Motor Vehicle Insurance Law: Insurer's Liability and the 'Pay and Recover' Principle in Cases of Fundamental Breach (CaseLaws)

Amrit Paul Singh & Anr. Vs. Tata AIG General Insurance Co. Ltd. & Ors. ((2018) Civil Appeal No. 2253 of 2018)

Summary of the Case Law:
The Supreme Court of India addressed an appeal concerning a claim for compensation arising from a fatal motor accident. The key legal issue involved was the liability of an insurance company to pay compensation when the offending vehicle, a transport truck, was being plied without a valid permit at the time of the accident.

The key legal issues involved were:
Fundamental Breach of Policy Condition – Whether plying a transport vehicle without a valid permit constitutes a fundamental breach of the insurance policy and the Motor Vehicles Act, 1988, allowing the insurer to avoid liability.

Application of the 'Pay and Recover' Principle – Whether, despite the breach, the insurer could be directed to first pay the compensation to the victims and then recover the amount from the vehicle owner.

Distinction from Other Breaches – How the breach of not having a permit differs from other breaches, such as driving without a valid license or carrying excess passengers, where the 'pay and recover' principle is commonly applied.

The Court held that:
Plying a transport vehicle without a permit is a fundamental statutory infraction and a breach of a specific condition of the insurance policy.

This breach is distinct from and more serious than other breaches (like an invalid driving licence), as the very use of the vehicle on a public road is illegal.

Consequently, the insurer was justified in repudiating the claim and was not liable to indemnify the insured.

However, to protect the rights of the third-party victims, the Tribunal's direction for the insurer to first pay the compensation and then recover it from the vehicle owner was upheld as legally sound.

Key Legal Principles Established:
Permit is Fundamental for Transport Vehicles: The absence of a permit for a transport vehicle is a fundamental breach of the statute and the insurance contract. The exceptions listed under Section 66 of the Motor Vehicles Act must be specifically pleaded and proved by the owner; they cannot be assumed.

'Pay and Recover' Principle Upheld: Even in cases of a fundamental breach where the insurer has no liability towards the insured, the court can direct the insurer to satisfy the award in favour of the third-party victims (as per Section 149 of the Act) and then recover the paid amount from the owner/driver of the vehicle. This ensures that victims are not deprived of compensation due to disputes between the insurer and the insured.

Hierarchy of Breaches: The judiciary distinguishes between breaches. While minor or non-fundamental breaches (like minor licensing issues) may not absolve the insurer, a breach that goes to the root of the vehicle's legal entitlement to be on the road (like no permit) is treated with greater severity.

Relevance:
This judgment clarifies the scope of an insurer's defence in motor accident claims. It reinforces that while the 'pay and recover' principle is a beneficial tool for protecting victims, the nature of the breach by the insured is critically examined. It establishes that the absence of a permit is a grave violation, but it does not negate the insurer's statutory obligation to first compensate the victim before exercising its recovery rights.