Thursday, June 25, 2009

Motor Insurance - New Imperatives for Reforms

The business of motor insurance

In all countries across the globe, motor insurance constitutes around 60% of business of all insurance companies. The public interest element is still relevant, even as global markets bring private players in the insurance sector. The objective of optimizing benefits for persons who are most vulnerable in motor accidents could never be in doubt. It directs a focus on what ’third parties’ shall secure. Among this category are victims of hit and run cases, where the offending vehicles causing death or personal injuries are not traced or when the driver of the offending vehicle does not possess a valid driving license or when there is no valid policy of insurance at all and the Insurance Company finds a ground to disown liability. The Motor Vehicles Act 1988 (MV Act) does address the claims of victims of hit and run cases and of cases where the drivers do not have effective valid driving licences, but not substantially. The Act gives no relief except against the owner in a case where there is no valid insurance. There is still the problem of even the awards of Tribunals not getting satisfied immediately.

Just as the motor Insurance sector stands poised for a de-tariff regime and there is scope for lowering of tariffs in a competitive market, there is as well a need to look into the imperatives for a better deal to victims of motor victims. Here, the insurance companies who are the stake holders in the business could play a pivotal participatory role in amelioration of the woes of victims or their families. To this end shall be the present exercise of examining the relevant provisions, the judicial precedents and scope for reform: first, by referring to the hit and run cases; second, to cases where drivers do not have effective driving licences; third, to cases where there are no valid insurance policies and four, for delayed satisfaction of awards passed by Tribunals. The article suggests the creation of a body like Motor Insurance Bureau, amendments to Insurance laws and Motor Vehicles Act and the limitations to the proposals.

Hit & Run cases under MV Act

The MV Act contains provisions for redeeming the claims of victims of hit and run cases where the vehicle owner is not identified. Section 161(b) defines “hit and run motor accident” to mean an accident arising out of the use of a motor vehicle or motor vehicles the identity whereof cannot be ascertained in spite of reasonable efforts. The Solatium Scheme (the 1989 scheme) introduced by the Central Government by notification in the Official Gazette and administered by the General Insurance Corporation sets out the mechanism for processing and disbursing respectively Rs.12,500 for permanent disability for a victim and Rs.25000 in case of death of a person in a motor accident.

Driver who has no effective driving license under MV Act

As regards the claims involving driver who does not possess an effective driving licence, the Act enables the insurer to state as permissible defence to a claim for damages that there is a condition in the policy of insurance excluding driving by a named person or persons or by any person who is not duly licensed, or by any person who has been disqualified for holding or obtaining a driving licence during the period of disqualification. A person holding Light Motor Vehicle (LMV) licence but driving a Heavy Goods Vechicle and causing an accident has been found to have had no effective driving licence and the Insurance Company has been exonerated. Again, the driver who did not renew his licence within the grace period was found to create a situation when the insurer could escape liability.The protection to still proceed against the insurer comes through section 149(4) that enacts a salutary ‘pay and recover’ principle making the insurer primarily liable for the claims for and behalf of a third party even in an eventuality of a breach of condition but however providing for an indemnity from the owner of the vehicle. It was not however till the Supreme Court emphatically laid down in New India Assurance Company Limited v Kamla that courts came to the succor of the claimants for upholding their claims against insurers but surprisingly, the application of this section itself has been defensive in some later judgments of the Supreme Court, either by reference to its prerogative to decline interference under Art 136 of the Constitution by allowing the award to stand as a measure of grace and providing to the insurer a right of recovery or depart with a feeling of despondency that nothing much could be done for the victim and the insurer was entitled to deny liability or direct that decision shall not be cited as a precedent. There is a need to dispel any prevarication in such situations where the right to enforce the claim for a third party victim against the insurer is fully protected by statute.

