In Motor Insurance, the First party is the owner of property(Motor Vehicle), Second party is the Insurer and the Third party is everyone else, say a person on the street. Normally insurance loss or damage to the property of insured is covered. If your car gets damaged, its repair and replacement is covered.

This is commonly called First party insurance or own damage section of Insurance policy. Third-party insurance is compulsory for all vehicle-owners as per the Motor Vehicles Act. It covers only your legal liability for the damage you may cause to a third party – bodily injury, death and damage to third party property – while using your vehicle in public spaces. Recently, pursuant to the Supreme Court decision, IRDAI has mandated all General Insurance Companies , to make it compulsory to provide long term third-party motor covers for new vehicles to curb the number of uninsured vehicles plying on the road. The top court, in a July 20, 2018 order, said that in the case of new vehicles third party insurance i,e, cars should at least be covered for three years and two-wheelers for five years, either as a separate insurance policy or as part of the comprehensive cover. The order will be effective from September 1,2018. The court also asked the regulator to work with the police and online channels to push sale and renewal of the third party accident cover.

The decision came after a Supreme Court-appointed committee on road safety found that only one in every three vehicles–among 18 crore playing on Indian roads–is insured. This leads to accident victims or their kin not getting any compensation. On the same lines, IRDAI has now recently mandated Insurance Companies to enhance the Compulsory Accident Cover from the existing ` 1,00,000 to at least not less than ` 15,00,000/- for owner of the vehicle with the purpose of adding solace to the victims of road accidents, who are the owners of the vehicles.

Motor insurance policy is a contract between the insured and the insurer in which the insurer promises to indemnify the financial liability in event of loss to the insured. This loss to insured can arise out of:- 

i. Loss to insured motor vehicles due to accidental damage arising out of various perils covered under the policy.

ii. His incurring financial liability towards third parties due to accident of motor vehicle resulting in injury/ disability or death of the third party or damage or loss of third party property 

iii. Personal Accident Injury to owner arising out of insured vehicle meeting with an accident

Whereas Section I – Own damage to vehicle is voluntary section which one may insure or not, the Section II- Third Party Liability and Section -III Personal Accident injury to owner Driver are compulsory cover as per Motor Vehicle Act 1988. Motor third-party insurance or third-party liability cover, which is sometimes also referred to as the ‘act only’ cover, is a statutory requirement under the Motor Vehicles Act. It is referred to as a ‘third-party’ cover since the beneficiary of the policy is someone other than the two parties involved in the contract i.e. the insured and the insurance company. The policy does not provide any benefit to the insured; however it covers the insured’s legal liability for death/disability of a third party or damage to third party property. 

What is Third Party Insurance? 

There are two quite different kinds of insurance involved in the damages system. One is Third Party liability insurance, which is just called liability insurance by insurance companies and the other one is first party insurance. A third party insurance policy is a policy under which the insurance company agrees to indemnify the insured person, if he is sued or held legally liable for injuries or damage done to a third party. The insured is one party, the insurance company is the second party, and the person you (the insured) injure who claims damages against you is the third party.

Section 145(g) “third party” includes the Government. National Insurance Co. Ltd. v. Fakir Chand, “third party” should include everyone (other than the contracting parties to the insurance policy), be it a person traveling in another vehicle, one walking on the road or a passenger in the vehicle itself which is the subject matter of insurance policy. According to Section 24 of Motor Vehicles Act, “No person shall use or allow any other person to use a motor vehicle in a public place, unless the vehicle is covered by a policy of Insurance.” Here the term insurance is to be referred as “Third Party Insurance.”

BASIC PRINCIPLES OF MOTOR INSURANCE 

Motor insurance being a contract like any other contract has to fulfill the requirements of a valid contract as laid down in the Indian Contract Act 1872. in addition it has certain special features common to other insurance contracts.

They are: • Utmost good faith • Insurable interest • Indemnity • Subrogation and contribution •

 Utmost good faith

The principle of Utmost good faith casts an obligation on the insured to disclose all the material facts. These material facts must be disclosed to the insurer at the time of entering into the contract. All the information given in the proposal form should be true and complete. E.g. the driving history, physical health of the driver, type of vehicle etc. If any of the mentioned material facts declared by the insured in the proposal form are found inappropriate by the insurer at the time of claim it may result in the claim being repudiated.

