The project is an endeavor to accomplish a detailed study of the provisions of Motor Vehicles Act, 1988 dealing with “third party risks”. It shall also throw a light on the current scenario of “third party claims” in India and the necessary steps required to be taken in preventing and putting an end to fraudulent claims and other loopholes, if any, in the satisfaction of the claims.
SOURCES OF RESEARCH
Primary Sources – Central legislations.
Secondary Sources – Reports and Judicial decisions.
Methodology – It’s a doctrinal research. The research has been accomplished through relevant text analysis, that is, through interpretation of the provisions of Motor Vehicles Act, 1988.
Third party risks are to be compulsorily covered by the insurance policies and this is a provision which is for the larger public interest.
There are problems in the implementation of the provisions.
There is a need to amend the present legislation in light of the existing anomalies.
The first chapter introduces the concept of third party risk, its historical evolution and the objective of third party insurance.
The second chapter lays down the salient features of the Motor Vehicles Act, 1988 and judicial decisions dealing with the third party risks, liability of the insurer, etc.
The third chapter of the project throws a light on the existing anomalies in the present statute and the problems faced in satisfying the third party claims.
The fourth chapter deals with the possible suggestions to remove the anomalies and steps to improve the situation.
The fifth chapter concludes the project.
THIRD PARTY RISKS UNDER THE MOTOR VEHICLES ACT: AN INTRODUCTION
To understand the relevance of third party risks, third party insurance, compulsory nature to get a third part y insurance for all vehicles under the Motor Vehicles Act, 1988, the salient features of third party insurance, it is important to understand the concept of third party.
The word “third party” has not been defined in the Act or even in the Rules. Thus, the Courts have depended on the dictionary meaning.
In Stroud’s Judicial Dictionary, third edition, Vol.4, pages 3019-3020, the meaning of the word “third party is given as below –
“Third party risks”,  connotes that the insurer is one party to the contract, that the policy holder is another party, and that claims made by others in respect of the negligent use of the car, may be naturally described as claims by third party risks.”
Third party includes the government. 
Section 145(g) “third party” includes the Government. National Insurance Co. Ltd. v. Fakir Chand  , “third party” should include everyone (other than the contracting parties to the insurance policy), be it a person traveling in another vehicle, one walking on the road or a passenger in the vehicle itself which is the subject matter of insurance policy
Chapter 11 of the Motor Vehicles Act 1988 deals with the insurance of Motor Vehicles against third party risk.
The Motor Vehicles Act, 1988 which came into force on 1st July,1988 and which is divided into XIV Chapters, 217 Sections and two schedules, makes it compulsory for every motor vehicle to be insured. Chapters X,XI and XII of the 1988 Act deals with compensation provisions. Sections 140 to 144 (Ch.X) deal with liability with out fault in certain cases. Chapter XI (Ss. 145 to 164) deal with insurance of motor vehicles against third party risks.
Historical Background of third Party Insurance
Chapter VIII of the 1939 Act and Chapter XI of the 1988 Act have been enacted on the pattern of several English statutes which is evident from the report of ‘Motor Vehicles Insurance Committee, 1936-1937. In order to find out the real intention for enacting Ss.96 of the 1939 Act which corresponds to Ss.149 of the 1988 Act, it is relevant to trace the historical development of the law for compulsory third –party insurance in England. Prior to 1930, there was no law of compulsory insurance in respect of third party rights in England. As and when an accident took place an injured used to bring action against the motorist for recovery of damages. But in many cases it was found that the owner of the offending vehicle had no means to pay to the injured or the dependant of the deceased and in such a situation the claimants were unable to recover damages. It is under such circumstances that various legislations were enacted. To meet the situation it is for the first time ‘the Third Parties’ Rights Against Insurance Act,1930’ was enacted in England. The provision of this Act found place in S.97 of the 1939 Act which gave to the third party a right to sue insurer directly. Subsequently, ‘the road traffic Act,1930’ was enacted which provided for compulsory insurance for Motor Vehicles. The provisions of this Act were engrafted in S.95 of the 1939 Act and S.146 of the 1988 Act. It is relevant that under S.38 of the English Act of 1930, certain conditions of insurance policy were made ineffective so far as third parties were concerned .The object behind the provision was that the third party should not suffer on account of failure of the insured to comply with those terms of the insurance policy.
