Case: ORIENTAL INSURANCE CO. LTD Vs. NAFEESSU AND OTHERS

2. In this case the claim petition was filed by the legal heirs of C. Abdul Shukkoor, who died in a road accident on 6th July 1988. The accident was caused by an autorickshaw bearing Registration No. KRN 1859 which was insured with the Appellant-company. The Respondents claimed Rs. 2 lakhs as compensation. The Appellant-company filed their reply specifically stating therein that their liability was limited to Rs. 50,000 under the policy of insurance. The Claim Tribunal passed an award of Rs. 1,94,150 and fastened the entire liability on the Appellant-company. The appeal filed against the order of the Claims Tribunal was dismissed vide the judgment impugned in this appeal.

Court's reasoning:
3. Admittedly, the insurance policy in this case is of a date prior to the coming into force of the new Motor Vehicles Act on 1st July 1989. The liability of the insurance company to satisfy judgments against persons insured in respect of the third party risk is covered u/s 96 of the Act,A conjoint reading of all the terms of the policy of insurance executed in this case indicate that the total extent of liability of the insurance policy is Rs. 50,000 but the company is liable to indemnify the insured against all sums including claimants costs and expenses which insured becomes liable to pay and nothing in the policy affects the right of any person indemnified by the policy or any other person to recover an amount under or by virtue of the provisions of Section 96 of the Act. However, the insured is liable to repay to the company all sums paid by the company which the company would not have been liable to pay but for the condition of liability relating to third party.6. Dealing with such a situation this Court in New Asiatic Insurance Co. Ltd. Vs. Pessumal Dhanamal Aswani and Others, held:The Act contemplates the possibility of the policy of insurance undertaking liability to third parties providing such a contract between the insurer and the insured, that is, the person who effected the policy, as would make the company entitled to recover the whole or part of the amount it has paid to the third party from the insured. The insurer thus acts as security for the third party with respect to its realising damages for the injuries suffered, but vis-a-vis the insured, the company does not undertake that liability or undertake it to a limited extent. It is in view of such a possibility that various conditions are laid down in the policy. Such conditions, however, are effective only between the insured and the company, and have to be ignored when considering the liability of the company to the third parties. This is mentioned prominently in the policy itself and is mentioned under the heading avoidance of certain terms and rights of recovery, as well as in the form of An Important Notice, in the Schedule to the policy. The avoidance clause says that nothing in the policy or any endorsement thereon shall affect the right of any person indemnified by the policy or any other person to recover an amount under or by virtue of the provisions of the Act. It also provides that the insured will repay to the company all sums paid by it which the company would not have been liable to pay but for the said provisions of the Act. The Important Notice mentions that any payment made by the company by reason of wider terms appearing in the certificate in order to comply with the Act is recoverable from the insured, and refers to the avoidance clause. Thus the contract between the insured and the company may not provide for all the liabilities which the company has to undertake vis-a-vis the third parties, in view of the provisions of the Act. We are of the opinion that once the company had undertaken liability to third parties incurred by the persons specified in the policy, the third parties right to recover any amount under or by virtue of the provisions of the Act is not affected by any condition in the policy. Considering this aspect of the terms of the policy, it is reasonable to conclude that proviso (a) of paragraph 3 of Section II is a mere condition affecting the rights of the insured who effected the policy and the persons to whom the cover of the policy-was extended by the company, and does not come in the way of third parties claim against the company on account of its claim against a person specified in paragraph 3 as one to whom cover of the policy was extended.The circumstances that the owner of the vehicle did not file an appeal against the judgment of Single Judge of the High Court under the Letters Patent may also be relevant in the event of a claim by the insurance company against the insured for repayment of the amount. We are not concerned with that question here.8. The reliance of the the learned Counsel for the Appellant on New India Assurance Co. Ltd. Vs. Smt. Shanti Bai and others, and National Insurance Co. Ltd., New Delhi Vs. Jugal Kishore and Others, is of no help to him inasmuch as in those cases the effect of judgment in Amrit Lai Soods case has not been considered. In T. Shantharams case the court was dealing with the effect of a comprehensive policy vis-a-vis the liability of the insurer in respect of third party risk on the basis of the estimated value of the vehicle and found that the limit of liability with regard to third party risk does not become unlimited or higher than the statutory liability only on account of entering into a comprehensive policy. It was pointed out that the comprehensive policy only entitles the owner to claim reimbursement of the entire amount of loss or damage suffered upto the estimated value of the vehicle which did not mean the limit of liability with regard to third party risk becoming unlimited or higher than the statutory liability. In the case of National Insurance Co. Ltd. v. Jugal Kishore and Ors. (supra) this Court observed that the liability under the policy could not exceed the statutory liability u/s 95 of the Act only on the ground that the insured had undertaken comprehensive insurance of the vehicle. The payment of higher premium on that score, however, did not mean that the limit of liability with regard to third party risk became unlimited or higher than the statutory liability fixed under Sub-section (2) of Section 95 of the Act.9. In the facts and circumstances of this case we find that despite holding the liability under the policy limited to the extent of Rs. 50,000, the Claims Tribunal and the High Court were not unjustified in directing the Appellant- company to pay the whole of the awarded amount to the claimants on the basis of the contractual obligations contained in clauses relating to the liability of the third parties and avoidance clause. However, the Claims Tribunal and the High Court were not justified in rejecting the right of the Appellant- company to recover from the insured the excess amount paid in execution and discharge of the award of the Tribunal.