contribution of tort jurisprudence to the development of “third party insurance cover” in india

BBA.LL.B (H) NEERAJ LALWANI ROLL NO: 30

Project Report

Course: Law of Tort

Title: Contribution of Tort Jurisprudence to the development of “Third Party

Insurance Cover” in India.

Submitted to:

Mr.ML Shankar Kaarmukilan

Mr. Yogesh Pratap Singh

of 15 NATIONAL LAW UNIVERSITY, ORISSA 12/4/2009


Abstract:

Much of tort law in practice deals with an undesirable injury to a plaintiff by a defendant and the ways in which this injury could be redressed. One of the most important and prevalent means of remedies in a tort claim is compensation. “A century or so ago the law of tort was probably the primary vehicle of compensation. However, in the recent times the development of insurance law has tended to relegate tort law to a more secondary role.”1 (Rogers)

In an effort to relate tort law and insurance law, this paper attempts to convey that tort law has played a significant role in the development of third party insurance cover in India. To support this contention, the researcher has studied and used a variety of secondary sources which support this thesis. This paper focuses on the various areas of tort law which have had an impact on insurance law in one way or the other.

1 WVH Rogers, Winfield & Jolowicz on Tort, Seventeenth Edition, Sweet and Maxwell Limited, South Asian Edition, 2006,p.23



Table of Contents:

Introduction 4 Research Methodology 6

o Objective 6

o Scope 6

o Research Questions 6

Role of tort law in development of Liability Insurance 7o Fault and No fault Liability in third party insurance 7

o Negligence and third party insurance cover 9

o Vicarious Liability and third party insurance cover 12

Conclusion 13 Sources Cited 14



Introduction:

India is the 5th largest insurance market in Asia2 (Sathe) owing to its $30 billion insurance

industry3 (Bhavanam). Moreover, with the growing economy leading to higher disposable

incomes and savings and increasing urbanization and awareness, the insurance is expected to

grow radically in the near future. Motor insurance is the largest business segment in the

insurance sector in India as it constitutes 44% of the total product mix which includes fire,

marine and health insurance. (Bhavanam). Motor insurance industry in India offers two kinds of

coverage: comprehensive insurance and third party insurance. This paper will deal with the latter

type and discern the role of tort law in its development in India.

In third party insurance or liability insurance, “the assured himself is covered against

legal liability which he may incur to a third party, and the establishment of such liability by the

third party, not merely suffered by the third party, is an essential perquisite to a claim on the

policy”4. (Rogers) Thus, “when you are involved in an auto accident for which you are at fault,

your liability or third party insurance will cover injuries and damages you cause to others, up to

your liability limit.”5 Typical third party insurance covers: personal injury and property damage.

In India, under the section 1466 of Motor Vehicles Act, 1988 it is mandatory that every

vehicle should have a valid insurance that covers against third party risk to drive on the road.

Moreover, a vehicle meant to carry dangerous or hazardous goods is required to cover risks

detailed under the Public Liability Insurance Act, 1991.However, a third party only insurance

covers the insured against third party risks if he causes injury or death in following situations:

“owner of the goods or his authorized representative carried in the vehicle; passenger in a public

service vehicle; workman, such as an employee engaged in driving the vehicle or a conductor in

2 Sathe, Anita. "General Insurance Industry in India." Casualty Loss Reserve Seminar. Chicago, 2009. 1-20.3 Bhavanam, Pasisrama. "India's insurance sector: Overview." IndiaOneStop. 4 December 2009 <http://www.indiaonestop.com/insurance/insurance.htm>4 WVH Rogers, Winfield & Jolowicz on Tort, Seventeenth Edition, Sweet and Maxwell Limited, South Asian Edition, 2006,p.245 "What is third party insurance cover on a vehicle?" Answers.com. 4 December 2009 <http://wiki.answers.com/Q/What_is_third_party_only_Insurance_cover_on_a_vehicle>.

