New India Assurance Co. Ltd. vs. C.M. Jaya

New India Assurance Co. Ltd. vs. C.M. Jaya

 

IN THE SUPREME COURT OF INDIA
2002 SLT 1 290
Petitioner
New India Assurance Co. Ltd.
Respondent
C.M Jaya
Date of Judgement
17th January, 2002
Bench
Hon’ble Justice Umesh C. Banerjee; N. Variava; Shivaraj V. Patil, J.J.

Introduction:

Vehicle insurance (also known as car insurance) is insurance for cars, trucks, motorcycles and other road vehicles. Its main use is to provide financial protection against physical damage or bodily injury resulting from traffic collisions and against liability that could also arise from vehicle incidents. Vehicle insurance can also offer financial protection against vehicle theft and damage to the vehicle suffered by events other than traffic collisions, such as incrustations, weather or natural disasters, and damage suffered by colliding with stationary objects. The specific terms of vehicle insurance vary with the legal regulations of each region.

However, issues may arise as to the extent of liability incurred by the insurer. The present case analysis deals with a similar issue where such an issue was once again raised in the case of New India Assurance Co. Ltd. v. C.M. Jaya.[i]

Background:

Judicial Background:

 In the case of National Insurance Co. Ltd. v. Jugal Kishore,[ii] this Court noted that, although it is not allowed to use a vehicle unless it is covered at least under an “Act only” policy, it is not mandatory for the owner of a vehicle to insure it comprehensively. However, in case you have comprehensive insurance, a higher premium will be paid depending on the estimated value of the vehicle. Said insurance entitles the owner to claim reimbursement of the total amount of loss or damage suffered up to the estimated value of the vehicle calculated in accordance with the rules and regulations framed in this name. In addition, it has been observed that the comprehensive insurance of the vehicle and the payment of a higher premium in this score, however, does not mean that the limit of liability with respect to third party risk is unlimited or greater than the legal liability set in the sub-section (2) of Section 95 of the Motor Vehicle Act, 1939. 

Following the decision in New India Insurance Co. Ltd. v. Jugal Kishore[iii], the Court held in the case of New India Assurance Co. Ltd. v. Shanti Bai[iv] that the mere fact that the insurance policy is a comprehensive policy will not help the respondents in any manner. As noted by this Court in the case of National Insurance Co. Ltd. v. Jugal Kishore[v] the comprehensive policy only entitles the owner to claim reimbursement of the total amount of loss or damage suffered up to the estimated value of the vehicle. It does not mean that the limit of liability with respect to third party risk is unlimited or greater than a legal liability. For this purpose, a specific agreement is necessary that is absent in the present case. “

Also, in the case of Amrit Laal Sood v. Kaushalya Devi Thapar[vi], the Court was of the view that a statutory liability cannot be more than what is required under the statute itself. However, there is nothing in Section 95 of the Act that prohibits parties from hiring to create unlimited or greater liability to cover a broader risk. In such a case, the insurer is bound by the terms of the contract as specified in the policy with respect to unlimited or greater liability as the case may be. In the absence of such a term or clause in the policy, in accordance with the insurance contract, a limited legal liability cannot be extended to make it unlimited or higher. If this is done, it is equivalent to rewriting the statute or insurance contract that is not allowed.

Statutory Provisions Discussed:

  • Section 95 of the Motor Vehicles Act, 1939.
  • Order 41 Rule 22 Code of Civil Procedure, 1908 (CPC).

Facts:

The judgment and order of the Delhi High Court are under challenge. The deceased was riding the pillion seat of a two-wheeler when it met with an accident with a truck insured by the appellant. On the claimants approaching the Motor Accidents Claims Tribunal, it awarded a sum of Rs 1,03,360 as compensation and held that the liability of the appellant was limited to Rs 50,000 and the balance amount was recoverable from the driver and owner of the truck jointly and severally. The truck-owner (Respondent 4) preferred an appeal to the High Court.

It was held by the High Court that due to the fact that the vehicle was comprehensively insured the liability of the appellant became unlimited. The High Court also allowed cross-objections preferred by the claimant-Respondents 1 to 3 solely against the appellant under Order 41 Rule 22 CPC for the full pecuniary liability to be placed upon the insurer while enhancing the amount of compensation from Rs 1,03,360 to Rs 3,60,000 with interest @ 15% per annum from the date of application. Hence, these two appeals are brought by the appellant, aggrieved by the judgment and order of the High Court. 

