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INSURANCE OF MOTOR VEHICLES AGAINST THIRD-PARTY RISKS

(SS. 145 TO 164)

QUESTION BANK

Q.1. Discuss briefly the provisions relating to the insurance of motor vehicles.

Q.2. Discuss provisions relating to the requirement of insurance policy and limits of liability.

Q.3. Discuss provisions relating to ‘hit and run’ accident cases.

SHORT NOTES

1. Hit and run cases.

SYNOPSIS

Introduction-

1. Insurance of motor vehicle is compulsory (S. 146)-

The meaning of ‘third party’-

2. Requirements of policy and limits of liability (S. 147)-

3. Settlement by insurance companies and procedure thereof (S. 149)-

S. 149 provides for settlement by the insurance company and procedure therefor.—

4. Duty of insurer to satisfy judgment and award (S. 150)-

5. Special provision for compensation in case of hit-and-run motor accident (S. 161)-

The compensation payable in hit-and-run cases is as follows:

Refund of Compensation (S. 163):-

6. Golden Hour Scheme (S. 162)-

The Motor Vehicle Accident Fund (S. 164 B)-

7. Payment of compensation in case of death or grievous hurt, based on “No-fault” (S. 164)—

Introduction-

Chapter XI of the Motor Vehicles Act, 1988, titled "Insurance of Motor Vehicles Against Third Party Risks," comprising Sections 145 to 164, serves as the legal foundation for mandatory third-party vehicle insurance in India. Its primary objective is social welfare. It ensures that victims of road accidents receive timely and adequate compensation, regardless of the financial status of the vehicle owner. We will discuss some important sections of this topic as follows.

1. Insurance of motor vehicle is compulsory (S. 146)-

The Motor Vehicle Act makes the insurance of motor vehicles compulsory. S. 146 provides that the owner of every motor vehicle is bound to insure their vehicle against third-party risk. It further provides that no person shall use except as a passenger or cause or allow any other person to use a motor vehicle in a public place unless the vehicle is insured.

Provided that in the case of a vehicle carrying, or meant to carry, dangerous or hazardous goods, there shall also be a policy of insurance under the Public Liability Insurance Act, 1991.

There are following exceptions to the above compulsory insurance rule-

a) A driver who is merely a paid employee and who is unaware of the absence of a policy is not said to have acted in contravention of the provisions of this Act. In other words, he is not liable for punishment for the absence of an insurance policy on the vehicle he drives.

b) Any vehicle owned by the Central Government or a State Government and used for purposes not connected with any commercial enterprise.

c) The appropriate Government may, by order, exempt from the operation of third-party insurance any vehicle owned by any of the following authorities, viz.

(i) the Central Government or the State Government's vehicle, used for Government purposes connected with any commercial enterprise.

(ii) any local authority.

(iii) any State Transport undertaking (within the meaning of S. 68 of the Act).

Provided that no such orders (of exemption from insurance) shall be made in relation to any such authority unless a fund has been established and is maintained by that authority in accordance with the rules made on that behalf under this Act for meeting any liability arising out of the use of any vehicle of that authority which that authority or any person in its employment may incur to third parties. The object of the provision is to protect the third party's interest.

The meaning of ‘third party’-

S. 145 (i) defines the concept of “third party” as including the Government, the driver and any other co-worker on a transport vehicle. The definition is not exhaustive; rather, it suggests that, except for the first and second party, i.e. the owner and the insurer of the motor vehicle, everybody else is a ‘third party’, including the government, the driver and any other co-worker on a transport vehicle.

A policyholder is treated as the first party, and the insurer (Insurance Company) is treated as the second party to the insurance contract. Other than the above two, to whom damage, injury, or death is caused, are called 'third party'. The government is the third party according to the Act.

2. Requirements of policy and limits of liability (S. 147)-

The first part of S. 147 lays down the requirements of insurance policies, viz.

(i) policy must be insured by a person who is an authorized insurer, and

(ii) person or class of persons mentioned in the policy must be insured against any liability which he may incur in respect of the death or bodily injury to any person, including the owner of the goods or his authorized representative carried in the vehicle or damage to any property of a third party caused by or arising out of the use of the vehicle in a public place, and

(iii) person or class of persons mentioned in the policy against the death of or bodily injury to any passenger of a public service vehicle caused by or arising out of the use of the vehicle in a public place.

(iv) Policy shall not be required to cover liability in respect of death or injury to any employee of the insured arising out of and in the course of his employment; such employees are-

(a) for death or personal injury to a third party, the whole amount of liability incurred.

(b) for damage to the property of a third party, the law has not changed the amount of Rs. 6000/-, but the IRDAI has laid the guideline to limit it up to Rs. 7,50,000 (seven lac fifty thousand only).

While there is no upper limit on liability for death or bodily injury to a third party, a distinction exists regarding property damage: although S.147(2)(b) of the Motor Vehicles Act still maintains a statutory limit of Rs. 6,000, the IRDAI has effectively enhanced this coverage to Rs. 7.5 Lakhs through mandatory regulatory guidelines for standard policies.

3. Settlement by insurance companies and procedure thereof (S. 149)-

S.149 of the Motor Vehicles Act, 1988, as substituted by the 2019 Amendment, introduces a mandatory, time-bound fast-track settlement mechanism. The section compels insurance companies to designate specialized officers who must evaluate accident data and present a formal settlement offer to the claimant within thirty days. By creating a statutory "pre-litigation" window, the provision aims to prioritize the immediate financial needs of road accident victims through consent-based settlements, thereby reducing the immense backlog of cases in Motor Accident Claims Tribunals (MACT) and ensuring that undisputed claims are resolved without the exhaustion of a prolonged trial.

