Third party insurance

In India, under the provisions of the Motor Vehicles Act, 1988, it is mandatory that every vehicle
should have a valid Insurance to drive on the road. Any vehicle used for social, domestic and
pleasure purpose and for the insurer's business motor purpose should be insured.

Insurance is a contract whereby one party, the insurer, undertakes in return for a consideration,
the premium , to pay the other, the insured or assured, a sum of money in the event of the
happening of a , or one of various ,specified uncertain events.

Insurance developed from the fourteenth century as a means of spreading huge risks attendant on
early maritime enterprises; life and fire insurance developed later. The main classes of insurance
are life and other personal insurance, marine insurance, accident or property insurance and
liability insurance when the sum becomes payable when legal liability is incurred as for personal
injuries or professional negligence to another.

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
third party loss or damage to third party property.

This paper is an endeavor to explain the relevance of third party insurance? What is third party
insurance? Who is a third party? Why third party insurance is compulsory for all vehicles under
the Motor Vehicles Act, 1988? What are the salient features of third party insurance? These
aspects of the third party insurance have been explained with the help of various case laws.
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[1], 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.

Salient Features of Third Party Insurance

Ø Third party insurance is compulsory for all motor vehicles. In G. Govindan v. New India
Assurance Co. Ltd.[2],Third party risks insurance is mandatory under the statute .This provision
cannot be overridden by any clause in the insurance policy. 

Ø Third party insurance does not cover injuries to the insured himself but to the rest of the world
who is injured by the insured. 

Ø Beneficiary of third party insurance is the injured third party, the insured or the policy holder
is only nominally the beneficiary of the policy. In practice the money is always paid direct by the
insurance company to the third party (or his solicitor) and does not even pass through the hands
of the insured person. 

Ø In third party policies the premiums do not vary with the value of what is being insured
because what is insured is the legal liability' and it is not possible to know in advance what that
liability will be. 

Ø Third party insurance is almost entirely fault-based.(means you have to prove the fault of the
insured first and also that injury occurred from the fault of the insured to claim damages from
him) 

Ø Third party insurance involves lawyers aid 

Ø The third party insurance is unpopular with insurance companies as compared to first party
insurance, because they never know the maximum amounts they will have to pay under third
party policies.

Motor Vehicles Acts,1939 and 1988

Motor Vehicles Act,1939 (4 of 1939) consolidates and amends the law relating to motor
vehicles. This has been amended several times to keep it up to date.The need was, however felt
that this Act should, now interalia take into account also changes in the road transport
technology, pattern of passenger and freight movements, development of the road network in the
country and particularly the improved techniques in the motor vehicles management.

The Motor Vehicles Act,1988 which came into force on 1st July,1988 and which is divided into
XIV Chapters, 217 Sections and two schedules, makes it compulsory for every motor vehicle to
be insured. Chapters X,XI and XII of the 1988 Act deals with compensation provisions. Sections
140 to 144 (Ch.X) deal with liability with out fault in certain cases. Chapter XI (Ss. 145 to 164)
deal with insurance of motor vehicles against third party risks.
Historical Background of third Party Insurance

Chapter VIII of the 1939 Act and Chapter XI of the 1988 Act have been enacted on the pattern of
several English statutes which is evident from the report of Motor Vehicles Insurance
Committee,1936-1937'In order to find out the real intention for enacting Ss.96 of the 1939 Act
which corresponds to Ss.149 of the 1988 Act, it is relevant to trace the historical development of
the law for compulsory third –party insurance in England. Prior to 1930, there was no law of
compulsory insurance in respect of third party rights in England. As and when an accident took
place an injured used to bring action against the motorist for recovery of damages.