6 Section 146 Necessity for insurance against third party risk: (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.



a public service vehicle, or a person engaged in examining tickets in the vehicle, employees

carried in a goods carriage to the extent of liability provided under the Workmen’s

Compensation Act.”7 (Kannan)

However, as Professor Pfeffer wisely said, “One must seek the scientific aspects of

insurance outside the institution itself”. (Pfeffer)8”The insurance institution derives from, or at

least builds upon, mathematics, economics and law.”9 (Arthur D. Lynn). Moreover, it is further

stated by Robert I. Mehr and Robert W. Osler in Modern Life insurance that the interpretation of

life insurance is legal. Thus, one cannot deny that law over the years has had an effect on the

institution of insurance. This paper will recognize the role of tort law in developing the various

facets of third party or liability insurance by focusing on relevant areas such as; strict liability,

fault and no fault liability, negligence and vicarious liability.

7 Kannan, Justice K. "Motor Insurance: New Imperatives for Reforms." Halsbury's Law Monthly July 20098 Pfeffer, Irving. "The nature and significance of insurance pricniples." Annals of the Society of Chartered Property and Casualty Underwriters (1958).9 Arthur D. Lynn, Jr. "Contributions to risk and insurance theory from the filed of law." The Journal of Insurance (1962): 351-354.



Research Methodology:

Objective:

The objective of this paper is to explore the evolution that has taken place in the field of

third party insurance cover in India and its relation with tort law.

Scope:

The scope of this paper will be limited to liability insurance and tort law in India. It will

also be limited to the concepts of tort law like negligence, strict liability and vicarious liability

which have an influence on liability insurance.

Research Questions:

a) What is the role of the fault principle of strict liability in third party insurance cover?

b) What is the role of the tort of negligence in third party insurance cover?

c) What is the role of vicarious liability in third party insurance cover?

d) How have these principles affected third party insurance over the years?

e)



Role of tort law in the development of third party insurance cover:

Fault and No-fault liability in third party insurance:

The Motor Vehicles Act, 1988 states that an insured vehicle i.e. his

insurance company will have to pay compensation to the injured party without

any consideration of whether injured was at fault or not. This is explained in

Section 140(1)10 of Motor Vehicles act. Due to this irrespective of the insured’s

fault the insurance company has to pay. This concept is derived from the

concept of Strict or Absolute Liability in tort law which is considered strict or

absolute because “it relieves the claimant of the burden of showing fault.11”

(Rogers) This clearly portrays India’s Motor Vehicles Act as pro-victim. This

stance is justified by stating that “there is not injustice in awarding

compensation against the person who caused the accident even if he is not at

fault, because, in most cases, he can get reimbursement from the insurer. The

main object of the law is to compensate the injured person and not to penalize

the person causing the accident.”12 (India) In India 38% (Bhavanam)of the total

motor insurance segment comprises of third party insurance. However, 2/3

(Bhavanam) of the revenue of the industry is reserved for third party segment.

Moreover, in the fiscal year 2007-08, the overall loss ratio for third party

insurance was 183% (Bhavanam). This has made the insurance industry against

giving third party only policies. However, either permanent disablement or

death needs to be proven before a victim can claim damages under Section

140. The term permanent disablement has been defined in section 142 of the

Motor Vehicles Act, 1988 to constitute any of the following injuries:

10 Section 140 Liability to pay compensation in certain cases on the principle of no fault: (1) Where death or permanent disablement of any person has resulted from an accident arising out of the use of a motor vehicle or motor vehicles, the 1 owner of the vehicle shall, or, as the case may be, the owners of the vehicles shall, I jointly and severally, be liable to pay compensation in respect of such death or disablement in accordance with the provisions of this section.

11 WVH Rogers, Winfield & Jolowicz on Tort, Seventeenth Edition, Sweet and Maxwell Limited, South Asian Edition, 2006,p.69312 India, Law Commission of. 51st report on compensation for injuries caused by automobiles in hit-and-run cases. New Delhi: Governement of India- Ministry of Law and Justice, 1972.



(a) Permanent privation of the sight of either eye or the hearing of

either ear, or privation of any member or joint; or

(b) Destruction or permanent impairing of the powers of any member

on joint; or

(c) Permanent disfiguration of the head or face.

