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‘No Fault Liability’

Sec 140 of Motor Vehicles Act, 1988 deals with the liability without fault. The claimant
involved in a motor vehicle accident is not required to prove wrongful act, or default on the
part of the owner of the vehicle or by any other person.

Section 140 of the Act lays down the principle of No fault liability. According to this
principle the liability of paying compensation is imposed on the owner of the motor vehicles
even if no fault exists in relation to the accident.

The claim under these provisions is neither defeated or affected in any way, by any wrongful
act, neglect or default on the part of the claimant. In other words, the legal defence of
‘contributory negligence’ is not available to the motorist and his insurer.

These provisions apply in cases where the claimant suffers death or permanent disablement,
as defined in the Act. The compensation to be paid in case of no fault liability is

 Death, Rs, 50,000


 Permanent Disablement Rs. 25,000

The object behind no-fault principle is to give minimum statutory relief expeditiously to
the victim of the road accident or his legal representative. To that extent, these provisions
constitute a measure of social justice.

Where no-fault liability is concerned, there is clearly a departure from the usual common law
principle that a claimant should establish negligence on the part of the owner or driver of the
motor vehicle before claiming any compensation for death or permanent disablement arising
out of a motor vehicle accident.

The right to claim compensation under Sec 140 in respect of death of permanent disablement
of any person shall be in addition to any other right to claim compensation in respect thereof
under any other provision of this Act or of any other law for the time being in force.
Hit and Run motor accident

The term ‘Hit and Run motor accident’ means an accident arising out of the use of a motor
vehicle or motor vehicles the identity whereof cannot be ascertained in spite of reasonable
efforts for the purpose.

Thus one of the essential of ‘hit and run motor accident’ is that the vehicle which caused the
accident is untraceable. Even though positive efforts have been put in to ascertain the identity
of the vehicle yet it is untraceable.

Government has created ‘Solatium Fund’ for the victims of ‘hit and run motor accident case
in accordance with Section 163 of the Motor Vehicles Act, 1988

According to Section 161 the amount of compensation is-

 Rs 25000 in case of death


 Rs 12500 in case of grievous hurt
Third Party Insurance

There are two quite different kinds of insurance involved in the damages system. One is
Third Party liability insurance, which is just called liability insurance by insurance companies
and the other one is first party insurance.

A third party insurance policy is a policy under which the insurance company agrees to
indemnify the insured person, if he is sued or held legally liable for injuries or damage done
to a third party. The insured is one party, the insurance company is the second party, and the
person injured who claims damages against you is the third party.

Salient Features of Third Party Insurance

 Third party insurance is compulsory for all motor vehicles.

 Third party insurance does not cover injuries to the insured himself but to the rest of

the world who is injured by the insured.

 Beneficiary of third party insurance is the injured third party, the insured or the policy

holder is only nominally the beneficiary of the policy.

 Third party insurance is almost entirely fault-based

 Third party insurance involves lawyers aid

 The third party insurance is unpopular with insurance companies as compared to first

party insurance, because they never know the maximum amounts they will have to

pay under third party policies.


Legal defence available to the Insurance Companies towards
third party

Insurance Companies have been allowed no other defence except the following

 Use of vehicle for hire and reward not permit to ply such vehicle.

 For organizing racing and speed testing;

 Use of transport vehicle not allowed by permit.

 Driver not holding valid driving license or have been disqualified for holding

such license.

 Policy taken is void as the same is obtained by non-disclosure of material fact.

In recent time, Supreme Court while dealing with the provisions of Motor Vehicle Act has
held that even if the defence has been pleaded and proved by the Insurance Company, they
are not absolve from liability to make payment to the third party but can receive such amount
from the owner insured.

Recently in a dynamic judgment in case of National Insurance Co. Ltd vs Swaran Singh ,

the Supreme Court held that ;

 Proving breach of condition or not holding driving licence or holding fake licence or

carrying gratuitous passenger would not absolve the Insurance Company until it is

proved that the said breach was with the knowledge of owner.

 Learner's licence is a licence and will not absolve Insurance Company from liability.

This judgment has created a landmark history and is a message to the Government to remove

such defence from the legislation as the victim has to be given compensation.
Principle Of Indemnity

The principle of indemnity asserts that on the happening of a loss the insured shall be put
back into the same financial position as he used to occupy immediately before the loss.
In other words, the insured shall get neither more nor less than the actual amount of loss
sustained.

The principle of indemnity was well cared for in the leading case of Castellain V. Preston
(1883) in the following way “A contract of insurance is necessarily a contract of indemnity
(except life and personal accident insurance) and of indemnity only, and this means that in
case of a loss the insured shall be fully indemnified, but shall never be more than fully
indemnified.

The indemnity principle may be adjusted in three ways:

 Valued policies for subject matters which do not have a measurable value
 Allowing more than indemnity,
 Allowing less than indemnity
Principle Of Contribution

The contribution principle in insurance is a rule that specifies what happens when a person
buys insurance from multiple companies to cover the same event, and that event occurs. The
principle says that if the policyholder files a claim with one company, that company is
entitled to collect a proportional amount of money from the other involved insurance
companies.

Principle of contribution is implemented when multiple insurance policies are covering the
same property or loss, the total payment for actual loss is proportionally divided among all
insurance companies.

For contribution to apply, the policies must be contracts of indemnity, and the party holding
insurable interest in the property must be the same, the perils causing the damage must be
common, and the subject matter must also be the same.

Therefore, principle of contribution only applies to those insurance contracts which are
contracts of indemnity.

When Contribution Principle Operates

Before contribution principle to be operate the following conditions must be fulfilled;

 There must be more than one policy involved and all the policies covering the loss

must be in force

 All the policies must cover the same subject-matter

 All the policies must cover the same peril causing the loss

 All the policies must cover the same interest of the same insured
Principle of Utmost Good Faith

The principle of Utmost Good Faith is also known as Uberrimae Fides. It means that both
the policyholder and the insurer need to disclose all material and relevant information to each
other before commencement of the contract

Under Section 45 of Insurance Act 1938 states that if within 2 years of commencement or
revival of the insurance policy, the insurer get to know that there has been a non-disclosure or
misrepresentation of material facts, then the insurer can call the policy null and void.

It simply means that if within 2 years the Insurance Company finds out that the policy holder
has not stated the complete truth or has lied while filling up the proposal form, then it can
cancel the policy and decline the claim.

Thus, it is the duty of the proposer to make full disclosure. In the event of failure to disclose
material facts, the contract can be held null and void. The duty of disclosure in life insurance
operates till the risk commences.

The burden of proof to show non-disclosure or misrepresentation is on the insurance


company and the onus is a heavy one

Insurance Contract being a financial contract needs to follow Utmost Good faith. Commercial
contracts are subject to the principle of Caveat Emptor i.e. let the buyer beware.

Hence it becomes very important for the policyholder to disclose all relevant information at
the time of commencement of the policy so that his family doesn’t have to face difficulty at
the time of getting the claim in the unfortunate event of death of the life insured.