Insurance policy, its lack or inadequacy under various situations

The provision for compulsory insurance is provided under sections 146 and 147 to the following types of situations resulting in personal injuries or death: a vehicle meant to carry dangerous or hazardous goods that is required to cover risks detailed under the Public Liability Insurance Act, 1991; owner of the goods or his authorized representative carried in the vehicle; passenger in a public service vehicle; workman such as an employee engaged in driving the vehicle or a conductor in a public service vehicle, or a person engaged in examining tickets in the vehicle, employees carried in a goods carriage to the extent of liability provided under Workmen’s Compensation Act. A policy of insurance to cover such cases is called in common parlance as ‘Act only policy’. A personal cover for risk for an owner travelling in his own motor vehicle where he meets with accident due to his own negligence or the driver of the owner, a gratuitous passenger such as a friend or relative being carried in a private vehicle, a pillion rider in a motor cycle that is involved in an accident due to the negligence of the rider and a passenger in a goods carriage (who is not a traveler along with his goods) are cases that fall outside the scheme of compulsory insurance. To such persons, unless there is specific insurance policy coverage (usually by payment of higher premium), the insurer will not be liable.

Delay in satisfying awards

It is common knowledge that cases take a long number of years for disposal and when awards get to be passed, there is scope for appeals and stay of operation of the awards. Although an insurer is barred from disputing the issue of quantum, grant of permission under section 170 to the insurer is a matter of course in proceedings before Tribunals. Filing an appeal through the insured, even when such permission is not granted under section 170 is a familiar practice. Liability to pay subsequent interest at 6% p.a is seldom an incentive to deposit money in court immediately after the award, all of which add to the victim’s woes.

MIB cited in Law Commission Report

Among the most important changes brought in the MV Act viz., the provision that contemplates a scheme for payment out of a fund for victims of hit and run cases came after the 51st Report of the Law Commission of India. Making reference to Article 41 of the Constitution of India, the Commission exhorted the need to compensate victims as arising under the Directive Principles of State Policy that ‘The State shall within limits of its economic capacity and development, make effective provision for securing the right to public assistance in cases of unemployment, old age, sickness and disablement, and in other cases of undeserved want’. Further tracing the justification for this provision to U.K, the Law Commission referred to the agreement of Motor Insurance Bureau (MIB) with the Minister of Transport that provided for enforcement of ‘a judgment in respect of any liability which is required to be covered by a policy of insurance, whether or not such person is in fact covered by a contract of insurance and such judgment is not satisfied in full within 7 days from the day when the judgment was given, then the MIB will satisfy the judgment.’ Initially the agreement did not provide for payment in cases where the offending vehicle could not be traced or when the driver had no valid driving licence. This was strongly criticized by Sachs J., in Adams v Andrews that dealt with a case of negligence of an untraced motor-cyclist, who caused the driver of a car, in which the plaintiff was travelling a passenger, to swerve and overturn. He observed as illogical the MIB’s unwillingness to come to the rescue of the individual who had to go cap-in-hand- for an ex-gratia payment.

Situations when MIB will pay

Over the years, the situation has changed and MIB now operates under two agreements with the Secretary of State for the Environment namely, ’The Uninsured Drivers Agreement’ and ‘The Untraced Drivers Agreement’. The "uninsured driver" will either have no car insurance at all, or by virtue of the policy have no valid car insurance. If the uninsured driver was for example, a tourist driving a friend's car without having any car insurance, the MIB will be involved in the settlement of the Third Party injury and / or property claim. If the uninsured driver has no valid car insurance for example, there is only private use on the policy but whilst using the car for business the driver causes a Third Party to suffer a loss, the insurer will repudiate the claim. The MIB will however insist that the insurer will pay the Third Party. The insurer must then attempt to recover its costs from its own customer. An "untraced driver" is for example, a joy rider or someone who has failed to stop at the scene of an accident and is never found. The MIB will consider claims for losses caused by untraced drivers provided that those losses are otherwise uninsured, and the incident resulted in personal injury or death. This is because it would be too easy to submit a fraudulent claim for property only.