Insurable Interest

Insurable Interest In a valid insurance contract it is necessary on the part of the insured to have an insurable interest in the subject matter of insurance. The presence of insurable interest in the subject matter of insurance gives the person the right to insure. The interest should be pecuniary and must be present at inception and throughout the term of the policy. Thus the insured must be either benefited by the safety of the property or must suffer a loss on account of damage to it.

Indemnity Insurance contracts are contracts of indemnity.

Indemnity means making good of the loss by reimbursing the exact monetary loss. It aims at keeping the insured in the same position he was before the loss occurred and thus prevent him from making profit from insurance policy.

Subrogation and Contribution

Subrogation refers to transfer of insured’s right of action against a third party who caused the loss to the insurer. Thus, the insurer who pays the loss can take up the assureds’ place and sue the party that caused the loss in order to minimize his loss for which he has already indemnified the insured. Subrogation comes into the picture only in case of damage or loss due to a third party. The insurer derives this right only after the payment of damages to the insured.

Contribution ensures that the indemnity provided is proportionately borne by other insurers in case of double insurance. Another such instance is the Insurer paying claims in case of “Lost Vehicle” and subsequently the vehicle is recovered. In such cases, due to subrogation rights, the Insurer becomes the owner of such a vehicle and steps in the shoes of the Insured.

CLAIM PROCEDURE FOR MOTOR INSURANCE 

(a) Vehicle Accident Claims After the insured submit his claim form and the relevant documents, the insurer appoints a surveyor to inspect the vehicle and submit his/her report to the insurance company. Insured also get the details of the surveyor’s report. In case of major damage to the vehicle, the insurer arranges for a spot survey at the site of accident. The insured can undertake repairs only on completion of the survey. 

Once the vehicle is repaired, the insured should submit duly signed bills/cash memos to the insurance company. In some cases, companies have the surveyor re-inspect the vehicle after repairs. In such a scenario, the insured should pay the workshop/garage and obtain a proof of release document (this is an authenticated document signed by the owner to release the vehicle from the garage after it is checked and repaired). Once the vehicle has been released, the insured should submit the original bill, proof of release, and cash receipt from the garage to the surveyor. The surveyor sends the claim file to the insurance company for settlement along with all the documents and finally, the insurance company reimburses the insured. In case of an accident, the insurance company pays for the replacement of the damaged parts and the labor fees. The costs that the insured has to bear include: 

A. The amount of depreciation as per the rate prescribed 

B. Reasonable value of salvage (to be discussed separately) 

C. Voluntary deductions under the policy, if the insured have opted for any 

D. Compulsory excesses levied by the insurer In the insured uses the cashless repair facility, the claim money is paid directly to the workshop or garage. Otherwise, the amount of claim is paid to the insured.

(b) Third Party Insurance Claim In the event of a third party claim, the insured should notify the insurance company in writing along with a copy of the notice and the insurance certificate.

The insured should not offer to make an out-of-court settlement or promise payment to any party without the written consent of the insurance company. The insurance company has a right to refuse liabilities arising out of such promises.

The insurance company will issue a claim form that has to be filled and submitted along with:

(a) Copy of the Registration Certificate 

(b) Driving license 

(c) First information report (FIR) After verification, the insurance company will appoint a lawyer in the defense of the insurer and the insured should cooperate with the insurance company, providing evidence during court proceedings. If the court orders compensation, the insurance company will then do it directly.

Motor Accident Claims Tribunal and Lok Adalats MACT and Lok Adalats are playing an important role in Third party liability claims and almost 90% of third party motor accident claims are being settled through MACT courts or through Lok Adalats organized for settlement of these claims. These platforms provide for a good opportunity for negotiated settlement of the third party claims and timely help to accident victims without waiting for years together to get compensation from the insurance companies. 

(c) Vehicle Theft Claims In the event of theft of vehicle, the insured should lodge the First Information Report (FIR) with a police station immediately, inform the insurance company and provide them with a copy of the FIR. He should also submit the Final Police Report to the insurance company as soon as it is received and extend full cooperation to the surveyor or investigator appointed by the company. After the claim is approved, the Registration Certificate of the stolen vehicle has to be transferred in the name of the company and the insured needs to submit the duplicate keys of the vehicle along with a letter of subrogation and an indemnity on stamp paper (duly notarized) to the insurance company.