But in many cases it was found that the owner of the offending vehicle had no means to pay to
the injured or the dependant of the deceased and in such a situation the claimants were unable to
recover damages. It is under such circumstances that various legislations were enacted. To meet
the situation it is for the first time the Third Parties' Rights Against Insurance Act,1930' was
enacted in England. The provision of this Act found place in S.97 of the 1939 Act which gave to
the third party a right to sue insurer directly. Subsequently, the road traffic Act,1930' was
enacted which provided for compulsory insurance for Motor Vehicles. The provisions of this Act
were engrafted in S.95 of the 1939 Act and S.146 of the 1988 Act. It is relevant that under S.38
of the English Act of 1930, certain conditions of insurance policy were made ineffective so far as
third parties were concerned .The object behind the provision was that the third party should not
suffer on account of failure of the insured to comply with those terms of the insurance policy.

Subsequently in 1934, the second Road Traffic Act was enacted. The object of this legislation
was to satisfy the liability of the insured. Under this enactment three actions were provided .The
first was to satisfy the award passed against the insured. The second was that, in case the insurer
did not discharge its liability the claimant had the right to execute decree against the insurer.
However, in certain events, namely, what was provided in section Ss.96(2)(a) which corresponds
to section 149 (2)(a) of the 1988 Act, the insurer could defend his liability.

The third action provided for was contained in S.10(3) of the Road Traffic Act. Under this
provision, the insurer could defend his liability to satisfy decree on the ground that insurance
policy was obtained due to misrepresentation or fraud. This provision also found place in S.149
(2)(b) of the 1988 Act. While enacting the 1939 Act and the 1988 Act, all the three actions were
engrafted in S.96 of the 1939 Act and Section 149 of the 1988 Act. However neither the 1939
Act, nor the 1988 Act conferred greater rights on the insurer than what had been conferred in
English Law. Thus, in common law, an insurer was not permitted to contest a claim of a claimant
on merits, i.e. offending vehicle was not negligent or there was contributory negligence. The
insurer could contest the claim only on statutory defences specified for in the statute. Thus while
enacting Chapter VIII of the 1939 Act or Chapter XI of the 1988 Act, the intention of the
legislature was to protect third party rights and not the insurers even though they may be
nationalized companies.

Prohibition on use of motor vehicles without statutory insurance policy, object of is to enable the
third party suffering injuries from use of the motor vehicle to get damages irrespective of the
financial capacity or solvency of the driver or the owner.

Relevant Provisions of Motor Vehicles Act,1988

Chapter 11 (Section 145 to 164) provides for compulsory third party insurance, which is required
to be taken by every vehicle owner. It has been specified in Section 146(1) that no person shall
use or allow using a motor vehicle in public place unless there is in force a policy of insurance
complying with the requirement of this chapter.[3] Contravention of the provisions of section
146 is an offence and is punishable with imprisonment which may extend to three months or
with fine which may extend to one thousand rupees or with both (section 196).Section 147
provides for the requirement of policy and limit of liability. Every vehicle owner is required to
take a policy covering against any liability which may be incurred by him in respect of death or
bodily injury including owner of goods or his authorized representative carried in the vehicle or
damage to the property of third party and also death or bodily injury to any passenger of a public
service vehicle. According to this section the policy not require covering the liability of death or
injuries arising to the employees in the course of employment except to the extent of liability
under Workmen Compensation Act. Under Section 149 the insurer have been statutorily liable to
satisfy the judgment and award against the person insured in respect of third party risk.
Insurance Companies have been allowed no other defence except the following:

(1) Use of vehicle for hire and reward not permit to ply such vehicle. 
(2) For organizing racing and speed testing; 
(3) Use of transport vehicle not allowed by permit. 
(4) Driver not holding valid driving license or have been disqualified for holding such license.
(5) Policy taken is void as the same is obtained by non-disclosure of material fact.

Section152. Settlement between insurers and insured persons.

(1) No settlement made by an insurer in respect of any claim which might be made by a third
party in respect of any liability of the nature referred to in clause (b) of sub-section (1) of section
147 shall be valid unless such third party is a party to the settlement.