S. 149 provides for settlement by the insurance company and procedure therefor.—

(1) The insurance company shall, upon receiving information of the accident, either from claimant or through accident information report or otherwise, designate an officer to settle the claims relating to such accident.

(2) An officer designated by the insurance company for processing the settlement of claim of compensation may make an offer to the claimant for settlement before the Claims Tribunal giving such details, within thirty days and after following such procedure as may be prescribed by the Central Government.

(3) If, the claimant to whom the offer is made under sub-section (2),—

(a) accepts such offer,— (i) the Claims Tribunal shall make a record of such settlement, and such claim shall be deemed to be settled by consent; and (ii) the payment shall be made by the insurance company within a maximum period of thirty days from the date of receipt of such record of settlement;

(b) rejects such offer, a date of hearing shall be fixed by the Claims Tribunal to adjudicate such claim on merits.

4. Duty of insurer to satisfy judgment and award (S. 150)-

An insurer must satisfy any judgment or award passed against the person covered by the policy as if the insurer were the judgment debtor. The insurer is liable to pay the compensation amount, along with any costs and interest awarded by the Tribunal.

However, the insurer must be made a party to the proceedings, and a notice of the claim must be served to them before the commencement of the trial to allow them an opportunity to defend. The insurer can defend the claim on the following limited grounds of policy breach:

(a) If the vehicle was used for hire or reward where the insurance contract or permit does not allow such use.

(b) If the vehicle was used for organized racing or speed testing.

(d) If the vehicle was used without a sidecar attached (where the vehicle is a motorcycle).

(e) If the driver was not duly licensed or was disqualified from holding a license at the time of the accident.

(f) If the liability for injury was caused or contributed to by war, riot, or civil commotion.

(g) If the policy is void because it was obtained by non-disclosure of a material fact or by false representation.

5. Special provision for compensation in case of hit-and-run motor accident (S. 161)-

A “Hit-and-run motor accident” is defined as an accident arising out of the use of a motor vehicle or motor vehicles, the identity of which cannot be ascertained despite reasonable efforts for that purpose [S. 161(1)(b)].

The Act provides a special scheme for compensation in such cases. The Central Government has established a Motor Vehicle Accident Fund to provide compensation in respect of the death or grievous hurt resulting from hit-and-run motor accidents.

The compensation payable in hit-and-run cases is as follows:

(i) In respect of the death of any person: A fixed sum of Rs. 2,00,000 (Rupees Two Lakhs).

(ii) In respect of grievous hurt to any person: A fixed sum of Rs. 50,000 (Rupees Fifty Thousand).

These claims are processed by the District Magistrate through a specialised inquiry.

Refund of Compensation (S. 163):-

If a claimant receives compensation under this section and subsequently receives compensation under any other provision of this Act or any other law for the same accident, the claimant is liable to refund the amount received under S.161 to the Central Government or the designated authority.

6. Golden Hour Scheme (S. 162)-

The concept of the "Golden Hour" is a critical life-saving provision introduced into the Motor Vehicles Act, 1988, through the 2019 Amendment. It reflects a shift toward prioritizing immediate trauma care for road accident victims to reduce mortality rates.

S.162 mandates the Central Government to develop a scheme for the cashless treatment of road accident victims during the Golden Hour.

Under S.2(12A) of the Motor Vehicles Act (inserted by the 2019 Amendment), the "Golden Hour" is defined as:

"The time period lasting one hour following a traumatic injury during which there is the highest likelihood that prompt medical care will prevent death."

The primary objective is to ensure that a victim receives immediate medical attention without the delay of upfront payments or insurance hurdles. This applies to (a) All road accident victims (regardless of who was at fault). (b) Treatment in both public and private hospitals that are networked or designated for this purpose.

The Motor Vehicle Accident Fund (S. 164 B)-

Under S.164B, a specific fund called the Motor Vehicle Accident Fund was established. This fund is used to: (a) Finance the cashless treatment. (b) Compensate victims of "Hit and Run" cases.(c) Provide payment to the hospitals for services rendered during the Golden Hour.

7. Payment of compensation in case of death or grievous hurt, based on “No-fault” (S. 164)—

S.164 of the Motor Vehicles Act, 1988, as introduced by the 2019 Amendment, establishes a robust framework for "No-Fault Liability," overriding all other existing laws to ensure immediate financial relief. Under this provision, the owner of the vehicle or the authorized insurer is strictly liable to pay a fixed compensation of Rs. 5 lakh in the case of death and Rs. 2.5 lakh in the case of grievous hurt. It is a Final Compensation and not an interim relief. Once a claimant accepts compensation under S.164, they cannot pursue a claim under S.166 (Fault-based liability).

The defining characteristic of this section is that the claimant is not required to plead or prove any "wrongful act, neglect, or default" on the part of the driver or owner. This effectively removes the burden of proving negligence, ensuring that victims or their legal heirs receive a substantial sum without the delays of a protracted trial focused on the mechanics of the accident. In other words, even the injured or representatives of the deceased driver negligent in driving the vehicle in their possession get a fixed amount as mentioned above. The scheme is also useful to claim compensation for the accidental death of an elderly person, a child etc.

This section serves as an expedited alternative to the traditional litigation process under S.166. While a claim under S.166 requires proving fault to potentially secure a higher award based on the "multiplier method," S.164 provides a guaranteed, liquidated amount for those seeking a certain and swift settlement. For the purposes of this section, "grievous hurt" is interpreted as defined under S.320 of the Indian Penal Code, covering severe injuries that impact life and limb. By significantly increasing the compensation amounts from the previous standards (formerly under S.140), the legislature has transformed S.164 into a vital social security tool that prioritizes the welfare of accident victims over the complexities of legal technicalities. S.140 (the old No-Fault provision) has been omitted by the 2019 Amendment and effectively replaced by the new S.164.

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