Issues:

Whether the insurer will be liable to the limited extent under Section 95 (2) or the insurer will be responsible for paying the full amount and ultimately can recover from the insured, in case of compensation to a third party?

Arguments

The submissions were made before by the learned counsel for the parties in support of the respective contentions citing the decisions in the cases of New India Assurance Co. Ltd. vs. Shanti Bai[vii] and Amrit Lal Sood v. Kaushalya Devi Thapar[viii] as to the extent of liability of the appellant to pay the amount of compensation to Respondents 1 to 3.

Judgment:

Ratio Decidendi:

  • The liability of the insurer depends on the terms of the contract between the insured and the insurer contained in the policy;
  • It is not prohibited for an insured to enter into an insurance contract that covers a broader risk than the minimum statutory requirement by which the risk for the gratuitous passenger could also be covered;
  • In such cases where the policy is not merely statutory policy, the terms of the policy have to be considered to determine the liability of the insurer.

Obiter Dicta:

  • A comprehensive policy that has been issued on the basis of the estimated value of the vehicle does not automatically imply liability coverage with respect to third party risk for an amount exceeding the legal limit.[ix]
  • In the event that the Insurance Company does not assume any greater responsibility in accepting a higher premium for the payment of compensation to a third party, the insurer shall be liable to the limited extent under Section 95 (2) of the Act and it will not be responsible to pay the total amount.[x]
  • It is not the case that any additional or higher premium was paid to cover unlimited or higher liability than the statutory liability fixed as found in the term of the policy extracted above. It necessarily follows that the liability of the appellant is limited to Rs 50,000, as was rightly held by the Tribunal. The High Court committed an error in taking the contrary view that the liability of the appellant was unlimited merely on the ground that the insured had taken a comprehensive policy. 
  • In Shanti Bai[xi] this Court has clearly expressed the opinion that a comprehensive policy issued on the basis of the estimated value of the vehicle does not automatically give rise to cover liability with respect to the risk of third parties for an amount exceeding the legal limit in the absence of specific agreement and payment of a separate premium to cover the risk of third parties for an amount exceeding the legal limit. This position is accepted in Amrit Lal Sood[xii] the case as well though no reference is made to this case.

Decision:

  • The Court held that the liability of the appellant-Insurance Company is limited to Rs 50,000, as held by the Tribunal. And it is not necessary to enter into the question regarding the maintainability of cross-objections before the High Court against the appellant alone or about the improvement of compensation when the owner and the driver have not filed an appeal against the contested judgment.
  • The appeals were, therefore, allowed to the extent of limiting the liability of the appellant-Insurance Company to Rs 50,000, making it clear that it does not affect in any manner the liability of Respondents 4 and 5 (the truck owner and the driver) to pay the full amount of the award.

Conclusion:

The insurance protects the interest of a party who becomes a victim of accident or injury caused by the fault of the insured. So any liability arising on the insured is mitigated by the insurance company. However, such liability arising is not unlimited as seen in the present case of New India Assurance Co. Ltd. v. C.M. Jaya[xiii]. The Court was right to reach its decision. The insurer’s responsibility depends on the terms of the contract between the insured and the insurer contained in the policy. It is not prohibited for an insured to enter into an insurance contract that covers a broader risk than the minimum requirement of the statute by which the risk for the free passenger could also be covered; and in cases where the policy is not merely legal, the terms of the policy should be considered to determine the liability of the insurer.

Edited by Parul Soni

Approved & Published – Sakshi Raje

Reference

[i] New India Assurance Co. Ltd. v. C.M Jaya, 2002 SLT 1 290.

[ii] National Insurance Co. Ltd. v. Jugal Kishore, 1988 1 SCC 626.

[iii] Id.

[iv]  New India Assurance Co. Ltd. v. Shanti Bai 1995 2 SCC 539.

[v] Supra Note 2.

[vi] Amrit Lal Sood v. Kaushalya Devi Thapar 1998 3 SCC 744.

[vii] Supra note 4.

[viii] Supra note 6.

[ix] Supra note 2.

[x] Id.

[xi] Supra note 4.

[xii] Supra note 6.

[xiii]Supra note 1.

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I am Abhishek Kumar, an enthusiastic law student at the National University of Study & Research in Law, Ranchi. Bearing an interest in the field of criminal law is what compelled me to take it as an Honors subject. I love to play guitar in my free time and being a sports aficionado I love to play Table Tennis and Volleyball. I also like to spend quality time reading articles of The Hindu Editorial page which helps me to be updated with the current issues.