MIB model alone satisfies the present need to apply to all enumerated situations that otherwise exonerate insurance companies

In its present form as applied in UK and other countries of the European Union, MIB addresses the concern of all the four situations what we have mentioned earlier, viz, of hit and run cases, of unlicensed drivers, uninsured vehicles and non-satisfaction of the award for a period beyond 7 days when the award becomes enforceable. The 1989 scheme that provides for a mechanism for payment of compensation and which was inspired by MIB, unfortunately subverts the entitlement to the nature of gratis with a further cap on the quantum of entitlement to a few thousands of rupees. Underwriting motor insurance policies is no loss making proposition, although it is always a familiar refrain trumpeted from roof tops by insurance companies. Look at the statistics: The Tariff Advisory Committee – Data Repository has issued the Summary of reports form Motor Data of 4 PSUs for 2005-06 that against a total premium of Rs6217.78 cr collected for all categories of vehicles, the total number of claims were to the tune of 2,610,930. The total claims paid were to the tune of Rs.5544.92 cr against total incurred liability of Rs.6180.40 cr. Both the figures could be seen to be less than total premiums collected. It is therefore not correct to assume that Insurance companies are running under loss in motor insurance business. Better management by private insurance companies and competitive policies with better collection of revenues by tapping the market effectively ought to allow for sufficient surplus to run the scheme on the lines of MIB, successfully in India. The MIB model has been successfully replicated by nearly 50 countries that include all the countries belonging to European Union. Singapore already has MIB set up as early as in 1975.

Changes in law that may be necessary

In India, insurance is in List A (Union) in Sch VII of the Constitution of India. The primary legislation that deals with insurance business in India is Insurance Act, 1938 and Insurance Regulatory & Development Authority Act, 1999. IRDA has the power to regulate, promote and ensure orderly growth of the insurance business and re-insurance business. The power shall include control and regulation of the rates, terms and conditions that may be offered by insurers in respect of general insurance business not so controlled and regulated by the Tariff Advisory Committee under section 64U of the Insurance Act, 1938 (4 of 1938). It has also power to issue directives under section 34 of the Insurance Act, which could include power to set up a fund and enjoin contributions by all insurance companies engaged in underwriting risks in motor accidents. It has power to set up a body to oversee and operate the fund to address the claims of victims or their legal representatives in motor accidents. There shall be corresponding amendments to the provisions in M V Act. The combined effect shall be:

(i) Victims of ‘hit and run’ cases shall be truly compensated in monetary terms of what the victim or his family would have got as ‘just compensation’ under Section 166 of the Motor Vehicles Act or at any rate, at least the amount that is provided under the structured formula under Section 163A.

(ii) The failure to comply with the terms of compulsory insurance as constituting an offence punishable with imprisonment of 3 months under section 196 of the Motor Vehicles Act shall be made more stringent to include provision for distraint and sale of the vehicle to satisfy the claims of third parties under circumstances mentioned above.

(iii) While an owner of a vehicle cannot be expected to obtain compensation for his own negligence or that of his employee, it would be most unjust to deny a gratuitous passenger such as a relative or friend in a private vehicle or a pillion rider in a motor vehicle a right to compensation for the failure of the owner to take sufficient insurance cover. There ought to be provision for claim against a solvent insurer or a voluntary body of persons a la MIB or General Insurance Company that holds a specific fund to defray the claims by affected persons with a right of indemnity to the Insurer on the lines of pay and recover principle.

(iv) With a body such as MIB in place, the claimant shall have a right to recover the award within a period of one week when the amount becomes recoverable.


The various aspects of how MIB is put to operation in UK and other countries have not been addressed here, nor are the exceptions when the right will not be available. The costs of running the Fund and the extent of contributions from Insurance Companies, State participation and how much of increased costs will have to be absorbed by premiums payable by consumers have also not been discussed. This is but a formal presentation of the road that lies ahead for reforms. Air, water, rail and road are just well mediums of transport. Of them, you hold the key from your doorstep only for motor car. They will inevitably be the most used, abused and misused. Our ability to also solve the problems that we create is the hallmark of worthy human endeavor. Cry for reforms in various fields rent the air. A MIB may not solve all problems but it at least assures a better deal for third party victims of motor accidents for a little additional price through higher premiums. As Washinton Irving said, ‘There is a certain relief in change, even though it be from bad to worse! As I have often found in travelling in a stagecoach, that it is often a comfort to shift one's position, and be bruised in a new place’.

