Philosophy behind obligatory Motor Vehicle Insurance: Law and International Perspective

The Author, Lohitaksh Shively, is a 3rd Year, BA.LLB student at ILS Law College, Pune. He is currently interning with LatestLaws.com.

Introduction

The world has seen countless advancements all along its progression, the major one being the pioneering of the first ever wheel which was over 5000 years ago in the Mesopotamian Civilization.[1] It was said that, these ‘wheels’ were initially not used for transportation but served as a potter’s wheel. However, a few hundred years later it was used in chariots for transportation; fast forwarding us to the time the earliest vehicle powered by a gas engine was invented, kickstarting the automotive industry in the late 1800s – early 1900s. This industry kept on expanding with the increase in demand and the simultaneous use of such vehicles. Consequently, leading to a much-needed statute laying down the rule of the road. One crucial problem arising out of such an advancement was the increase in the number of mishaps pertaining to the comparative high speed of the vehicles. These ‘accidents’ sorely needed to be checked and kept under control as such occurrences often gave rise to various complications regarding ‘placing of liability’, ‘baring of compensation costs’ etc.

Ergo, these persisting issues ensued the idea of Motor Vehicle Insurance aka Automotive insurance to provide for immunity and protection over loss arising due to such incidents.

Concept, Need & International perspective

A Motor Vehicle Insurance is a contract by which the insurer assumes the risk of any loss the owner or operator of a car may incur through damage to property or persons as the result of an accident.[2] It mainly covers the dubiety arising from taking responsibility for the damages caused to the insured or to the third person involved in the accident.

The need for such immunity and assurance arose soon after the widespread use of motor vehicles in the 1920s. This is because injured persons would rarely get any compensation and the drivers would face huge amounts due to the damage caused to their car. It was therefore realised a policy should be drafted that would tackle all the varied problems and provide for easy settlement of disputes. The benefits provided by a car insurance are as follows[3] –

1.  It will insure you for damages caused to the third-party and for own damage.
2. Own damage comprises cost of treating injuries of owner/ driver, cost of repairing damages, loss by theft or fire etc.
3. No Claim Bonus i.e. a discount on the amount of car insurance premium – during an active policy year if no claim has been raised.
4. One does not have to worry about a sudden financial crunch which may occur if the car is stolen or damaged.

The compulsory car insurance scheme makes sure that repairs are not pricey if the insured gets into an accident, as the other party’s insurer would step in and compensate for the repair of the damages caused to the former. It acts like a protective net and enables people to drive on the roads with peace of mind, ensuring that in case of an accident, the monetary damages caused would be compensated for.

Therefore, to ensure that there arises clarity in ‘placing of liability’ for the damages caused and the accidents are compensated for, car insurance is mandatory.

Hence, the first ever ‘compulsory insurance scheme’ was introduced in the 1930s by the United Kingdom enacted in its Road Traffic Act. In short, it made certain that all vehicle owners and its drivers had to be insured for their liability for injury or death to any third parties whilst their vehicle was being used on a public road. At present the governing Act is the Road Traffic Act 1988. Germany too follows the principle of maintaining a compulsory third party personal insurance. Furthermore, according to Section 4 (1) of the Motor Vehicles Insurance (Third Party Risks) Ordinance of Hong Kong all users of a car, include its permitted users, must have insurance or some other security with respect to third-party risks.[4] Also, when buying car insurance in the United Arab Emirates, the traffic department requires a 13-month insurance certificate each time you register or renew a vehicle registration. In Dubai, vehicle insurance is also compulsory as per the UAE Road and Transport authority Law.

Motor Vehicle Insurance in India

In India where the population is unimaginably high, naturally the number of cars on the road and the traffic would be considerably excessive, there by leading to frequent traffic congestions which consequentially increase the chances of road accidents. In our country on an average about 400 accidents take place per hour[5]. These statistics are beyond comprehension as vehicles were designed with a view to make human life expedient rather than act as a nuisance.

To provide protection, the Motor Vehicles Act (the ‘Act’) was implemented by the Indian Parliament in the year 1988, replacing the 1939 statute, which regulates almost all aspects of road transport vehicles. With the change in socio-economic and societal needs, the Act was further amended in 2019. It is mandatory to have a motor vehicle insurance in India for vehicles to operate in any public space. It is a mandate to possess car insurance at least up to the Third Party Liability level. Chapter XI of the Act deals with Insurance of Motor Vehicles against Third Party Risks (Sections 145 – 164), further laying down the mandatory provision under Section 146 stating that not to use any vehicle in public place without any valid third-party insurance. This provision is further substantiated by the case law of Govindan v. New India Assurance Co. Lt[6], which states that third party insurance is compulsory under the law and should not be overridden by any clause in the policy. 

Insurer’s liability[7] –

1. The Insurer's liability commences as soon as the contract of insurance comes into force.
2. The liability remains in existence during the operation of the policy.
3. If the existing policy is renewed the risk is covered from the moment the renewal of the policy comes into force.
4. If the accident occurs before the renewal comes into existence, the insurer cannot be made liable.
5. It is the primary duty of the vehicle owner to prove that his vehicle was insured with a particular company.
6. If he fails to comply with it he will have to pay the entire amount of compensation in the case.
7. Only if the insured established that the fault was his entirely i.e. fault theory.[8]

In the Supreme Court case of National Insurance Co. Ltd. v. Swaran Singh & Ors., it was held that chapter XI of the Motor Vehicles Act, 1988 which provides compulsory insurance of vehicles against third party risks is a social welfare legislation to extend relief by compensation to victims of accidents caused by use of motor vehicles. Therefore, the provisions of compulsory insurance coverage of all vehicles are with this paramount object and the provisions of the Act have to be so interpreted as to effectuate the said object.

Further clarification has been provided by the Supreme Court in M/S. Complete Insulations (P) Ltd v. New India Assurance Company Ltd wherein it was held that, there can be no doubt that the said chapter provides for compulsory insurance of vehicles to cover third party risks. Section 146 forbids the use of a vehicle in a public place unless there is in force in relation to the use of that vehicle a policy of insurance complying with the requirements of that chapter. Any breach of this provision may attract penal action. In the case of property, the coverage extends to property of a third party i.e. a person other than the insured.

In an appeal to the Punjab-Haryana High Court, in the case of Ram Chander v. Naresh Kumar and Ors., it was held that Section 146 of the Motor Vehicle Act, 1988 which provides for a necessary insurance against third party risk contains a specific prohibitory clause that debars an owner from using a vehicle till he has obtained a policy in accordance with the requirements of Chapter XI of the MVA 1988. It does not give a right to an owner who has failed to comply with the provisions of law to claim indemnification from the Insurance Company in respect of the injury or death caused by his negligence to a third party, hence dismissing the meritless appeal.

In conclusion car insurance has been made compulsory to smoothen out the process of dispute settlement and placing of liability along with bearing of compensatory costs.

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