Motor Vehicles Act, 1988

The Motor Vehicles Act, 1988 is an Act of the Parliament of India which regulates all aspects of road transport vehicles. The Act came into force from 1 July 1989. It replaced the Motor Vehicles Act, 1938 which earlier replaced the first such enactment Motor Vehicles Act, 1914.

The Act provides in detail the legislative provisions regarding licensing of drivers and conductors, registration of motor vehicles, control of motor vehicles through permits, special provisions relating to state transport undertakings, traffic regulations, insurance, liability, offences and penalties etc. Further, in order to exercise the legislative provisions of the Act, the Government of India made the Central Motor Vehicles Rules, 1989. On 22 May 2018, the Central Government issued a notification by which the scale of compensation for third party fatal accidents and injury claims under the Second Schedule of the Motor Vehicles Act 1988 (MV Act) was amended.

These claims for compensation are considered on a ‘no-fault liability’ basis as envisaged under §163A of the MV Act. In other words, the claimant is not required to prove or plead that death or permanent disablement was due to ‘any wrongful act or neglect or default of the owner of the vehicle.’ Section 140 of Motor Vehicles Act, 1988 deals with the liability without fault.

The claimant involved in a motor vehicle accident is not required to prove wrongful act, neglect, or default on the part of the owner of the vehicle or by any other person. The claim under these provisions is neither defeated or affected in any way, by any wrongful act, neglect or default on the part of the claimant; nor can be of the claimant’s share of responsibility for the accident. In other words, the legal defense of ‘contributory negligence’ is not available to the motorist and his insurer.

These provisions apply in cases where the claimant suffers death or permanent disablement, as defined in the Act. The amounts of compensation are fixed as follows: • Death ` 200000 • Permanent Disablement /Grievious Injury ` 50000 The object behind no-fault principle is to give minimum statutory relief expeditiously to the victim of the road accident or his legal representative. To that extent, these provisions constitute a measure of social justice.

Where no-fault liability is concerned, there is clearly a departure from the usual common law principle that a claimant should establish negligence on the part of the owner or driver of the motor vehicle before claiming any compensation for death or permanent disablement arising out of a motor vehicle accident. The right to claim compensation under section 140 in respect of death of permanent disablement of any person shall be in addition to any other right to claim compensation in respect thereof under any other provision of this Act or of any other law for the time being in force.

Thus the claims for death or permanent disablement can also be pursued under other provisions of the Act on the basis of negligence. The motorist i.e. the owner of the vehicle or driver of the vehicle is liable to pay compensation on the basis of ‘no fault’ as well as on the basis of ‘fault’ or negligence he has to pay first the compensation on ‘no fault’ basis i.e. ` 2000000 or ` 50000 as the case may be, for death or permanent disablement.

The IRD Act has established the Insurance Regulatory and Development Authority (“IRDA” or “Authority”) as  a statutory regulator to regulate and promote the insurance industry in India and to protect the interests of  holders of insurance policies. The IRDA Act also carried out a series of amendments to the Act of1938 and  conferred the powers of the Controller of Insurance on the IRDA. The members of the IRDA are appointed by  the Central Government from amongest persons of ability, integrity and standing who have knowledge or  experience in life insurance, general insurance, actuarial science, finance, economics, law, accountancy,  administration etc.

The Authority consists of a chairperson, not more than five whole-time members and not  more than four part-time members.  Every Chairperson and member of IRDA appointed shall hold office for a term of five years. However,  the Chairperson shall not hold office once he or she attains 65 years while whole time members shall not hold  office beyond 62 years.  

Central Government may remove any member from office if he or she is adjudged insolvent or is physically  or mentally incapacitated or has been convicted of an offence involving moral turpitude or has acquired  financial or other interests or has abused his position. Chairperson and the whole time members shall not for  a period of two years from the date of cessation of office in IRDA, hold office as an employee with Central  Government or any State Government or with any company in the insurance sector.