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Act Only vs Liability Only Policy: Key Differences in Motor Insurance

In the realm of motor vehicle insurance in India, terms like Act Only Policy and Liability Only Policy often arise in accident claims, particularly under the Motor Vehicles Act, 1988 (MV Act). These policies define the extent of an insurer's responsibility, especially regarding third-party claims, occupants, and gratuitous passengers. Understanding their nuances is crucial for vehicle owners, claimants, and insurers to navigate compensation disputes effectively.

This post explores these policies based on judicial interpretations, highlighting when insurers are liable or exonerated. Note: This is general information derived from case law and not specific legal advice. Consult a qualified lawyer for your situation, as outcomes depend on individual facts.

What is an Act Only Policy?

An Act Only Policy, also referred to as a statutory policy, provides the minimum coverage mandated by Section 147 of the MV Act. It insures against liability arising from accidents involving third parties—those not in the insured vehicle.

Key features include:
- Covers bodily injury or death to third parties.
- Covers property damage to third parties, often limited (e.g., Rs. 6,000 in older cases).
- Does not cover occupants, pillion riders, or gratuitous passengers unless an additional premium is paid. THE ORIENTAL INSURANCE CO. LTD. Vs ABY KURIAKOSE - 2009 Supreme(Online)(KER) 24036

Courts have consistently held that under an Act Only Policy, insurers are not liable for passengers in the insured vehicle. For instance, in a case involving a pillion rider, the court ruled: In 'Act only' insurance policies, gratuitous passengers are not covered unless an additional premium is paid. THE ORIENTAL INSURANCE CO. LTD. Vs ABY KURIAKOSE - 2009 Supreme(Online)(KER) 24036

Judicial Precedents on Act Only Coverage

• Pillion Riders and Occupants Excluded: Multiple rulings affirm that Act Only Policies exclude risks to vehicle inmates. United India Insurance Company Limited vs Afshan Naaz - 2025 Supreme(Telangana) 253 National Insurance Co. Ltd. VS Jamal Master - 2021 Supreme(J&K) 532


• In one appeal, the court stated: The 'Act Policy' does not cover liability for passengers while a comprehensive policy does. United India Insurance Company Limited vs Afshan Naaz - 2025 Supreme(Telangana) 253


• Tribunal awards against insurers were set aside, holding owners solely liable. National Insurance Co. Ltd vs Malligeswari - 2024 Supreme(Online)(MAD) 22808

What is a Liability Only Policy?

A Liability Only Policy is often used interchangeably with Act Only Policy in judicial discourse, emphasizing coverage limited to the insured's legal liability to third parties. It mirrors statutory requirements but may specify Liability Only in policy documents.

Characteristics:
- Focuses on third-party bodily injury, death, and property damage.
- Excludes own vehicle damage or occupant injuries.
- Premiums are lower due to restricted scope. S. Vijayalakshmi VS Ashok Brothers Implex Ltd. , Chennai - 2022 Supreme(Mad) 2211

Courts treat it similarly: A ‘Liability Only Policy’ does not cover risks associated with occupants of the vehicle, thus the Insurance Company is not liable for compensation. United India Insurance Company Limited vs Arkala Indira Priya Darshini W/o Tirupathaiah - 2025 Supreme(Telangana) 213

Key Case Insights

• In a fatal accident claim, the insurer was exonerated: The policy was an 'Act Policy' and did not cover the pillion rider, thus placing full liability on the vehicle owner. National Insurance Co. Ltd vs Malligeswari - 2024 Supreme(Online)(MAD) 22808


• Another ruling: An 'Act liability only' policy does not cover inmates of the insured vehicle. THE DIVISIONAL MANAGER Vs PARMANAND NINGAPPA SARVAGOL - 2023 Supreme(Online)(KAR) 13006

Act Only vs Liability Only: Are They the Same?