Thursday, June 18, 2009

Summer ’09 – Dharamshala (June 03 to 08)

Jwalaji TempleIt is refreshing always to break free from the routine and what better way is there to find freedom for the soul and body than to visit new places. I am no adept person at planning but these days at my age and standing at the society, there are persons around, who are overly anxious that my creature comforts are reasonably well attended to. It was a long journey over 280 kms from Chandigarh to Dharamshala. We struck anchor at Chintapurni temple in the first fringe of the Himalayan range, after about 4 hours of drive. The temple is decked at the ‘fourth floor’ and it almost seemed like visiting an apartment house reaching the temple through a lift taking you vertically up from the ground floor. There is also steep climb to the temple that one could do by foot . The temple is dedicated to Mata Chintpurni and located in the Una district. The deity has derived such a name from the idol of goddess Durga in the temple, which is without a head. According to the Hindu mythology, Lord Vishnu cut the corpse of Sati in to fifty one pieces with his chakra to quell the wrath of Lord Shiva. It is believed that the feet of Sati fell in this place where the temple has been built. Local people pray at a stone carving of a foot smeared with red kumkum paste bedecked with flowers and golden shawl with enormous religious fervor.

Jawalamukhi (or Jawala ji) Temple Visit full size imageAfter noon was still hot and we stopped by to cool ourselves at a Guest house at a place 25 kms away and after lunch (with an appendage of sleep) , we headed to Jwalaji, a picturesque temple town built in the Indo-Sikh style. The temple is a modern building whose dome is of gilded gold and possesses a beautiful folding door of silver plates, presented by the Sikh Raja Kharak Singh. There is a large cement pit, where a panditji is sitting with fire billowing from 3 places along the walls. The panditji is dripping in sweat with fire around him and

he is offering deepam to each of the fiery bursts, treating them as fire goddess, Jwalaji. On seeing us, he is signaled to get up to identify the 4th place outside the cement pit and approach a place that resembles maadam or pirai in old houses of south India. The pandit held a burning oil wick inside the pirai, and presto, there was blue soft flame catching up along the wall. I patted my cheeks with crossed hands in reverence. That was Jwalaji-IV. My science experts (who, but my wife & son?) tell me that there must have been a volcano several thousands of years ago but our people would care no hoots for such scientific explanations. It is nice to approach gods with childlike qualities of innocence and not through reason. It is only when you transcend reason that you see god, don’t you? Legend has it that after Daksha Yoga Bhagna, Lord Shiva placed the burnt dead body of Sati on his shoulders and started wandering about in a state of wild rage. To save the world from the destructive wrath of Lord Shiva, Lord Vishnu started cutting the limbs of the dead Goddess Parvati one by one. The places where they fell became sacred centers for the worship of Shakti. The tongue of Sati fell at the place where the temple of Jwalamukhi is situated. The flames that come out of the openings in the earth?s surface are regarded as the manifestations of the fallen tongue of Sati and are worshipped as "Jwalamukhi Devi" (Goddess, who emits flames from her mouth).

Chandigarh & Dharamshala 017.JPGWe were received at the border of the town at Dharamshala by the driver of my judge friend, Ajay and piloted our way to Ajay’s father-in-law’s house for a cup of tea. It was 5 pm and still hot. The old lady in the house pulled a table fan to lavish a gush of air to cool our burning collars. Ajay drove along with us to drop us at McCleodgang, the upper Dharamshala, at his firend’s bungalow. The bungalow was perched at the precipice of a large rock, adjoining the Dalai Lama’s official residence and on the parikrama of a Buddhist monastery. It was at once a scenic place with the valley under your feet and abutting the parikrama, the place pulsates with spiritual energy. The monks wear bright red tunic overalls and look solemn. Old men and women, with walking sticks in their hands as props for slow ambulatory gaits, young men and women, boys and girls, all with beads in their hands counting their repetitive prayers. The redemption of Tibet from the hands of the Chinese is among their prayers, as well. The prayer flags hung between trees and flapping in the winds are eternal human messages to gods in heavens to hear their supplication.

Chandigarh & Dharamshala 024.JPGAjay took us around the ups and down of Dharamshala. It is a large town that stretches from about 2000 ft above sea level to nearly 11000 ft. The town is hemmed in by mountains that raise to eternity like walls vertically, at once imposing and breathtaking in their effect. In summer, the terrain looks dry, but Ajay’s father in law tells us that Dharamshala records second highest rain fall in India, next to Maw Syn Ram (where have Chirapunji and Agumbe gone?). we drove to high points of Dharamshala but the sun seemed sharp.