Subsequently in 1934, the second Road Traffic Act was enacted. The object of this legislation was to satisfy the liability of the insured. Under this enactment three actions were provided .The first was to satisfy the award passed against the insured. The second was that, in case the insurer did not discharge its liability the claimant had the right to execute decree against the insurer. However, in certain events, namely, what was provided in section Ss.96(2)(a) which corresponds to section 149 (2)(a) of the 1988 Act, the insurer could defend his liability. The third action provided for was contained in S.10(3) of the Road Traffic Act. Under this provision, the insurer could defend his liability to satisfy decree on the ground that insurance policy was obtained due to misrepresentation or fraud. This provision also found place in S.149 (2)(b) of the 1988 Act. While enacting the 1939 Act and the 1988 Act, all the three actions were engrafted in S.96 of the 1939 Act and Section 149 of the 1988 Act. However neither the 1939 Act, nor the 1988 Act conferred greater rights on the insurer than what had been conferred in English Law. Thus, in common law, an insurer was not permitted to contest a claim of a claimant on merits, i.e. offending vehicle was not negligent or there was contributory negligence. The insurer could contest the claim only on statutory defences specified for in the statute. Thus while enacting Chapter VIII of the 1939 Act or Chapter XI of the 1988 Act, the intention of the legislature was to protect third party rights and not the insurers even though they may be nationalized companies.”
Objective of Insurance of motor vehicle against third party risk-
This section is enacted to safeguard the rights of third party who may be involved in motor vehicle accidents. If a motor vehicle is involved in an accident with some person, who claims damages, it is the insurance company which is made liable by forcing the vehicle owner to get the vehicle insured before he can legally drive the same on the road. This is mandatory provision. No vehicle can be driven on the road without any insurance policy concerning third party risks. 
There is a purpose in the provision. The third party has no knowledge of the existence of an insurance policy. He cannot be expected to enquire from various insurance companies as to whether the vehicle in question is insured with them or not. This duty has been placed on the police. The provision is enacted to ensure insurance of all vehicles which are to be used in public places so that if a third party suffers any damage due to the use of the said vehicle in a public place, he would be a able to get damages for the same straightaway from the insurance company and the recoverability of such would not dependent upon the financial condition of the driver of the vehicle whose user led to the causing of the injuries. 
The most peculiar feature about this Chapter is that it is not only the real owner of the vehicle who can affect insurance, any other person using a motor vehicle or allowing it to be used at public place can also affect insurance. 
SALIENT FEATURES OF THIRD PARTY INSURANCE
Salient Features of Third Party Insurance
Ø No person shall use, except as a passenger, a motor vehicle in public places, unless there is a policy of insurance complying with the requirements of the MV Act. (Sec.146). Third party insurance is compulsory for all motor vehicles. In G. Govindan v. New India Assurance Co. Ltd.  , Third party risks insurance is mandatory under the statute. This provision cannot be overridden by any clause in the insurance policy.
Third party insurance is compulsory for all motor vehicles.
Ø Third party insurance does not cover injuries to the insured himself but to the rest of the world who is injured by the insured.
Ø Beneficiary of third party insurance is the injured third party, the insured or the policy holder is only nominally the beneficiary of the policy. In practice the money is always paid direct by the insurance company to the third party (or his solicitor) and does not even pass through the hands of the insured person.
Ø 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 what that liability will be.
Ø Third party insurance is almost entirely fault-based.(means you have to prove the fault of the insured first and also that injury occurred from the fault of the insured to claim damages from him).
Ø Third party insurance involves lawyers aid.
Ø The third party insurance is unpopular with insurance companies as compared to first party insurance, because they never know the maximum amounts they will have to pay under third party policies.
The MV Act, 1988: Salient features
The policy must be against any liability incurred by the insured in respect of death or bodily injury to any person or damage to any property of a third party. According to this section the policy does not require covering the liability of death or injuries arising to the employees in the course of employment except to the extent of liability under Workmen Compensation Act (Sec. 147).
The insurer can be made a party to the proceedings of the Motor Accident Claims Tribunal.(Sec. 149) .
When a cover note issued by an insurer is not followed by a policy within the prescribed time, the insurer is bound to notify the fact to the concerned Registering Authority. (Sec. 147)
A claimant is entitled to compensation of Rs.50,000 in cases of death or Rs.25,000 in the cases of injury without burden of proof of fault on the part of the vehicle owner. (Sec. 140-No fault liability).
