Motor Insurance

1. Write a brief note on insurance of motor vehicle against third-party risks.

A. Third-party insurance is compulsory for all vehicle-owners as per the Motor

Vehicles Act. It covers the legal liability for the damage a owner-cum driver may
cause to a third party – bodily injury, death and damage to third party property –
while using his vehicle. Third Party cover does not pay for repair of damage to
vehicle of the insurer.

 WHO ARE FIRST AND SECOND PARTIES?

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 insurance company and the insured are first and
second parties, and any other who suffered death, injury or the person who claims
damages against the owner-cum driver is the third party.

 WHO IS THIRD PARTY?

As per section 145(g) of Motor Vehicle Act, 1988, “third party” includes the
Government. “Third party” include everyone (other than the contracting parties to the
insurance policy), be it a person travelling in another vehicle, one walking on the
road or a passenger in the vehicle itself which is the subject matter of insurance
policy.

 WHAT IS ‘ACT ONLY’ COVER?

Act only or Third-party policy covers only the legal liability of the owner-cum driver for
the damage caused to a third party like bodily injury, death and damage to third party
property – while using his vehicle. Third party insurance does not cover damages to
his own vehicle.

 HOW ‘ACT ONLY’ POLICY INCLUDES “Personal Accident” RISK?

Third party or Act Only policy also includes Personal accident risk of an owner-cum
driver in the event of permanent disablement or death in an accident. An inbuilt
coverage of Rs. 1 lakh in two-wheelers and Rs. 2 lakhs in all other vehicles for the
owner-cum-driver while traveling, mounting, or dismounting from the vehicle is
available. Accidental cover for co-passengers is optional.

 WHO ARE THE BENEFICIARIES?

Motor third-party insurance or the ‘act only’ cover, is a statutory requirement under
the Motor Vehicles Act. It is referred to as a ‘third-party’ cover since the beneficiary
of the policy is someone other than the two parties involved in the contract i.e. the
insured and the insurance company. The policy covers the insured’s legal liability for
death/disability of third-party loss or damage to third party property. The victim can
claim for compensation under ‘no fault liability’ or ‘fault liability’ of the Motor Vehicles
Act 1988. However, unlimited compensation is available only for bodily injury or loss
of life. In case of damage to a property, the insurer’s liability is limited to maximum
Rs.7.5 lakh.

 WHO DECIDES THIRD PARTY PREMIUM?

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 that what liability will be in case of accident. The compensation to the
accident victim is decided by the WC Court or MACT. IRDAI has done away with
tariffs. Now the premium on the third-party liability cover only is fixed by IRDAI.

Mandatory by law, Third-party cover protects owner-cum driver against the legal
liability of accidents. It also covers damage caused to any surrounding property. The
compulsory nature of car third-party insurance is justifiable as it makes the process
easier for the injured person to recover money from the insured/Insurer. Motor
Vehicle Act, 1988 mandate the Third-Party insurance for every vehicle used at public
place.

2. What is the duration of Motor Insurance Policy?

A. Traditionally, the validity for any kind of motor insurance has been for a period of
one year from the date of policy issuance. However, in July 2018, the Supreme
Court mandated that all new motor insurance policies will compulsorily cover third-
party liability for a period of three years.
3.Explain claims tribunal under the Motor Vehicles Act, 1988.

A. Established by Motor Vehicle Act 1988, Claims Tribunal is defined under Chapter
XII in Section 165 which authorises the State Government to constitute Claims
Tribunals to adjudicate on the claims for compensation which emerge from motor
vehicle accidents, ensuing death or bodily injury to persons or damage to any
property of third parties. Its objective is to provide remedy to the victims of accident
by motor vehicles in appropriate time without any procrastination. Motor Accident
Claims Tribunals [MACT Courts] handle those claims which are in relation to loss of
life/property or those injury cases arising out of Motor Accidents.

These Claims need to be directly filed in the respective Tribunal. MACT Courts are
administered by Judicial Officers from Delhi Higher Judicial Service. Currently these
Courts are under immediate supervision of the High Courts of various States. Under
Section 165 (2) the number of members to be assigned in Claims Tribunal is more
than/equal to two, one of them is to nominated as the Chairman and under Section
165 (3), the eligibility for the appointment of members is that the member should be
a Judge of a High Court or District Judge or ought to be eligible for appointment as a
Judge of a High Court or District Judge.

 Claim for Compensation under Motor Vehicle Act

Who can claim compensation?

Section 166 of MV Act 1988 illustrates who can plead for compensation in MACT in
a motor accident case. A person who has himself sustained injury or he owns the
property or he is the legal representative of the deceased who died in the motor
accident or he is the agent authorized by the injured person, or by the legal
representatives of the deceased, as the case maybe- can claim compensation.

When can compensation be claimed?

The limitation period i.e., the time period during which the claim for compensation
can be realised is six months from the occurrence of the accident. This time period
has been fixed under the 2019 Amendment Act. It means that after the expiration of
six months, application claiming damages cannot be claimed. It is further illustrated
that if the victim claims compensation according to the procedures formed under
Section 164 provided under Section 149, the application for compensation filed
before the Claims Tribunal shall be dropped.

Where can the application for compensation be filed?

