M J Antony: Bad arithmetic helps insurers

OUT OF COURT

According to a wit, there are three types of people in the world "" those who can count and those who can't! There are legal draftsmen in our government who are so poor in arithmetic that they can't do their sums correctly even if the Supreme Court points out the mistakes for a decade.

As early as in 1996, the Supreme Court had ridiculed the second schedule to the Motor Vehicles Act, which sets a ready reckoner for calculating the compensation amount in motor vehicle accidents.

However, the errors have not been corrected till date, to the delight of the insurance companies. The Supreme Court, in two recent judgements, again referred to this lapse and set its own rules to work out the damages in the cases before it.

In one judgement (Tamil Nadu State Transport vs S Rajapriya), the Supreme Court acknowledged that the assessment of compensation for road victims is beset with difficulties.

The judgement said: "It is because, from the nature of things, it has to take into account many imponderables, like the life expectancy of the deceased and the dependents, the amount that the deceased would have earned during the remainder of his life, the amount that he would have contributed to the dependents during that period, the chances that the deceased may not have lived or the dependents may not live up to the estimated remaining period of their life expectancy, the chances that the deceased might have got better employment or income or might have lost his employment and income altogether."

The manner of arriving at the damages is to ascertain the net income of the deceased available for the support of himself and his dependents, and to deduct from it such part of his income as the deceased was accustomed to spending upon himself, for both self-maintenance and pleasure, and to ascertain what part of his net income he was accustomed to spending on his dependents.

Then that should be capitalised by multiplying it by a figure representing the number of years of earning. It is called the "multiplier".

The exercise remains in the realm of hypothesis; and an English court has observed that arithmetic, in this region, is "a good servant but a bad master."

In order to avoid discrepancies in the estimate of damages, the government introduced the schedule in 1994 in the Motor Vehicles Act. It was supposed to bring some predictability and certainty in the computation.

However, it has turned out to be the nadir of draftsmanship and the delight of the insurance companies.

Just one example given by the Supreme Court in the 1996 judgement (UP State RTC vs Trilok Chandra) would be enough to appreciate the quality of the chart.

In the case of the death of a 15-year-old victim, with an assumed annual income of Rs 3,000, the number of years of earning is taken to be 15 years.

Multiplying these figures to get the total loss, the chart arrives at Rs 60,000. But school maths says it should be Rs 45,000. In the case of a 20-year-old earning Rs 9,000, the figure given is Rs 1.71 lakh whereas it should have been Rs 1.35 lakh.

Moreover, a person's maximum annual income is taken to be Rs 40,000. Even Union Carbide did not find Indian lives so cheap after Bhopal.

In its decisions, the Supreme Court ignores the chart and passes orders using its own sense of fairness. The compensation according to the schedule is low.

The judiciary itself is conservative in awarding realising damages. In the two recent decisions, it reduced the amounts awarded by the high courts, granting relief to the insurance companies.

The motor accident claims tribunals and the courts above are now going by a rule of thumb and precedents. The law has been of little help, except to confuse the victims, the legal profession and the judiciary.