New India Assurance Co. Ltd. v. Mukesh Kumar & Ors.

1. This application has been moved by the Appellant for deletion of Respondents no.4 to 6. Since the Appellant Insurance Company has not challenged the amount of compensation, Respondents no.4 to 6 are not really concerned with the instant appeal. Their presence is dispensed with.

2. Service is complete. 2015:DHC:1512

3. Application stands disposed of. MAC.APP.1305/2012

4. The only ground of challenge raised by the learned counsel for the Appellant Insurance Company is that the Appellant having proved conscious and willful breach of the terms and conditions of the insurance policy, it ought to have been completely exonerated from payment instead of making it liable to pay its share of compensation and then to recover it later from the insured.

5. The issue of satisfying third party liability even in case of breach of terms of insurance policy is settled by a three Judge Bench report of the Apex Court in Sohan Lal Passi v. P. Sesh Reddy, (1996) 5 SCC 21. As per Section 149(2) of the Motor Vehicles Act, 1988, (the Act), an insurer is entitled to defend an action on the grounds as mentioned under Section 149(2)(a)(i) and (ii) of the Act. Thus, the onus is on the insurer to prove that there is breach of the conditions of the insurance policy. It is well settled that the breach must be conscious and willful. However, even if a conscious breach on the part of the insured is established, still the insurer has a statutory liability to pay compensation to the third party and it will simply have the right to recover the same from the insured/tortfeasor either in the same proceedings or by independent proceedings as the case may be, as ordered by the Claims Tribunal or the Court. The question of statutory liability to pay the compensation was also discussed in great detail by a two Judge Bench of the Supreme Court in Skandia Insurance Company Limited v. Kokilaben Chandravadan, (1987) 2 SCC 654 wherein it was held that an exclusion clause in the contract of Insurance must be read down being in conflict with the main statutory provision enacted for protection of victim of accidents. It was laid down that the victim would be entitled to recover the compensation from the insurer irrespective of the breach of the conditions of the insurance policy. The three Judge Bench of the Supreme Court in Sohan Lal Passi analysed the corresponding provisions under the Motor Vehicles Act, 1939 and the Motor Vehicles Act, 1988 and approved the decision in Skandia. Again in New India Assurance Co., Shimla v. Kamla and Ors., (2001) 4 SCC 342, the Supreme Court referred to the decision of the two Judge Bench in Skandia and the three Judge Bench decision in Sohan Lal Passi and held that the insurer who has been made liable to pay the compensation to third parties on account of issuance of certificate of insurance, shall be entitled to recover the same from the insured if there was any breach of the policy condition on account of the vehicle being driven by a driver without a valid driving licence. The relevant portion of the report is extracted hereunder:

6. Again, in United India Insurance Company Ltd. v. Lehru & Ors., (2003) 3 SCC 338, in para 18 of the report, the Supreme Court referred to the decisions in Skandia, Sohan Lal Passi and Kamla and held that even where it is proved that there was a conscious or willful breach as provided under Section 149(2)(a)

(ii) of the Motor Vehicles Act 1988, the Insurance Company would still remain liable to the innocent third party but may recover the compensation paid from the insured. The relevant portion of the report is extracted hereunder:

20. ……….If it ultimately turns out that the licence was fake, the insurance company would continue to remain liable unless they prove that the owner/insured was aware or had noticed that the licence was fake and still permitted that person to drive. More importantly, even in such a case the insurance company would remain liable to the innocent third party, but it may be able to recover from the insured. This is the law which has been laid down in Skandia, Sohan Lal Passi and Kamla cases. We are in full agreement with the views expressed therein and see no reason to take a different view.”