Recently, the Supreme Court dealt with a motor accident compensation dispute, questioning whether an insurance company could be completely absolved of liability due to breach of policy conditions. The case revisited the scope and application of the “pay and recover” principle in such circumstances.
The Appellant had filed a claim after an accident involving a vehicle insured with Oriental Insurance Company. The Motor Accidents Tribunal held both the insurer and the owner jointly and severally liable, noting that the insurer had collected additional premium for the driver, conductor, and cleaner. However, the Telangana High Court, on appeal by the insurer, set aside this finding, observing that the five-seater vehicle was carrying nine persons and that such overloading constituted a breach of policy terms. It, therefore, absolved the insurer of liability. Aggrieved, the claimant approached the Supreme Court, stating that recovery from the vehicle owner was difficult.
Counsel for the Appellant argued that since the insurer had collected an extra premium, it could not escape liability altogether. Even if there was a breach, the insurer should pay the compensation first and then recover it from the vehicle owner, following the “pay and recover” principle laid down in National Insurance Company Limited versus Swaran Singh and Shamanna & Anr. versus Divisional Manager. Counsel for the Respondent (Insurer) maintained that the policy was only a statutory one covering the driver, conductor, and cleaner, not passengers. Since the vehicle was overloaded, there was a clear violation of policy conditions, justifying the High Court’s order.
The Supreme Court noted that while the insurance contract was undisputed, the key issue was whether the High Court was right in completely absolving the insurer. Referring to Swaran Singh, Shamanna, and the recent Rama Bai v. Amit Minerals, the Bench reiterated that even in cases of breach, courts have consistently directed insurers to pay the compensation first and recover the amount from the owner.
The Court allowed the appeal to this limited extent, directing Oriental Insurance to satisfy the compensation awarded by the Tribunal and then recover the amount from the vehicle owner. The “pay and recover” principle was reaffirmed to ensure that victims are not deprived of compensation due to technical policy breaches.
Case Title: Akula Narayana Vs. The Oriental Insurance Company Limited & Anr.
Case No.: Civil Appeal No. 013509 Of 2025
Coram: Hon’ble Mr Justice K. Vinod Chandran and Hon’ble Mr Justice N. V. Anjaria
Counsel for the Appellant: Sr. Adv. Anand Padmanabhan, Adv.R. Santhana Krishnan, Adv. Ruchi Arya, AOR Krishna Kumar Singh.
Counsel for the Respondent: Adv Ajay Singh, Adv. Ajay Kumar Rai, Adv. Shubham Singh, Adv. Ashish Panwar, Adv. Mukteshwari Shukla, AOR Lokesh Kumar Choudhary.
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