Third Party Insurance is deemed to be Transferred in Case of Hire Agreement

Uttar Pradesh State Road Transport Corporation-Appellant Vs. National Insurance Co. Ltd. & Others  (Supreme Court); Civil Appeal Nos. 18490-18491 of 2017; Order date : 14th July,2021

SC Held That (Motor Vehicles Act ,1988) – Third Party Insurance deemed to be transferred along with effective control over vehicle in a Hire Agreement. 

When a transport corporation hires a motor vehicle for use from its registered owner, the third-party insurance coverage will also be deemed to be transferred along with the vehicle, reiterated the Supreme Court in a recent decision. The person who is having the effective control and command of the vehicle will be regarded as the ‘owner’. Therefore, along with the vehicle it must be deemed that the existing insurance policy also remains transferred for the period of hire as agreed.

Based on this principle, which was settled in the 2011 precedent Uttar Pradesh State Road Corporation v. Kulsum & Ors, the Supreme Court overturned a judgment of the Allahabad High Court.

FACTS TO BE DECIDED ; if an insured vehicle is plying under an agreement with the Corporation on the route as per permit granted in favour of the Corporation and in case of any accident during that period, whether the Insurance Company would be liable to pay compensation or would it be the responsibility of the corporation or the owner.

BACKGROUND The Uttar Pradesh State Road Transport Corporation (Corporation) hired a bus which met with a fatal accident resulting in the death of one person. The legal heirs of the deceased raised a claim petition before the Motor Accident Claim Tribunal, Bahraich, Uttar Pradesh. The Corporation filed its written statement bringing on record the contract entered into between the Corporation and the bus owner as well as the factum of insurance of the bus with the Insurance Company.

The Insurance Company filed its response admitting the existence of the Insurance Policy with respect to the said bus during the relevant period. The Tribunal fastened the liability to the insurance company and directed the payment of compensation of Rs. 1,82,000/-  with interest @6% p.a. to the claimant. 

DECISION OF ALLAHABAD HIGH COURT; 

The Insurance Company preferred an appeal before the Allahabad High Court mainly on the ground that it is not liable to pay the compensation as awarded by the Tribunal as the Corporation was operating the said bus when the accident took place. It argued that it was in fact the Corporation who is liable to satisfy the Award.

The Allahabad High Court held that the Insurance Companies are not liable to pay compensation to the third parties in the event the buses were operated under-the control of the Corporation. 

 After that, the Corporation filed an appeal in the Supreme Court.

FINDINGS ; The Supreme Court overturned the judgement of the Allahabad High Court, fastening liability on the Corporation. It heavily relied on its earlier decision in Uttar Pradesh State Road Corporation v. Kulsum & Ors (2011), whereby it was held that effective control and command is the real test of ownership. Thereby under a hire agreement, the insurance policy is deemed to be transferred along with the vehicle.

It had remarked, If the Corporation had become the owner even for the specific period and the vehicle having been insured at the instance of the original owner, it will be deemed that the vehicle was transferred along with the Insurance Policy in existence to the Corporation and thus Insurance Company would not be able to escape its liability to pay the amount of compensation”.

The Supreme Court also remarked in its’ 2011 judgement that the compulsory insurance of the vehicle is meant to benefit Third Parties. The owner’s liability to have compulsory insurance is only regarding Third Party and not to the property.

Therefore, once the vehicle is insured, the owner and any other person can use  the vehicle with the owner’s consent.

SECTION 146 of the Act does not provide that any person who uses the vehicle independently should take a separate insurance policy.

 The purpose of compulsory insurance in the Act has been enacted with an object to advance social justice, the Court had observed.

Therefore, relying on the 2011 judgment, the Supreme Court, in the instant matter, affixed the liability on the Insurance Company. It directed the Insurance Company to deposit Rs.1,82,000/-plus interest on the above compensation amount at the rate of 6% per annum from the date of filing of the claim petition till the date of deposit, in settlement of award by the tribunal.

THE APEX COURT SAID THAT ; “through the definition of “vicarious liability” it can be inferred that the person supervising the driver is liable to pay the compensation to the victim. During such time, however, it will be deemed that that vehicle was transferred along with the insurance policy, even if it were insured at the instance of the original owner. Thus, the Insurance Company would not be able to escape its liability to pay the amount of compensation”.

CONCLUSION:  from above judgment of the apex court , it is clear that that   If you have bought a second-hand vehicle or in case of (Hire Purchase Agreement as discussed above ) and got the vehicle registered in your name but have not made any change in the insurance policy, then you will not get the claim if the vehicle meets with an accident. If the vehicle meets with an accident, then the claim for the damage caused to the vehicle i.e. the own damage component of the insurance cover will neither be given to the new owner of the vehicle nor to the person whose name is there is the insurance policy that is the seller of the vehicle. In case of third party injured due to accident , the insurance policy is deemed to be transferred with transfer of control of the vehicle and if due to accident third party is injured then insurance company providing insurance cover to the vehicle at the time of transfer of control of vehicle will be liable to the third party and not to the new owner of the vehicle.

