Introduction to Third Party Insurance terms

Insurance is a contract whereby one party agrees to compensate the loss or discharge the liability of
another person. And in case of motor insurance in India, this also includes the loss suffered by third
person. Motor insurance and all third-party rights and liabilities with respect to it are covered by
Motor Vehicle Act 1988, in India. Part XI of the Acti.e. Insurance of motor vehicle against third party
risks (from section 145 to 164), solely deals with provisions related to third party. Apart from the said
Act, the Insurance Act, 1938 via its section 32-D creates obligation of insurer in respect of insurance
business in third party risks of motor vehicles.

It is a mandate, provided by legislature under section 146, to not to use any vehicle in public place
without any valid third-party insurance. As the following law suggests, that, drivers must carry at least
a minimum of bodily injury liability and property damages liability coverage, causing third party
insurance as a mandate for all motor vehicle. In Govindan v. New India Assurance Co. Lt,it was
stated that third party insurance is compulsory under the law should not be overridden by any clause
in the policy.Having said that, there are two types of policies in motor insurance sector. One is first
party and other is known as third party. India has a mandate regarding the later one. And these third-
party policies are beneficial to both insured person and third parties.

There are some specific requirements to be followed by these policies as per Indian law. An
authorised insurer insures persons or class of persons against death or bodily injury to person
(including owner of goods or his authorised representative) or to any passenger of public service
vehicle and any damage to goods carried by or to any property of third-party vehicle cause by the use
of vehicle in public place. Such policies shall cover any liability in respect of any accident up to
the limit of amount of liability incurred and a limit of rupees six thousand, in case of damage to any
property of third party. Further requirements of the act are that a certificate of insurance must be
granted to insured person. The certificate should be granted in prescribed forms and manner and
containing the prescribed particulars of any condition subject to which the policy is issued and of any
other prescribed matters. Moreover, if certificate of insurance has not been granted and a cover note
of insurance policy has been provided to insured, it is a duty of insurer to grant such certificate within
seven days of expiry of cover note.

Motor Vehicle Act 1988 allows transfer of certificate of insurance under section 157. When one party
wishes to transfer the ownership of vehicle, he also has to transfer the insurance policy to new owner.
The policy shall deem to be transferred to new owner from the date of its transfer. The procedure
stated in the framework prescribes that transferee shall have to apply within fourteen days from date
of transfer to make necessary changes with the concerned authority. In Karnataka SRTC v New India
Assurance Company Ltd., vehicle, in this case, was not completely transferred and was given on hire
under lease agreement by registered owner. Court determined the question of insurance company’s
liability and it was held that an agreement for lease on hire cannot be said to be an excluded
contractual liability and thus, the insurer was held liable. In Rikhi Ram case, (decided under the
ambit of Motor Vehicle Act, 1939), Court held that the liability of the insurer does not cease in so far
as the third-party victims are concerned even if the transfer of the vehicle is affected without notice to
the insurer.

Further, not withstanding the provisions of Workmen’s Compensation Act, 1923, no need of a policy
to cover liability in respect of death or bodily injury to an employee. Adding to it, such employee
should be engaged in driving the vehicle, engaged as a conductor or examiner of tickets of public
service vehicle or if it is a goods carriage, being carried in the vehicle. Apart from these
circumstances, policy shall not be required to cover any contractual liability. Also, there is no
necessity of insurance against third party risk, if appropriate government has exempted any vehicle of
central government, state government, any local authority or of any state transport undertaking. A
vehicle carrying or when it is meant to carry hazardous or dangerous goods, it shall be insured under
Public Liability Insurance Act, 1991.
Further, insurance companies are entitled to drop a claim if the vehicle was used for hire or reward
(when on date of accident it did not had permit for hire and reward), for organised racing
and speed testing, where a vehicle is a transport vehicle and did not had permit to transport the goods
on date of accident, without side-car being attached where the vehicle is a motor cycle.Insurance
company, by an express clause, exclude by name, any person is disqualified for holding or obtaining
licence or does not have licence, for the period of disqualification. Insurance Company can also
exclude its liability for injury caused or contributed to by conditions of war, civil war, riot or civil
commotion. And any 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. In addition, it
is highly required that insured person take reasonable steps to prevent the accidental event.In  New
India Assurance Co. Ltd. v. Yeo Beng Chow it was observed that insurance company filed case
against policy holder in Federal Court of Malaysia after discharging the liability. It was contended by
insurers that insured person failed to take reasonable steps to safeguard the motor vehicle from loss
and maintaining it in efficient manner. The privy council allowed the appeal which was from a
judgment rendered by the Federal Court of Malaysia. His Lordship, Viscount Dilhorne in delivering
the judgment of the Board said: Insurance companies can insert such conditions as they choose and if
the conditions inserted are accepted by the insured, they are binding upon him. There is no obligation
on an insurance company to relate the conditions to particular aspects of the policy.

Liability of Insurer towards Third Party– As per section 147(2) of Motor Vehicle Act, policies
shall cover any liability in respect of any accident up to the limit of amount of liability incurred and
a limit of rupees six thousand, in case of damage to any property of third party. In  Bhoopathy v.
Vijayalakshmithe Madras High Court is of opinion that no bar is to be imposed as to when the
liability of insurer ceases to exist i.e. it is void. It was the case of fracture of wrist, caused due to
motor accident in which plaintiff was dashed against and injuries were sustained. Event took place on
4th December 1958, where car originally belonged to second defendant, which was sold to first
defendant on 11 August 1958. The insurance policy of second defendant covered him till 12
September 1958. Thereupon the first defendant applies to another policy and starts paying premiums.
The Court held that when the vehicle was transferred, insurance policy collapsed. And insurance
company of second defendant was not liable for paying the damages. In National Insurance Co. Ltd.
v. Swaran Singh,  The Apex Court observed:

“The liability of insurer is statutory one. The liability of insurer to satisfy the decree passed in favour
of third party is also statutory. The insurance company cannot shake off its liability to pay
compensation only by saying that at the relevant point of time the vehicle was driven by a
person having no licence.”

Hit and Run Motor Accident – Insurer, for the time being carrying business of general insurance in
India, shall compensate for death or grievous hurt resulting from hit and run motor accidents. In case
of death, a fixed sum of twenty-five thousand rupees and in case of grievous hurt, a fixed sum of
twelve thousand and five hundred rupees. But if the said compensation amount is been already paid to
legal heirs or person injured under any other provision of act then such compensation amount will be
refunded back to insurer

No need to establish death or permanent disablement–The claimant is entitled to get compensation

amount for death or permanent disablement due to accident as per second schedule, to person or his
legal heirs and he is not required to plead or establish death or permanent disablement arisen due to
any wrongful act or neglect or default.