Module 4

Motor Vehicle Insurance

Motor Insurance is a type of insurance policy which covers your vehicles from potential risks
financially. Policyholder's car or two wheeler is provided financial security against damages
arising out of accidents and other threats. In India, motor insurance is mandatory.

Motor insurance is just like any other insurance policy, but unlike other insurances, it is
‘Mandatory'! And, as the name suggests, it is an insurance that is related to all types of motor
vehicles-motorcycles, cars, jeeps, commercial vehicles etc.

Motor insurance has been made mandatory by the government for your safety and the safety of
others. And the yearly premium you pay is just a meagre sum when compared to the advantages
it has to offer you in case of, god forbid, any mishap.

Here’s yet another misconception many people have, Motor Insurance covers only the motor
vehicle. Wrong again!

Motor insurance can be classified on 2 things:

 The type of vehicle for which you are taking insurance

 The amount of coverage that you want to cover your vehicle for

Types of Motor Insurance in India

1. Private Car Motor Insurance Policy

This is motor insurance that needs to be taken for any private car owned by an individual and is
mandated by the Government of India. It covers the vehicle for damages against accidents, fire,
natural disasters, theft among others and also covers for any injury to the owner. It also covers
any damages and injuries caused to the third party.

2. Two-Wheeler Insurance Policy

This insurance policy covers two-wheelers like a scooter or a bike and is mandated by the
Government of India. The two-wheeler is covered against damages from accidents, disasters,
fire, theft, etc. as well as any damages and injuries to the third-party. It also offers a mandatory
personal accident cover for the owner rider and can be taken for passengers too.

3. Commercial Vehicle Insurance Policy

This insurance covers all vehicles that are not used for personal use. his type of insurance covers
all those vehicles which are not used for personal purpose. Trucks, buses, heavy commercial
vehicles, light commercial vehicles, multi-utility vehicles, agricultural vehicles, taxi/cab,
ambulances, auto-rickshaw etc. are some vehicles that are covered under this insurance.

Importance of Motor Insurance in India

With the update in the Motor Vehicle Act 2019 it has become even more essential to know about
the various aspects that affect you as an owner of a vehicle. Motor insurance is a major aspect
that you need to know about. Now a days a car has become very much important than a luxury.
Going or planning for long-distance travelling ,most of the people prefer to travel in the ease and
comfort of their cars instead of using other forms of transport. Whenever you buy a car, motor
insurance policy is equally valuable & important .

Purchasing a decent policy is becoming a overall responsibility for people everywhere as motor
insurance policy is actually mandatory in most of the countries . Because of the high premium
rates today , many buyers believe that it's a waste of money . However motor insurance policy,
over the long run in future , becomes a very important & valuable investment. Motor insurance is
becoming necessary for everyone who owns a car no matter how perfect they drive a car or how
super driver they are .

Accidents may be caused by anyone, and motor insurance policy helps to ensure that you as well
as your car to stay safe . Lots of insurance providers not merely buy insurance policy for destroys
& damages to the car but in addition also go for a medical insurance as a part of the policy . In
this way , if anything at all happen to you in your vehicle , your insurance policy will take care of
all the expenses for that as well . Nowadays an additional advantage to motor insurance is third
party liability . Because of this benefit , anyone that gets injured due to any sort of accident he is
involved in, it could also be covered under your insurance policy.

The best perfect motor insurance policy is available for you will help you to decide that
depending on whatever your needs and requirements are . Due to the vast market of insurances
you can find lots of competitors in the market today , lots of insurance companies provides you
with customized insurance policies. If in case more than one person drives the car in your
family , be ensure your insurance policy protect them as well . The best motor insurance policy
includes damage or loss to your car because of burglary and theft , natural disasters , riots and
malicious acts , fire and explosions , etc . A number of motor insurance policies include a feature
which is known as the no-claim bonus – this is applicable during the time when you don't a claim
for insurance in quite a long time, so in this case the motor insurance provider will provide you
with a discount on your premium rates .