(2) Where a person who is insured under a policy issued for the purposes of this Chapter has
become insolvent, or where, if such insured person is a company, a winding up order has been
made or a resolution for a voluntary winding up has been passed with respect to the company, no
agreement made between the insurer and the insured person after the liability has been incurred
to a third party and after the commencement of the insolvency or winding up, as the case may be,
nor any waiver, assignment or other disposition made by or payment made to the insured person
after the commencement aforesaid shall be effective to defeat the rights transferred to the third
party under this Chapter, but those rights shall be the same as if no such agreement, waiver,
assignment or disposition or payment has been made.

Legal defence available to the Insurance Companies towards third party:

The Insurance Company cannot avoid the liability except on the grounds and not any other
ground, which have been provided in Section 149(2). In recent time, Supreme Court while
dealing with the provisions of Motor Vehicle Act has held that even if the defence has been
pleaded and proved by the Insurance Company, they are not absolve from liability to make
payment to the third party but can receive such amount from the owner insured. The courts one
after one have held that the burden of proving availability of defence is on Insurance Company
and Insurance Company has not only to lead evidence as to breach of condition of policy or
violation of provisions of Section 149(2) but has to prove also that such act happens with the
connivance or knowledge of the owner. If knowledge or connivance has not been proved, the
Insurance Company shall remain liable even if defence is available.

Driving License:

Earlier not holding a valid driving license was a good defence to the Insurance Company to
avoid liability. It was been held by the Supreme Court that the Insurance Company is not liable
for claim if driver is not holding effective & valid driving licence. It has also been held that the
learner's licence absolves the insurance Company from liability, but later Supreme Court in order
to give purposeful meaning to the Act have made this defence very difficult.

In Sohan Lal Passi's v. P. Sesh Reddy[4] it has been held for the first time by the Supreme
Court that the breach of condition should be with the knowledge of the owner. If owner's
knowledge with reference to fake driving licence held by driver is not proved by the Insurance
Company, such defence, which was otherwise available, can not absolve insurer from the
liability. Recently in a dynamic judgment in case of Swaran Singh [5], the Supreme Court has
almost taken away the said right by holding;
(i) Proving breach of condition or not holding driving licence or holding fake licence or carrying
gratuitous passenger would not absolve the Insurance Company until it is proved that the said
breach was with the knowledge of owner. 
(ii) Learner's licence is a licence and will not absolve Insurance Company from liability.
(iii) The breach of the conditions of the policy even within the scope of Section 149(2) should be
material one which must have been effect cause of accident and thereby absolving requirement
of driving licence to those accidents with standing vehicle, fire or murder during the course of
use of vehicle.
This judgment has created a landmark history and is a message to the Government to remove
such defence from the legislation as the victim has to be given compensation.

Nature and Extent of Insurer's Liability (section 147)

According to the provisions of this section the policy of insurance must be issued by an
authorized insurer.It must be as per requirements as specified in subsection (2).It must insure
against liability in respect of death or bodily injury or damage to property of a third party. Third
party includes owner of the goods or his authorized representative carried in the vehicle and any
passenger of a public service vehicle.

The policy of insurance must cover:

1.Liability under the Workmen's compensation Act,1923 in respect of death or bodily injury to
any such employee 
(a) engaged in driving the vehicle, or 
(b) the conductor or ticket examiner if it is a public service vehicle ,or

2. any contractual liability.

Section 147 has to be given wider, effective and practical meaning so that it may benefit various
categories of persons entitling them to claim compensation from the insurer or the insured or
both. Insurer's liability commences as soon as the contract of insurance comes into force. The
liability remains in existence during the operation of the policy. If the existing policy is renewed
the risk is covered from the moment the renewal of the policy comes into force. If the accident
occurs before the renewal comes into existence, the insurer cannot be made liable. It is the
primary duty of the vehicle owner to prove that his vehicle was insured with a particular
company. If he fails to comply with it he will have to pay the entire amount of compensation in
the case. In case where there is a dispute in respect of the vehicle having been insured by an
assurance company, the tribunal must give its finding in the matter, it is its duty to do so. After a
certificate of insurance is issued it does not lie in the mouth of the insurer to deny his liability. If
the insurer has been a victim of fraud he can recover the amount from the insured by a separate
action against him. 

