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Report No. 149

Chapter 3

Compulsory Insurance Cover

3.1. Chapter X of the 1988 Act deals with liability without fault in certain cases, while Chapter XI, deals with the insurance of Motor Vehicles against third party risks. Chapter XII pertains to the constitution of Claims Tribunals, the procedures to be adopted by them and other provisions incidental thereto. Although Chapters X and XI are titled differently, there is a common feature that they relate to meeting the claim of the victims of a motor vehicle accident from and out of the insurance cover.

Section 95 of the 1939 Act and section 147 of the 1988 Act set out the requirements of a policy of insurance and the limits of liability thereunder. The present study deals with the language of section 147(1) of the 1988 Act which is almost identical with that of section 95(1) of the 1939 Act. The only material difference between the two is the omission, from section 147(1), of clause (ii) of the proviso to section 95(1) of the 1939 Act. Sub-section (1) of section 147 of the 1988 Act is quoted below for ready reference:

"(1) In order to comply with the requirements of this Chapter, a policy of insurance must be a policy which-

(a) is issued by a person who is an authorised insurer; and

(b) insures the person or classes of persons specified in policy to the extent specified in sub-section (2)-

(i) against any liability which may be incurred by him in respect of the death of or bodily injury to any person or damage to any property of a third party caused by or arising out of the use of the vehicle in a public place;

(ii) against the death of or bodily injury to any passenger of a public vehicle caused by or arising out of the use of the vehicle in a public place:

Provided that a policy shall not be required-

(i) to cover liability in respect of the death, arising out of and in the course of his employment, of the employee of a person insured by the policy or in respect of bodily injury sustained by such an employee arising out of and in the course of his employment other than a liability arising under the Workmen's Compensation Act, 1923, in respect of the death of, or bodily injury to, any such employee-

(a) engaged in driving the vehicle, or

(b) if it is a public service vehicle engaged as a conductor of the vehicle or in examining tickets on the vehicle, or

(c) if it is a goods carriage, being carried in the vehicle, or

(ii) to cover any contractual liability.

Explanation.-For the removal of doubts, it is hereby declared that the death of or bodily injury to any person or damage to any property of a third party shall be deemed to have been caused by or to have arisen out of the use of a vehicle in a public place notwithstanding that the person who is dead or injured or the property which is damaged was not in a public place at the time of the accident, if the act or omission which led to the accident occurred in a public place."

3.2. An examination of section 147 of the 1988 Act reveals that sub-clause (ii) of clause (b) of sub-section (1) suffers from infelicitous drafting, want of clarity and avoidable overlapping.1 The language of the sub-clause which seems to require the taking out of an insurance policy which insures the specified persons "against the death of or bodily injury to any passenger " is clearly infelicitous as, obviously, no insurance policy can insure any one against death or bodily injury. One would, therefore, think that what the sub-clause intends to say is that the specified persons should be insured "against any liability which may be incurred by them in respect of the death of, or bodily injury to, any passenger" and that the sub-clause should be recast accordingly.2

1. See M.N. Srinivasan Beneficiaries under the New Motor Insurance Law, (1992) 2 MLJ (Journal), 203.

2. This perhaps is not so, as will be seen later. Moreover, recasting the language as suggested would make the two clauses repetitive.

3.3. Quite apart from the infelicitous wording of the sub-clause, there is apparently an overlapping between sub-clauses (i) and (ii) of clause (b) in their scope. Sub-clause (i), read by itself, is very wide. It requires the owner or user of a vehicle to take out an insurance policy to cover any liability which he may incur "in respect of the death of, or bodily injury to any person or damage to any property of a third party caused by or arising out of the use of his vehicle in a public place." This clause, prima facie, is applicable to all motor vehicles including public service vehicles.

Likewise, the use of the expression "any person" and the reference to any "third party" (which obviously takes in any person other than the insurer and the insured) makes the requirement all embracing. Sub-clause (i) is, therefore, comprehensive enough to require the owner or user of any motor vehicle including a "public service vehicle" to take out an insurance policy that would cover the risk of death or injury to the person or damage to the property of any person including any passenger in such a vehicle. In this view, since the language of sub-clause (i) is wide enough to include cases covered by sub-clause (ii) as well sub-clause (ii) seems redundant.

3.4. However, before recommending the omission of sub-clause (ii), we may examine the question whether the legislature has inadvertently framed the aforesaid clauses or whether there is some other way to reconcile the two clauses, making them meaningful. An answer to this question requires a study of the legislative history of section 95 of the 1939 Act, which corresponds to the present section 147.

Section 95(1)(b), as originally inserted in the 1939 Act, read as under:-

"(1) In order to comply with the requirements of this chapter, a policy of insurance must be a policy which-

(a) *** *** ***

(b) insures the person or classes of persons specified in the policy to the extent specified in sub-section (2).

(i) against any liability which may be incurred by him in respect of the death of or bodily injury to any person or damage to any property of a third party caused by or arising out of the use of the vehicle in a public place.

