HDFC ERGO GENERAL INSURANCE CO. LTD. v. AISA & Anr.

1. It is urged by Mr. A.K.Soni, learned counsel for the Appellant that since the driver of the vehicle involved in the accident was the owner himself and since he did not possess a valid driving licence at the time of the accident, the Appellant Insurance Company ought not to have been made liable to pay the compensation at all. It is urged that it was the liability of the owner/insured to pay the compensation in such cases.

2. The issue of satisfying third party liability even in case of breach of the terms of insurance policy is settled by 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 terms and conditions of the insurance policy. It is well settled that the breach must be conscious and willful. Even if a conscious breach on the part of the insured is established, still the insurer has a statutory liability to pay the 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 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 the exclusion clause in the contract of Insurance must be read down being in conflict with the main statutory provision enacted for protection of the victims of motor accidents. It was laid down that the victim would be entitled to recover the compensation from the insurer irrespective of the breach of any condition of the insurance policy. The three Judge Bench of the Supreme Court in Sohan Lal Passi (supra) 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 without a valid driving licence. The relevant portion of the report is extracted hereunder:

3. 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 it may recover the compensation paid from the insured. The relevant portion of the report is extracted hereunder:

4. Thereafter the three Judge Bench of the Supreme Court in National Insurance Company Limited v. Swaran Singh & Ors., (2004) 3 SCC 297 again emphasised that the liability of the insurer to satisfy the decree passed in favour of the third party was statutory. It approved the decisions in Sohan Lal Passi, Kamla and Lehru. Paras 73 and 105 of the report are extracted hereunder:

5. This Court also in Oriental Insurance Company Limited v. Rakesh Kumar and Others, 2012 ACJ 1268 and other appeals decided by a common judgment dated 29.02.2012 noticed some divergence of opinion in National Insurance Company Limited v. Kusum Rai & Ors., (2006) 4 SCC 250, National Insurance Company Limited v. Vidhyadhar Mahariwala & Ors., (2008) 12 SCC 701; Ishwar Chandra & Ors. v. The Oriental Insurance Company Limited & Ors., (2007) 10 SCC 650 and Premkumari & Ors. v. Prahalad Dev & Ors., (2008) 3 SCC 193 and held that in view of the three Judge Bench decisions of the Apex Court in Sohan Lal Passi (supra) and Swaran Singh, the liability of the Insurance Company vis-à-vis the third party is statutory. If the Insurance Company successfully proves conscious breach of the terms of the insurance policy, then it would be entitled only to recovery rights against the owner or driver, as the case may be.

6. Thus, even if the Insurance Company proved that there was willful and conscious breach of the terms and conditions of the insurance policy, it was only entitled to recovery rights which have been granted in the case.

7. The appeals therefore have to fail; the same are dismissed in limine.