In practice, Act Only and Liability Only Policies are functionally identical under MV Act interpretations. Both provide statutory minimum third-party coverage without extending to:
- Gratuitous passengers (free riders).
- Occupants of the insured vehicle.
- Owner/driver personal accidents (unless endorsed).

| Aspect | Act Only / Liability Only Policy | Comprehensive / Package Policy |
|-------------------------|---------------------------------------------------|-------------------------------------------------|
| Third-Party Coverage| Yes (mandatory) | Yes (unlimited often) |
| Occupants/Passengers| No, unless extra premium | Yes, typically |
| Own Damage | No | Yes |
| Premium | Lower | Higher |

This distinction is pivotal in claims under Sections 163A or 166 MV Act. Tribunals often err by holding insurers liable for occupants, leading to High Court reversals. Leeladhar VS Mahendra Singh - 2021 Supreme(Raj) 383

Court Rulings: Insurer Liability Limits

Indian courts, including Supreme Court precedents, reinforce these boundaries:

Exclusion of Passengers

• Supreme Court View: Inmates of private vehicles are not third parties under Act Policies. Insurers not liable. THE DIVISIONAL MANAGER Vs PARMANAND NINGAPPA SARVAGOL - 2023 Supreme(Online)(KAR) 13006 (citing Oriental Insurance Co. Ltd. v. Sudhakaran K.V.)


• Pillion Rider Cases: Repeatedly, no coverage without rider endorsement. THE ORIENTAL INSURANCE CO. LTD. Vs ABY KURIAKOSE - 2009 Supreme(Online)(KER) 24036 United India Insurance Company Limited VS Rahimabai Bhalu Sota - 2022 Supreme(Guj) 1844

Policy Interpretation

• Ambiguity favors claimants, but clear terms like Act Only or Liability Only prevail. IFFCO-TOKIO vs SELVI - 2024 Supreme(Online)(MAD) 40252


• Quote: The risk of occupants/passengers in a vehicle is not covered under an 'Act Policy' unless additional premium is paid. National Insurance Co. Ltd. VS Jamal Master - 2021 Supreme(J&K) 532

Package vs Act/Liability Policies

• Package Policies offer broader coverage, including occupants, with unlimited liability under Section 147(2). National Insurance Company Limited VS Karnataka State Road Transport Corporation, Transport House, Central Office, K. S. R. T. C, Bangalore Rep By Its Divisional Manager, Tumkur Division, Tumkur - 2023 Supreme(Kar) 915


• Distinction: The Supreme Court had distinguished between an 'Act only Policy' and a 'Comprehensive/package policy' to say that the latter covered the liability of the insurer towards the occupants. S.VIJAYALAKSHMI vs ASHOK BROTHERS IMPLEX LTD - 2022 Supreme(Online)(MAD) 9499

In one case, higher premiums indicated comprehensive coverage, overturning insurer defenses. NEETA TREHAN VS GOPAL KRISHAN - 2010 Supreme(Del) 967

Implications for Claims and Compensation

For Claimants

• Verify policy type via insurer documents.


• Act/Liability Only: Pursue owner directly; insurer pays only third-party claims.


• No coverage? Section 163A (no-fault) may apply against owner. National Insurance Co. Ltd. vs Ummalimma (Deceased, Lr's Recorded) - 2025 Supreme(Ker) 1760

For Insurers

• Exoneration common if policy limits proven. Appeals succeed if tribunal ignores terms. National Insurance Company Limited Thoothukudi VS Saravanan - 2023 Supreme(Mad) 1977

For Vehicle Owners

• Additional endorsements needed for passengers.


• Statutory insurance mandatory (Section 146), but extras optional.

Pro Tip: Always check policy schedule for endorsements like PA to owner/driver or paid passengers.

Recent Trends and IRDA Guidelines

IRDA circulars clarify: Act Policies limit to statutory liability; packages extend further. Courts align with this, preventing frustration of legislation. Sanjay Sharma VS New India Ass Co. Ltd. & Ors - 2023 Supreme(Del) 4262

In Section 170 MV Act proceedings, insurers defend rigorously, often succeeding on policy type. National Insurance Co. Ltd vs Malligeswari - 2024 Supreme(Online)(MAD) 22808

Key Takeaways

• Act Only and Liability Only Policies typically exclude occupants and gratuitous passengers.


• Insurers liable only for third-party risks; owners bear rest.


• Comprehensive policies cover more—check premiums and terms.


• Judicial trend: Strict policy interpretation favors insurers in limited coverage cases.

Vehicle accidents involve complex liabilities. While these policies protect minimally, opting for broader coverage safeguards all. For personalized guidance, seek professional legal counsel.

Disclaimer: This article summarizes case law trends (e.g., Sarla Verma VS Delhi Transport Corporation - 2009 3 Supreme 487, United India Insurance Company Limited vs Afshan Naaz - 2025 Supreme(Telangana) 253) and is for informational purposes. Laws evolve; case-specific advice essential.