M J Antony: Reprieve for insurance companies

OUT OF COURT

Clear drafting of the law helped the apex court in one case, but the compensation figures still do not add up.

The liability of insurance companies in road accidents is one of the frequent themes in litigation up to the Supreme Court. The stream of cases starts at the motor accident claims tribunal or the consumer forums. There is no shortage of legal conundrums. One large batch of cases decided by the Supreme Court recently referred to fake driving licences, which are more in number than one would guess.

In the last round two years ago (National Insurance Company vs Swaran Singh), the insurance companies had practically lost at the apex court. It held that any condition in the policy whereby the right of the third party was taken away would be invalid. The insurance company has the onerous duty to prove that the licence was defective. "Mere absence, fake or invalid driving licence or disqualification of the driver for driving are not themselves defences available to the insurance companies against either the insured or the third parties," that judgement emphasised.

In the latest judgement of the court, National Insurance Company vs Laxmi Narain Dutt, the insurance companies got some reprieve from the rigour of the earlier judgement. The rule will apply only when the insurer, the insured and the third party are involved. Where the latter, who are usually the claimants, are not involved, the insurance company is not bound by the rules laid down earlier. It is before the tribunal that the insurer, the insured and the third party fight out their respective cases. In such cases, the insurers still have to prove that the licence was not valid. But in the case of a consumer forum, where the confrontation is between the insurance company and the owner of the vehicle, the earlier rules would not be applicable.

The court came to this conclusion because Section 149 of the Motor Vehicles Act, which deals with third party risks, was clearly drafted. It is a beneficial provision protecting third parties. However, that protection cannot be extended to the owner of the vehicle who handed over the keys of the vehicle to an unfit driver. The clarity in drafting the legislation has thus come to the rescue of the insurance companies.

The same cannot be said about the rest of the provisions of the Motor Vehicles Act. More than ten years ago, the Supreme Court had pointed out that the second schedule to the Act, which furnishes a chart to calculate the compensation, was impossible to enforce. The table, introduced in a hasty amendment to the Act in 1994, has baffled lawyers as well as the claims tribunals all over the country. The court, in UP State RTC vs Trilok Chandra, stated that the method of calculation "abounded in mistakes".

Section 168 of the Act talks only about "just" compensation for loss or injury without indicating how to arrive at the exact figure. The courts in India followed the principles laid down in the leading English cases of Davies (1942) and Nance (1951). In order to bring some uniformity, the schedule was introduced. However, as it is based on bad arithmetic, it is largely ignored by the tribunals and courts.

For instance, a person's maximum annual income is taken to be Rs 40,000. Damages for loss of estate in case of death is Rs 2,500. The general damages for grievous injuries is Rs 5,000. The Supreme Court gave two gross examples from 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 according to sheer arithmetic, it should be Rs 45,000.

The second example is of a person below 20 years, who earns Rs 9,000 annually. In case of a fatal accident, his dependants would get Rs 1.71 lakh. But it should have been Rs 1.44 lakh. The court concluded that with such mistakes abounding, "neither the tribunals nor the courts can go by the ready reckoner. It can only be used as a guide."

However, the court often forgets its own remarks and in some judgements applied the formula which it had criticised. It awarded Rs 1.62 crore for the death of a wealthy Indian settled in the US in United India vs Patricia. In Kaushnuma Begum vs New India, it even praised the formula, discredited earlier, as "a safer guide than any other method." The Motor Vehicles Act was passed in 1988. If the law-makers had made it a habit of taking a second look at the laws in the light of judicial remarks, such incongruities would not have happened.