TORT 086 The Insurers Position Statutory Defences and Pay and Recover — Law of Torts Notes for Judiciary

The Insurer's Position: Statutory Defences, the Fake Licence Cases, Pay and Recover, and Apportionment Between Tortfeasors

Because third party insurance is compulsory, the real contest in a motor accident claim is usually between the claimant and an insurer who was no part of the accident. The statutory scheme keeps the victim out of that contest in two ways. It confines the insurer's defences to a closed list in section 149, so that a breach of the policy not on the list is no answer at all. And where a listed breach is established it applies the pay and recover principle: the insurer pays the claimant and recovers from the owner, so that the victim is not made to bear the consequences of a dispute he had no part in.

The statutory defences, how the courts have read them, pay and recover, and contributory against composite negligence

1. The Insurer's Statutory Defences

Section 149, Motor Vehicles Act, 1988

The insurer is entitled to defend the action on any of the following grounds, and no other:

That there has been a breach of a specified condition of the policy, namely a condition excluding the use of the vehicle for hire or reward, where the vehicle is on the date of the contract of insurance a vehicle not covered by a permit to ply for hire or reward; or for organised racing and speed testing; or for a purpose not allowed by the permit; or without a valid permit.

That the vehicle was being driven by a person who was not duly licensed, or by a person who had been disqualified from holding or obtaining a driving licence.

That the policy is void on the ground that it was obtained by non disclosure of a material fact or by a representation of fact which was false in some material particular.

The list is exhaustive. A breach of a condition of the policy which is not among those enumerated is no defence to the insurer against a third party, however clear the breach and however serious.
The burden of establishing the defence lies on the insurer, and it must be pleaded and proved.
The defences operate against the insured and not against the third party, which is the key to the whole scheme and explains the pay and recover principle.

2. How the Courts Have Read the Defences

The breach must be a wilful breach by the insured. An inadvertent or technical departure, of which the owner neither knew nor could have known, does not discharge the insurer.
There must be a causal connection between the breach and the accident. Where the breach had nothing to do with how the accident happened, the courts have been reluctant to allow it to defeat the claim.
A fake or invalid licence does not automatically absolve the insurer. The question is not whether the licence was genuine but whether the owner was guilty of a wilful breach in entrusting the vehicle to the driver. An owner who called for the licence, satisfied himself that it appeared regular, and had no reason to suspect it is not in breach merely because it later proves to be forged.
An expired licence, or a licence for the wrong class of vehicle, is treated on the same footing. The enquiry is into the owner's conduct and knowledge, and not merely into the document.
The reasoning is that section 149 exists to protect the third party, and a construction that allowed an insurer to escape on a technicality in a document the victim never saw would defeat that object.
Where the owner knowingly entrusted the vehicle to an unlicensed driver, the breach is made out, and the pay and recover principle then applies.

3. Pay and Recover

Where the insurer establishes a breach, the Tribunal does not dismiss the claim against it and leave the claimant to pursue the owner.
It directs the insurer to pay the award to the claimant, and gives the insurer liberty to recover the amount from the owner or the driver.
Recovery is by execution in the same proceedings, so the insurer is not put to a fresh suit.
The reasoning is the protection of the third party victim. He was no party to the contract of insurance, had no means of knowing of any breach of it, and should not be made to bear the consequences of a dispute between the insurer and the insured.
The principle is now routinely applied wherever a statutory defence succeeds, and it has effectively converted the insurer's defences from an answer to the claim into a question of who ultimately bears the loss.

4. Uninsured and Unidentified Vehicles

The situation	Who pays
The vehicle was uninsured	The owner is personally liable for the whole award, and the claimant executes against him. There is no fund to answer for an uninsured but identified vehicle
The vehicle cannot be identified	Section 161 and the Compensation to Victims of Hit and Run Motor Accidents Scheme, 2022: Rs 2,00,000 for death and Rs 50,000 for grievous hurt, from the Solatium Fund, with effect from 1 April 2022
The vehicle is later identified	The ordinary claim becomes available, and the amount already paid is adjusted against the award
The policy had expired	The insurer is not liable at all, there being no contract, and the owner answers personally

5. Contributory and Composite Negligence

	Contributory negligence	Composite negligence
Who was at fault	The claimant himself, along with the defendant	Two or more persons other than the claimant
The effect on the award	The damages are reduced in proportion to the claimant's share of the blame	The claimant recovers the whole from any one of them
Apportionment	Between the claimant and the defendant, and it reduces what the claimant gets	Between the tortfeasors, and it does not concern the claimant at all
The claimant's position	He bears part of his own loss	He is fully compensated, and need not sue every wrongdoer
The authority	The ordinary principles: TORT 037	Khenyei v. New India Assurance Co. Ltd.: TORT 026

Not wearing a helmet or a seat belt is contributory negligence to the extent that it aggravated the injury, and the reduction is made on that footing and not as a penalty for the breach of the traffic rule.
A passenger travelling in a goods vehicle, or on the roof of a bus, or with a driver he knew to be drunk, may be found contributorily negligent, though the courts are slow to reduce a passenger's award heavily, since he ordinarily has no control over the driving.
In composite negligence the claimant may proceed against any one tortfeasor for the whole, and it is for that tortfeasor to seek contribution from the others. He is not obliged to implead all of them, and his award is not to be reduced because one of them is not before the Tribunal.

⚠ Why the insurer's defences have been narrowed almost out of existence

Read literally, section 149 gives an insurer real defences: an unlicensed driver, a breach of the permit, a policy obtained by misrepresentation. Read as the courts have read it, the section gives the insurer very little, because almost every defence now requires a wilful breach by the owner with a causal connection to the accident, and because even a successful defence produces a pay and recover order rather than a dismissal. That development is sometimes criticised as rewriting the statute, and it is better understood as giving effect to what the statute is for. Compulsory insurance was not enacted for the benefit of owners, who would insure anyway, but for the benefit of the victim, who is a stranger to the policy, cannot inspect it, cannot influence the owner's compliance with it, and is frequently destitute after the accident. A scheme that let the insurer walk away whenever the owner had slipped up would protect the victim only in the cases where he least needed protection. The courts have therefore kept the victim out of the dispute and left the insurer and the owner to settle it between themselves, which is exactly what pay and recover achieves.

6. The Position Stated Shortly

1. Section 149 confines the insurer's defences to a closed list, and a breach of the policy not on the list is no answer against a third party.

2. The listed defences are use for hire or reward, organised racing or speed testing, use outside the permit, driving by a person not duly licensed or disqualified, and a policy obtained by misrepresentation.

3. The burden of establishing a defence lies on the insurer, and it must be pleaded and proved.

4. The breach must be a wilful breach by the insured, and must have a causal connection with the accident.

5. A fake or invalid licence does not automatically absolve the insurer; the question is whether the owner was guilty of a wilful breach in entrusting the vehicle.

6. An owner who checked the licence and had no reason to doubt it is not in breach merely because it proves to be forged.

7. Where a defence is established, the Tribunal directs the insurer to pay and gives it liberty to recover from the owner or driver by execution in the same proceedings.

8. The pay and recover principle rests on the protection of the third party victim, who had no part in the contract of insurance.

9. Where the vehicle is uninsured the owner answers personally; where it cannot be identified, section 161 and the 2022 Scheme provide Rs 2,00,000 for death and Rs 50,000 for grievous hurt.

10. Contributory negligence reduces the claimant's award; in composite negligence he recovers the whole from any one tortfeasor and apportionment is a matter between them.