The main legal point established in the judgment is that an insurer, with a reservation clause, can raise all defences open to the insured against the third party, including pleading that the insured was not negligent or that the third party was guilty of contributory negligence, or that the quantum assessed was wrong or high. If there was liability in excess of the limits in S.95(2) because of extra premium, the third party could be allowed to proceed against the insurer for the amount in excess of the limits in S.95(2).

Headnote:
Motor Vehicles Act - Reservation Clause - S.96(2), S.110-C(2A) - The court held that the insurer, with a reservation clause, can raise all defences open to the insured against the third party. The insurer could plead that the insured was not negligent or that the third party was guilty of contributory negligence, or that the quantum assessed was wrong or high. If there was liability in excess of the limits in S.95(2) because of extra premium, the third party could be allowed to proceed against the insurer for the amount in excess of the limits in S.95(2).
Fact of the Case:

The court considered the correctness of the Division Bench ruling in United India Insurance Co.Ltd. v. Surendran Nair (1990 (1) KLT 10) regarding the insurer's right to rely on a 'reservation clause' in the Policy and raise defences against the third party.
Finding of the Court:

The court found that the insurer, with a reservation clause, can raise all defences open to the insured against the third party. The insurer could plead that the insured was not negligent or that the third party was guilty of contributory negligence, or that the quantum assessed was wrong or high. If there was liability in excess of the limits in S.95(2) because of extra premium, the third party could be allowed to proceed against the insurer for the amount in excess of the limits in S.95(2).
Issues: The issues considered by the court were: (1) Whether the insurer, with a reservation clause, can raise defences other than those mentioned in S.96(2) in its own name; (2) Whether the insurer, with a reservation clause, can raise all defences, even if the case does not fall under S.110-C (2A) where there is collusion between the insured and the claimants or where the insured has remained ex-parte; (3) Whether the third party claimants could recover the total compensation amount from the insurer leaving it to the insurer to recover any excess from the insured; (4) Whether the third party could claim the benefit of the unlimited liability as against the insurer directly under S.96(1) read with Section 96(4) and 110-B.
Ratio Decidendi: The court held that the insurer, with a reservation clause, can raise all defences open to the insured against the third party. The insurer could plead that the insured was not negligent or that the third party was guilty of contributory negligence, or that the quantum assessed was wrong or high. If there was liability in excess of the limits in S.95(2) because of extra premium, the third party could be allowed to proceed against the insurer for the amount in excess of the limits in S.95(2).
Final Decision: The court over-ruled Surendran Nair's case and held that the insurer is entitled, where there is a reservation clause, to raise all defences open to the insured against the third party. The insurer could do so in his own name. The insurer could plead that the insured was not negligent or that the third party was guilty of contributory negligence, or that the quantum assessed was wrong or high. If there was liability in excess of the limits in S.95(2) because of extra premium, the third party could be allowed to proceed against the insurer for the amount in excess of the limits in S.95(2).

Judgment :-

Jagannadha Rao, CJ.

This reference to a Full Bench has been made for a decision on the correctness of the Division Bench ruling in United India Insurance Co.Ltd. v. Surendran Nair (1990 (1) KLT 10). The point in issue is whether in view of the provisions of S.96(2) and (6) of the Motor Vehicles Act. 1939. it is open to the insurer to rely on a 'reservation clause' in the Policy and then to raise all the defences open to the insured against the third party. in an action for compensation filed by the third parly. The respondents-claimants contend. on the basis of the ruling in Surendran Nair's case (supra) that. notwithstanding the existence of any 'reservation clause' in the policy. ii is not permissible for the insurer to either contend that there is no negligence on the part of the insured or that the quantum of compensation awarded against the insured is excessive even when the quantum is within the statutory limits in S.95(2). It is true that the ruling in Surendran Nair's case (supra) supports the respondents' case for saying that in spite of a 'reservation clause'; the insurer cannot take such defences before the Tribunal or file an appeal against the award raising such pleas. The decision states that S.96(2) and (6) of the Act permit only certain specific defences to be taken by the insurer and that the said defences are exhaustive. It further says that it is only in the limited class of cases where S.110-C (2A) applies that the insurer can raise defences other than those stated in S.96(2). S.100-C(2A) permits the insurer to take all defences when it is impleaded suo motu by the Tribunal upon being satisfied that there is collusion between the claimants and the ensured or where the insured is ex-parte. The question is whether S.96(2) and S.110-C (2A) are exhaustive and whether the insurer can. when there is a 'reservation clause'. raise all pleas available to the insured including pleas of want of negligence of the insured or that the award is excessive.

2. The contention on behalf of the insurer by learned counsel Sri. P.V.R. Kaimal is that S.96(2) and S.96(4) deal with cancellation or avoidance of a contract of insurance. He submits that when an insurer accepts that. 'Policy but denies hability under the policy. on the basis of a 'reservation clause in the policy. S.96(2) and (6) cannot come in the way. It is also argued that S.110-C (2A) is only an enabling provision and that. if there is a 'reservation clause' in the polity. the insurer can take all defences upon to the insured against the claimants '-even if there is no collusion between the insured and the claimants and even if the insured Is not ex-parte as slated in S.110-C (2A). It. is argued. therefore. that the insured could. in view of the 'reservation clause' contend that there is no negligence on the part of the insured or his servants or that the quantum of compensation is on the high side. even though it is within the upper limit mentioned in S.95(2).

3. On the other hand. it is contended for the claimants by Sri. T.G.Rajendran, Sri. Ravindran, Sri. Sreekumar and others that S.96(2) bars the insurer from raising the above contentions. It is also contended that except in the cases specified in S.110-C (2A). the insurer cannot raise defences other than those stated in S.96(2). Reliance is also placed on S.96(1), S.96(3) and S.96(4) to say that the insurer is bound to pay the entire award amount and is then to recover excess from the insured. It is also pointed out that in some of these cases before us. extra premium is paid by the insured to make the insurer hable to an ultimated sum and. therefore. the appeals have to be dismissed without going into any question of negligence or correctness of the quantum of compensation.

4. On the basis of the above contentions. the following points arise for consideration:

(1) Whether. in a case where the insurance policy contains a reservation clause the insurer can raise defences. other than those mentioned in S

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1992 Supreme(Ker) 367

Cases Referred (2)

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