Supreme Court Upholds Insurer’s Liability Despite Fake Driver’s License in Motor Accident Case: IFFCO Tokio General Insurance Co. Ltd. vs. Geeta Devi and others (2023) INSC 954 (30 October 2023)

Introduction

Date of the Judgment: 30 October 2023

Citation: (2023) INSC 954

Judges: C.T. Ravikumar, J and Sanjay Kumar, J

Can an insurance company avoid paying compensation in a motor accident claim if the driver had a fake license? The Supreme Court of India recently addressed this critical question in a case involving IFFCO Tokio General Insurance Co. Ltd. The core issue was whether the insurance company could deny liability because the driver of the vehicle involved in the accident possessed a fake driving license. The Supreme Court, in this case, clarified the responsibilities of insurance companies and vehicle owners in such scenarios. The judgment was delivered by a bench comprising Justice C.T. Ravikumar and Justice Sanjay Kumar, with the opinion authored by Justice Sanjay Kumar.

Case Background

On May 9, 2010, Dharambir sustained fatal injuries when a Tempo vehicle, bearing Registration No. HR69D-0246, driven rashly and negligently, collided with his motorcycle. His dependents, including his parents, widow, and children, filed a claim petition before the Motor Accident Claims Tribunal, Rohini Courts, Delhi, seeking compensation under Section 140 and 166 of the Motor Vehicles Act, 1988. The respondents in the claim petition were Ujay Pal, the driver of the Tempo; Netra Pal Singh, the owner of the vehicle (who passed away during the proceedings and was represented by his legal heirs); and IFFCO Tokio General Insurance Co. Ltd., the insurance company.

The Tribunal awarded a compensation of ₹13,70,000 with interest to the dependents. However, the Tribunal also found that the driver, Ujay Pal, had a fake driving license. Consequently, the Tribunal directed the insurance company to pay the compensation but granted it the right to recover the same from the vehicle owners. The vehicle owners appealed this decision before the Delhi High Court.

Timeline

Course of Proceedings

The Motor Accident Claims Tribunal, Rohini Courts, Delhi, initially ruled in favor of the dependents of the deceased, awarding them compensation. However, the Tribunal also held that the insurance company was not liable to pay the compensation due to the driver possessing a fake driving license. The Tribunal granted the insurance company the right to recover the compensation amount from the owners of the Tempo. Aggrieved by this, the vehicle owners appealed to the Delhi High Court. The Delhi High Court reversed the Tribunal’s decision, stating that the insurance company had neither pleaded nor proved that the vehicle owner did not take adequate steps to verify the genuineness of the driving license.

Legal Framework

The case primarily revolves around Section 149 of the Motor Vehicles Act, 1988. This section outlines the duties of insurers to satisfy judgments and awards against persons insured in respect of third-party risks.

Specifically, Section 149(2) of the Motor Vehicles Act, 1988, states:

‘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 an insurer to whom notice of the bringing of any such proceedings is so given shall be entitled to be made a party thereto and 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) ……; or
(ii) a condition excluding driving by a named person or persons or 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 disqualification; or………….’

This section allows an insurance company to defend against a claim if there has been a breach of a specified condition of the policy, such as the vehicle being driven by a person not duly licensed.

Arguments

The insurance company argued that the High Court accepted the widow’s hearsay evidence regarding the driving skill test without corroboration. They contended that the driver’s license was fake, which constituted a breach of the insurance policy.

The insurance company submitted that the vehicle owner had not taken due diligence in verifying the genuineness of the driving license of the driver.

The High Court, on the other hand, held that the insurance company did not prove that the owner failed to verify the genuineness of the driver’s license.

The High Court also noted that the insurance policy did not mandate a driving skill test.

Issues Framed by the Supreme Court

The Supreme Court considered the following issue:

1. Whether the insurance company could be absolved of its liability to pay compensation to the claimants due to the driver of the vehicle possessing a fake driving license.

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 several key cases and legal provisions to reach its decision.

Cases:

• Skandia Insurance Co. Ltd. vs. Kokilaben Chandravadan and others [1987] 2 SCC 654 (Supreme Court of India): This case, concerning Section 96(2)(b)(ii) of the Motor Vehicles Act, 1939 (which is similar to Section 149(2)(a)(ii) of the 1988 Act), established that the insurer must prove a willful breach by the insured. The court observed that the term ‘breach’ implies an infringement or violation of a promise or obligation. The insurer has to establish that the insured was guilty of an infringement or violation of a promise that a person who is duly licensed will have to be in charge of the vehicle.
• Sohan Lal Passi vs. P. Sesh Reddy and others [1996] 5 SCC 21 (Supreme Court of India): This case approved the decision in Skandia Insurance Co. Ltd. and clarified that the insurance company must prove the insured willfully violated the policy condition. This case held that the insurance company has to establish that the insured was guilty of an infringement or violation of a promise. The insurer has also to satisfy the Tribunal or the court that such violation or infringement on the part of the insured was wilful.
• National Insurance Co. Ltd. vs. Swaran Singh and others [2004] 3 SCC 297 (Supreme Court of India): This case dealt with the interpretation of Section 149 of the Act of 1988 and instances where the driving license was fake. The court held that the insurance company must prove a willful violation of the law by the insured. The court also held that the insurer has to prove that the insured did not take adequate care and caution to verify the genuineness of the license.
• United India Insurance Co. Ltd. vs. Lehru and others [2003] 3 SCC 338 (Supreme Court of India): This case was considered in the Swaran Singh case, and it was clarified that it does not mean that an owner of a vehicle can, under no circumstances, have any duty to make an inquiry with regard to the genuineness of the driving licence.
• Ram Chandra Singh vs. Rajaram and others [2018] 8 SCC 799 (Supreme Court of India): This case reiterated that the mere fact that a driving license was fake does not automatically absolve the insurer of liability. It was held that only if the owner was aware of the fact that the license was fake but still permitted such driver to drive the vehicle that the insurer would stand absolved.