Oriental Insurance Co. v. Inderjit Kaur [6]

If the insurer has issued a policy to cover the bus without receiving the premium therefore, he
has to indemnify third parties in respect of the liability covered by the policy. He cannot avoid
the liability arguing that he was entitled to avoid or cancel the contract.

Liability for injury to certain persons or class of persons (other than gratuitous passengers and
pillion riders)

The policy under the Act covers only third party risks.[7] Insurer is not liable for any harm
suffered by a passenger traveling in a private car neither for hire nor for reward. Similar is the
position of a pillion rider on a scooter.

K. Gopal Krishnan v. Sankara Narayanan[8]

In this case Madras High Court observed that a scooter-owner is not bound to take out a third
party risk policy to cover the claim of the pillion rider that is carried gratuitously. If he is
injured , the insurance company would not be liable unless policy covering such risk is obtained
by the scooter-owner. A private carrier registered as such with R.T.O. and also in insurance
policy , cannot be used for carrying any passenger or goods for hire or reward. However if it is
so used and the employees of a party hiring the private vehicle belonging to the insured are
injured in an accident the insurance company will not be liable.

Insurer's liability to Vehicle-owner

A contract of insurance is a personal contract between the insurer and the insured. It is for the
purpose of indemnifying the insured for damage caused due to accident by the vehicle , to a third
party. To make the insurer liable the policy of insurance must be in the name of the owner of the
vehicle.[9]Owner of the vehicle as defined in Section 2(30) is a person in whose name the motor
vehicle stands registered.

A person in possession of a vehicle under a hire-purchase agreement or an agreement of lease or

hypothecation is also covered by the definition, no matter he has exercised his option to purchase
the vehicle or not.

Section 157(1) makes it clear that when the owner of a vehicle transfers the ownership of the
vehicle , the policy of insurance and the certificate of insurance shall be deemed to have been
transferred in favour of the purchaser of the vehicle with effect from the date of its transfer.This
deemed transfer shall include transfer of rights and liabilities of the said certificate of insurance
and policy of insurance.

According to subsection (2) the transferee has to apply within 14 days from the date of transfer
to the insurer for effecting necessary changes in the certificate and in the policy of insurance.

If the certificate of insurance and the policy are not transferred , the insurer could not be made
liable even though the vehicle is transferred. It is to be remembered that an insurance policy is a
personal contract between the parties for indemnifying the insured in case of an accident covered
under the policy. If the vehicle is transferred by an insured to another person, the insurance
policy lapses upon the transfer. In such a case the benefit of the policy is not available to the
transferee, without an express agreement with the insurance company. When the insurance
policy lapses it would not be available to cover the liability of the purchaser of the vehicle

S.Sudhakaran v. A.K.Francis,[10]

There was an agreement for sale of a vehicle. The owner did not comply with the statutory
provisions regarding transfer of a vehicle.He, however ,allowed the vehicle to be used by the
transferee .The owner had retained the insurance policy with him.

Held— The insurance company was not liable to indemnify the owner.
Liability in respect of damage to property [S.147(2)]

For damage to property of a third party under 1939 Act the limit of liability is Rs 6000 in all,
irrespective of the class of the vehicle. Under 1988 Act the position as laid down by section 147
(2) in regard to liability is as under:
(i) For death or personal injury to a third party, the liability of the insurer is the amount of
liability incurred, i.e. for the whole amount of liability. 
(ii) For damage to property of a third party the liability of the insurer is limited to Rs. 6000 as
was under the 1939 Act.

Liability of Insurer beyond the limits mentioned in the Act

Section 147 lays down the limits of liability of the insurer. However there is no bar for the
insurer undertaking a higher liability i.e. liability for a greater amount than that mentioned in the
Act. Thus the insured and the insurer can contract and can provide for a higher liability.

Conclusion
Thus I have studied and analysed the third party liability insurance under the motor Vehicles Act,
1988.Third party insurance protects the interest of a third party who becomes the victim of
accident or injury caused by the fault of the insured. So any liability arising on the insured by the
third party is mitigated by the insurance company. Third party insurance is compulsory under the
motor vehicles Act,1988. As the third party insurance is mandatory so it cannot be overridden be
any clause in the insurance policy.