DISCLAIMER: Above case law is only for information and knowledge of readers. The vies expressed here are personal views of the author and same should not be considered as professional advice. In case of necessity do consult with insurance consultants.

FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER

(1) These appeals have been filed by the Uttar Pradesh State Road Transport Corporation (for short, “Corporation”) challenging the orders dated 18.07.2017 and 03.12.2009 whereby the appeal filed by the first respondent-National Insurance Co. Ltd. (for short, “Insurance Company”) has been disposed of in terms of judgment and order dated 18.09.2009 passed by the High Court of judicature at Allahabad, Lucknow Bench, in F.A.F.O. No. 199 of 2001 and batch of matters.

(2) The appellant-Corporation had hired a bus bearing No.UP32T/1459 from respondent no.9 under a written contract dated 20.05.1998. The said bus was duly insured by respondent no.9 with the Insurance Company vide Cover Note No.015425 dated 25.02.1998, for the period 28.02.1998 upto 27.02.1999.   On 25.08.1998 a fatal motor vehicle accident took place involving the said bus which resulted in the death of Rajitram @ Raju. A claim petition bearing MACT NO.161/70/98 was filed by the legal heirs of the deceased before the Motor Accident Claim Tribunal, Bahraich, Uttar Pradesh. The Corporation filed its written statement bringing on record the contract entered into between the Corporation and the bus owner as well as the factum of insurance of the bus with the Insurance Company. The Insurance Company filed its response admitting the existence of the Insurance Policy with respect to the said bus during the relevant period.

(3) The M.A.C.T., on appreciation of the materials on record, by an Award dated 30.11.2006 held that the Insurance Company is liable to pay compensation of Rs.1,82,000/- with interest at the rate of 6% per annum to the claimants.

(4) The Insurance Company preferred an appeal before the High Court of Judicature at Allahabad, Lucknow Bench, in F.A.F.O. No.219 of 2007 mainly on the ground that it is not liable to pay the compensation as awarded by the M.A.C.T. as the Corporation was operating the said bus when the accident took place. Thus, the Corporation was liable to satisfy the Award.

(5) It is relevant to note here that the High Court of Judicature at Allahabad, Lucknow Bench, has passed a judgment dated 18.09.2009 in F.A.F.O. NO.199 of 2001 and other connected matters holding that the Insurance Companies are not liable to pay compensation to the third parties in the event the buses were operated under the control of the Corporation. Subsequently, the appeal filed by the Corporation was allowed by the High Court.

(6) We have heard learned counsel for the parties and perused the materials placed on record.

(7) The question that falls for our consideration in the instant appeal is: if an insured vehicle is plying under an agreement with the Corporation on the route as per permit granted in favour of the Corporation and in case of any accident during that period, whether the Insurance Company would be liable to pay compensation or would it be the responsibility of the Corporation or the owner?

(8) This question has been answered by this Court in Uttar Pradesh State Road Transport Corporation v. Kulsum and Others1 which is an identical case where the Supreme Court examined the agreement entered into between the Corporation and the owner of the vehicle. The Court has come to the conclusion that when the effective control and command of the bus is with the Corporation, the Corporation becomes the owner of the vehicle for the specified period. It was further held that when the actual possession of the vehicle is with the Corporation, the vehicle, the driver and the conductor were under the direct control and supervision of the Corporation. Therefore, through the definition of “vicarious liability” it can be inferred that the person supervising the driver is liable to pay the compensation to the victim. During such time, however, it will be deemed that that vehicle was transferred along with the insurance policy, even if it were insured at the instance of the original owner. Thus, the Insurance Company would not be able to escape its liability to pay the amount of compensation.

(9) Having regard to the above, we are of the view that the High Court was not justified in fastening the liability upon the appellant-Corporation. Thus, the appeals succeed and are accordingly allowed. The impugned judgments of the High Court are hereby set aside and the judgment of the Trial Court is restored.

(10) At this stage, learned counsel for the appellant-Corporation submits that the appellant-Corporation has deposited a sum of Rs.4,10,128/- before the M.A.C.T., Bahraich, Uttar Pradesh before filing of these appeals.

(11) In view of above, we permit the appellant-Corporation to withdraw the said amount with accrued interest thereon if any, and direct the first respondent-National Insurance Co. Ltd. to deposit a sum of Rs.1,82,000/- along with interest on the above compensation amount at the rate of 6% per annum from the date of filing of the claim petition till the date of deposit. The deposit, as above, shall be made by the Insurance Company before the M.A.C.T., Bahraich, U.P., within a period of six weeks from today. Upon deposit, the claimants are permitted to withdraw the said amount.

(12) We direct the parties to bear their respective costs.

The Appeals are allowed in terms of the signed non- reportable order.

Pending application, if any, also stand disposed of.

Notes:-

1 (2011) 8 SCC 142