A motor insurance policy have to match the size of your pocket without being a strain on your
expenses . With the ideal amount of insurance coverage and exclusions , your insurance policy
are going to be effective for your vehicle and situation . Even though if you are planning to
purchase motor insurance policy for your child's car , it's advisable to purchase it on your own
name , as younger drivers get extra expensive insurance rates . Many insurance companies in
India include loyalty discounts , therefore if you've bought some other insurance policy from
them , they may give you a price reduction or discount on your motor insurance premium.

Claim in Motor Vehicle Insurance

The Motor Vehicle Act, 1988 provides provisions related to claims for losses that occurred due
to a motor accident to person (self) or other (third party). In the case where a third party claims
the damage, the report of the accident should be reported or given to the nearest police station
and then to the insurance company. Whereas, in case of a self claim, the person shall have to
inform the insurance company and the police before the damage gets fixed. However, an
application for claims under Motor Vehicles Acts, 1988, can be made or filled by the owner
himself, or else in case of the death of the owner the nearest kin of the deceased is legally
entitled to make such application. Further, the accident victim, having age less than the age of 18
years, cannot go for an accidental claim on its own but can go through a lawyer.

However, Application for claiming compensation before the Tribunal may be made by the
accident victim himself or by the owner of the vehicle or in case death has been caused due to
accident the application for claims can be made through the legal heirs of the deceased or all or
any person duly authorized by the person injured or by all or any of the legal representative of
the injured person. Whereas the person, who himself is responsible for reckless and careless
driving, will not be entitled to claim compensation. In the case of Manjuri Bera v. Oriental
Insurance Company, the Supreme Court held that the father and the brother would be eligible to
claim compensation under section 140 of the Motor Vehicle Act, 1988 as it does not cease
because there is an absence of dependency.

How to file a claim under vehicle insurance?

If you have a vehicle insurance policy, then you need to make sure that you file a claim
immediately after your vehicle is damaged or if you meet with an accident. The procedure to file
a claim differs as per the circumstances that caused the damage. Following are three major
situations in which you can file a vehicle insurance claim.

1. In the case of own damage claim –

 Inform the insurance company by calling on their customer services number or other modes
and intimate a claim
 Submit the duly filled and signed (only by insured) claim form along with copies of
Registration Certificate and driving license
 Get the help of the insurance company in finding an appropriate garage to repair your vehicle
 Do not start repairs or dismantling of the vehicle until it has been inspected by the insurance
company (or a representative) and type of settlement has been finalized.
 Other documents such as FIR copy etc. may be requested by the company
 For cashless claim, once the repairs have been completed, you may collect your vehicle after
paying your portion of the repair amount.
 For non-cashless claims, you may pay the repairer in full and submit original repair bills to
the insurance company for appropriate reimbursement.

2. Third-party claim:

 Informing the nearest police station is a must

 Intimate the insurance company as soon as possible
 Submit a duly signed claim form, along with FIR copy, RC copy and Driving License copy
 Other documents that are requested by the company must be submitted at the earliest

3. Theft claim:

 Firstly, inform the insurance company and the police about the theft.
 The insurance company will be sending a detailed process along with details of the
investigator.
 Submit all documents requested by the insurance company.
 You must cooperate with all investigations of the insurance company (or a representative).
 If the vehicle is not traced, obtain the Non-Traceable Certificate from the police and
173Cr.PC issued by a criminal court
 If your claim is approved, submit any remaining documents before the settlement of the
claim.

Procedure for claiming compensation:

Where the accident has resulted in the damage of its own vehicle, the person has to inform the
police and the insurance company before fixing the damages. When it is a case of third party
claims, then first it should be reported to the police, and after that, the insurance company is
concerned.

The owner has to apply to claim damages, or in the case of death of the owner, the nearest
relative shall apply. In case of death of the third party, the application for claiming compensation
can be filed by the legal heirs of the deceased.

The application shall be filed with other documents such as:

 FIR copy
 Documents showing the age of the victims
 Copy of Medico-Legal Certificate/ Death Report/ Post-mortem Report, as the case may be,
 Proof showing income statement of the deceased or injured,
 Proof of Identity of Claimant,
 Cover note of third party policy, etc.
No Fault Liability
No-fault liability has been incorporated under Chapter X in Sections 140-144 of the Motor
Vehicle Act, 1988. Section 140 deals with liability without fault. It talks about death or
permanent disability of any person arising out of the use of the motor vehicle(s).

