Supreme Court Clarifies Insurer’s Liability in Cases of Fake Driving Licenses: Nirmala Kothari vs. United India Insurance Co. Ltd. (2020)

Date of the Judgment: 04th March, 2020

Citation: 2020 INSC 251

Judges: Navin Sinha, J., Krishna Murari, J.

Can an insurance company deny a claim if the driver of the insured vehicle had a fake driving license? The Supreme Court of India addressed this critical question in a case involving a tragic accident. The court clarified the extent of due diligence expected from an employer when hiring a driver, particularly regarding the verification of driving licenses. The judgment was delivered by a two-judge bench comprising Justice Navin Sinha and Justice Krishna Murari, with Justice Krishna Murari authoring the opinion.

Case Background

On June 6, 2010, a Hyundai Elantra owned by Vinod Ray Kothari, insured with United India Insurance Co. Ltd. for Rs. 5,00,000, was involved in an accident with a tractor. The accident resulted in the deaths of Vinod Ray Kothari and his daughter, and caused damage to the vehicle. The driver of the car, Dharmendra Singh Chauhan, filed a First Information Report (FIR) with the police. The insurance company appointed a spot surveyor and a regular surveyor but rejected the claim on March 28, 2011, stating that Dharmendra Singh Chauhan did not possess a valid driving license at the time of the accident. The license he produced could not be verified by the licensing authority in Sheikh Sarai, Delhi, as their records did not have any information about it.

Nirmala Kothari, the wife of the deceased and the appellant, filed two consumer complaints against the insurance company. The first complaint sought Rs. 5,00,000 as the insured declared value (IDV) of the car along with interest and compensation for mental agony and litigation costs. The second complaint sought Rs. 2,00,000 as personal accident claim with interest and compensation for mental agony and litigation costs. Both claims were rejected by the insurance company on the same ground of invalid driving license.

Timeline:

Course of Proceedings

The District Forum allowed both consumer complaints, directing the insurance company to pay Rs. 3,57,500 for the vehicle damage claim and Rs. 2,00,000 for the personal accident claim, along with interest and litigation costs. The insurance company appealed to the State Commission, which upheld the District Forum’s orders. Subsequently, the insurance company filed revision petitions before the National Commission. The National Commission absolved the insurance company of its liability, stating that no record of the driver’s license was found with the licensing authority. Aggrieved by this, the complainant appealed to the Supreme Court.

Legal Framework

The Supreme Court referred to Section 149(2)(a) of the Motor Vehicles Act, 1988, which outlines the conditions under which an insurer can avoid liability. Specifically, Section 149(2)(a)(ii) of the Motor Vehicles Act, 1988 states that the insurer is not liable if the vehicle was driven by a person who was not duly licensed or was disqualified from holding a driving license. The Court also considered the interpretation of this provision in previous judgments.

The relevant part of Section 149(2)(a) of the Motor Vehicles Act, 1988 is:

“149. Duty of insurers to satisfy judgments and awards against persons insured in respect of third party risks.—
(1) …
(2) No sum shall be payable by an insurer under sub-section (1) in respect of any judgment or award unless, before the commencement of the proceedings in which the judgment or award is given the insurer had notice through the Court or, as the case may be, the Claims Tribunal of the bringing of the proceedings, and the insurer is entitled to defend the action on any of the following grounds, namely:—
(a) that there has been a breach of a specified condition of the policy, being one of the following conditions, namely:—
(i) …
(ii) that the policy is limited to use for purposes other than hire or reward, and a breach of such condition has occurred, or that the vehicle was being used for hire or reward on the date of the accident, or
(iii) that the vehicle was driven by any person who is not duly licensed, or by any person who has been disqualified for holding or obtaining a driving licence during the period of such disqualification; or
(b) that the policy is void on the ground that it was obtained by the non-disclosure of a material fact or by a representation of fact which was false in some material particular.”

Arguments

Appellant’s Arguments:

• The appellant argued that employers generally check the driving license of the driver at the time of employment, but they do not usually verify the genuineness of the same.
• It was contended that the employer had checked the driving license and had no reason to believe that it was fake.

Respondent’s Arguments:

• The insurance company argued that since the driver did not have a valid driving license, there was a fundamental breach of the insurance policy, absolving them of liability.
• The insurance company contended that the onus was on the insured to ensure that the driver had a valid license.