It is at the option of the claimant to file an application for compensation. The

application can be filed either at the Claims Tribunal of the area where the accident
occurred or at the Claims Tribunal of the area where the claimant resides/ carries
business or at the Claims Tribunal of the area where the defendant resides.

Powers and Procedures of Claims Tribunal

Under Section 169, the Claims Tribunal has the power to formulate and establish its
own procedure. It possesses all the powers of the Civil Court in the case of taking
evidence on oath, of effectuating the attendance of witnesses and of mandating the
discovery and production of documents and material objects and for such other
purposes as may be specified.

It shall be considered a Civil Court for all the objectives to be fulfilled under section
195 and Chapter XXVI of the Code of Criminal Procedure, 1973. The importance of
this tribunal is that it ensures speedier adjudication of compensation suits without
shaping it into elaborate and long-drawn proceedings and hence, preventing undue
delay in providing remedy.

Claims Tribunal has the liberty to nominate one or more persons who are equipped
with certain special knowledge about any issue that is related with inquiry of the
compensation claims. With the 2019 Act, for successful execution of Tribunal's
decision on any compensation claim, it is authorised to execute a decree under the
Code of Civil Procedure, 1908 which is similar to that of Civil Court.

Under Section 175, the civil courts do not have the authority to entertain any
question related to compensation claims in areas where Claims Tribunal has been
constituted and is not answerable to the Civil Court for any action or decision made
by the Tribunal and also it does not have the authority to direct in any manner to the
Tribunal with regard to any issues of compensation claims.
 Fire Insurance

1.What is Fire Insurance business?

A. As per the Insurance Act 1938, under Section 2 (6A), Fire Insurance is defined as
“the business of effecting, otherwise than independently to some other class of
business, contracts of insurance against loss by or incidental to fire or other
occurrence customarily included among the risks insured against in fire insurance
policies.”

Fire insurance is an agreement whereby one party (the insurer), in return, for a
consideration undertakes to the indemnify the other party (the insured) against
financial loss which he may sustain by reason of certain defined subject matter being
damaged by the destroyed by fire or other defined perils up to an agreed amount.

2. Explain the nature of Fire Insurance ----?????

3. What are the incidental losses covered in Fire Insurance

A. It covers the consequential loss by fire, suffered by the insured. Incidental loss is
loss suffered by the insured in terms of loss in profit, salary, inflation incidental to the
occurrence of the fire.

4. What is principle of indemnity in case of fire?

The theory of indemnity seeks to compensate the insured for a loss suffered, and the
reimbursement should be designed to put him in as close to the same financial
condition after the loss as he was before the incident.

The insured does not make a claim in excess of the sum needed to recoup the
actual loss.

The insurers agree to make good the insured’s loss by cash reimbursement,
reinstatement, or substitution, so that the insured is completely indemnified, but only
up to the amount insured. The law forbids any insurance that allows the insured to
benefit from the loss of the item lost.
It will reduce the incentive to ruin the insured property in order to protect the capital.

The guaranteed sum is not a measure of indemnity; rather, it establishes a maximum

amount up to which the damage can be indemnified. The real sum of indemnity
would be the market value of the subject matter lost or injured by fire at the time and
location of the fire’s occurrence. It will never go over the guaranteed number.

When the real loss exceeds the guaranteed amount, only the insured sum is
charged; nothing else is paid. However, this theory does not apply when the policy is
a respected policy.

In this case, the source of indemnity would be the insured value, which was specified
in the policy when it was taken, rather than the real cash value of the property at the
time of failure. The real loss is not taken into account in a respected policy. In the
case of valued policies, the sum of the claim can be greater or less than the real loss
at the time of the burn.

Interpretation of Indemnity

The insured is entitled to complete indemnity if the amount guaranteed is adequate.

In reality, however, such perfection can be difficult to achieve.

Previously, the term ‘indemnity’ was interpreted to mean just material indemnity, i.e.,
tangible and material property.

Intangible losses, such as lost income, rent, and so on, were not paid. It was a
significant burden for honest insured people.

The policy is now expanded to cover not just the material loss of the insured
property, but also the ‘consequential loss.’
When a commercial property is destroyed by fire, not only is the material loss due to
the destruction of the house, plant, and stock protected, but also the consequential
loss of income due to the cessation of sales, wages, taxes, rent, prices, and so on.

Nowadays, all tangible and intangible damages are compensated, and consequential
damage is often included in the definition of indemnity.

Consequences of Indemnity in Fire Insurance

The following are the implications of the indemnity doctrine:

 Only the sum of the insured’s loss will be claimed.

 In the event of partial harm, the insured can only seek compensation for
the amount of damage sustained.

 The insured must assign to the insurer any rights he might have against a
third party arising from the loss.

 If the insured has affected more than one scheme, he is not entitled to
more than one full indemnity.

 The amount of indemnity varies depending on the type of land.

 The cost of repairing or restoring damaged buildings to their pre-loss state

is used to calculate indemnity.
Similarly, for equipment, the calculation of indemnity is the market value, which is
determined after depreciation and wear and tear.

The net cost to the insured is the indicator for stock in exchange. Indemnification
may take the form of money, repairs, replacement, or reinstatement.