Provided that a policy shall not be required-

(Emphasis supplied)

(i) to cover liability in respect of the death, arising out of and in the course of his employment, of the employee of a person insured by the policy or in respect of bodily injury sustained by such an employee arising out of and in the course of his employment that then a liability arising under the Workmen's Compensation Act, 1923, in respect of the death of, or bodily injury to, any such employee-

(a) engaged in driving the vehicle, or

(b) if it is a public service vehicle, engaged as a conductor of the vehicle or in examining tickets on the vehicle, or

(c) if it is a goods vehicle, being carried in the vehicle, or

(ii) except where the vehicle is a vehicle in which passengers are carried for hire or reward or by reason of or in pursuance of a contract of employment, to cover liability in respect of the death of or bodily injury to persons being carried in or upon or entering or mounting or alighting from the vehicle at the time of the occurrence of the event out of which a claim arises, or

(iii) to cover any contractual liability."

An examination of the proviso shows that it contained three exceptions. One of these exceptions excluded a public service vehicle from the need to carry insurance "against death or injury to passengers" unless it was one on which passengers were carried for hire or reward.1 Thus, save in cases covered by the proviso to sub-section (1) of section 95, the section applied to all vehicles including public service vehicles and the requirement to carry a policy of insurance against liability for causing injuries to all persons, including passengers was mandatory even in the case of public service vehicles. This interpretation was plain on the terms of clause (b) of section 95(1) of the 1939 Act and as earlier pointed out, on the terms of sub-clause (i) of clause (b) of section 147(1) of the 1988 Act as well.

1. This exception has been omitted in the 1988 Act.

3.5. Section 95(1) of the 1939 Act was amended by Act No. 56 of 1969. Clause (b) was substituted by a new clause consisting of sub-clauses (i) and (ii) in the same terms as sub-clauses (i) and (ii) of clause (b) of section 147 (1) of the 1988 Act, earlier extracted. There was a minor amendment in the opening words of the proviso (which is irrelevant for our present purposes1, clause (ii) of the proviso was omitted and clause (iii) redesignated as clause (ii). The Statement of objects and reasons for this amendment) reads as under:

"This amendment requires that a policy of insurance of a motor vehicle under Chapter VIII covers the following additional matters, namely:

(1) damage to any property of a third party;

(2) death or bodily injury to any passenger of a public service vehicle even though the owner or the driver of the vehicle may not be responsible for the accident, provided there is no contributory negligence on the part of the passenger."

While the amendment made it clear that the insurance policy had-

(a) to cover the liability of the insured in respect of death of, or injury to, or damage to the property of, third parties by vehicles; and

(b) to compensate passengers to whom death or injury was caused where the vehicle was a public service vehicle and the passengers were carried on it for hire or reward, the substitution of two sub-clauses in the place of the earlier single one created some ambiguity.

1. By clause 54(a)(i) of the Amending Act.

3.6. The Supreme Court had occasion to interpret the amended provisions of section 95 of the Motor Vehicles Act, 1939 and to examine the difference between the scope of sub-clauses (i) and (ii) of section 95(1)(b) in the case of Minu B. Mehta v. Bal Krishna, AIR 1977 SC 1248 It overruled the general principle enunciated by the High Court1 that the insurance company would be liable to compensate a person who died or was injured in any motor vehicle accident irrespective of any fault or negligence on the part of the driver of the vehicle. The Supreme Court observed-

"Under section 95(1)(b)(i) of the Act, it is required that policy of insurance must be a policy which insures the person against any liability which may be incurred by him in respect of death or bodily injury to any person or damage to any person or damage to any property of a third party caused by or arising out of the use of the vehicle in a public place. It may be noted that what is intended by the policy of insurance is insuring a person against any liability which may be incurred by him. The insurance policy is only to cover the liability of a person which he might have incurred in respect of death or bodily injury.

The accident to which the owner or the person insuring is liable to the extent of his liability in respect of death or bodily injury and that liability is covered by the insurance. It is therefore obvious that, if the owner has not incurred any liability in respect of death or bodily injury to any person, there is no liability and it is not intended to be covered by the insurance. The liability contemplated arises under the law of negligence and under the principle of vicarious liability.

The provisions as they stand do not make the owner or insurance company liable for any bodily injury caused to a third party arising out of the use of the vehicle unless the liability can be fastened on him. It is significant to note that under sub-clause (ii) of section 95(1)(b) of the Act the policy of insurance must insure a person against the death or bodily injury to any passenger of a public service vehicle caused by or arising out of the use of the vehicle in a public place. Under section 95(1)(b) clause (ii) of the Act, the liability of the person arises when bodily injury to any passenger is caused by or use of the vehicle in a public place.

So far as the bodily injury caused to a passenger is concerned it need not be due to any act or liability incurred by the person. It may be noted that the provisions of section 95 are similar to section 36(1) of the English Road Traffic Act, 1930, the relevant portion of which is to the effect that a policy of insurance must be a policy which insures a person in respect of any liability which may be incurred by him in respect of death or bodily injury to any person caused by or arising out of the use of the vehicle on road. The expression "liability" which may be incurred by him is meant as covering any liability arising out of the use of the vehicle. It will thus be seen that the person must be under a liability and that liability alone is covered by the insurance policy"

(Emphasis added).