Submissions Table

Issues Framed by the Supreme Court

The main issue framed by the Supreme Court was:

1. What is the extent of care/diligence expected of the employer/insured while employing a driver?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

• United India Insurance Co. Ltd. vs. Lehru & Ors. [(2003) 3 SCC 338] – Supreme Court: The court noted that the insurance company cannot avoid liability merely because the driver was not duly licensed. It held that a willful breach of the policy conditions must be established.
• Pepsu RTC vs. National Insurance Co. [(2013) 10 SCC 217] – Supreme Court: The court held that while the insurer can take the defense that the driver was not duly licensed, the onus is on the insurer to prove that the insured did not take adequate care. The owner is only expected to verify if the driver has a valid license and is competent. The owner is not expected to verify the genuineness of the license with the licensing authority unless there is a reason to doubt it.
• National Insurance Co. Ltd. vs. Swaran Singh & Ors. [(2004) 3 SCC 297] – Supreme Court: The court held that a mere absence, fake, or invalid driving license is not a sufficient defense for the insurer. The insurer must prove that the insured was negligent and failed to exercise reasonable care in ensuring the driver was duly licensed.

The Supreme Court also considered Section 149(2)(a)(ii) of the Motor Vehicles Act, 1988, which specifies the conditions under which an insurer can avoid liability.

Authority Table

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Court relied on United India Insurance Co. Ltd. vs. Lehru & Ors. [(2003) 3 SCC 338]* to establish that the mere fact that the driver did not possess a valid license is not sufficient to absolve the insurer of its liability.
• The Court followed Pepsu RTC vs. National Insurance Co. [(2013) 10 SCC 217]* to clarify the extent of care expected from the employer while hiring a driver. The court reiterated that the employer is not expected to verify the genuineness of the driving license with the licensing authority unless there is a reason to doubt it.
• The Court cited National Insurance Co. Ltd. vs. Swaran Singh & Ors. [(2004) 3 SCC 297]* to highlight that the insurer must prove that the insured was negligent and failed to exercise reasonable care in ensuring the driver was duly licensed.

The Court held that the insurance company is liable to indemnify the appellant. The Court emphasized that the onus of proving that the insured did not take adequate care and caution to verify the genuineness of the license or was guilty of willful breach of the conditions of the insurance policy lies on the insurer.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the principle that an insurance company cannot easily deny a claim based on a technicality such as a fake driving license, unless it can prove that the insured was negligent or had knowledge of the fake license. The court emphasized the need to protect the insured, who had taken reasonable care in employing the driver. The court also considered the practical difficulties in verifying the genuineness of driving licenses from all over the country.

The Court’s reasoning was as follows:

The Court rejected the interpretation that the insurance company could deny the claim solely based on the fact that the driver’s license was fake. It emphasized that the insurance company has to prove that the insured was negligent or had knowledge of the fake license. The court’s decision was based on the principle of fairness and the need to protect the insured who had taken reasonable care in employing the driver.

The Supreme Court quoted:

“While hiring a driver the employer is expected to verify if the driver has a driving licence. If the driver produces a licence which on the face of it looks genuine, the employer is not expected to further investigate into the authenticity of the licence unless there is cause to believe otherwise.”

“It would be unreasonable to place such a high onus on the insured to make enquiries with RTOs all over the country to ascertain the veracity of the driving licence.”

“However, if the Insurance Company is able to prove that the owner/insured was aware or had notice that the licence was fake or invalid and still permitted the person to drive, the insurance company would no longer continue to be liable.”

Key Takeaways

• Insurers cannot deny claims solely based on the driver having a fake license.
• Employers are expected to verify if the driver has a driving license, but are not expected to verify the genuineness of the license unless there is a reason to doubt it.
• The onus is on the insurer to prove that the insured was negligent or had knowledge of the fake license.
• The judgment protects the insured who have taken reasonable care in employing a driver.

Directions

The Supreme Court set aside the judgment of the National Commission and held the insurance company liable to indemnify the appellant.

Development of Law

The ratio decidendi of this case is that an insurance company cannot deny a claim solely based on the fact that the driver had a fake driving license, unless it can prove that the insured was negligent or had knowledge of the fake license. This case reinforces the principle that the onus of proof lies on the insurer to prove that the insured was negligent or had knowledge of the fake license. This judgment clarifies the extent of due diligence expected from an employer while hiring a driver and protects the insured who have taken reasonable care.

Conclusion

The Supreme Court’s judgment in Nirmala Kothari vs. United India Insurance Co. Ltd. clarifies that insurance companies cannot reject claims merely because the driver of the insured vehicle possessed a fake driving license. The court emphasized that the onus is on the insurer to prove that the insured was negligent or had knowledge of the fake license. This ruling protects the interests of insured individuals who have taken reasonable care in employing drivers and ensures that insurance companies cannot evade their liability on technical grounds.