The owner(s) shall be jointly and severally liable to pay the compensation. In case of death, the
liability is fixed at Rs. 50,000, permanent disability, the owner(s) are liable to pay Rs. 25,000.
Under this section, the claimant is not required to plead negligence on part of the owner or
driver. The claim for compensation by the claimant is not defeated by "wrongful act, neglect or
default" on part of the person who suffered death or permanent disability.

This section also provides for compensation under other provisions of the same act or any other
provisions, except Section 163A of the Motor Vehicle Act,1988, that would provide relief in
addition to the fixed amount provided under Section 140. The amount of compensation to be
given under any other law is deducted reduced from the amount of compensation payable under
this section. The provision that deals with interim compensation were added in 1994. The phrase
"accident arising out the use of a motor vehicle(s)" has been used to widen the applicability of
the Section.

The phrase "accident arising out the use of a motor vehicle(s)" has been used to widen the
applicability of the Section. The word "use" has a wide connotation to cover the period when the
vehicle is not moving and is stationary and the use of a does not cease on account of the vehicle
having been rendered immobile on account of a break-down or mechanical defect or accident.

The accident should be connected with the use of the motor vehicle. The connection need not be
direct and immediate. The expression used enlarges the field of protection made available to the
victims and is in consonance with the beneficial object underlying the enactment.

There are certain defences available for the claims under section 140 to the insurance company.
In the case of National Insurance Co. v. Tumu Guruva Reddy, it was held that

"The burden is upon the insurer to prove that (1) the owner of the vehicle has committed not
mere breach, but a willful breach of the conditions embodied in the policy (2) the insurer is
liable under Section 149 of the Motor Vehicles Act to indemnify the owner of the vehicle
involved in the accident who suffered a decree for both fault liability as well as no-fault
liability, and (3) the insurer can validly take the defence available under Section 149 of the
Act not only in respect of fault liability but also in respect of no fault liability."

Section 141 contains provisions as to other rights to claim compensation for death or permanent
disablement, while Section 142 defines the term "permanent disability" for the purpose of
Section 140. Section 142(a) discusses "permanent privation of the sight of either eye or the
hearing of either ear or privation of any member or joint." Section 142(b) contains provision
relating to "destruction or permanent impairing of the powers of any member or joint", and 142()
discusses "permanent disfiguration of the head or face."

Section 163A and 163B were inserted in the Motor Vehicle Act, 1988 by an amendment of 1994,
in view of the observations that were being by the Supreme Court in regard to no-fault liability.
Through this amendment, the Second Schedule was inserted in the Act which introduced a
structured formula. The schedule provides for compensation for third party fatal accident/injury
cases claims. The scope of no-fault liability was expanded in order to provide the aggrieved with
an opportunity to claim maximum compensation.

According to Section 163A, the owner or insurer shall be liable to pay compensation according
to the Second Schedule in case of "death or permanent disablement due to accident arising out of
the use of motor vehicle, compensation."

Permanent disability for the purpose of this provision has the same meaning and extent as in the
Workmen's Compensation Act, 1923. Under this provision, it is not necessary to establish or
plead "wrongful act or neglect or default" on part of the owner(s). Section 163B bars a person
from claiming compensation under both Section 140 and 163A.

The Second Schedule provides a structured formula that is applicable to both fatal accidents and
permanent classified as per age and multipliers are prescribed. Victims of death cases are
classified on the basis of annual income.

The amount prescribed in cases of fatal accidents is not to be less than Rs. 50, 000. Under the
schedule, in addition to prescribed compensation, general damages such as funeral expenses, loss
of consortium in case the claimant is the spouse, loss of estate and medical expenses incurred
prior to the death by the victim are also prescribed.

The Motor Vehicle Act, 1988 was introduced to consolidate and amend the law relating to motor
vehicles. It was enacted and brought into effect as welfare legislation. With the introduction of
the principle of no-fault liability under Section 140 and 163A, the objective has been achieved to
an extent. But there have been numerous judgments over the years which show that there still
exists a need to widen the scope in order to benefit the victims and the claimants.

