caused by the use of motor vehicles. Therefore, the court held that provisions of compulsory insurance coverage of all vehicles have to be interpreted to effectuate the said object. 

International perspective

Most of the foreign countries have mandated the vehicles to have third-party liability insurance. However, several countries approach auto insurance differently to allow the vehicle to be eligible for legal driving on the roads. 

Australia

It is mandatory to have compulsory third-party (CTP) insurance to drive legally in Australia. Third-party damage helps to cover injuries and deaths caused by car accidents and it also protects when a person damages someone else’s vehicle or property. In Australia, every car must be insured with CTP insurance, which is also known as Green Slip. 

Comprehensive insurance is voluntary and can be taken as a form of additional insurance in case someone else’s vehicle or property is damaged.

Thailand

Thailand requires drivers to have compulsory third-party liability insurance also called Por Ror Bor which is required by every motor vehicle under the Road Protection Act, 1992. The policy covers medical expenses up to 80,000 Baht for injury and 3,00,000 Baht for death in case of an at-fault accident. However, Thai drivers mostly choose private insurance.

In case of injuries from an accident, the claim can be directly taken from the hospital by informing the hospital cashier. It can be later reimbursed by the insurance company with the receipt of the medical expenses and showing some other required documents like a copy of passport and insurance copy. 

Japan

In Japan, it is mandatory to have liability insurance, however, the country does not require voluntary insurance coverage. The at-fault driver is legally responsible for any damage exceeding its insurance coverage. There is a test called 60-point safety inspection which is mandatory for every vehicle to qualify to avail of this insurance. This inspection is repeated every two years and helps to ensure that every car on the road is roadworthy. 

South Africa

The Road Accident Fund was established by an Act of Parliament in South Africa to pay injured parties or the survivors of the deceased parties in a road accident since May 1999. Under the provisions of RAF, the involved drivers are assigned a percentage of responsibility for the accident which is deducted from the number of bodily injury claims. However, the RAF does not repair or replace damaged property.  

There is no additional insurance required in South Africa, and only 30% of the drivers possess some kind of additional insurance apart from RAF. The drivers of financed vehicles are required to purchase comprehensive coverage. 

China

In China, all auto-owners are required to have ‘compulsory traffic insurance’ which also covers third-party liability, that is, cover in the event of death, injury, and property damage of the no-fault party or third party. 

Many drivers prefer to buy a separate third-party liability insurance policy that increases their coverage of low required minimums and helps in covering the full claim of even a minor accident. There are other insurance options available to the vehicle owners like (driver’s insurance) to cover at-fault driver and their passengers through (passenger insurance), replace their damaged property (vehicle damage insurance), and protection against theft (theft insurance). 

The Motor Vehicles (Amendment) Act, 2019

The Minister of Road and Transport and Highways, Mr. Nitin Gadhkari introduced the Motor Vehicle (Amendment) Bill in the Lok Sabha on 15 July 2019 to add some specific provisions in the Motor Vehicle Act, 1988 regarding road safety. On 1 September 2019, it was implemented in the country and became the Motor Vehicle (Amendment) Act, 2019. The discourse concerning the Act is to minimize road accidents by incorporating deterrents into law. The new Act focuses more on penalties than compensation. These are the main perspective of the Act:

A. Putting accident victims at the centre of vehicle law 

The amended Act provides enhanced insurance compensation to the victims of Rs. 5 lakhs in case of death of a person in a traffic accident and Rs. 2.5 lakhs in case there is grievous hurt. Under the new Act, the compensation of victims of hit and run incidents has been now increased to Rs. 2 lakhs if a victim dies and Rs. 50,000 if someone suffers grievous injuries. 

B. Cashless treatment

The new Act requires insurance companies and the government to notify schemes relating to ‘cashless treatment’ during the Golden Hour, which is the period of the first sixty minutes from the occurrence of an accident when the risk of fatality can be minimized to the greatest extent. 

C. National Road Safety Board

The Act provides for setting up a National Road Safety Board which will act as an advisory body. Section 215(B) has been added to the Act that specifically defines the functions and powers of the advisory board. This Board will provide advice to the central and state governments on the setting of road standards. 

On the recommendation of the Sundar Committee on Road Safety and Traffic management, the National Road Safety Council has given the freedom to set safety standards about the design, construction, and maintenance of roads and motor vehicles.  

D. Compulsory insurance

The Act requires the central government to constitute a Motor Vehicle Accident Fund to provide compulsory insurance cover to all road users in India, including pedestrians. These new provisions will help the accident victims to be provided proper justice. 

This fund will be credited through:

  1. Payment of a nature notified by the central government.
  2. A grant or loan made by the central government.
  3. Balance of the Solatium Fund (existing fund under the Act to provide compensation for hit and run accidents).
  4. Any other source as prescribed by the Central Government.

Conclusion

Despite third-party motor insurance being compulsory in India, the report of the General Insurance Council of India states that approximately 60% of automobiles are uninsured in which mostly are two-wheeler vehicles. In India from 2015-16, approximately 19 crore automobiles were registered out of which only 8.26 crore (less than half) were insured. 

Most of the vehicle owners do not buy vehicle insurance coverage only because they think that no one will stop them to show the insurance documents. Currently, the requirement of having every vehicle to be insured is the need of an hour because uninsured automobiles impose huge liability on accident victims. It is high time when we need to be responsible for ourselves and must take responsibility for our actions so that nobody will face a loss because of somebody else.    

References


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