However, fault and no fault liability are differentiated by the upper cap on

their damages. If the fault of the driver is not proven then the claimant can

claim up to Rs.50, 000 in case of death and Rs.25, 000 in case of permanent

disablement. (Motor Vehicles Act)However, in the case where fault of the

driver is proven the compensation amount under third party insurance can

go up to Rs.7, 50,000. The principle of no fault liability was first established

in Gujarat State Road Transport Corporation v. Ramanbhai Prabhatbhai13

in which the Supreme Court held that “Where a pedestrian, without

negligence on his part, is injured or killed by a motorist whether negligently

or not, he or his legal representatives, as the case may be, should be entitled

to recover damages if the principle of social justice should have any

meaning at all.” (Gujarat State Road Transport Corporation v. Ramanbhai

Prabhatbhai)14.

13 (1987) 3 SCC 23414 Venkataramiah J, Gujarat State Road Transport Corporation v. Ramanbhai Prabhatbhai



Negligence and Third party Insurance Cover:

“Negligence as a tort is a breach of duty to take care which results

in damage to the claimant.”15 (Rogers) Negligence has three ingredients: a

legal duty to take care, breach of that duty and a consequential damage to

the claimant. Negligence has an important implication in third party

insurance. One of the most important functions of negligence in third party

insurance is that it helps in determining whether the principle of fault and

no fault liability is to be applied. This determination is vital as it can affect

the amount of compensation received by the claimant. Under Motor

Vehicles Act, 1988 certain duties of care to be observed by the drivers of

motor vehicles are established. These are:

a) Duty to obey Driving regulations16

b) Duty to obey traffic signs17

c) Duty to drive vehicles with left hand control18

d) Duty to observe safety measures for drivers and pillion riders19

15 WVH Rogers, Winfield & Jolowicz on Tort, Seventeenth Edition, Sweet and Maxwell Limited, South Asian Edition, 2006,p.13216 Section 118 Driving regulations: The Central Government may, by notification in the Official Gazette, make regulations for the driving of motor vehicles.

17 Section 119 Duty to obey traffic signs: ( 1) Every driver of a motor vehicle shall drive the vehicle in conformity with any indication given by mandatory traffic sign and in conformity with the driving regulations made by the Central Government, and shall comply with all directions given to him by any police officer for the time being engaged in the regulation of traffic in any public place.(2) In this section "mandatory traffic sign" means a traffic sign included in Part A of 1[The First Schedule], or any traffic sign of similar form (that is to say, consisting of or including a circular disc displaying a device, word or figure and having a red ground or border) placed or erected for the purpose of regulating motor vehicle traffic under sub-section (1) of section 116.

18 Section 120. Vehicles with left hand control: No person shall drive or cause or allow to be driven in any public place any motor vehicle with a left-hand steering control unless it is equipped with a mechanical or electrical signaling device of a prescribed nature and in working order.

19 Section 128 Safety measures for drivers and pillion riders: (1) No driver of a two-wheeled motor cycle shall carry more than one person in addition to himself on the motor cycle and no such person shall be carried otherwise than sitting on a proper seat securely fixed to the motor cycle behind the driver's seat with appropriate safety measures.(2) In addition to the safety measures mentioned in sub-section (1), the Central Government may, prescribe other safety measures for the drivers of two-wheeled motor cycles and pillion riders thereon.



e) Duty to produce license and certificate or registration20

f) Duty of driver to stop in certain cases21

g) Duty of driver in case of accident and injury to a person22

h) Duty to allow inspection of vehicle involved in accident.23

If any of the above mentioned duties are breached and claimant suffers

damages as a result of that breach than the case can be qualified as one

involving fault liability. An instance of such liability is the case of Minu B.

Mehta v. Balkrishna Ramchandra Nayan24 where the court holding that the

20 Section 130 Duty to produce license and certificate of registration: (1) The driver of a motor vehicle in any public place shall, on demand by any police officer in uniform, produce his license for examination

21 Section 132. Duty of driver to stop in certain cases: (1) The driver of a motor vehicle shall cause the vehicle to stop and remain stationary so long as [may for such reasonable time as may be necessary, but not exceeding twenty-four hours],-[(a) when required to do so by any police officer not below the rank of a Sub-Inspector in uniform, in the event of the vehicle being involved in the occurrence of an accident to a person, animal or vehicle or of damage to property, or](b) when required to do so by any person in charge of an animal if such person apprehends that the animal is, or being alarmed by the vehicle will become, unmanageable.