It is evident from the aforesaid decision that the purpose of the insurance policy visualised under the Act is only to indemnify the insured against a liability which he has incurred in law towards third parties, and that where there is no such liability incurred by the insured the insurer cannot also be fixed with any liability.

However, it would appear that the Supreme Court attached importance to the difference in language between sub-clauses (i) and (ii) and, by the words underlined in the above extract, interpreted sub-clause (ii) of section 95(1)(b) of the 1939 Act (as amended by Act No. 56 of 1969) to mean that the policy of insurance taken by the owner of a public service vehicle should provide compensation to any passenger of the vehicle for death or bodily injury caused by or arising out of the use of the vehicle in a public place irrespective of whether there was any fault on the part of its owner, agent or driver, or not.

1. Haji Zakaria v. Noshir Cama, AIR 1976 AP 171.

3.7. As earlier pointed out,1 one view could have been that the opening words of sub-clause (ii) reflect ambiguous and inept drafting, as there can be no insurance against death or injury2 and that there is nothing in the difference in language between the two sub-clauses which requires sub-clause (ii) to be interpreted as making the owner or user of the vehicle liable to pay compensation even without any fault on his part.

This would tantamount to something more than what a policy of indemnity to the insured, insuring him only against a liability incurred by him, can achieve. However, since the sub-clause has now been interpreted by the Supreme Court in Minu B. Mehta's case (supra), the question does not remain res integra. Sub-to be understood as explained by the Supreme Court and the apparent overlapping in the two sub-clauses, referred to earlier,3 disappears. Clauses (i) and (ii) have, therefore, now

1. Para. 3.2 ante.

2. Para. 3.3 above.

3. Para. 3.3 above.

3.8. Although it is possible to reconcile sub-clauses (i) and (ii) of clause (b) of section 147(1),1 their continuance in their present form seems inadvisable for the following reasons. In the first place, it can give room for an argument that sub-clause (ii), which deals with public service vehicles, is exhaustive of the insurance cover needed to be taken by owners of such vehicles. In other words it can be contended, that such vehicles are liable to take out insurance cover only against death or injury to passengers carried by them for hire and not against the wider liability envisaged in sub-clause (i) to third persons and goods of third parties.

The argument may seem far-fetched but it is advisable to clarify that this is not so. Secondly, the purpose of inserting sub-clause (ii), as mentioned earlier, was to impose a no-fault liability as, but for a specific provision, the insurance can be effective only in cases where there is fault attributable to the owner of the vehicle, as explained by the Supreme Court.

It is patent that there should be insurance cover against death or permanent disablement of any person, even where there is no proof of any fault on the part of the owner of the vehicle causing the accident or his agent or servant, as experience has shown that benami ownership of vehicles and the involved language of insurance policies can easily be exploited to render a victim's remedies nugatory unless he can have direct recourse against an insurance company, irrespective of issues of fault, contributory negligence and the like.

To meet this difficulty the 1939 Act was amended and section 92A was inserted to impose a no-fault liability on the owners of all vehicles in cases of death or permanent disablement caused to third parties by motor vehicle accidents. Since section 92A creates a liability on the owners even in no-fault cases to compensate persons so affected, the language of the earlier sub-clause (i) itself becomes adequate to achieve the desired purpose and the continued retention of sub-clause (ii) has been rendered an unnecessary surplusage.

Thirdly, there is a certain extent of redundancy between the provisions of section 92A and section 95(1)(b)(ii). Whereas the former creates a no-fault liability only in respect of death or permanent disablement and also imposes a limitation on the amount of compensation that would be payable in such cases, the insurance under the latter would cover any kind of injury to passengers and the extent of compensation that would be payable also remains unspecified and hence limitless.

Also, with the omission of clause (ii) of the proviso to section 95(1) of the 1939 Act, the no-fault liability on the part of public service vehiCles would get extended even to gratuitous passengers who have not paid, or evaded payment of, hire for their carriage in the vehicle. It was perhaps not the intention of the legislature to create a no-fault liability towards passengers of public service vehicles different from that of other vehicles. Indeed, such differentiation may even amount to discrimination violative of Article 14 of the Constitution.2

For these reasons, and particularly in view of section 92A of the 1939 Act (and its corresponding provision in section 140 of the 1988 Act), it is clear that sub-clause (ii) of section 147(1)(b), corresponding to the earlier section 95(1)(b), is unnecessary, redundant and otiose. It can be deleted without detracting, to the slightest extent, from the efficacy of the remedies open to victims of road accidents. We recommend accordingly.

1. Indeed, even without this provision, it could well be contended that the owner, as employer, cannot be called upon to pay higher compensation than the amounts specified in the 1923 Act and that the insurer's liability, being one of an indemnifier, cannot be higher.

2. This provision re-enacted in its present form in 1984, takes into account a percentage of the wages of the workman and provides a fixed multiple thereof as compensation depending on the age of the workman. The wage of the workman for this purpose is pegged at a maximum of Rs. 1,000 p.m.



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