Supreme Court directs Insurance Company to pay compensation with recovery rights in tractor accident case: Shivaraj vs. Rajendra (2018) INSC 771

Date of the Judgment: 5th September 2018

Citation: (2018) INSC 771

Judges: Dipak Misra, CJI and A.M. Khanwilkar, J.

Can an insurance company avoid paying compensation to an injured party simply because the vehicle was being used in a manner not covered by its policy? The Supreme Court of India addressed this question in a case involving a tractor accident, where the injured claimant was a coolie travelling on the tractor. The court had to determine the liability of the insurance company when the tractor, insured for agricultural purposes, was used to transport a person. The judgment was delivered by a bench comprising of Dipak Misra, CJI and A.M. Khanwilkar, J.

Case Background

On February 23, 2010, at approximately 8:30 a.m., Shivaraj (the appellant) was traveling as a coolie on a tractor bearing Registration No. KA-15-T-2011, near Bangalore. The tractor driver was driving rashly and negligently, causing the tractor to hit a large mud stone and overturn. Shivaraj sustained grievous injuries as a result of the accident. He was initially treated at North Side Hospital and Diagnostic Center, Bangalore, from February 23, 2010, to February 27, 2010, and later at Bowring and Lady Curzon Hospital, Bangalore, from February 27, 2010, to May 7, 2010, where he underwent four surgeries. Despite the medical treatment, Shivaraj suffered permanent physical disabilities, including 59.4% in both lower limbs, 18.9% towards Vertebra, Clavicle and Scapula, and 80% towards urethral injury, totaling about 67% disability to the whole body. At the time of the accident, Shivaraj was 25 years old and working as a coolie, earning approximately Rs. 6,000 per month. Due to his disabilities, he became unable to work as a coolie and lost his income.

Timeline

Course of Proceedings

Shivaraj filed a claim petition before the III Additional Senior Civil Judge, Member, MACT, Bangalore, under Section 166 of the Motor Vehicles Act, 1988, seeking compensation of Rs. 15,00,000 for the injuries sustained. The Motor Accident Claims Tribunal (MACT) ruled in favor of Shivaraj, holding that the accident occurred due to the rash and negligent driving of the tractor driver. The tribunal determined that Shivaraj was traveling as a loader and not as a gratuitous passenger. It also noted that the insurance policy covered the risk of 1+4, and the insurance company admitted issuing the policy and its validity on the date of the accident. The tribunal calculated the compensation based on a notional income of Rs. 150 per day, applying a multiplier of 18, and assessed the permanent disability at 60% to the whole body. The total compensation awarded was Rs. 9,02,324, with 8% interest from the date of the petition until realization, payable jointly by the owner of the vehicle and the insurer.

The insurance company (respondent No. 2) appealed the award, while Shivaraj also filed a separate appeal seeking enhanced compensation. The High Court of Karnataka at Bengaluru allowed the insurance company’s appeal, absolving it from liability, stating that Shivaraj was traveling in the tractor in breach of the policy terms, which covered agricultural purposes only. The High Court dismissed Shivaraj’s appeal for enhanced compensation, stating that the amount awarded by the tribunal was just and proper.

Legal Framework

The case primarily revolves around the interpretation of Section 166 of the Motor Vehicles Act, 1988, which deals with the filing of claims for compensation in motor accident cases. The Motor Vehicles Act, 1988, mandates that every vehicle must be insured against third-party risks. The insurance policy in question covered the risk of 1+4, which typically means the driver and four other persons. However, the policy was for agricultural purposes, and the High Court held that the appellant was traveling in breach of the policy terms. The key issue is whether the insurance company can be held liable despite the breach of policy terms.

Arguments

Appellant’s Arguments (Shivaraj):

• The appellant argued that the accident occurred due to the rash and negligent driving of the tractor driver, resulting in grievous injuries.
• The appellant contended that the tribunal had correctly assessed the permanent disability at 60% to the whole body and awarded just compensation.
• The appellant sought an enhancement of the compensation amount, arguing that the disability was 67% to the whole body and not 60%.

Respondent’s Arguments (Insurance Company):

• The insurance company argued that the tractor was insured for agricultural purposes only and not for carrying goods or passengers.
• The insurance company contended that the appellant was traveling in the tractor in breach of the policy terms and conditions.
• The insurance company argued that it was not liable to compensate the owner or the claimant as the appellant was traveling in the tractor as a passenger, which was not covered by the policy.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in the judgment. However, the core issue that the court addressed was:

• Whether the High Court was correct in absolving the insurance company from liability based on the breach of policy terms, given the fact that the tractor was insured for agricultural purposes and not for carrying passengers.
• Whether the High Court should have directed the Insurance Company to pay the compensation amount to the claimant with liberty to recover the same from the tractor owner.