A claimant may also seek compensation on the basis of the structured formula prescribed in the Act. (Sec. 163 A)
A claimant may at his option, approach the Tribunal having jurisdiction over the area
i) in which the accident occurred, ii) where he resides, iii) carries on business or iv) where the defendant resides. (Sec. 166)
For victims of hit and run cases i.e. where the identity of the vehicle cannot be ascertained the insurers are liable to pay the stipulated compensation. (Sec. 161)
The Tribunal may direct payment of interest on the award at the rates and from the date specified by it. (Sec. 171)
The Tribunal shall arrange to deliver copies of the award to the parties concerned within a period of fifteen days from the date of award. (Sec. 168)
The person liable to satisfy the award shall do so within thirty days of announcement of the award. (Sec. 168)
Chapter 11 (Section 145 to 164) provides for compulsory third party insurance, which is required to be taken by every vehicle owner. It has been specified in Section 146(1) that no person shall use or allow using a motor vehicle in public place unless there is in force a policy of insurance complying with the requirement of this chapter. Contravention of the provisions of section 146 is an offence and is punishable with imprisonment which may extend to three months or with fine which may extend to one thousand rupees or with both (section 196).Section 147 provides for the requirement of policy and limit of liability. Every vehicle owner is required to take a policy covering against any liability which may be incurred by him in respect of death or bodily injury including owner of goods or his authorized representative carried in the vehicle or damage to the property of third party and also death or bodily injury to any passenger of a public service vehicle. According to this section the policy not require covering the liability of death or injuries arising to the employees in the course of employment except to the extent of liability under Workmen Compensation Act. Under Section 149 the insurer have been statutorily liable to satisfy the judgment and award against the person insured in respect of third party risk.
Insurance Companies have been allowed no other defence except the following: –
(1) Use of vehicle for hire and reward not permit to ply such vehicle.
(2) For organizing racing and speed testing;
(3) Use of transport vehicle not allowed by permit.
(4) Driver not holding valid driving license or have been disqualified for holding such license.
(5) Policy taken is void as the same is obtained by non-disclosure of material fact.
Section152. Settlement between insurers and insured persons.
(1) No settlement made by an insurer in respect of any claim which might be made by a third party in respect of any liability of the nature referred to in clause (b) of sub-section (1) of section 147 shall be valid unless such third party is a party to the settlement.
(2) Where a person who is insured under a policy issued for the purposes of this Chapter has become insolvent, or where, if such insured person is a company, a winding up order has been made or a resolution for a voluntary winding up has been passed with respect to the company, no agreement made between the insurer and the insured person after the liability has been incurred to a third party and after the commencement of the insolvency or winding up, as the case may be, nor any waiver, assignment or other disposition made by or payment made to the insured person after the commencement aforesaid shall be effective to defeat the rights transferred to the third party under this Chapter, but those rights shall be the same as if no such agreement, waiver, assignment or disposition or payment has been made.
Legal defense available to the Insurance Companies towards third party:
The Insurance Company cannot avoid the liability except on the grounds and not any other ground, which have been provided in Section 149(2). In recent time, Supreme Court while dealing with the provisions of Motor Vehicle Act has held that even if the defence has been pleaded and proved by the Insurance Company, they are not absolve from liability to make payment to the third party but can receive such amount from the owner insured. The courts one after one have held that the burden of proving availability of defence is on Insurance Company and Insurance Company has not only to lead evidence as to breach of condition of policy or violation of provisions of Section 149(2) but has to prove also that such act happens with the connivance or knowledge of the owner. If knowledge or connivance has not been proved, the Insurance Company shall remain liable even if defence is available.
Earlier not holding a valid driving license was a good defence to the Insurance Company to avoid liability. It was been held by the Supreme Court that the Insurance Company is not liable for claim if driver is not holding effective & valid driving licence. It has also been held that the learner’s licence absolves the insurance Company from liability, but later Supreme Court in order to give purposeful meaning to the Act have made this defence very difficult. In Sohan Lal Passi’s v. P. Sesh Reddy  it has been held for the first time by the Supreme Court that the breach of condition should be with the knowledge of the owner. If owner’s knowledge with reference to fake driving licence held by driver is not proved by the Insurance Company, such defence, which was otherwise available, can not absolve insurer from the liability. Recently in a dynamic judgment in case of Swaran Singh  , the Supreme Court has almost taken away the said right by holding;
“(i) Proving breach of condition or not holding driving licence or holding fake licence or carrying gratuitous passenger would not absolve the Insurance Company until it is proved that the said breach was with the knowledge of owner.
(ii) Learner’s licence is a licence and will not absolve Insurance Company from liability.