It is the duty of insurers to satisfy the judgments and awards against persons insured in respect of
third party risks. The insurance company is a State' within the meaning of article 12 of the
Constitution. For this reason it cannot deny , discriminate or refuse third party insurance cover to
State run vehicles because their actions are guided by Article 14 of the Constitution.[11]
The compulsory nature of third party insurance is justifiable as it makes the process more easy
for the injured person to recover money from the insured. The defendant or wrongdoer cannot be
exempted on the ground that he has become insolvent. If he owns a vehicle he bound to pay to
the injured directly or through his insurance company.

Motor Insurance

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. Motor Vehicles Act
in 1939 was passed to mainly safeguard the interests of pedestrians. According to the Act, a
vehicle cannot be used in a public place without insuring the third part liability. 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.” Classification
of Motor Vehicles As per the Motor Vehicles Act for the purpose of insurance the vehicles are
classified into three broad categories such as.

Private cars:

a) Private Cars - vehicles used only for social, domestic and pleasure purposes

b) Private vehicles - Two wheeled

1. Motorcycle / Scooters

2. Auto cycles

3. Mechanically assisted pedal cycles

Commercial vehicles:

1. Goods carrying vehicles

2. Passengers carrying vehicles

3. Miscellaneous & Special types of vehicles

 
The risks under motor insurance are of two types:

1) Legal liability due to bodily injury, death or damage caused to the property of others.

2) Loss or damage to one’s own vehicle\ injury to or death of self and other occupants of the
vehicle.

Types of motor policies

When you buy a motor vehicle, you need to buy a motor insurance. There are, however, many
types of motor insurance policies available. The common types are:

• Third party cover - This policy insures you against claims for bodily injuries or deaths
caused to other persons (known as the third party), as well as loss or damage to third
party property caused by your vehicle.

• Third party, fire and theft cover - This policy provides insurance against claims for third
party bodily injury and death, third party property loss or damage, and loss or damage to
your own vehicle due to accidental fire or theft.

• Comprehensive cover - This policy provides the widest coverage, i.e. third party bodily
injury and death, third party property loss or damage and loss or damage to your own
vehicle due to accidental fire, theft or an accident.

Exclusions/Extensions

A standard motor insurance will not cover certain losses, such as your own death or
bodily injury due to a motor accident, your liability against claims from passengers in your
vehicle (except for passengers of hired vehicles such as taxis and buses) and loss or damage
arising from an act of nature, such as flood, storm and landslide. However, you may pay
additional premiums to extend your policy to cover flood, landslide, landslip as well as cover
your passengers. It is important to check your policy for the exclusions.

Important points to consider when buying motor insurance policies

Insured value/sum insured: If you are buying a policy against loss/damage to your vehicle, you
must ensure that your vehicle is adequately insured as it will affect the amount you can claim in
the event of loss/damage. For a new vehicle, the insured value will be the purchase price while
for other vehicles, the insured value is the market value of the vehicle at the point you apply for
the insurance policy.

• Under-insurance – If you insure your vehicle at a lower sum than its market value, you
will be deemed as self-insured for the difference, i.e. in the event of loss/damage, you
will only be partially compensated (up to the proportion of insurance) by your insurance
company.

• Over-insurance – Should you insure your vehicle at a higher sum than its market value, the
maximum compensation you will receive is the market value of the vehicle as the policy
owner cannot ‘profit’ from a motor insurance claim.

Duty of disclosure: You should disclose fully all material facts, including previous accidents (if
any), modification to engines, etc. When in doubt as to whether a fact is relevant or not, it is best
to ask your insurance company. If you fail to disclose any material fact, your insurance company
may refuse to pay your claim or any claim made by a third party against you. In such cases, you
are personally liable for such claims.