Legal Provisions:

• Section 149 of the Motor Vehicles Act, 1988: This section outlines the duties of insurers to satisfy judgments and awards against persons insured in respect of third-party risks.
• Section 149(2)(a)(ii) of the Motor Vehicles Act, 1988: This provision allows an insurance company to defend against a claim if there has been a breach of a specified condition of the policy, such as the vehicle being driven by a person not duly licensed.

Judgment

How each authority was viewed by the Court?

✓ The Court followed Skandia Insurance Co. Ltd. vs. Kokilaben Chandravadan and others [1987] 2 SCC 654* and held that the term ‘breach’ implies an infringement or violation of a promise or obligation, and the insurer must prove a willful breach by the insured.

✓ The Court approved Sohan Lal Passi vs. P. Sesh Reddy and others [1996] 5 SCC 21* and reiterated that the insurance company must prove the insured willfully violated the policy condition.

✓ The Court followed National Insurance Co. Ltd. vs. Swaran Singh and others [2004] 3 SCC 297* and clarified that the insurer must prove a willful violation of the law by the insured and that the insurer has to prove that the insured did not take adequate care and caution to verify the genuineness of the license.

✓ The Court considered United India Insurance Co. Ltd. vs. Lehru and others [2003] 3 SCC 338* and clarified that it does not mean that an owner of a vehicle can, under no circumstances, have any duty to make an inquiry with regard to the genuineness of the driving licence.

✓ The Court followed Ram Chandra Singh vs. Rajaram and others [2018] 8 SCC 799* and reiterated that the mere fact that a driving license was fake does not automatically absolve the insurer of liability.

The Supreme Court stated that the insurance company did not raise the plea that the owner of the vehicle allowed Ujay Pal to drive knowing that his license was fake. The court emphasized that the insurance policy did not require the vehicle owner to undertake verification of the driving license of the driver. The court stated that the insurance company has to prove willful breach on the part of the vehicle owner.

The Court held that once a seemingly valid driving license is produced by a person employed to drive a vehicle, unless such license is demonstrably fake on the face of it, warranting any sensible employer to make inquiries as to its genuineness, or when the period of the license has already expired, or there is some other reason to entertain a genuine doubt as to its validity, the burden is upon the insurance company to prove that there was a failure on the part of the vehicle owner in carrying out due diligence apropos such driving license before employing that person to drive the vehicle.

The Supreme Court dismissed the special leave petition and upheld the Delhi High Court’s decision.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the principle that an insurance company cannot deny liability unless it proves a willful breach of the insurance policy by the vehicle owner. The Court emphasized that the burden of proof lies with the insurer to demonstrate that the vehicle owner was aware of the fake license or failed to exercise due diligence in verifying it. The Court also noted that the insurance policy did not mandate verification of the driver’s license with the RTO, and thus, the owner could not be held liable for a breach of policy conditions.

The Court’s reasoning was based on the following points:

The Court rejected the insurance company’s argument that the vehicle owner should have verified the driver’s license with the RTO, stating that such a condition was not part of the insurance policy. The Court also noted that the insurance company did not even raise the plea that the owner was aware of the fake license.

The Court quoted from Skandia Insurance Co. Ltd. vs. Kokilaben Chandravadan and others [1987] 2 SCC 654* stating:

‘14. Section 96(2)( b)(ii) extends immunity to the insurance company if a breach is committed of the condition excluding driving by a named person or persons or by any person who is not duly licensed, or by any person who has been disqualified from holding or obtaining a driving licence during the period of disqualification. The expression ‘breach’ is of great significance. The dictionary meaning of ‘breach’ is ‘infringement or violation of a promise or obligation’ (see Collins English Dictionary ). It is therefore abundantly clear that the insurer will have to establish that the insured is guilty of an infringement or violation of a promise that a person who is duly licensed will have to be in charge of the vehicle. The very concept of infringement or violation of the promise that the expression ‘breach’ carries within itself induces an inference that the violation or infringement on the part of the promisor must be a wilful infringement or violation.’