Treatment of the Issue by the Court

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

Authorities

The Supreme Court relied on the following cases:

Judgment

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

How each authority was viewed by the Court?

• The Supreme Court followed the principles laid down in National Insurance Co. Ltd. Vs. Swarna Singh & Ors. [2004] 3 SCC 297, Mangla Ram Vs. Oriental Insurance Co. Ltd. [2018] 5 SCC 656, Rani & Ors. Vs. National Insurance Co. Ltd. & Ors. 2018 (9) SCALE 310 and Manuara Khatun and Others Vs. Rajesh Kumar Singh And Others [2017] 4 SCC 796. These cases established that even if there is a breach of policy conditions, the insurance company is liable to pay compensation to the claimant, with the liberty to recover the same from the owner of the vehicle.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to balance the interests of the injured claimant with the terms of the insurance policy. While the Court acknowledged that the claimant had breached the terms of the insurance policy by travelling in a tractor meant for agricultural purposes, it emphasized the principle that the insurance company should not be completely absolved of its liability towards third parties. The Court’s reasoning was heavily influenced by previous judgments that had established the principle of “pay and recover,” which ensures that victims of motor accidents receive compensation, while also allowing insurance companies to recover their losses from the vehicle owners who breach policy conditions. The court also considered the fact that the claimant had suffered grievous injuries and permanent disability, which necessitated compensation to ensure that he was not left without any recourse. The Court was also influenced by the fact that the Tribunal had taken into account all the relevant aspects and provided for just and proper compensation amount for different heads as are permissible.

Fact:Law:

Logical Reasoning:

The Court considered the argument that the insurance company should not be liable due to the breach of policy terms. However, the Court rejected this argument in light of the principle of “pay and recover” established in previous cases. The Court reasoned that it was necessary to protect the interests of the injured claimant, who had suffered grievous injuries and permanent disability. The Court also reasoned that the insurance company should not be completely absolved of its liability towards third parties, even if there was a breach of policy terms. The Court therefore decided that the insurance company should pay the compensation amount to the claimant first and then recover it from the owner of the tractor.

The Supreme Court held that the High Court was correct in finding that the appellant had travelled in breach of the policy conditions. However, the Court also held that the High Court should have directed the Insurance Company to pay the compensation amount to the claimant with liberty to recover the same from the tractor owner. The Court relied on previous judgments to support its decision. The Court also affirmed the compensation amount determined by the tribunal and upheld by the High Court.

The Court quoted, “That conclusion reached by the High Court, in our opinion, is unexceptionable in the fact situation of the present case.”, acknowledging that the High Court was correct in absolving the insurance company of liability. However, the Court also stated, “At the same time, however, in the facts of the present case the High Court ought to have directed the Insurance Company to pay the compensation amount to the claimant (appellant) with liberty to recover the same from the tractor owner”, and further, “The appellant may, therefore, succeed in getting relief of direction to respondent No.2 Insurance Company to pay the compensation amount to the appellant with liberty to recover the same from the tractor owner (respondent No. 1).”, thus giving the direction to the Insurance Company to pay the compensation first and then recover from the owner.

Key Takeaways

• Insurance companies cannot completely avoid liability in motor accident cases even if there is a breach of policy terms.
• In cases where a vehicle is used in a manner not covered by the insurance policy, the insurance company may still be liable to pay compensation to the claimant, with the right to recover from the owner.
• The principle of “pay and recover” is upheld to protect the interests of injured claimants.
• The compensation amount determined by the tribunal, if just and proper, should not be disturbed by higher courts.

Directions

The Supreme Court directed the Oriental Insurance Company Ltd. to pay the compensation amount determined by the tribunal and affirmed by the High Court to the appellant. The insurance company was granted the liberty to recover the same from the owner of the offending tractor in accordance with law.

Development of Law

The ratio decidendi of the case is that even if there is a breach of policy conditions, the insurance company is liable to pay compensation to the claimant, with the liberty to recover the same from the owner of the vehicle. This case reaffirms the principle of “pay and recover” in motor accident cases. The Supreme Court has not changed the previous position of law but has rather affirmed it.

Conclusion

The Supreme Court partly allowed the appeals, directing the insurance company to pay the compensation to the injured claimant, Shivaraj, with the right to recover the same from the tractor owner. The court upheld the compensation amount determined by the tribunal. This judgment reinforces the principle that insurance companies cannot escape liability towards third-party victims of motor accidents, even if there is a breach of policy conditions. The court also affirmed that the insurance company can recover the amount from the owner of the vehicle in such cases.