Price: The price you pay for your motor insurance will depend on the type of policy selected.
The insurance premium charged by your insurance company is the standard minimum rate in
accordance with the Motor Tariff. However, in addition to the standard minimum rate, your
insurance company may impose additional premiums known as loadings to the premium payable
in view of higher risk factors involved such as age of vehicle and claims experience.

No-claim-discount: The premium payable may be reduced if you have no-claim-discount

(NCD) entitlement. NCD is a ‘reward’ scheme for you if no claim was made against your policy
during the preceding 12 months of policy. Different NCD rates are applicable for different
classes of vehicles. For a private car, the scale of NCD ranges from 25% to 55% as provided in
the policy.

Transfer of ownership: In case of any sale of vehicle involving transfer of policy, the insured
should apply to the insurer for consent to such transfer. The transfer is allowed, if within 15 days
of receipt of application, the insurer does not reject the plea. The transferee shall apply within
fourteen days from the date of transfer in writing to the insurer who has insured the vehicle, with
the details of the registration of the vehicle, the date of transfer of the vehicle, the previous
owner of the vehicle and the number and date of the insurance policy so that the insurer may
make the necessary changes in his record and issue fresh Certificate of Insurance.

Excess: Also known as a ‘deductible’. This is the amount of loss you have to bear before your
insurance company will pay for the balance of your vehicle damage claim. The types of excess
applicable are as follows:

·         Compulsory excess of RM400: If your vehicle is driven by a person not named in

your policy or a person named in your policy who is under the age of 21, the holder of
a provisional (L) driving license or the holder of a full driving license of less than two
years.

·         Other excess: applicable at the discretion of your insurance company and in some

cases, no excess is imposed. You can negotiate with your insurance company on this
excess.

What you should do in the event of an accident/loss

• Take notes of the accident – If you are involved in a motor accident, take notes of the
accident, i.e. the names and addresses of all drivers and passengers involved, vehicle
registration numbers, make and model of each vehicle involved, the drivers’ licence numbers
and insurance identification as well as the names and addresses of as many witnesses as
possible

• Make a police report – You are required by law to lodge a police report within 24 hours of a
road accident.

• Notify your insurance company – You must notify your insurance company in writing with
full details as soon as possible. Depending on the type of claim you intend to make, you may
have to notify other insurance companies.  If you fail to report the accident, you will be liable
for your own loss as well as any third party claim against you.
 • Select the workshop – You must send your damaged vehicle to a workshop approved by
your insurance company. If the accident occurs during office hours, you may call the hotline/
emergency assistance numbers provided by your insurance company. Otherwise, you may
call your insurance company for the nearest approved workshop. Should the accident occur
outside office hours and you are making a claim against your policy, i.e. an own damage
claim, you should ensure that your vehicle is towed to a workshop approved under Repairers
Scheme.

Claim Settlement

Claim arises when:

1) The insured’s vehicle is damaged or any loss incurred.

2) Any legal liability is incurred for death of or bodily injury

3) Or damage to the third party‘s property.

The claim settlement in India is done by opting for any of the following by the insurance
company.

·         Replacement or reinstatement of vehicle

·         Payment of repair charges

In case, the motor vehicle is damaged due to accident it can be repaired and brought back to
working condition. If the repair is beyond repair then the insured can claim for total loss or for a
new vehicle. It is based on the market value of the vehicle at the time of loss. Motor insurance
claims are settled in three stages. In the first stage the insured will inform the insurer about loss.
The loss is registered in claim register. In the second stage, the automobile surveyor will assess
the causes of loss and extent of loss. He will submit the claim report showing the cost of repairs
and replacement charges etc. In the third stage, the claim is examined based on the report
submitted by the surveyor and his recommendations. The insurance company may then authorize
the repairs. After the vehicle is repaired, insurance company pays the charges directly to the
repairer or to the insured if he had paid the repair charges.
 Section 110 of Motor Vehicle Act, 1939 empowers the State Government in establishing
motor claim tribunals. These tribunals will help in settling the third party claims for the
minimum amount

Theft claims

• After submission of the claim form, you must cooperate fully with your insurance company
or its representative during the course of investigation of the theft claim.

