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Sunday, August 29, 2021

Madras High Court orders compulsory "bumper-to-bumper" Insurance

As we travel on roads, we see hundreds of motor vehicles of various hues – and sadly there are accidents too .. .. .. Motor vehicle accidents are one of the major causes of death and injuries in India. By some statistics citing Ministry of Road & Transport, around 1.5 lakh people die every year in five lakh road accidents in the country.  Motor Vehicles Act 1988 covenants various aspects of automobiles on road. .. .. it could undergo a lot of changes with the proposed amendment.

This post is on a landmark judgment by Hon’ble Justice S Vaidyanathan in a recent case before Madras High Court in an appeal filed by an Insurer. The cause of action relates to an accident that occurred on 3.8.2016 near Hogenekal .  

For the benefit of all, a couple of Sections of MV Act 1988 are (partially) reproduced here :

146. (1) No person shall use, except as a passenger, or cause or allow any other person to use, a motor vehicle in a public place, unless there is in force, in relation to the use of the vehicle by that person or that other person, as the case may be, a policy of insurance complying with the requirements of this Chapter: Provided that in the case of a vehicle carrying, or meant to carry, dangerous or hazardous goods, there shall also be a policy of insurance under the Public Liability Insurance Act, 1991.

147. (1) In order to comply with the requirements of this Chapter, a policy of insurance must be a policy which— (a) is issued by a person who is an authorised insurer; and (b) insures the person or classes of persons specified in the policy to the extent specified in sub-section (2)— (i) 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 motor vehicle or damage to any property of a third party caused by or arising out of the use of the motor vehicle in a public place; (ii) against the death of or bodily injury to any passenger of a transport vehicle, except gratuitous passengers of a goods vehicle, caused by or arising out of the use of the motor vehicle in a public place.

In 1980s, there were broadly 3 types of policy coverages in Motor Insurance : Act only policy; Third Party insurance and Comprehensive Policy.  Act was almost out of vogue.  For Two wheelers Act only premium was Rs.40/-; for Third Party it was Rs.48 and for comprehensive Rs.48 + premium charged on SI.  TP Policy offered slightly increased coverage than Act.

Now there typically are two : Liability Only & Package Policies.  Liability are Act Policies that cover  the insured’s   Third Party Liability for bodily injury and/ or death and Property Damage. Package policies are Comprehensive policies that besides TP liability cover the OD ie., damage to vehicle also. Both the policies extend to cover Personal accident to owner-cum-driver of vehicles. There are very many variants – additional coverages known as ‘Add-ons’  .. .. . and in tune with times, there is coverage available for stand-along ‘own damage’ if TP cover otherwise exists !

For long there had been extention of Personal accident covers (not compulsory and not envisaged in Act).  GR 36 of India Motor Tariff mandated  provision of Compulsory Personal Accident on every policy be it ‘Act only’ or Comprehensive.  Earlier the SI under this section was 1 lakh only for 2 wheeler/ Private car and 2 lakhs for commercial vehicles.  By an order - Madras High Court in CMA 1428/2017 – United India Vs R Rekha & Ors directed IRDA to enhance the CPA (Compulsory Personal Accident)  to minimum  of 15 lakhs to ensure that motor vehicle accident victim is adequately compensated.  Consequently IRDA had to amend coverage to a min of 15 lakhs. Initially the premium was Rs.750/- then brought down to Rs.330/- + GST.  Here too, any person owning multiple vehicles had to take coverage in every policy covering the vehicle, as the CPA in any way was restricted to usage of the vehicle insured and would not contribute when the  vehicle insured  is not involved.  So, Insurers introduced standalone CPA policy.

Now the judgement of Honble Justice S Vaidyanathan is talked about because of the directive that “ all vehicles sold after September 1, should have bumper-to-bumper insurance cover for five years mandatorily” that whenever a new vehicle is sold after September 1, 2021,  it is mandatory for coverage of bumper to bumper insurance every year, in addition to covering the driver, passengers and owner of the vehicle, for a period of five years. Justice Thiru  S Vaidyanathan passed an order while hearing a writ petition from the New India Assurance Company Limited, challenging the orders of the Motor Accidents Claims Tribunal, Special District Court given on December 7, 2019 in Erode.

Some details on this .. .. this was a Civil Misc Appeal preferred by New India Assurance Co Ltd, challenging award of MACT Erode – K Parvathi and others being Respondents.  The Tribunal had directed the Insurer to pay compensation of Rs.14,65,800/- as compensation of death of deceased Sadayappan @ dhanapal on 3.8.2016. 

Before the Tribunal, Insurers agitated that the Policy was ‘Act Only’ policy and as per insuring terms,  the Driver-cum-Owner would be entitled to a sum of Rs.1,00,000/- and for the purpose of claiming compensation, it has been stated in the Claim Petition that Sadayappan @ Dhanapal was driving the Car. It was further stated by the Insurance Company that the deceased Sadayappan @ Dhanapal was not at all a driver of the vehicle at the time of accident, as the vehicle was originally driven by the 4th respondent herein.  It was stated that not a single pie was paid as premium for passengers and hence there was no coverage.