22 Section 134 Duty of driver in case of accident and injury to a person: When any person is injured or any property of a third party is damaged, as a result of an accident in which a motor vehicle is involved, the driver of the vehicle or other person in charge of the vehicle shall- (a) unless it is not practicable to do so on account of mob fury or any other reason beyond his control, take all reasonable steps to secure medical attention for the injured person,[by conveying him to the nearest medical practitioner or hospital, and it shall be the duty of every registered medical practitioner or the doctor on the duty in the hospital immediately to attend to the injured person and render medical aid or treatment without waiting for any procedural formalities], unless the injured person or his guardian, in case he is a minor, desires otherwise; (b) give on demand by a police officer any information required by him, or, if no police officer is present, report the circumstances of the occurrence, including the circumstances, if any, for not taking reasonable steps to secure medical attention as required under clause (a), at the nearest police station as soon as possible, and in any case within twenty-four hours of the occurrence; (c) give the following information in writing to the insurer, who has issued the certificates of insurance, about the occurrence of the accident, namely:- (i) insurance policy number and period of its validity; (ii) date, time and place of accident; (iii) particulars of the persons injured or killed in the accident; (iv) name of the driver and the particulars of his driving license.

23 Section 136 Inspection of vehicle involved in accident: When any accident occurs in which a motor vehicle is involved, any person authorized in this behalf by the State Government may, on production if so required of his authority, inspect the vehicle and for that purpose may enter at any reasonable time any premises where the vehicle may be, and may remove the vehicle for examination:Provided that the place to which the vehicle is so removed shall be intimated to the owner of the vehicle and the vehicle shall be returned [after completion of the formalities to the owner, driver or the person in charge of the vehicle within twenty-four hours].

24 (1977) 2 SCC 441



driver was liable for negligence said that the owners need to prove that

“despite taking all reasonable care a mechanical defect remained hidden”

which caused the accident otherwise it will assumed that the “accident

took place due to rash and negligent driving.”25 It has been argued that the

pro victim nature of tort law has increased the demand for third party

insurance because people know that during the occurrence of an accident

if they cause an injury they will be liable to pay damages. As a result of

this they opt for insurance so that their insurance company can cover these

damages. However, because they know that their damages are being

covered by the insurance company their “incentive to exercise due care is

reduced”26 and this causes more negligence and thus more accidents. This

is referred to as the moral hazard in insurance.

25 Kailasam J, Minu B. Mehta v. Balkrishna Ramchandra Nayan26 Tom Baker, Guy Chappuis, et al. Tort Law and Liability Insurance: An Intricate Relationship. Munich: Munich Re Group, 2007.



Vicarious Liability and Third Party insurance cover:

The concept of Vicarious Liability is based on the phrases

respondeat superior27 and qui facit per alium facit per se28. The reasoning

behind vicarious liability is that “the master is expected to be in a far

better position for paying the damages than the servant.”29 (J. G. Singh).

There is a similar reasoning used to justify necessary third party insurance.

It is assumed that if provisions, in form of insurance, are made in advance

by a car owner for the injuries he may cause to a third party then the

likelihood of claimant recovering the needed damages is higher. It has

been held that the owner will be liable for the negligent actions of the

persons who he allows to drive his car. This was the case in Pushpabai

Purshottam Udeji v. Ranjit Ginning and Pressing Co. Pvt. Ltd30 where

“the car met with an accident because of the negligence of the manager in

driving the car and Purshottam (a third party) travelling with him, died.”

(J. G. Singh) As a result, the defendant company was held responsible for

the negligent driving of its manager.

It was further seen in Guru Govekar v. Miss Filomena F.