• In view that the police and your insurance company will require time to investigate your
claim, you will receive the offer of settlement from your insurance company within six
months from the theft notification or upon completion of police investigations, whichever
is earlier

Heath Insurance

Health insurance, like other forms of insurance, is a form of collectivism by means of

which people collectively pool their risk, in this case the risk of incurring medical expenses. The
collective is usually publicly owned or else is organized on a non-profit basis for the members of
the pool, though in some countries health insurance pools may also be managed by for-profit
companies. It is sometimes used more broadly to include insurance covering disability or long-
term nursing or custodial care needs. It may be provided universally through government as a
feature of social solidarity, as is typical in many industrial countries, or as form of government
charity such as the United States Medicaid program. It may be purchased privately on a group
basis (e.g., by a firm to cover its employees) or purchased by an individual for himself or his
family. In each case, the covered groups or individuals pay a fee, premium, or tax, to help protect
themselves from health care expenses.

            “Health insurance is an insurance, which covers the financial loss arising out of poor
health condition or due to permanent disability, which results in loss of income.” A health
insurance policy is a contract between an insurer and an individual or group, in which the insurer
agrees to provide specified health insurance at an agreed upon price (premium). It usually
provides either direct payment or reimbursement for expenses associated with illness and
injuries. The cost and range of protection provided by health insurance depends on the insurance
provider and the policy purchased.
 Personal Liability Insurance: Personal liability insurance provides protection against the legal
liability, which arises due to insured’s personal acts. The insurance company will pay for legal
defense to third party damages or injuries up to policy limit. Except legal liability, which arises
due to automobile accidents and professional liability, most other personal acts are covered under
personal liability insurance. The personal liability insurance covers damages caused to properties
and injuries to other people due to the negligence of the insured. Under this policy, the insurance
company is bound to defend the insured, should the matter go to court of law. It can also settle
the matter out of court by negotiating with parties for a settlement within the policy limit.
Personal liability policy offers very wide coverage. The following instances of loss, damages or
injuries caused by an insured individual come under the purview of personal liability insurance
in which coverage will be available up to the policy limit.

·         Accidental fire to neighbor’s house as a result of insured’s negligence

·         Accidental injury to a third party while playing

·         Damaging costly antique accidentally belonging to neighbor

·         Injuring another person while riding a bicycle

(IMPORTANT)

NO FAULT LIABLITY
Sec 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, Rs, 50,000

 Permanent Disablement Rs. 25,000
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 U/S 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 b e 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. Rs. 550,000 or Rs. 25,000
as the case may be, for death or permanent disablement.

If such compensation paid is less than the compensation awarded on the principle of ‘fault’ or
negligence, the motorist is liable to pay the balance.  For example, if Rs. 30,000/- is awarded
for permanent disablement on the basis of negligence, the claimant is entitled to receive only Rs.
5,000 being the excess over the no-fault compensation settled first. In any claim for
compensation under this Section,  the claimant shall NOT be required to plead or establish that
the death or permanent disablement in respect of which the claim has been made, was due to any
wrongful act or neglect or default of the owner/s of the vehicle/s concerned or any other person.

Sec. 143 of the Act will also apply in relation to any claim for compensation in respect of death
or permanent disablement of any person under the Workmen’s Compensation Act, 1923,
resulting from a motor accident.  Time limit for depositing compensation under this section is
one month.
 Brief on Insurance Ombudsman
What is an Ombudsman
An ombudsman is an official, usually appointed by government, who investigates complaints
(usually lodged by private citizens) against businesses, financial institutions or government
departments or other public entities, and attempts to resolve the conflicts or concerns raised.
Depending on jurisdiction, an ombudsman's decision may or may not be legally binding. Even if
not binding, the decision typically carries considerable weight. When appointed, the ombudsman
is typically paid via levies and case fees.

