Third Party Insurance Deemed to be Transferred Along With Effective Control Over Vehicle in a Hire Agreement

It is common knowledge that Insurance companies shirk their liabilities on various  technical/venial grounds but the Courts do not let the Insurance Companies escape from their liabilities.

One such matter recently on 14 July 2021 came up before the Apex Court in Civil Appeal nos. 18490-18491 of 2017 in the case of Uttar Pradesh State Road Transport Corporation  Vs. National Insurance Co.Ltd. & Ors.

The brief facts of the case are that the appellant-Corporation had hired a bus  under a written contract. The said bus was duly insured by the owner of the bus. However, during the validity of the insurance, a fatal accident took place with the said bus which resulted in the death of one person. A claim petition was duly filed by the legal heirs of the deceased before the Motor Accident Claim Tribunal. The Corporation brought on record the contract entered into between the Corporation and the bus owner as well as the insurance policy issued by the Insurance Company. The Tribunal by an Award held the Insurance Company  liable to pay compensation of Rs. 1,82,000/- with interest at the rate of 6% per annum to the claimants.

Against the award of the Tribunal, the Insurance Company preferred an appeal before the High Court of Judicature at Allahabad, Lucknow 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 and pleaded that the Corporation was liable to satisfy the Award. The High Court held that the Insurance Companies were not liable to pay compensation to the third parties as the buses were operated under the control of the Corporation.

The Apex Court considered the question of law that 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 of the bus.

The Apex Court followed it’s binding precedent in Uttar Pradesh State Road Transport Corporation v. Kulsum and Others (2011) 8 SCC 142 wherein in on identical  facts the Apex Court  had  categorically held that when the effective control and command of the bus is with the Corporation, it becomes the owner of the vehicle for the specified period as the actual possession of the vehicle was with the Corporation and the vehicle, the driver and the conductor were under the direct control and supervision of the Corporation. Therefore, the Court ruled that from the definition of “vicarious liability” it can be inferred that the person supervising the driver is liable to pay the compensation to the victim. However, the Court  held that  it would be deemed that that vehicle was transferred along with the insurance policy, even if it was insured at the instance of the original owner.

Thus, the Court allowing the appeal of the Corporation held that the Insurance Company cannot escape its liability to pay the amount of compensation. The Court held thus:

“30. Thus, for all practical purposes, for the relevant period, the Corporation had become the owner of the vehicle for the specific period. If the Corporation had become the owner even for the specific period and the vehicle having been insured at the instance of original owner, it will be deemed that the vehicle was transferred along with the insurance policy in existence to the Corporation and thus the Insurance Company would not be able to escape its liability to pay the amount of compensation.

31. The liability to pay compensation is based on a statutory provision. Compulsory insurance of the vehicle is meant for the benefit of the third parties. The liability of the owner to have compulsory insurance is only in regard to third party and not to the property. Once the vehicle is insured, the owner as well as any other person can use the vehicle with the consent of the owner. Section 146 of the Act does not provide that any person who uses the vehicle independently, a separate insurance policy should be taken. The purpose of compulsory insurance in the Act has been enacted with an object to advance social justice.”

It would be trite to refer to the case of U.P. State Road Transport Corporation v. Rajendri Devi in Civil Appeal No. 2526 of 2020 decided on 8th June, 2020 wherein the Apex Court had enunciated the same principle.

It is imperative that such cases are given wide publicity by the Media so that the insured and the general public  become aware of the benevolent dictum of the Courts in such matters. The Insurance companies should also admit their liabilities and grant due compensation to the insured/third party and avoid frivolous litigation & abuse of the process of law.

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