Apex Court on Insurer's liability - in case of Cover note !!

There is so much of traffic and on every city road, you see so many vehicles – so many varieties of them – and there are automobile accidents.  Recently the premium rates for Motor TP were revised (it was enhanced for some categories) and there was hue & cry that rates are going up !~ though Motor constitutes major % of the portfolio of most general Insurers – most of them get drowned by losses in this portfolio and again it is TP which gives them more losses.

In this month of April 2018, Supreme Court has decided on an appeal filed against  the judgment of Jan 2017  passed by the High Court of Judicature for Rajasthan, Jodhpur Bench, in CMA of 2001  which set aside the award of the Motor Accident Claims Tribunal granting compensation to the appellant at the instance of respondent Nos.2 and 3 (driver and owner of the offending vehicle, respectively) as also negatived the appellant's prayer for enhancement of the compensation amount.

The cause of action dates back to Feb 1990 when the appellant here was riding his motorcycle and was hit by a jeep.   The appellant subsequently filed an application before the Tribunal, Jodhpur, seeking compensation against the respondents, including the respondent No.1 insurance company.He claimed 40% permanent disability and 100% functional disability, contending that his primary livelihood of driving heavy transport vehicles (HTVs) had been curtailed on account of his amputation, and sought compensation to the tune of Rs. 11,17,000/.

While the owner and driver of the vehicle denied the accident and the involvement of the jeep in question, the Insurers contended that the cover note purportedly taken for the jeep in question was fraudulent. It stated that the  cover note had been given unauthorisedly by its then Development Officer, no  premium had been deposited with the company and no policy had been issued in that regard. Thus, the jeep was not validly insured.

In its judgment of Nov 2000, the Tribunal discussed the evidence on record in detail. The witnesses, who had taken the appellant to the hospital after the accident, deposed that after the accident, the jeep which caused the accident stopped ahead and they noted the jeep number in the backlight and further, they heard the driver's name being called out by the passengers in the jeep. The Tribunal, however, found that their version of having noted the jeep number and heard the driver's name seemed to be unnatural. The Tribunal, however, opined that the accident had been caused by the jeep in question, based on the investigation report filed by the police mentioning that when they seized the jeep after one month of the accident, the jeep bore a scratch on the mudguard of the tyre on the upper footboard on the left side.The Tribunal also relied on the charge sheet filed by the police.  The Tribunal then referred to the site map of the accident  to conclude that the appellant was riding his motorcycle one foot on wrong side from the middle of the road and hence, had contributed to the accident by being negligent.

The Tribunal  accepted the plea of the respondent Insurance company that the cover note as regard the offending jeep was fraudulent. The Tribunal accepted the evidence of witness DW4, the branch manager of the Insurer, that the company did not receive any premium under the relevant cover note and had not issued any insurance policy in that regard. DW 4 had deposed that the cover note was not deposited with the company.Further, the concerned development officer, whose signature was on the cover note, had been removed from the respondent No.1 insurance company but had in his possession certain cover notes, including the relevant cover note. DW 4 stated that no insurance policy was issued on the basis of the said cover note. The Tribunal then found that it was possible that the Development Officer had backdated the cover note and had not deposited the money for issuing a policy with the company. The Tribunal thus held that the vehicle was not insured by the company and, therefore, the company was not liable.

The Tribunal after calculations awarded Rs. 63,500/- to the appellant payable by the respondent Nos. 2 and 3 jointly. (i.e., owner and driver of the vehicle – exonerating the Insurers)

The appellant filed an appeal  for enhancement whereas respondent Nos. 2 and 3 (driver and owner of the jeep, respectively) challenged the Tribunal's award, before the High Court of Rajasthan, Jodhpur Bench. In its judgment dated 5th January, 2017, the High Court concluded that the Tribunal's findings were incorrect, unconvincing and not supported by evidence. Further, the Tribunal's reasoning, that it did not believe the oral evidence of the parties but had nevertheless answered the issue in favour of the claimant solely on the basis of the police report, on the ground that there was no reason not to believe the conclusion arrived at by the police, was flawed and incorrect.The High Court took the view that mere filing of a chargesheet, without any finding of conviction, was insufficient to prove negligence by respondent Nos. 2 and 3.  

The High Court finding fault with the statement of appellant too, set aside the Tribunal’s award and allowed the appeal filed by driver & Owner of the Jeep while dismissing the appeal of the two-wheeler rider (the injured person), who appealed to Supreme Court. 

The appellant’s counsel sought to prove the accident further stating that the  Tribunal's reliance on the site map to infer that the appellant was riding his motorcycle on the wrong side of the road was erroneous as the site map merely reflected the position of the motorcycle after the accident and not at the time of the accident. It was claimed that   the appellant suffered 40% permanent disability and 100% functional disability and on that basis, the Tribunal erred by not granting higher compensation to the appellant. It was further contended  that the courts below erred in absolving the respondent No.1 insurance company from its liability.

The counsel for respondent Nos.2 and 3 (driver of truck and owner) contended that the appellant did not have a valid driving licence at the time of the accident and was negligently driving on the wrong side of the road. Even the driving licence produced by the appellant was for a different class of vehicles and not for a motorcycle, which he was riding at the time of the accident.

