Insurer Not Liable for Occupants Under 'Act Only' Private Car Policy, 'Pay and Recover' Order Set Aside: Rajasthan High Court

Jaipur: In a significant ruling clarifying the scope of liability under Motor Vehicles Act, the Rajasthan High Court has held that an insurance company issuing an 'Act Only Policy' for a private vehicle is not liable to pay compensation for injuries or death sustained by occupants of that vehicle. Consequently, the court set aside a Motor Accidents Claims Tribunal (MACT) direction that required the insurer to pay the compensation first and then recover it from the vehicle owner and driver.

The judgment was passed by Justice NupurBhati in appeals filed by the appellant-insurance company challenging a MACT award dated March 2, 2017.

Case Background

The case arose from an accident on May 5, 2011, involving a Jeep (RJ23 UA 0302) traveling from Chitawa to Adaksar. The vehicle, driven rashly and negligently, turtled, resulting in grievous injuries to four occupants and the death of another. Claim petitions were filed before the MACT, Parbatsar, where the claimants contended that the vehicle was insured, making the insurance company jointly and severally liable.

The appellant-insurance company contested its liability before the tribunal, arguing that the vehicle was insured under an 'Act Only policy' which did not cover the risk of vehicle occupants. They also claimed no premium was charged for occupants and alleged the driver lacked a valid license.

The MACT, while framing issues, considered the preliminary objections raised by the insurer. After hearing the parties, the tribunal held the owner and driver liable but directed the insurance company to pay the compensation amount initially and then recover it from the owner and driver. This 'pay and recover' direction was the core of the insurer's challenge before the High Court.

Arguments Presented

Counsel for the appellant insurer argued that under an 'Act Only Policy' for a private car, occupants are not considered 'third parties' as defined under the Motor Vehicles Act, 1988 (the Act). They relied on Supreme Court judgments, including NIC vs. Balakrishnan and Oriental Ins.Co.Ltd. v/s Meena Variyal , to support their contention that Chapter XI of the Act provides protection only against third-party risks. They submitted that the tribunal erred in directing pay and recover when the risk was not statutorily covered.

Conversely, counsel for the respondents (claimants) contended that occupants should be included in the category of third parties. They cited New India Assurance Co. Vs. Satpal Singh and Anu Bhanvara v. IFFCO Tokio General Insurance Co. Ltd. to argue that the tribunal's direction was correct.

High Court's Analysis

Justice Bhati meticulously reviewed the submissions and relevant case law, noting that the central question was the validity of the 'pay and recover' direction when the vehicle was a private car insured under an 'Act Only Policy'.

The court referred to the Supreme Court's distinction between 'Act Only policy' and 'Comprehensive/package policy' in National Insurance Co. Ltd. v. Balakrishnan . This judgment clarified that while comprehensive policies cover occupants, 'Act Policy' does not cover the third-party risk of an occupant in a car.

Crucially, the High Court cited United India Insurance Co. Ltd. v. Tilak Singh , where the Supreme Court extended the principle from New India Assurance Co. Ltd. v. Asha Rani (regarding passengers in goods vehicles) to gratuitous passengers in any other vehicle, holding that statutory policies do not cover such risk.

The court also examined its own precedents, including United India Insurance Company Limited v. Vinod Kanwar , which explicitly held that there is no statutory requirement to cover the risk of occupants in a private car under an 'Act Only Policy', and that the deceased in such a case cannot be termed a 'third party'. These judgments concluded that a 'pay and recover' order cannot be issued in such scenarios as it is meant for satisfying judgments against third-party risks statutorily required to be covered under Section 147 of the Act.

Addressing the respondents' reliance on Satpal Singh , the court noted that this judgment was expressly overruled by Asha Rani . Regarding Anu Bhanvara , the court pointed out that the 'pay and recover' direction in that case was issued by the Supreme Court exercising its extraordinary powers under Article 142 of the Constitution, and it did not lay down a general proposition of law applicable to all such cases. The court also referenced the recent Supreme Court decision in Balu Krishna Chavan , which reiterated that 'pay and recover' is not the ordinary rule when the insurer's liability is specifically negated.

Judgment and Implications

Based on the settled legal position derived from these precedents, the Rajasthan High Court concluded that the MACT erred in directing the appellant-insurance company to satisfy the award and then recover it from the owner and driver.

The court held:

"In view of the above cited judgments, the position of law as it stands at present is that in case of a private vehicle insured against 'Act only Policy', the liability of occupants is not covered as the protection of Chapter-XI of the Motor Vehicles Act, 1988 is only available against the third party risks and the occupants of a private vehicle are not third parties. And in such cases direction to pay and recover cannot be issued to the insurer."

Consequently, the appeals were allowed, and the MACT judgment dated March 2, 2017, was modified. The appellant insurance company was completely exonerated from any liability to pay the compensation. The owner and driver of the vehicle were held solely liable to pay the entire compensation amount as awarded by the tribunal within six weeks. Failure to pay within this period will attract interest at 7.5% per annum.

This judgment reinforces the legal distinction between different types of motor insurance policies and clarifies the specific limitations of 'Act Only' policies concerning coverage for vehicle occupants, providing crucial guidance for future motor accident claims.