13 Nov 2010

Liability of insurer limited to policy: High Court

As a part of social welfare legislation, the Motor Vehicle Act obliges the insuror to pay the amount of compensation to the victim of a motor vehicle accident. However the question as to the extent of this liability of the insurer is always a vexed question. In a recently reported decision [The New India Assurance Co. Ltd. v. Smt. Chameli Devi, AIR 2010 PH 156] the Full Bench of the Punjab and Haryana High Court declared the law to this effect inter alia as under;
The Reference was made to the Larger Bench primarily for the reason that the comprehensive policy makes the Insurance Company liable for the unlimited liability as it is liable to satisfy the entire awarded amount. However, the question whether the comprehensive policy leads to unlimited liability of the Insurance Company to satisfy an award, stands decided by the Constitution Bench in C.M. Jaya’s case (supra), wherein it has been held to the following effect:-
“8. Thus, a careful reading of these decisions clearly shows that the liability of the insurer is limited, as indicated in Section 95 of the Act, but it is open to the insured to make payment of additional higher premium and get higher risk covered in respect of third party also. But in the absence of any such clause in the insurance policy the liability of the insurer cannot be unlimited in respect of third party and it is limited only to the statutory liability. This view has been consistently taken in the other decisions of this Court.
9. In Shanti Bai case, a Bench of three learned Judges of this Court, following the case of National Insurance Co. Ltd. v. Jugal Kishore, (1988)1 SCC 626, has held that:-
(i) a comprehensive policy which has been issued on the basis of the estimated value of the vehicle does not automatically result in covering the liability with regard to third-party risk for an amount higher than the statutory limit, 
(ii) that even though it is not permissible to use a vehicle unless it is covered at least under an “Act only” policy, it is not obligatory for the owner of a vehicle to get it comprehensively insured, and 
(iii) that the limit of liability with regard to third party risk does not become unlimited or higher than the statutory liability in the absence of specific agreement to make the insurer’s liability unlimited or higher than the statutory liability.
10. On a careful reading and analysis of the decision in Amrit Lal Sood v. Kaushalya Devi Thapar, (1998)3 SCC 744, it is clear that the view taken by the Court is no different. In this decision also, the case of Jugal Kishore is referred to. It is held:-
(i) that the liability of the insurer depends on the terms of the contract between the insured and the insurer contained in the policy; 
(ii) there is no prohibition for an insured from entering into a contract of insurance covering a risk wider than the minimum requirement of the statute whereby risk to the gratuitous passenger could also be covered; and
(iii) in such cases where the policy is not merely statutory policy, the terms of the policy have to be considered the liability of the insurer.” 
In view of the aforesaid judgment, we are of the opinion that mere fact that the insured has taken a comprehensive policy, does not lead to an inference that the Insurance Company is liable to indemnify the insured of the entire awarded amount including the amount in excess of the statutory liability.

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