Extent of Statutory Liability

Historical Background of third Party Insurance

Chapter VIII of the 1939 Act and Chapter XI of the 1988 Act have been enacted on the pattern of
several English statutes which is evident from the report of Motor Vehicles Insurance
Committee,1936-1937'In order to find out the real intention for enacting Ss.96 of the 1939 Act
which corresponds to Ss.149 of the 1988 Act, it is relevant to trace the historical development of
the law for compulsory third –party insurance in England. Prior to 1930, there was no law of
compulsory insurance in respect of third party rights in England. As and when an accident took
place an injured used to bring action against the motorist for recovery of damages.

But in many cases it was found that the owner of the offending vehicle had no means to pay to
the injured or the dependant of the deceased and in such a situation the claimants were unable to
recover damages. It is under such circumstances that various legislations were enacted. To meet
the situation it is for the first time the Third Parties' Rights Against Insurance Act,1930' was
enacted in England. The provision of this Act found place in S.97 of the 1939 Act which gave to
the third party a right to sue insurer directly. Subsequently, the road traffic Act,1930' was
enacted which provided for compulsory insurance for Motor Vehicles. The provisions of this Act
were engrafted in S.95 of the 1939 Act and S.146 of the 1988 Act. It is relevant that under S.38
of the English Act of 1930, certain conditions of insurance policy were made ineffective so far as
third parties were concerned .The object behind the provision was that the third party should not
suffer on account of failure of the insured to comply with those terms of the insurance policy.

Subsequently in 1934, the second Road Traffic Act was enacted. The object of this legislation
was to satisfy the liability of the insured. Under this enactment three actions were provided .The
first was to satisfy the award passed against the insured. The second was that, in case the insurer
did not discharge its liability the claimant had the right to execute decree against the insurer.
However, in certain events, namely, what was provided in section Ss.96(2)(a) which corresponds
to section 149 (2)(a) of the 1988 Act, the insurer could defend his liability.

The third action provided for was contained in S.10(3) of the Road Traffic Act. Under this
provision, the insurer could defend his liability to satisfy decree on the ground that insurance
policy was obtained due to misrepresentation or fraud. This provision also found place in S.149
(2)(b) of the 1988 Act. While enacting the 1939 Act and the 1988 Act, all the three actions were
engrafted in S.96 of the 1939 Act and Section 149 of the 1988 Act. However neither the 1939
Act, nor the 1988 Act conferred greater rights on the insurer than what had been conferred in
English Law. Thus, in common law, an insurer was not permitted to contest a claim of a claimant
on merits, i.e. offending vehicle was not negligent or there was contributory negligence. The
insurer could contest the claim only on statutory defences specified for in the statute. Thus while
enacting Chapter VIII of the 1939 Act or Chapter XI of the 1988 Act, the intention of the
legislature was to protect third party rights and not the insurers even though they may be
nationalized companies.

Prohibition on use of motor vehicles without statutory insurance policy, object of is to enable the
third party suffering injuries from use of the motor vehicle to get damages irrespective of the
financial capacity or solvency of the driver or the owner.

What is 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
you (the insured) injure who claims damages against you is the third party.

Section 145(g) "third party" includes the Government. National Insurance Co. Ltd. v. Fakir
Chand, third party should include everyone (other than the contracting parties to the insurance
policy), be it a person traveling in another vehicle, one walking on the road or a passenger in the
vehicle itself which is the subject matter of insurance policy.

Salient Features of Third Party Insurance

 Third party insurance is compulsory for all motor vehicles. In G. Govindan v. New India
Assurance Co. Ltd.,Third party risks insurance is mandatory under the statute .This
provision cannot be overridden by any clause in the insurance policy.
 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. In practice the money is always paid direct by
the insurance company to the third party (or his solicitor) and does not even pass through the
hands of the insured person.
 In third party policies the premiums do not vary with the value of what is being insured
because what is insured is the legal liability' and it is not possible to know in advance what
that liability will be.
 Third party insurance is almost entirely fault-based.(means you have to prove the fault of the
insured first and also that injury occurred from the fault of the insured to claim damages from
him)
 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.