(iii) The breach of the conditions of the policy even within the scope of Section 149(2) should be material one which must have been effect cause of accident and thereby absolving requirement of driving licence to those accidents with standing vehicle, fire or murder during the course of use of vehicle.”
This judgment has created a landmark history and is a message to the Government to remove such defense from the legislation as the victim has to be given compensation.
However, if there is a breach in the condition of policy, the insurer can recover the money from the insured. In a recent judgment of the Supreme Court,  it was held that the insurer and the insured are bound by the conditions enumerated in the policy and the insurer is not liable to the insured if there is violation of any policy condition. But the insurer who is made statutorily liable to pay compensation to third parties on account of the certificate of insurance issued shall be entitled to recover from the insured the amount paid to the third parties, if there was any breach of policy conditions on account of the vehicle being driven without a valid driving licence. . . . The Court held –
“In the present case, if the Insurance Company succeeds in establishing that there was breach of the policy condition, the Claims Tribunal shall direct the insured to pay that amount to the insurer. In default the insurer shall (sic not?) be allowed to recover that amount (which the insurer is directed to pay to the claimant third parties) from the insured person.”
Nature and Extent of Insurer’s Liability (section 147)
According to the provisions of this section the policy of insurance must be issued by an authorized insurer. It must be as per requirements as specified in subsection (2).It must insure against liability in respect of death or bodily injury or damage to property of a third party. “Third party” includes owner of the goods or his authorized representative carried in the vehicle and any passenger of a public service vehicle.
The policy of insurance must cover:
1. Liability under the Workmen’s compensation Act, 1923 in respect of death or bodily injury to any such employee
(a) engaged in driving the vehicle, or
(b) the conductor or ticket examiner if it is a public service vehicle ,or
2. any contractual liability.
Section 147 has to be given wider, effective and practical meaning so that it may benefit various categories of persons entitling them to claim compensation from the insurer or the insured or both. Insurer’s liability commences as soon as the contract of insurance comes into force. The liability remains in existence during the operation of the policy. If the existing policy is renewed the risk is covered from the moment the renewal of the policy comes into force. If the accident occurs before the renewal comes into existence, the insurer cannot be made liable. It is the primary duty of the vehicle owner to prove that his vehicle was insured with a particular company. If he fails to comply with it he will have to pay the entire amount of compensation in the case. In case where there is a dispute in respect of the vehicle having been insured by an assurance company, the tribunal must give its finding in the matter, it is its duty to do so. After a certificate of insurance is issued it does not lie in the mouth of the insurer to deny his liability. If the insurer has been a victim of fraud he can recover the amount from the insured by a separate action against him.
Oriental Insurance Co. v. Inderjit Kaur 
If the insurer has issued a policy to cover the bus without receiving the premium therefore, he has to indemnify third parties in respect of the liability covered by the policy. He cannot avoid the liability arguing that he was entitled to avoid or cancel the contract.
Liability for injury to certain persons or class of persons (other than gratuitous passengers and pillion riders)
The policy under the Act covers only third party risks.  Insurer is not liable for any harm suffered by a passenger traveling in a private car neither for hire nor for reward. Similar is the position of a pillion rider on a scooter.
K. Gopal Krishnan v. Sankara Narayanan 
In this case Madras High Court observed that a scooter-owner is not bound to take out a third party risk policy to cover the claim of the pillion rider that is carried gratuitously. If he is injured, the insurance company would not be liable unless policy covering such risk is obtained by the scooter-owner. A private carrier registered as such with R.T.O. and also in insurance policy, cannot be used for carrying any passenger or goods for hire or reward. However if it is so used and the employees of a party hiring the private vehicle belonging to the insured are injured in an accident the insurance company will not be liable.
Insurer’s liability to Vehicle-owner –
A contract of insurance is a personal contract between the insurer and the insured. It is for the purpose of indemnifying the insured for damage caused due to accident by the vehicle, to a third party. To make the insurer liable the policy of insurance must be in the name of the owner of the vehicle.  Owner of the vehicle as defined in Section 2(30) is a person in whose name the motor vehicle stands registered. A person in possession of a vehicle under a hire-purchase agreement or an agreement of lease or hypothecation is also covered by the definition, no matter he has exercised his option to purchase the vehicle or not.
Section 157(1) makes it clear that when the owner of a vehicle transfers the ownership of the vehicle , the policy of insurance and the certificate of insurance shall be deemed to have been transferred in favour of the purchaser of the vehicle with effect from the date of its transfer. This deemed transfer shall include transfer of rights and liabilities of the said certificate of insurance and policy of insurance.
