Liability of Insurer Under Section 163-A of MV Act Restricted for Deceased Borrower: Karnataka High Court - 2026-01-23

Borrowed Vehicle, Capped Liability: Karnataka HC Clarifies Insurer’s Obligations

In a significant ruling regarding "no-fault" liability, the Karnataka High Court has clarified the extent of an insurance company’s liability toward an individual who borrows a vehicle and subsequently dies in a road accident. Justice Dr. K. Manmadha Rao, presiding at the Dharwad bench, affirmed that such borrowers cannot be treated as "third parties" under Section 163-A of the Motor Vehicles Act, 1988, thereby limiting the insurer’s financial obligation to the specific terms of the insurance contract.

The Road to Litigation

The case arose from a tragic incident on August 1, 2014, when Sri Prakash Baburao Chigare was riding a motorcycle that he had borrowed. According to the claim petition, while traveling on Congress Road, Belagavi, his vehicle was struck by an unknown car. The deceased sustained severe head injuries and passed away four days later at KLE Hospital.

His legal heirs sought compensation under Section 163-A of the Motor Vehicles Act, which allows for "no-fault" compensation to avoid the arduous process of proving rash and negligent driving. The Motor Accident Claims Tribunal (MACT) in Belagavi had initially awarded the family ₹4,24,505. The National Insurance Company challenged this, arguing that the deceased, as a borrower, "stepped into the shoes of the owner" and therefore could not claim as a third party against the insurer.

The Legal Tug-of-War

The Insurance Company’s counsel argued that the deceased was not a third party to the contract, and thus the company’s liability did not extend to full compensation under the structured formula of Section 163-A. They relied heavily on the Apex Court’s precedent in Ramkhiladi and Another v. United India Insurance Company .

Conversely, the claimants cited the recent order in Wakia Afrin (minor) v. M/s National Insurance Company Limited , arguing that the beneficial and social-security nature of the law should override technical policy restrictions.

"In the Shoes of the Owner": The Court’s Analysis

Justice Dr. K. Manmadha Rao observed that while the law is designed for social security, it cannot ignore the fundamental nature of the insurance contract. Relying on Ramkhiladi , the court held that a borrower who uses the vehicle of an insured person assumes the position of the owner. Therefore, they are excluded from the definition of a "third party," to whom the insurer is usually liable for indemnity.

The court distinguished the Wakia Afrin decision, noting that it did not override the established principle that a borrower-rider is distinct from a third-party victim. Consequently, the insurer is only liable for the personal accident cover stipulated in the policy—typically ₹1,00,000—rather than the full wrongful death award under the 163-A schedule.

Key Observations

The judgment underscores the importance of the contractual relationship between the insurer and the insured:

• On the status of the borrower: "The deceased must necessarily be a third party vis-à-vis the insured vehicle... where the deceased was driving the vehicle as a borrower, he would be in the shoes of the owner."
• On the limitation of liability: "The liability of the insurer in such cases flows only from the terms of the contract of insurance and not beyond it."
• On the scope of the Act: "Section 147 of the MV Act does not mandate coverage for death or bodily injury to the owner of the vehicle."

A Final Settlement

The High Court modified the Tribunal’s award, reducing the compensation to ₹1,00,000 to reflect the standard personal accident cover, alongside interest at 7.5% per annum. Insurance companies have been granted eight weeks to satisfy this modified award, and any excess deposited by the appellant is to be refunded.

This ruling serves as a vital reminder to vehicle owners and users: in the eyes of the law, when you borrow a vehicle, you assume the risk profile of the owner, changing the scope of insurance protection in the unfortunate event of a catastrophe.