Nature and Extent of Insurer's Liability (section 147)

According to the provisions of this section the policy of insurance must be issued by an
authorized insurer.It must be as per requirements as specified in subsection (2).It must insure
against liability in respect of death or bodily injury or damage to property of a third party. Third
party includes owner of the goods or his authorized representative carried in the vehicle and any
passenger of a public service vehicle.

The policy of insurance must cover:

1. Liability under the Workmen's compensation Act,1923 in respect of death or bodily injury
to any such employee

(a) engaged in driving the vehicle, or

(b) the conductor or ticket examiner if it is a public service vehicle ,or

2. any contractual liability.

Section 147 has to be given wider, effective and practical meaning so that it may benefit various
categories of persons entitling them to claim compensation from the insurer or the insured or
both. Insurer's liability commences as soon as the contract of insurance comes into force. The
liability remains in existence during the operation of the policy. If the existing policy is renewed
the risk is covered from the moment the renewal of the policy comes into force. If the accident
occurs before the renewal comes into existence, the insurer cannot be made liable. It is the
primary duty of the vehicle owner to prove that his vehicle was insured with a particular
company. If he fails to comply with it he will have to pay the entire amount of compensation in
the case. In case where there is a dispute in respect of the vehicle having been insured by an
assurance company, the tribunal must give its finding in the matter, it is its duty to do so. After a
certificate of insurance is issued it does not lie in the mouth of the insurer to deny his liability. If
the insurer has been a victim of fraud he can recover the amount from the insured by a separate
action against him.

3. Insurer's liability to Vehicle-owner

A contract of insurance is a personal contract between the insurer and the insured. It is for the
purpose of indemnifying the insured for damage caused due to accident by the vehicle , to a third
party. To make the insurer liable the policy of insurance must be in the name of the owner of the
vehicle.[9]Owner of the vehicle as defined in Section 2(30) is a person in whose name the motor
vehicle stands registered.

A person in possession of a vehicle under a hire-purchase agreement or an agreement of lease or

hypothecation is also covered by the definition, no matter he has exercised his option to purchase
the vehicle or not.

Section 157(1) makes it clear that when the owner of a vehicle transfers the ownership of the
vehicle , the policy of insurance and the certificate of insurance shall be deemed to have been
transferred in favour of the purchaser of the vehicle with effect from the date of its transfer.This
deemed transfer shall include transfer of rights and liabilities of the said certificate of insurance
and policy of insurance.

According to subsection (2) the transferee has to apply within 14 days from the date of transfer
to the insurer for effecting necessary changes in the certificate and in the policy of insurance.

If the certificate of insurance and the policy are not transferred , the insurer could not be made
liable even though the vehicle is transferred. It is to be remembered that an insurance policy is a
personal contract between the parties for indemnifying the insured in case of an accident covered
under the policy. If the vehicle is transferred by an insured to another person, the insurance
policy lapses upon the transfer. In such a case the benefit of the policy is not available to the
transferee, without an express agreement with the insurance company. When the insurance
policy lapses it would not be available to cover the liability of the purchaser of the vehicle.

4. Liability in respect of damage to property [S.147(2)]

For damage to property of a third party under 1939 Act the limit of liability is Rs 6000 in all,
irrespective of the class of the vehicle. Under 1988 Act the position as laid down by section 147
(2) in regard to liability is as under:

(i) For death or personal injury to a third party, the liability of the insurer is the amount of
liability incurred, i.e. for the whole amount of liability.

(ii) For damage to property of a third party the liability of the insurer is limited to Rs. 6000 as
was under the 1939 Act.

5. Liability of Insurer beyond the limits mentioned in the Act

Section 147 lays down the limits of liability of the insurer. However there is no bar for the
insurer undertaking a higher liability i.e. liability for a greater amount than that mentioned in the
Act. Thus the insured and the insurer can contract and can provide for a higher liability.