The Governing Body of Insurance Council (GBIC) has been established under Redressal of
Public Grievances Rules 1998, to set-up and facilitate the Institution of Insurance Ombudsman in
India. 17 Ombudsman Centres, covering the country, established in Ahmedabad, Bengaluru,
Bhopal, Bhubaneswar, Chandigarh, Chennai, Delhi, Guwahati, Hyderabad, Jaipur, Kochi,
Kolkata, Lucknow, Mumbai,Pune , Patna and Noida.
Insurance Ombudsmen are appointed by the Governing Body and are empowered to entertain
complaints on the following aspects in respect of personal line insurances:
 Any partial or total repudiation of claims by an insurer.
 Any dispute in regard to premium paid or payable in terms of the policy.
 Any dispute on the legal construction of the policies in so far as such disputes relate to
claims.
 Delay in settlement of claims.
 Non-issue of any insurance document to customers after receipt of premium.

Insurance Ombudsman
 There are many complaints that policyholders have w.r.t to their insurance policies, most
often they don’t know where to and how to complain. In 9 out of 10 cases people usually let go
the claim only because they donot want to get into court cases, which is a very expensive and
may go on for years.

 Therefore, to help individuals get their grievances redressed in a quick and cost effective
manner, finance ministry has set up the “Insurance Ombudsman” Office.

What kinds of complaints can be filed in Ombudsman office:

Firstly, you can file complaints relating to both Life and General Insurance Policies. Complaints
relating to the following can be file:

a) Any partial or total repudiation of claim by an insurer

b) Delay in settlement of claims
c) Non-issuance of policy document after receipt of premium
d) Any dispute w.r.t premium paid or payable in terms of the policy
e) Any dispute to legal construction of policies in so far as such disputes relate to claims.

• Who can file : only individuals can file their complaints in the ombudsman office and not
corporate / companies.

• What is the procedure:

Take example of claims rejection: 
a) When a claim has been rejected, you have to make a review application with the insurance
company`s grievance redressal department / nodal officer (every insurer is mandated to have
such as department)
b) If a reply is not received within 1 month from the insurance company OR the reply is not
satisfactory then you can file a complaint with the Insurance Ombudsman office in your
jurisdiction.  Imp: Jurisdiction of the policyholder address and not the insurance companies
address. Ex: policyholder stays in Mumbai but insurers office is in Chennai, you can file your
complaint in Mumbai.

c) Few points to remember: i) you have to file your complaint within 1 year from the final
communication from the insurer. If its after 1 yr then complaint will not be entertained.
ii) The same complaint should not be pending before any forum / court or arbitration. If you have
already filed a case in court then you cannot file with the ombudsman.

d) The procedure to file complaint is extremely simple. You may write a letter mentioning your
policy number and the brief of your complain. Attach a copy of the policy document, claim form,
claim rejection letter received and any other documents that you may have handy.

e) The ombudsman office will then write back to you giving you a complaint number and form
P-II & P-III. These are simple forms that taking down the details in a particular format.

f) You are then required to submit the forms alongwith the documents as asked for in the Form
P-II & P-III. You can send these documents via courier or post also, no need to visit the
ombudsman office.
 g) After this, a date will be fixed by the Insurance Ombudsman and a personal hearing will be
granted to the policyholder and the Insurance Company is also called in that hearing.

h) Usually, in just one hearing the matter is resolved. There is no further system of giving
another date and the case going on.

i) An executive from the ombudsman office is appointed to represent the policyholder free of
charge to help (as the policyholder does not know all the rules of insurance ), hence no lawyer
required.

Judgement:

 After the hearing the judgement is given then and there and the minutes prepared and
both parties sign on the same.
 The most interesting part is that, the order of the Ombudsman is binding on the Insurance
company, they cannot challenge the same in the court and have to go by the order, whereas, if
the policyholder is not satisfied, she can continue and file a case in the court thereafter.

Time taken:

• As per the guidelines, the Ombudsman is required to dispose the complaint within 3 months
from receiving the complaint, however, it takes about 1-1.5 years to get an award. This is due to
the overload of complaints. Nevertheless, this is a very effective and zero cost way to get your
complaint settled