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Wednesday, July 4, 2012

Motor Third Party Insurance - Liability for Insurers

In any market, there are forces of Demand and Supply – there are Sellers and Buyers and the Seller would price his product in such a manner that he ends-up with some profit – there could be many different strategies adopted but the aim may not be different.

Insurance is a product – Motor Vehicles Act 1988 mandates compulsory third party insurance for vehicles on road and when some Insurers kept some away from their books, the Regulatory authority intervened and created a TP pool in Apr 2007 with the proclaimed objective of making available TP insurance to all commercial vehicles at reasonable rates and terms.  Almost all Insurers have wilted under losses and now there is ‘Indian Motor Third Party Declined Risk Insurance Pool’ in place – this proclaims to operate in the auto arena for the commercial vehicles to have equitable and fair sharing by all insurers, simplicity to administer and to bring claims management efficiency.  The policy of Declined Risk Insurance Pool applies to all commercial vehicles for stand alone third party insurance (act only insurance).

Insurance is a contract and any contract will have offer and acceptance.  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.    The Act specifies that ‘No person shall use, except as a passenger, or cause or allow any other person to use, a motor vehicle in a public, unless there is in force in relation to the use of the vehicle …….a policy of insurance complying with the requirements of this Chapter.  In order to comply with the requirements, it should be a Policy issued by an Authorised Insurer and should cover against any liability which may be incurred by him in respect of the death of or bodily [injury to any person, including owner of the goods or his authorised representative carried in the vehicle] or damage to any property of a third party caused by or arising out of the use of the vehicle in a public place;  against the death of or bodily injury to any passenger of a public service vehicle caused by or arising out of the use of the vehicle in a public place: [relevant section of the Act partly reproduced ….]

The compulsory insurance is - Motor third-party insurance or third-party liability cover, which is referred to as the 'act only' cover. 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.

The provisio of MV Act has some exemptions as well -  The Act provides that this compulsory insurance proviso shall not apply to any vehicle owned by the Central Government or a State Government and used for Government purposes unconnected with any commercial enterprise. The Govt. may by order exempt State Transport Undertakings also, but they are required to establish a fund in accordance with the rules. 

Now read these newsitems :

In June 2012, a small causes court in Tamil Nadu ordered the attachment of a Tamil Nadu State Transport Corporation (TNSTC) bus after the transport utility failed to pay compensation to the family of an Army officer who died when a bus owned by the corporation hit his car in 2004.  The mishap occurred on 3.4.2004 when a TNSTC bus had a head on collision with the car near Perumanallur in Tirupur district.  Wife of the deceased army officer filed a petition in the city civil court at Secunderabad, claiming a compensation of 50,71,000. Four years after the mishap, the court awarded her a compensation of 16,33,690/-  The Transport Corporation failed to honour the award even after 3 years which forced the petitioner to file a petition seeking attachment of property belonging to the state-run utility. The EP was  transferred to the small causes court in Chennai, which ordered that any bus belonging to TNSTC, Coimbatore division, be seized from Koyambedu and attached on or before July 16.

The news of the day is the award of nearly 92 lakh compensation in another MACT.  Sadly the beneficiary was only 75 days old when her software engineer father and mother were fatally knocked down by a recklessly driven sand-laden truck in Chennai. Now, about three years later, a city court has awarded her nearly Rs 92 lakh compensation. While Rs 50 lakh  is to be  kept in her name in a nationalized bank until she's 18, her grandparents will get Rs 20.9 lakh each as compensation.  The girl child  Kavinaya's father Prathap Kumar (28) was working in Canada and had come to Chennai on a 10-day holiday. Though Kavinaya too was on the bike with her parents, safely seated on her mother's lap, she was thrown off the bike on impact of the crash in the posh Indira Nagar locality on November 20, 2009. Her parents died on the spot.   The deceased reportedly was earning Rs 6.53 lakh per annum. His company too confirmed in court that he had been paying tax for the amount in Canada and that he would have reached the Rs 10 lakh salary mark had he been alive now. The girl's mother was 26 then and was working as a receptionist in a private company in the city.

The  lorry driver was proven negligent and that he was driving the vehicle in a rash and negligent manner too has been proved through eyewitnesses, the judge said.   Considering the victims' age, positions they held and the salary they had been drawing, the court said that pecuniary loss suffered by the child, along with funeral expenses and loss of love and affection, worked out to Rs 91.78 lakh. The amount, to be paid by ICICI Lombard General Insurance Company Ltd on behalf of lorry owner A Sheik Mohammed, should be deposited in a nationalized bank within three months. The beneficiaries are also eligible for an interest of 7.5 per cent per annum from December 2009, when the claim petitions were filed in the court, the judge said.

Elsewhere in Washington, an Indian couple, who sustained serious injuries in an accident in the US in 2010, has been awarded a whopping $36.48 million as compensation by a California court.  Reports state that a  Riverside County Superior Court jury awarded $36.48 million to Prakash Sheth, 64, and his wife, Jashiree Sheth, 58, from Mumbai, whose car was struck by a big-rig on Interstate 10 in Beaumont two years ago.

At the time of the accident, the Sheths were visiting the US from India and were on their way to an airport in Orange County for a family vacation in Hawaii.  According to the plaintiffs' attorneys, the Sheths were being driven by an American relative to John Wayne Airport in Santa Ana when their vehicle was hit by an 18-wheeler truck that went around the victims' car but failed to completely clear the sedan while changing lanes - All of the occupants were hurt, but Jashiree received the worst injuries, including a spinal fracture that left her paralyzed. She now requires 24-hour care,  her attorney is quoted as saying.   The jury award against the truck company Schneider National included $469,490 in past medical expenses, $4.8 million for future medical expenses, $6 million for past pain and suffering and $22 million for future pain and suffering.  The award would roughly translate to Rs.200 crore.

Road accidents have been on the increase; worst is the plight of the victims – sure they deserve    speedy disposal and reasonable compensation. 

Clearly there is need for appropriate pricing of the TP Insurance too…… From a perceived demand supply gap, it has gone haywire and TP losses have perhaps become a compulsory tax for a General Insurer. 

With regards – S. Sampathkumar.

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