The next day, Ajay and I decided to trek to the high point, Triund, situate at 9000 ft above sea level. We drove about 3 kms and began our trek. Ajay’s driver, a young man with a paunch and his personal security officer joined us. It is puffing of breath and pounding of heart that accompanies you all the way through. Along the rugged path, you turn to one side, to catch the glimpse of the distant valley that you have come away from and look at the other other side, you have the imposing mountains that hold

Summer Holiday '09 Dharamsala, Kulu & Manali 016.jpgSummer Holiday '09 Dharamsala, Kulu & Manali 012.jpg you in disbelief of the distance that you have to still climb and heaven that it promises. After two and half hours continuous trek, we stopped by to have chocolates, (yummm, that melts to give you instant energy) and tea to warm the pounding heart. At 10.30, after 4 hours of trot, we arrived at Triund. There were already few campers, stretching themselves, earning their rest.

Summer Holiday '09 Dharamsala, Kulu & Manali 036.jpg Ajay said, it was not all; if I had the pluck I could walk another two hours, I would come by Chamba valley and I would have arrived at the most charming sight ever, at the Dhauladhar range. He was not himself in any mood to join in. With relatively good health that I enjoy, with regular gymming, I decided that I would prod on. Ajay’s security person was prepared to go along. It seemed a steeper climb or maybe, the continuous walking for over 4 h ours was having its toll and made me feel so. We puffed and chugged, rolled and went on all fours and tumbled to a flat ground from where began a steep incline. We checked ourselves from further trek, still unable to consume all that nature had to offer. I seated myself on a tiny rocky stone, amidst a bed of button roses, yellow, purple and white, dotting the velvety green grass. It was eerie silence, with the tall mountains absorbing all the wind and the sounds that the trees were generating. Even the rumbling sound of water flowing down from the snowy peaks seemed to happen at a distance. I lied down facing the snow peaked mountains for nearly 30 minutes and we decided to return to Triund to have lunch.

There was a small coffee shop, where three persons from Israel had been engaging the shop-owner in some of communication through some language that sounded like English. The shop owner seemed better in his proficiency in English than the Israelis. Summer Holiday '09 Dharamsala, Kulu & Manali 037.jpgSummer Holiday '09 Dharamsala, Kulu & Manali 038.jpg As we saw them going away, we occupied the tarpaulin covered front space of the shop and energized ourselves with chocolates and coffee. We readied to go down again to Triund and we galloped down the in an hour, triggered by hunger to wallop the lunch that I knew Ajay was carrying. Black clouds capped the mountains and there was slight drizzle when we spread lunch on the carpet that the driver had spread. The paranthas and curry had been made hot again, thanks to the shop keeper’s munificence of lending his gas stove.We feasted on the gourmet as if it were the last meal of a life time. The shopkeeper warned us to get treading along down the hill before it rained heavily. We started the climb down, with rain gods accompanying us, not lashing out in torrents but with gentle caress of a bath room shower for nearly an hour. We also had umbrellas with us to spare us from being wholly drenched.

I had a shower at our guest house and went out again for a dinner arranged by Ajay’s cousin, who was celebrating his wedding anniversary. There was chilled beer to quench our parched throats but Ajay and I were too tired to hold out for long at the dinner. I got back to early and hit the bed. Only on rare days could sleep be death. I was dead for 6 hours.

McCleodgunj has a nice market and eateries. We ate well, shopped well and went around the local sights leisurely. Dal lake was pathetic, but the deodar trees surrounding the lake, what seemed like puddle, seemed a lovely spectacle. Ajeya got himself a telescope that seemed a vintage stuff. I browsed through some books at a Tibetan book shop and Raji got some precious stones. Late in the evening, we bought some CDs and Kangra Tea at the local market. Most of the shops have stickers declaring that Chinese goods are not sold. We stayed at the Circuit house that is located near tea plantations and after a leisurely day spent at the guest house, we readied ourselves to go to Manali.