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Interesting Questions on Motor Third Party Liability The recent incident of the death of a top Indian industrialist in a road accident, has raised some pertinent questions of coverage, under third party liability insurance when it comes to passengers travelling in a private vehicle.

Would the family of the industrialist be eligible for compensation under Motor Vehicle Act 2019 towards his death?

If so, how and to what extent? Will he be considered under the policy as a third party?

Or being a passenger being carried in a private vehicle, without consideration of hire or reward, he would not qualify as a third party and therefore his dependents would be ineligible compensation?

Does the coverage for the person change with the nature of the insurance policy, viz., Act only policy vs comprehensive policy?

If the deceased were travelling in a company owned vehicle, would he become entitled to compensation as an employee? If so, would the liability fall under the Employees’ Compensation Act or the Motor Vehicle Act? These are some of the substantive questions of law and coverage involved in this matter, which is being addressed in this article.

THE QUESTION OF WHO IS A THIRD PARTY The MV Act does not have a clear definition of who is a third party.

The MV Act of 1988 said that the term third party shall include the Government, but did not expand beyond that. The amended 2019 Act says that third parties include the Government, the driver and any other coworker on a transport vehicle.

However, it does not say it excludes occupants of private cars or pillion riders of two wheelers as third parties, for the purpose of the Act. Therefore an interpretation is possible that a third party is anyone other than named insured under the policy and therefore extends to cover occupants of private cars or pillion riders.

By this logic the only insurance protection available to the registered owner of a vehicle and the named insured under the motor policy, would be the compulsory personal accident cover. All others would be entitled to unlimited legal liability protection.

COVERED AND UNCOVERED THIRD PARTIES The legislative intent of MV Act was mainly to protect people outside the vehicle, such as pedestrians or people travelling in other vehicles and provide financial succour to them, if they meet with an accident.

To that extent, there can be an argument that the requirement of Sec 147 of MV Act pertaining to mandatory third party liability insurance, is only to such parties as per the legislative intent of the Act. Going by this logic, the covered third parties for which statutory insurance protection is required, do not include passengers in a vehicle, other than certain specific categories, such as the owner of goods or his authorised representative in a goods carrying vehicle and the driver, co-workers and passengers in a transport vehicle, respectively.

So, as per the above argument, the gratuitous passengers in a goods vehicle, the driver of a private car or pillion riders of two wheelers are third parties, but not covered third parties, for the purpose of insurance.

DIFFERENCE BETWEEN COMPREHENSIVE AND ACT ONLY TPL POLICIES There is a subtle difference between the insuring clauses of the policies.

• Insuring clause for comprehensive policy:

“Subject to the limits of liability as laid down in the Schedule hereto the Company will indemnify the insured in the event of an accident caused by or arising out of the use of the vehicle against all sums which the insured shall become legally liable to pay in respect of: (i) death of or bodily injury to any person including occupants carried in the vehicle (provided such occupants are not carried for hire or reward) but except so far as it is necessary to meet the requirements of Motor Vehicles Act, the Company shall not be liable where such death or injury arises out of and in the course of the employment of such person by the insured.”

• Insuring clause for act only policy:

“Subject to the limits of liability as laid down in the Schedule hereto the Company will indemnify the Insured in the event of an accident caused by or arising out of the use of the vehicle against all sums which the Insured shall become legally liable to pay in respect of :i) death of or bodily injury to any person so far as it is necessary to meet the requirements of Motor Vehicles Act.” The portion in bold (emphasis supplied) is the fundamental difference between the two policies.

The TP section of a comprehensive policy provides insurance protection to all third parties, whether covered third parties or non-covered third parties, as mentioned above.

So, if there is an accident to a non-covered third party under the Act only policy, the liability could be fastened on the owner and driver of the vehicle, whereas in respect of the comprehensive policy, it would be picked up by the insurance company.

LIABILITY UNDER COMMON LAW The question of liability under MV Act hinges on two critical aspects, besides other questions:

• Is the claimant a third party?

• Did the accident happen in a public place?

Answers to both questions have to be in the affirmative for liability under the MV Act to trigger.

If the vehicle is used in a private place and the claimant is not a third party, the liability would fall under Common Law of Tort or other statutes as applicable.

Such liability would be determined in a civil court as opposed to Motor Accident Claims Tribunal (MACT). The provision of no fault liability may not apply and the negligence of the owner or driver may need to be proven.

The liability however, could be unlimited similar to that under MV Act.

COVERAGE FOR TORTIOUS LIABILITY UNDER MOTOR TP INSURANCE As regards the Act only policy, there is no question of it responding to tortious liability, as the insuring clause specifically states that the coverage is limited to liability arising out of the MV Act only.

However, the TP section of a comprehensive motor policy is much wider and does not limit the coverage to MV Act only. Therefore it can possibly extend to liability under any statute or under Common Law.

ARRIVING AT QUANTUM OF LIABILITY In case the passenger or driver of a private car is an employee of the insured, then he has three options of coverage:

•

Under Employees Compensation Act, where cover will be on a no fault basis. Negligence need not be proven. Compensation would be as per formula laid down in the Act. Sec 164 of MV Act which will also be on a no fault basis but compensation would be limited as laid •downUnder in the Act which currently is Rs.2.5 lakhs for grievous hurt and Rs.5 lakhs for death respectively.

Sec 166 of the MV Act which will require determination of fault, but compensation would be based •on Under guidelines laid down by the Supreme Court in the Sarala Verma case and subsequent judgments.

The employee can choose under which provision he wants to pursue legal remedy, but cannot claim under multiple statutes for the same injury as per settled law.

However, if the passenger is not an employee, but a friend or relative or any other person, then the compensation can be either under Sec 164 or 166 of MV Act.

TRICKY SITUATION WITH SEC 166 When compensation is sought under Sec 166, there are other issues to be considered as well.

Sec 166 requires negligence of the owner or driver to be established. This means parallel criminal prosecution may run against the owner or driver under relevant sections of the IPC such as Sections, 279, 304, 304A, 336, 337, and 338. These sections involve rigorous punishment of upto 10 years imprisonment, fine or both.

So the dependents of the friends or relatives may have to pursue both civil and criminal prosecution. This may not be palatable to many because of the relationship sensitivities involved.

TAKE AWAY As can be seen from the above, there are substantive interpretive questions of insurance coverage and law.

The MV Act, though a relatively smaller legal provision compared to other acts such as the Companies Act, is heavily litigated right upto the high courts and supreme courts and many matters have not yet attained finality of interpretation.

Customers should be aware of the legal complexities of insurance coverage and therefore must pay particular attention, not just to basic policy coverage, but also wider legal liability implications arising from the use of vehicles.

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First Policy Insurance Brokers Private Limited Corporate Office: 7, Soormani 163, Opp. Dav School, D. P. Road, Aundh, Pune - 411 007 IRDA License No. 106 I Type: Composite I Date of expiry: 20.01.2024

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