Upon appeal, the High Court stated that   not even a pie has been paid towards premium with regard to driver and for other passengers and the stand taken in the Claim Petition filed before the Tribunal was in total contra to the contents in the F.I.R., marked as Exhibit-A1 on the side of the Claimants. That being the case, the Tribunal completely erred in granting compensation only on the ground that the conditions of the policy have not been produced. In fact, the Tribunal should have rejected the claim petition for non-filing of the details of the Policy by the Claimants, as it was claimants, who had approached the Tribunal, with unclean hands, by taking a different stand. Hence, I am of the view that the award of Tribunal is liable to be interfered with and set aside.

Accordingly, the Civil Miscellaneous Appeal is allowed and the Award of the Tribunal   is hereby set aside. It is made clear that this order will not preclude theClaimants and others from claiming compensation for the death of the deceased from the owner of the Car / 4th Respondent herein, who also travelled in the Car along with them, in terms of the judgment of a Division Bench of this Court (supra)

Before parting with this judgment, it is saddening to point out that when a vehicle is sold, the purchaser / buyer is not clearly informed about the terms of policy and its importance. Similarly, at the time of buying the vehicle, the buyer is also not interested in thoroughly understanding the terms and conditions of the policy, as he/she is more concerned about the vehicle's performance and not about the policy. When a buyer is ready to pay a huge amount for purchase of a vehicle, it is really shocking as to why the buyer is not interested in spending a paltry sum to take a policy so as to safeguard himself/herself and others.

13. Therefore, this Court directs that whenever a new vehicle is sold after 01.09.2021, it is mandatory for coverage of bumper to bumper insurance every year, in addition to covering the driver, passengers and owner of the vehicle, for a period of five years. Thereafter, the owner of the vehicle must be cautious in safeguarding the interest of driver, passengers, third parties and himself/herself, so as to avoid unnecessary liability being foisted on the owner of the vehicle, as beyond five years, as on date there is no provision to extend the bumper to bumper policy, due to its nonavailability.

In view of untoward incidents like the present one on hand, then order shall be circulated by the Additional Chief Secretary, Transport Department, Chennai, to all the Insurance Companies and the said Officer must ensure that the above direction is followed scrupulously in letter and in letter and spirit without any deviation.  The Hon’ble Court further listed the matter  for reporting compliance on 30.09.2021.

The intention of the Judgement is noble and is landmark in providing coverage as appropriate.  Perhaps the intention is to provide mandatory coverage for Third party property / persons as envisaged in MV Act + compulsory personal accident for driver, and all passengers – still insuring the vehicle could be an individual choice ! . Moving slightly away, perhaps some of the words do not perhaps rightly represent the intention.

Theoretically, every Comprehensive policy provides coverage for the vehicle totally from its front shield to bumper covering all its parts in toto – yet ‘bumper to bumper insurance’ is a fancy term in Motor Insurance.

Normally in a Comprehensive coverage, own damage portion is subjected to depreciation that is deduction towards usage / wear & tear.  Every part including the automobile depreciates in value arising out of natural wear and tear due to its age.  The older the vehicle, the higher is the depreciation.   According to the Insurance Regulatory and Development Authority of India (IRDAI), following are the depreciation rates, on the basis of which the total depreciation of your car is calculated:     Rubber, Nylon, and Plastic Parts, and Batteries: 50%; Fiber Glass Components:  30%; Wooden Parts: 5% in the first year, 10% in the second year, and so on.

What is promoted as ‘Bumper-to-Bumper’ in reality is ‘Nil depreciation’ coverage ie.,  policy that provides a 100% coverage of damages to the fibre, metal, and rubber parts of your car.  Some call it  Zero Depreciation while others thrive as  Bumper to Bumper Insurance – there are still some exclusions in the nature of coverage for batteries and tyres; bi-fuel kit, gas kits and the mechanical breakdown of the car. This coverage would not  cover engine damages caused due to the leakage of the fuel or water ingression. In case, a change in the fuel of the car is made, that expense is also not covered by such insurance policy.  Some Insurers have a separate add-on - Engine Protection.

Before concluding the limit prescribed under Act for  Third Party Property Damage (TPPD) Cover is Rs.6000/- only while Motor vehicles Insurance policies offer coverage of Rs.7.50 lakhs under this for Commercial vehicles and Private cars and Rs.1 lakh for Motorized Two wheelers.  

One shall wait to see the response of various stakeholders to the Court Judgement – there could be some practical issues as Insurers are presently providing long-term coverage for Act only section and reduced one for Own damage portion – there is now provision for taking coverage for Act Only as also Own damage portion alone too.

Look forward to your views and comments

With regards – S. Sampathkumar
29th Aug 2021.



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