The Court also quoted from Sohan Lal Passi vs. P. Sesh Reddy and others [1996] 5 SCC 21* stating:

‘In other words, once there has been a contravention of the condition prescribed in sub-section (2)( b)(ii) of Section 96, the person insured shall not be entitled to the benefit of sub-section (1) of Section 96. According to us, Section 96(2)( b)(ii) should not be interpreted in a technical manner. Sub-section (2) of Section 96 only enables the insurance company to defend itself in respect of the liability to pay compensation on any of the grounds mentioned in sub-section (2) including that there has been a contravention of the condition excluding the vehicle being driven by any person who is not duly licensed. This bar on the face of it operates on the person insured. If the person who has got the vehicle insured has allowed the vehicle to be driven by a person who is not duly licensed then only that clause shall be attracted. In a case where the person who has got insured the vehicle with the insurance company, has appointed a duly licensed Driver and if the accident takes place when the vehicle is being driven by a person not duly licensed on the basis of the authority of the Driver duly authorised to drive the vehicle whether the insurance company in that event shall be absolved from its liability? The expression ‘breach’ occurring in Section 96(2)( b) means infringement or violation of a promise or obligation. As such the insurance company will have to establish that the insured was guilty of an infringement or violation of a promise. The insurer has also to satisfy the Tribunal or the court that such violation or infringement on the part of the insured was wilful. If the insured has taken all precautions by appointing a duly licensed Driver to drive the vehicle in question and it has not been established that it was the insured who allowed the vehicle to be driven by a person not duly licensed, then the insurance company cannot repudiate its statutory liability under sub-section (1) of Section 96.’

The Court further quoted from National Insurance Co. Ltd. vs. Swaran Singh and others [2004] 3 SCC 297* stating:

‘(iii) The breach of policy condition e.g. disqualification of the driver or invalid driving licence of the driver, as contained in sub-section (2)(a)(ii) of Section 149, has to be proved to have been committed by the insured for avoiding liability by the insurer. Mere absence, fake or invalid driving licence or disqualification of the driver for driving at the relevant time, are not in themselves defences available to the insurer against either the insured or the third parties. To avoid its liability towards the insured, the insurer has to prove that the insured was guilty of negligence and failed to exercise reasonable care in the matter of fulfilling the condition of the policy regarding use of vehicles by a duly licensed driver or one who was not disqualified to drive at the relevant time.
(iv) Insurance companies, however, with a view to avoid their liability must not only establish the available defence(s) raised in the said proceedings but must also establish “breach” on the part of the owner of the vehicle; the burden of proof wherefor would be on them.
(v) The court cannot lay down any criteria as to how the said burden would be discharged, inasmuch as the same would depend upon the facts and circumstances of each case.
(vi) Even where the insurer is able to prove breach on the part of the insured concerning the policy condition regarding holding of a valid licence by the driver or his qualification to drive during the relevant period, the insurer would not be allowed to avoid its liability towards the insured unless the said breach or breaches on the condition of driving licence is/are so fundamental as are found to have contributed to the cause of the accident. The Tribunals in interpreting the policy conditions would apply “the rule of main purpose” and the concept of “fundamental breach” to allow defences available to the insurer under Section 149(2) of the Act.
(vii) The question, as to whether the owner has taken reasonable care to find out as to whether the driving licence produced by the driver (a fake one or otherwise), does not fulfil the requirements of law or not will have to be determined in each case.’

Key Takeaways

• Insurance companies cannot deny liability in motor accident claims solely based on the driver possessing a fake driving license.
• The burden of proof lies with the insurance company to demonstrate that the vehicle owner was aware of the fake license or failed to exercise due diligence.
• Vehicle owners are not obligated to verify the genuineness of a driving license with the RTO unless there is a clear reason to doubt its validity.
• Insurance policies must clearly specify any conditions that require vehicle owners to verify driving licenses with the RTO.
• Insurance companies should not raise pleas as a matter of course without reference to the facts of the case and/or the evidence available therein.

Directions

The Supreme Court did not issue any specific directions in this case.

Development of Law

The ratio decidendi of this case is that an insurance company cannot deny liability in a motor accident claim solely on the ground that the driver had a fake driving license, unless it proves that the vehicle owner was aware of the fake license or failed to exercise due diligence in verifying it. This judgment reinforces the principle that the burden of proof lies with the insurer to establish a willful breach of the policy by the insured. This case also clarifies that there is no obligation on the part of the vehicle owner to verify the genuineness of the driver’s license with the RTO unless there is a clear reason to doubt its validity. This judgment does not change the previous position of law, but rather reinforces and clarifies the existing principles.

Conclusion

In conclusion, the Supreme Court dismissed the special leave petition filed by IFFCO Tokio General Insurance Co. Ltd., affirming the Delhi High Court’s decision. The Court held that the insurance company could not avoid liability based on the driver’s fake license, as it failed to prove that the vehicle owner was aware of the fake license or did not take due diligence. This judgment reinforces the principle that insurance companies must prove a willful breach of policy conditions by the insured to deny liability and that vehicle owners are not obligated to verify the genuineness of driving licenses with the RTO unless there is a clear reason to doubt their validity.