Compensation on structured formula basis

Section 163A in The Motor Vehicles Act, 1988

163A. Special provisions as to payment of compensation on structured formula basis.—

(1) Notwithstanding anything contained in this Act or in any other law for the time being in force
or instrument having the force of law, the owner of the motor vehicle or the authorised insurer
shall be liable to pay in the case of death or permanent disablement due to accident arising out of
the use of motor vehicle, compensation, as indicated in the Second Schedule, to the legal heirs or
the victim, as the case may be. Explanation.—For the purposes of this sub-section, “permanent
disability” shall have the same meaning and extent as in the Workmen’s Compensation Act,
1923 (8 of 1923).
(2) In any claim for compensation under sub-section (1), the claimant shall not be required to
plead or establish that the death or permanent disablement in respect of which the claim has been
made was due to any wrongful act or neglect or default of the owner of the vehicle or vehicles
concerned or of any other person.

(3) The Central Government may, keeping in view the cost of living by notification in the
Official Gazette, from time to time amend the Second Schedule.

COMPENSATION UNDER MOTOR VEHICLES ACT – AMENDMENT IN SECTION

163 A:

Third Party Motor Accident claims can be registered with Motor Accidents Claims Tribunal
(MACT) under the following Sections of the Motor Vehicles Act.

Section 140 – This is a No Fault Liability claim under which the compensation payable is as
under:

 Rs.50000/- For Death And Rs.25000/- For Permanent Disablement. This Is Fixed Amount.
No Need To Prove Wrongful Act/Negligence/Default Of The Owner Of The Vehicle.

Section 166 – This is a Fault Liability claim – Victim/Legal Heirs of victim have to prove in
the Court of Law the wrongful act/negligence/default of the owner causing injury/death.
Compensation is based on age/income/dependency etc.

Section 163 A – Amendment was made in the MV Act in 1994 and introduced a new Section
163 A.

 This Also Is On No Fault Liability Basis. However, Payment Is On Structured Formula

Basis. While Fixing The Compensation, The Following Parameters Are Taken Into Account
–
 Age And Income Of The Victim.
 For Calculation Of Compensation, The Maximum Annual Income Is Restricted To Rs.40000
 Provision Has Been Made For Compensation For Non Fatal Accidents I.E., Permanent
Disablement And Injury Claims On Formula Basis.
 Based On The Formula, The Maximum Compensation For Fatal Accident Claim Is
Rs.537000/- And Minimum Is Rs.50000/-.

Victim/Legal Heirs can claim under Section 140 on No Fault Liability basis and then can claim
under Section 166 on Fault Liability Basis. If Award is passed under Section 166,
compensation will be paid after reducing the amount received under Section 140.

If Victim/Legal Heirs claim under Section 163 A, they cannot make a claim under Section 166.

Amendment in Section 163 A –

Now, vide Gazette Notification dated 22nd May, 2018, modification has been made by the
Ministry of Road Transport & Highways in the provisions of Section 163 A. Compensation, on
No Fault Liability basis, as per amended provisions, is as under:

(a) Fatal Accidents – Rs.5 Lacs (Fixed amount, irrespective of income and age)

(b) Permanent Disablement – Rs.500000/- X percentage disability as per Schedule I of the

Employee’s Compension Act, 1923 (8 of 1923). However, minimum liability shall not be less
than Rs.50000/-.

(c) Minor Injury – Fixed compensation of Rs.25000/-.

On and from the date of 1st day of Jan., 2019, the amount of compensation specified in clauses
(a) to (c) above shall stand increased by 5% annually.

Net effect of Amendment under Section 163 A, which is beneficial to the victim/legal heirs, is as
under:

 Earlier, The Death Compensation Ranged From Rs.50000/- To Rs.537000/-. Not It Is Fixed
Rs.5 Lacs.
 For Permanent Disablement, Now The % Calculation Is Based On The Amount Of
Rs.500000/- (Fixed). Earlier It Used To Be On The Basis Of Yearly Income (Which Can Be
Any Amount Less Than Rs.500000/-).
 For Injuries, The Minimum Amount Of Compensation Was Rs.1000/- And Onwards. Not It
Is Fixed Compensation Of Rs.25000/-