According to subsection (2) the transferee has to apply within 14 days from the date of transfer to the insurer for effecting necessary changes in the certificate and in the policy of insurance.
If the certificate of insurance and the policy are not transferred , the insurer could not be made liable even though the vehicle is transferred. It is to be remembered that “an insurance policy is a personal contract between the parties for indemnifying the insured in case of an accident covered under the policy. If the vehicle is transferred by an insured to another person, the insurance policy lapses upon the transfer. In such a case the benefit of the policy is not available to the transferee, without an express agreement with the insurance company. When the insurance policy lapses it would not be available to cover the liability of the purchaser of the vehicle.
S.Sudhakaran v. A.K.Francis 
There was an agreement for sale of a vehicle. The owner did not comply with the statutory provisions regarding transfer of a vehicle.He, however ,allowed the vehicle to be used by the transferee .The owner had retained the insurance policy with him.
Held— The insurance company was not liable to indemnify the owner.
Liability in respect of damage to property [S.147(2)]
For damage to property of a third party under 1939 Act the limit of liability is Rs 6000 in all, irrespective of the class of the vehicle. Under 1988 Act the position as laid down by section 147 (2) in regard to liability is as under:
(i) For death or personal injury to a third party, the liability of the insurer is the amount of liability incurred, i.e. for the whole amount of liability.
(ii) For damage to property of a third party the liability of the insurer is limited to Rs. 6000 as was under the 1939 Act.
Liability of Insurer beyond the limits mentioned in the Act
Section 147 lays down the limits of liability of the insurer. However there is no bar for the insurer undertaking a higher liability i.e. liability for a greater amount than that mentioned in the Act. Thus the insured and the insurer can contract and can provide for a higher liability.
PROBLEMS ENCOUNTERED IN DEALING WITH THE THIRD PARTY RISKS
1. Frauds in MACT claims
There has been a disturbing trend of fraudulent claims that have been detected. It was established by the insurance companies that in many such cases there had been active connivance between the persons involved i.e. the driver, doctors/hospitals, advocates and in some cases the concerned police stations. In some cases, the same car was involved 
What is suggested is setting up a centralised database which will assist in extracting information and identifying cases of repeated involvement of same parties. Some cases are described below, by way of illustration. These cases are already in the knowledge of the companies concerned.
NIC approached (2002) the High Court of Madras seeking investigation by the police in a third party claim suspected to be false. The investigation by the police authorities proved that the claim was fraudulent. The Court directed (October 2003) that a Central Agency be constituted for the purpose of looking into all complaints, relating to bogus claims within 60 days of reference by the Insurer. Accordingly, a central agency was constituted by the Crime Branch – Crime Investigation Department (CB-CID) of Tamil Nadu Police in Chennai. 
NIC brought (2005) to the notice of the High Court that consequent to the formation of the CB-CID, 410 claims were withdrawn. However, it also pleaded that the central agency was showing “indifference” in the investigation and prayed for investigation by the Central Bureau of Investigation (CBI),. The Court ordered (March 2006) investigation of the complaints by CBI. The CBI, however, expressed its inability in handling such a volume of cases.
In the wake of the constitution of the central agency and investigation being entrusted to CBI, approximately a thousand cases were withdrawn and interesting revelations were made :
• The same advocate was representing the petitions. For instance, 23 petitions were represented by the same advocate out of 111 cases withdrawn (NIC).
• Disability Certificates were issued by the same doctor in 7 out of 13 cases
• One vehicle was involved in ten claims impleaded. 
Delay in settlement of awards
The MV Act provides that the MACT shall forward awards within 15 days. The Act stipulates that the award shall be satisfied within 30 days of announcement of the award.
In the divisional offices audited, these time frames were not followed in 1845 cases out of 7571 cases reviewed. 
Pay and Recover cases
The Tribunals had directed the insurers in some cases to satisfy the awards and then recover the amount from the insured. Examination in selected divisional offices/branches revealed that are amounts yet to be collected. 
Delay in investigation of MACT claims
A test check of the Own Damage claims, revealed that there were also motor third party (TP) claims pertaining to these accidents. It was noticed that there was no system of gathering information relating to the Third Party claim, while settling the Own Damages claims. As the related TP cases were reported subsequently and investigated, these offices could not link the facts evidenced during the assessment of the Own Damages claim. Additionally, where Third Party
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