New India Assurance Co. Ltd. vs Smt. Kashmiri And Others

Appeal has been filed on the ground that the learned Motor Accidents Claims Tribunal, Sonepat (hereinafter referred to as 'the Tribunal') fell in error in allowing the claim petition beyond the terms of the policy restricting the benefits to Rs.50,000/- by holding that on the coming into force of the Motor Vehicles Act, 1988 (hereinafter referred to as 'the New Act') it would be the provisions of the new Act which would apply, notwithstanding the policy having been issued under the Motor Vehicles Act, 1939 (hereinafter referred to as 'the Old Act')

Learned counsel for the appellant contends that the terms of the insurance policy are binding on the parties and in the absence of premium for higher liability having been paid, the liability of the insurance company is only to the extent of liability undertaken. Learned counsel relies upon the decision of Hon'ble the Supreme Court in National Insruance Co. Ltd. Vs. Keshav Bahadur and others, 2004 (2) SCC 370. Relevant extract of the same is reproduced as under:-

"In case insurer-appellant not taking any higher liability by accepting higher premium, the liability is neither unlimited nor higher than the statutory liability fixed under Section 95(2) of the Act. Even if a vehicle is the subject matter of comprehensive insurance and a higher premium is paid on that score, limits of the liability with regard to third party risk does not become unlimited or higher beyond the statutory liability fixed. For this purpose, a specific agreement has to be arrived at between the insured and the insurer and separate premium has to be paid in respect of additional amount of liability undertaken by the insurer in that regard. This position was highlighted by this Court in National Insurance Co. Ltd. v. Jugal Kishore (1988 (1) SCC 626). In New India Assurance Co. Ltd. v. C.M. Jaya and others (2002 (2) SCC 278) a Constitution Bench approved the view taken in Shanti Bai (supra) and Jugal Kishore (supra). It was held that in case of insurer not taking any higher liability by accepting higher premium for payment of compensation to third party, the insurer would be liable to the extent limited under Section 95(2) of the Act and would not be liable to pay the entire amount of compensation awarded."

Learned counsel further by relying upon the decision in New India Assurance Co. Ltd. Vs. C.M. Jaya, 2002 (2) SCC 278 contended that the award of the Tribunal holding the insurance company liable beyond the liability of Rs.50,000/- for which insurance policy had been taken amounted to re-writing the contract of insurance, which was not permissible. Relevant extract of the decision is reproduced as under:

"On a careful reading and analysis of the decision in Amrit Lal Sood (supra), it is clear that the view taken by the Court is no different. In this decision also, the case of Jugal Kishore is referred to. It is held (i) that the liability of the insurer depends on the terms of the contract between the insured and the insurer contained in the policy; (ii) there is no prohibition for an insured from entering into a contract of insurance covering a risk wider than the minimum requirement of the statute whereby risk to the gratuitous passenger could also be covered; and (iii) in such cases where the policy is not merely statutory policy, the terms of the policy have to be considered to determine the liability of the insurer. Hence, the Court after noticing the relevant clauses in the policy, on facts found that under Section II-1(a) of the policy, the insurer has agreed to indemnify the insured against all sums which the insured shall become legally liable to pay in respect of death of or bodily injury to "any person". The expression "any person" would undoubtedly include an occupant of the car who is gratuitously traveling in it. Further, referring to the case of Pushpabai Purshottam Udeshi (supra), it was observed that the said decision was based upon the relevant clause in the insurance policy in that case which restricted the legal liability of the insurer to the statutory requirement under Section 95 of the Act. As such, that decision had no bearing on Amrit Lal Sood's case as the terms of the policy were wide enough to cover a gratuitous occupant of the vehicle. Thus, it is clear that the specific clause in the policy being wider, covering higher risk, made all the difference in Amrit Lal Sood's case as to unlimited or higher liability. The Court decided that case in the light of the specific clause contained in the policy. The said decision cannot be read as laying down that even though the liability of the insurance company is limited to the statutory requirement, an unlimited or higher liability can be imposed on it. The liability could be statutory or contractual. A statutory liability cannot be more than what is required under the statute itself. However, there is nothing in Section 95 of the Act prohibiting the parties from contracting to create unlimited or higher liability to cover wider risk. In such an event, the insurer is bound by the terms of the contract as specified in the policy in regard to unlimited or higher liability as the case may be. In the absence of such a term or clause in the policy, pursuant to the contract of insurance, a limited statutory liability cannot be expanded to make it unlimited or higher. If it is so done, it amounts to re-writing the statute or the contract of insurance which is not permissible."

Learned counsel lastly contended that in view of the decision of Hon'ble the Supreme Court in National Insurance Co. Ltd. Vs. Puja Roller Flour Mills (P) Ltd. and others (1997)116 PLR 199 , as the accident had taken place prior to the coming into force of the New Act, it would be the provisions of the old Act which would be applicable. As per the proviso to Section 147 (2) of the new Act, if there is a policy of insurance issued with limited liability in force, immediately before the commencement of the Act, then the same would continue to be effective for a period of four months after such commencement or till the date of expiry of such policy whichever was earlier. Learned counsel contended that in Puja Roller Flour Mills's case (supra), the accident had taken place on 29.09.1988 and the new Act had come into force on 01.07.1989 and as per Section 147 (2) of the New Act, if there was any policy of insurance issued with any limited liability and in force immediately before the commencement of the Act, the same was to continue to be effective for a period of 4 months or till the date of expiry of such policy whichever was earlier. Learned counsel contends that in the said case, since accident had taken place within four months of the coming into force of the new Act, the policy issued under the old Act was held to be effective and in operation. In the instant case learned counsel contends that the accident itself had taken place one year prior to the coming into force of the new Act, therefore, the question of applicability of the new Act making the liability of the insurance company unlimited did not arise.

Learned counsel for the respondent, on the other hand, has not been able to refer to any judgment to the contrary nor has he distinguished the judgments relied upon by learned counsel for the appellant.

I have considered the submissions of learned counsel and am of the view that since the insured had taken out a limited policy for a sum of Rs.50,000/-by paying a particular payment and had not paid higher premium for taking out policy with unlimited liability, therefore, the policy as in force would be one which had been issued i.e. of limited liability particularly in view of the fact that the accident had taken place almost one year prior to the coming into force of the new Act and in view of the proviso to Section 147 (2) of the new Act, in case of insurance policy with limited liability in force, immediately before the commencement of the Act, the same would continue to be effective for a period of four months after such commencement or till the date of expiry of such policy whichever was earlier, meaning that the liability of the insurance company qua policy issued under the old Act would continue to be in force qua policy in force for a period of four months after coming into force of the new Act or till the expiry of the policy whichever was earlier where after liability would be determined in accordance with the provisions of the new Act.

In the light of the position as noted above, the award passed by the MACT, Sonepat is modified by holding liability of the insurance company in terms of the policy issued to be limited to Rs.50,000/-. However, the amount as assessed by the learned Tribunal in excess of the limited liability clause would be payable by the owner and driver.

Accordingly, appeal is allowed by modifying the award to the extent noted above.