Case: New India Assurance Co Vs. C.M. Jaya

These appeals are placed before us pursuant to the order of reference made in New India Assurance Co. vs. C.M. Jaya and others [(1999) 2 SCC 47] , whichquestion involved in these appeals is whether in a case of insurance policy not taking any higher liability by accepting a higher premium, in case of payment of compensation to a third party, the insurer would be liable to the extent limited under Section 95(2) or the insurer would be liable to pay the entire amount and he may ultimately recover from the insured. On this question, there appears to be some apparent conflict in the two three-Judge Bench decisions of this Court - (1) New India Assurance Co. Ltd. vs. Shanti Bai [(1995) 2 SCC 539] and (2) Amrit Lal Sood vs. Kaushalya Devi Thapar [(1998) 3 SCC 744] .2. In the latter decision, unfortunately the decision in New India Assurance Case (supra) has not been noticed though reference has been made to the decision of this Court in National Insurance Co. Ltd. vs. Jugal Kishore [(1988) 1 SCC 626] , which was relied upon in the earlier three-Judge Bench judgment. In view of the apparent conflict in these two three-Judge Bench decisions, we think it appropriate that the records of this case may be placed before my Lord, the Chief Justice of India to constitute a larger Bench for resolving the conflict. We accordingly so direct. The record may now be placed before the Honble the Chief Justice of India".

Court's reasoning:
10. Thus, a careful reading of these decisions, clearly shows that the liability of the insurer is limited, as indicated in Section 95 of the Act, but it is open to the insured to make payment of additional higher premium and get higher risk covered in respect of third party also. But in the absence of any such clause in the insurance policy the liability of the insurer cannot be unlimited in respect of third party and it is limited only to the statutory liability. This view has been consistently taken in the other decisions of this Court.11. In Shanti Bais case (supra), a bench of three learned Judges of this Court, following the case of Jugal Kishore, has held that (i) a comprehensive policy which has been issued on the basis of the estimated value of the vehicle does not automatically result in covering the liability with regard to third party risk for an amount higher than the statutory limit, (ii) that even though it is not permissible to use a vehicle unless it is covered at least under an "Act only" policy, it is not obligatory for the owner of a vehicle to get it comprehensively insured and (iii) that the limit of liability with regard to third party risk does not become unlimited or higher than the statutory liability in the absence of specific agreement to make the insurers liability unlimited or higher than the statutory liability.12. 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 travelling 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 Soods 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 Soods 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.In the light of what is stated above, we do not find any conflict on the question raised in the order of reference between the decisions of two benches of three learned Judges in Shanti Bai and Amrit Lal Sood aforementioned and, on the other hand, there is consistency on the point that in case of an insurance policy not taking any higher liability by accepting a higher premium, the liability of the insurance company is neither unlimited nor higher than the statutory liability fixed under Section 95(2) of the Act. In Amrit Lal Soods case, the decision in Shanti Bai is not noticed. However, both these decisions refer to the case of Jugal Kishore and no contrary view is expressed.In the premise, we hold that the view expressed by the bench of three learned Judges in the case of Shanti Bai is correct and answer the question set out in the order of reference in the beginning as under:-In the case of insurance company not taking any higher liability by accepting a higher premium for payment of compensation to a 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.