Motor vehicles Insurance - Period of Insurance !!

Has Covid been conquered ? – these days, people are out there on streets as if nothing had happened ! – city roads are filled with vehicles and there is regular traffic snarls, overcrowding and more .. .. sadly, there are accidents too arising out of automobiles and petitions are filed before Courts [Motor Accident Claims Tribunals] by the victims and their dependents seeking compensation.  Motor Policy provides for legal compensation .. .. Policy is a contract !

Insurance is a contract  and involves  all the  basic elements of any ordinary contract. Before we read any further – the essentials of the  contract between Insurance Company and Policy holder is : there has to be an offer, acceptance and consideration and is determined by the insuring terms, conditions, exceptions – wordings as incorporated in the contract.  The coverage under the Poliy is determined :   1) after payment of premium 2) stated property being destroyed or damaged 3) by perils specified  4) during the period of insurance [usually annual] 5) Insurers shall pay the value of the property at the time of happening of destruction .. ..  in India going by the Insurance Act provisions – ‘coverage shall commence only after payment of premium – ie., cash before cover!” – 64VB the essential of Insurance

The foregoing could be primary representation of Property coverage – in Motor Insurance, the subject matter being the automobile – there is option to cover  Act only (ie liability to third parties  arising out use of motor vehicle in public place) and coverage for own damage (indemnity for the vehicle) besides coverage for driver, owner, passengers, workmen and more.

In general, all Motor Policies are annual policies ie., coverage starts on a given date and ends a day earlier next year at 12 O clock midnight !! – the coverage starts from the time of payment of premium.  A few decades ago, policies used to incorporate only date and arising out of some legal complications, Insurers started mentioning the time too (and that can only from the payment of premium).  However, arising out of practical difficulties and procedures laid down internally, Insures have been issuing Motor Policies with coverage commencing – a day after receipt of premium – especially for TP Only policies and for vehicles insured without inspection (that is a procedure / process according to internal guidelines of Insurers and can vary !)

Sometimes every basic assumptions too get jolted !!  -  The Supreme Court on Tuesday stayed the operation of a Jharkhand High Court's order which allowed the claim in the case of a motor accident, that occurred a day prior to the coverage of the insurance period, but in which the insurance premium was paid on the very day of the accident.

The Bench of Justice Sanjay Kishan Kaul and Justice M. M. Sundresh was hearing an appeal filed by a Private Insurer  against the Jharkhand High Court order dismissing its appeal against the Award passed by Presiding Officer, Motor Vehicles Accident Claims Tribunal (MVACT), Ranchi.  Arising out of a road accident, the Tribunal at Ranchi had passed an award for Rs.699200/- and deducted 30%   as contributory negligence, as such, the claimants were held to be entitled to compensation to the tune of Rs. 4,89,440/- along with interest @ 7.5% per annum. This award was challenged before the Jharkhand High Court on the ground that the policy was valid from March 15, 2015, to March 14, 2016, but the accident took place a day prior to coverage of the insurance period (on March 14, 2015). As such, in view of Section 147(3) of the Motor Vehicles Act, it was argued, the Insurance Company was not liable to compensate or indemnify the award.

Upholding the award of the Tribunal, the Jharkhand High Court had observed thus: "Under the aforesaid circumstances, since the written statement has not been filed by the Insurance Company and the policy was signed on 14.03.2015, for an accident of evening of 14.03.2015, this Court holds that the finding recorded the learned Tribunal does not require any interference as premium must have been taken during the office hour of 14.03.2015 at Chennai and the accident took place only in the evening."

As it contravenes the intended and accepted coverage – Insurers filed an appeal against the   order and Judgment of the Jharkhand High Court,  raising the plea that premium was paid on 14.3.2015; accident too occurred on the same date but Policy was to operate only from 15.3.2015 till 14.3.2016.   Hence there was no coverage under the policy on the date on which accident had occurred and for which petition for compensation had been filed.  

The petition for Special Leave to Appeal came up for hearing in Supreme Court and Honble Court issued notice and stayed the operation of impugned order.  Hopefully, the contention of the insurer on coverage would be positively accepted and Insurers exonerated of liability.

It is also interesting to note that what ‘We (Insurers / Agents / IMDs)  perceive and presume to be a simple, open and shut case’ could provide numerous interpretations by various legal bodies – that way it is interesting and is a lesson for all of us.

With regards – S. Sampathkumar
16^th Sept. 2021. 

SLA :   13645/2021 (Arising out of impugned final judgment and order dated 30-06-2021 in MA No. 103/2020 passed by the High Court Of Jharkhand At Ranchi)