What interests us  more is the  issue of whether the jeep was validly insured, the Insurer’s counsel contended  that the respondent No.3 owner took insurance for the jeep and even paid premium for the same and hence, any objection taken by the respondent No.3 insurance company that such insurance was fraudulently obtained, is untenable.  Apex Court placed reliance on the decision in New India Assurance Co. Ltd. Vs. Rula&Ors, to buttress this submission.  The Insurer’s contention was the vehicle was not insured by them and that an official who was not authorised had issued the cover note fraudulently.  It was further stated that  that the said official had backdated certain cover notes, for which he had been expelled from the company.

Apex Court stated :The moot question which arises for our consideration in these appeals is about the justness of the decision of the High Court in reversing the finding of fact recorded by the Tribunal on the factum of involvement of Jeep;   on the factum of negligence of the driver of the jeep.  The court held that going by the circumstances, the accident looked probable.  Pertinently, besides mentioning the description of the offending vehicle as a "jeep" they have also spoken about its colour (green) and that it was displaying the Congress Party flags and banners on the side of the jeep. In other words, their version limited to having noted the jeep number, has not been accepted.

Citing an earlier judgment where it was stated that the court should not succumb to niceties, technicalities and mystic maybes. We are emphasizing this aspect because we are often distressed by transport operators getting away with it thanks to judicial laxity, despite the fact that they do not exercise sufficient disciplinary control over the drivers in the matter of careful driving. We must remember that judicial tribunals are State organs and Article 41 of the Constitution lays the jurisprudential foundation for State relief against accidental disablement of citizens. There is no justification for niggardliness in compensation.  The Court held that the  Tribunal and the High Court have, therefore, gone into error in divesting the claimants of the compensation payable to them."

On the next Q of  whether the Tribunal was justified in concluding that the appellant was also negligent and had contributed equally – it was said that neither the Tribunal nor the High Court has found that the spot noted in the site map, one foot wrong side on the middle of the road was the spot where the accident actually occurred. However, the finding is that as per the site map, the motorcycle was found lying at that spot. That cannot be the basis to assume that the appellant was driving the motorcycle on the wrong side of the road at the relevant time.  The Hon’ble Court observed that -   we are inclined to hold that there is no tittle of evidence about the motorcycle being driven negligently by the appellant at the time of accident. The respondents did not produce any such evidence. That fact, therefore, cannot be assumed. Resultantly, the argument of the respondents that the appellant did not possess a valid motorcycle driving licence at the time of accident, will be of no significance. Thus, we hold that there is no legal evidence to answer the issue of contributory negligence against the appellant.

On the quantum of compensation, the Court besides various other parameters added future prospects stating that the Tribunal should have computed the loss of income on that basis. Additionally, the appellant because of amputation of his right leg would be forced to permanently use prosthetic leg during his life time. No provision has been made by the Tribunal in that regard. On these heads, the appellant is certainly entitled for enhanced compensation.

For Insurers, the most important Q was on the liability of Insurer especially when the  Tribunal has absolved the insurance company on the finding that no premium was received by the insurance company nor any insurance policy was ever issued by the insurance company in relation to the offending vehicle. The respondents no.2 and 3  relied on a Cover Note which according to respondent No.1 - Insurance Company was fraudulently obtained from the then Development Officer, who was later on sacked by respondent No.1 Insurance Company. The possibility of misuse of some cover notes lying with him could not be ruled out.

However,  the claim of respondent Nos.2 & 3 to the extent that they possessed a cover note issued by the then Development Officer of the Oriental Insurance Company (respondent No.1) will have to be accepted coupled with the fact that there is no positive evidence to indicate that the said Cover Note is ante-dated. The Hon’ble Court recorded that :Pertinently, the Cover Note has been issued by the then Development Officer at a point of time when he was still working with respondent No.1 Insurance Company.It must follow that the then Development Officer was acting on behalf of the Insurance Company, even though ‘sensu-stricto’ the respondent No.1 Insurance Company may not be liable to pay any compensation as no insurance policy has been issued in respect of the offending vehicle, much less a valid insurance policy. But for the Cover Note issued by the Development Officer of respondent No.1 Insurance Company at a point of time when he was still working with respondent No.1, to do substantial justice, we may invoke the principle of "pay and recover", as has  been enunciated by this Court in the case of National Insurance Co. Ltd. Vs. Swaran Singh &Ors.

                            Reverting to the calculation of compensation amount, taking the loss of monthly income due to permanent disability of 40%, the appellant will be entitled to Rs.2,25,792/[ Rs.840 per month (i.e. 40 % of Rs.2,100/) + 40% future prospects [as per Pranay Sethi (supra)] x 12 x 16, i.e. (840 + 336) x 12 x 16.  The Court summed the compensation as : Medical treatment after accident Rs.5000/- ; Motorcycle repair :Rs. 2,000/-;  Mental and physical problem :Rs. 20,000/- ; Loss of income due to 40% permanent disability :Rs. 2,25,792/-;  Cost of prosthetic leg :Rs. 25,000/- all totalling - Rs. 2,77,792/-   It was further decreed interest at the rate of 9% per annum from the date of filing of the claim application, till the date of realization.

Thus it was a ‘pay & recover’ award against the Insurer – though for them there was no premium received !  ~ for sure there are many learnings arising out of this judgment on internal controls and on conducting a similar case before the Courts.

With regards – S. Sampathkumar

PS: ~ the foregoing is excerpted from the recent judgment and does not purport to fully represent the contents of the judgements.  Possibly this is the view of the Insurer and there could be many more angles.  For full text read the judgement in Civil Appeal Nos.24992500 of 2018 arising out of SLP (Civil) Nos.2814142 of 2017 - Mangla Ram Vs. The Oriental Insurance Company Ltd. &Ors.