The tendency of Insurance companies to evade the payment of rightful motor insurance claims will be addressed with this judgment

As a matter of practice, these days, the insurance companies offer ‘comprehensive / package policy’ to the owner of the vehicle, but subsequently resort to the terms of the Motor Vehicles Act, 1988 (‘Act’) to reject the claim of the victim.

The Supreme Court of India, in National Insurance Company Ltd. Vs. Balakrishnan & another: 2012 (11) SCALE 122, has categorically observed that there are substantial differences between an ‘act policy’, i.e., third party insurance policy mandatory under the Act, and a ‘comprehensive / package policy’, i.e., the insurance policy which covers the risk not only of a third party but also of persons travelling in the car including the owner thereof. A ‘comprehensive policy’ unlike the ‘act policy’ is an optional policy, which is generally taken by the owner of the vehicle to mitigate unforeseen financial risk in the event of an accident of such vehicle.

The issue before the Apex Court was whether a managing director (‘MD’) of a company travelling in the company’s car is entitled to claim compensation in a road accident?

The main argument of the insurance company was that though the vehicle was registered in the name of the company and the MD had signed on behalf of the company in the R. C. book of the car, therefore, he himself being the owner of the car involved, under no circumstances could be treated as a third party and consequentially, cannot be entitled to claim any compensation under the third party policy.

However, the Hon’ble Madras High Court observed that the company and the MD are two different legal entities and hence, the MD cannot be equated with the owner. The High Court further held that as he was only an occupant of the car, who has been the victim of the accident, and the insurance company was liable to indemnify the owner for the claim put forth by the victim. The High Court further opined that if no premium is paid to cover the owner, the insurer is not liable to make good the loss but, if another person travels with the owner and suffers injuries, the insurer is liable to pay the compensation.

Hence, an appeal was filed by the insurance company against the judgment of the High Court before the Apex Court. The Apex Court observed that the liability of the insurance company would differ in cases of the ‘act policy’ and the ‘package policy’. It was further observed that although the ‘act policy’ is a beneficial one qua the third party, yet that benefit cannot be extended to the owner of the offending vehicle.

However, the present case concerned, ‘package policy’, the Apex Court dealt with as to what would be the liability of the insurance company, if the policy is a ‘package policy’.

The Apex Court observed that till 31st December, 2006 Tariff Advisory Committee and thereafter from 1st January, 2007, IRDA functioned as the statutory regulatory authorities and they are entitled to fix the tariff as well as the terms and conditions of the policies by all insurance companies.

The Competent Authority of IRDA had stated that on 2nd June, 1986 the Tariff Advisory Committee had issued instructions to all the insurance companies to cover the pillion rider of a scooter/motorcycle under the ‘comprehensive policy’ and the said position continues to be in vogue till date. It was also admitted that the comprehensive policy is presently called a ‘package policy’.

The earlier circulars (dated 18th March, 1978 and 2nd June, 1986) continue to be valid and effective and all insurance companies are bound to pay the compensation in respect to the liability towards an occupant in a car under the ‘comprehensive/package policy’ irrespective of the terms and conditions contained in the policy. Further, effective from 1st July, 2002, the circulars dated 18th March, 1978 and 2nd June, 1986 of the Tariff Advisory Committee were incorporated in the Indian Motor Tariff and they continue to be operative and binding on the insurance companies.

The High Court as well the Apex Court concurred that the ‘comprehensive/package policy’ of a two wheeler covers a pillion rider and ‘comprehensive/ package policy’ of a private car covers the occupants and where the vehicle is covered under a ‘comprehensive/package policy’, there is no need for Motor Accident Claims Tribunal to go into the question whether the insurance company is liable to compensate for the death or injury of the occupants in a private car. The Apex Court further held that a ‘package policy’ would cover the liability of the insurer regarding the payment of the occupant’s compensation in a car.

Coming back to the facts in the present case, the question that emerged for consideration was whether the policy is an ‘act policy’ or ‘package policy’. The Apex Court observed that the policy which has been submitted before the court only mentioned the policy to be a ‘comprehensive policy’. However, the court expressed the need to scan the terms of the entire policy to arrive at the conclusion whether it is really a ‘package policy’ to cover the liability of an occupant in a car.