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Question Bank
Question
What is the significance of Section 147(5) of the Motor Vehicles Act, 1988, in determining the liability of an insurance company in cases of policy cancellation due to non-payment of premium?
Solution
Section 147(5) of the Motor Vehicles Act, 1988, mandates that an insurance policy must cover third-party risks, ensuring compensation for victims of accidents involving insured vehicles. However, if the policy is cancelled due to non-payment of premium (e.g., due to a dishonoured cheque), the insurer’s liability may be absolved provided the cancellation is communicated to the insured and the Regional Transport Office (RTO) before the accident. This section balances the insurer’s contractual rights with statutory obligations toward third parties. Courts often apply the "pay and recover" principle, directing insurers to compensate victims first and later recover the amount from the vehicle owner.
Question
How does the dishonour of a premium cheque affect the validity of an insurance policy under the Motor Vehicles Act, 1988?
Solution
The dishonour of a premium cheque renders the insurance contract voidable due to failure of consideration. Under the Motor Vehicles Act, 1988, the insurer must formally cancel the policy and notify the insured and the RTO to disclaim liability. For instance, in cases where the cheque bounces due to insufficient funds, the policy is deemed cancelled from the date of intimation. However, if the accident occurs after cancellation and proper communication, the insurer may avoid liability. Courts often scrutinise whether the insurer followed due process under Section 149(1) to determine the enforceability of such cancellations.
Question
Explain the "pay and recover" principle as upheld by the Supreme Court in cases involving cancelled insurance policies?
Solution
The "pay and recover" principle is a judicial remedy where the insurance company is directed to compensate the third-party victim first, even if the policy is cancelled, and later recover the amount from the vehicle owner. This principle, affirmed in judgments like Deddappa v. National Insurance Co. and United India Insurance Co. v. Laxmamma, ensures immediate relief to victims while protecting insurers’ rights. It operates under Section 149(1) of the Motor Vehicles Act, 1988, which prioritises third-party claims over technical policy breaches. Courts invoke Article 142 of the Constitution to enforce this equitable solution.
Question
What role does the Regional Transport Office (RTO) play in the cancellation of an insurance policy under the Motor Vehicles Act, 1988?
Solution
The RTO acts as a critical authority in policy cancellations. Under the Motor Vehicles Act, 1988, insurers must notify the RTO about the cancellation due to non-payment of premium (e.g., via a dishonoured cheque). This serves as public record and prevents misuse of the vehicle’s registration. Failure to inform the RTO may render the cancellation ineffective against third-party claims, as highlighted in United India Insurance Co. v. Laxmamma. The RTO’s records help courts verify the timeliness and validity of the insurer’s actions.
Question
How does Section 149(1) of the Motor Vehicles Act, 1988, protect third-party rights despite policy cancellation?
Solution
Section 149(1) safeguards third-party rights by imposing statutory liability on insurers to compensate accident victims, even if the policy is later cancelled for non-payment. The insurer can only disclaim liability if it proves the policy was cancelled before the accident and intimated to the insured and RTO. This provision ensures that technical breaches (e.g., bounced cheques) do not deprive victims of compensation. Courts often reinforce this through the "pay and recover" mechanism, balancing justice for victims and insurers’ contractual rights.
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