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 51^st 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.

Conclusion

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’.

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