Lobo and Others31 In this case the Supreme Court held that “the owner and

his insurer are liable to a third party for injuries sustained by negligent

driving of an employee of a garage owner to whom the vehicle has been

delivered for repairs.”32

27 Respondeat Superior: Let the one in the superior position be responsible28 Qui facit per alium facit per se: He who acts through another acts himself29 Singh, Justice GP. Ratanlal and Dhirajlal's The Law Of Torts. New Delhi: LexisNexis Butterworths Wadhwa Nagpur, 2009, p.14830 (1977) 2 SCC 74531 (1988) 3 SCC 132 Singh, Justice GP. Ratanlal and Dhirajlal's The Law Of Torts. New Delhi: LexisNexis Butterworths Wadhwa Nagpur, 2009, p.650



Conclusion:

This paper made an effort to draw relations between various facets of tort law and

its impact on third party insurance in India. The researcher intended to elucidate how tort law has

shaped the Insurance laws and has contributed to the Motor Vehicles Act, 1988. With the scope

of tort law increasing the scope of third party insurance has increased proportionately. “The

cases of motor accidents constitute the major bulk of tort cases in India. Tort law has expanded

to assign liability to defendants for reasons other than negligence. Recent doctrines include joint

and several liability, retroactive liability, and unlimited duration of liability.”33 (R. Singh)

Word Count: 3,322 words

33 Singh, Ram. Relationship between liability regimes and economic development: A study of motor vehicle accidents in India. Working Paper. New Delhi: Centre for the Study of Law and Governance: Jawaharlal Nehru University, 2009



Sources Cited:

Cases Referred:

Guru Govekar v. Miss Filomena F. Lobo and Others (1988) 3 SCC 1

Pushpabai Purshottam Udeji v. Ranjit Ginning and Pressing Co. Pvt. Ltd (1977) 2 SCC 745

Minu B. Mehta v. Balkrishna Ramchandra Nayan (1977) 2 SCC 441

Gujarat State Road Transport Corporation v. Ramanbhai Prabhatbhai (1987) 3 SCC 234

Other Sources Cited:

Arthur D. Lynn, Jr. "Contributions to risk and insurance theory from the field of law." The

Journal of Insurance (1962): 351-354.

Bhavanam, Pasisrama. "India's insurance sector: Overview." IndiaOneStop. 4 December 2009

<http://www.indiaonestop.com/insurance/insurance.htm>.

"Gujarat State Road Transport Corporation v. Ramanbhai Prabhatbhai." V Lex. 4 December

2009 <http://vlex.in/vid/road-ahmedabad-ramanbhai-prabhatbhai-29682721>.

Law Commission of India. 51st report on compensation for injuries caused by automobiles in

hit-and-run cases. New Delhi: Governement of India- Ministry of Law and Justice, 1972.

Kannan, Justice K. "Motor Insurance: New Imperatives for Reforms." Halsbury's Law Monthly

July 2009.

"Motor Vehicles Act." 1988.

Pfeffer, Irving. "The nature and significance of insurance pricniples." Annals of the Society of

Chartered Property and Casualty Underwriters (1958).

Rogers, WVH. Winfield and Jolowicz on Tort. London: Sweet and Maxwell Limited, Seventeenth

Edition, 2006.



Sathe, Anita. "General Insurance Industry in India." Casualty Loss Reserve Seminar. Chicago,

2009. 1-20.

Singh, Justice GP. Ratanlal and Dhirajlal's The Law Of Torts. New Delhi: LexisNexis Butterworths

Wadhwa Nagpur, 2009.

Singh, Ram. Relationship between liability regimes and economic development: A study of

motor vehicle accidents in India. Working Paper. New Delhi: Centre for the Study of Law and

Governance: Jawaharlal Nehru University, 2009.

Thomson Reuters. Indlaw.com-A definitive guide to Indian law. . 24 November 2009

<http://www.indlaw.com/>.

Tom Baker, Guy Chappuis, et al. Tort Law and Liability Insurance: An Intricate Relationship.

Munich: Munich Re Group, 2007.

"What is third party insurance cover on a vehicle?" Answers.com. 4 December 2009

<http://wiki.answers.com/Q/What_is_third_party_only_Insurance_cover_on_a_vehicle>.


contribution of tort jurisprudence to the development of “third party insurance cover” in india

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