The Gujarat High Court has reaffirmed the principle that third-party victims of motor accidents cannot be denied compensation due to the insured driver’s breach of policy conditions, such as driving without a valid license. The judgment clarifies that insurers must first discharge their statutory obligation to compensate injured parties, with a right to recover the amount from the defaulting owner - a doctrine essential to uphold the protective intent of the Motor Vehicles Act.
Background & Facts
The Dispute
The accident occurred in March 2006 when a tractor driven by Madhubhai Shambhubhai Joliya, the owner-driver, struck and killed Naranbhai, a pedestrian walking on the road. The tractor’s wheel ran over Naranbhai’s abdomen, causing fatal injuries. Naranbhai was 55 years old at the time of death and worked as an agriculturist. His dependents - his widow and son - filed a claim petition before the Motor Accident Claims Tribunal, Bhavnagar.
Procedural History
- 2006: Claim petition filed before the Motor Accident Claims Tribunal (Aux.), Bhavnagar.
- 2014: Tribunal awarded Rs. 2,89,000/- to the claimants, holding the insurer (ICICI Lombard) exonerated due to the driver’s lack of a valid license.
- 2015: First Appeal filed before the Gujarat High Court challenging both the quantum of compensation and the exoneration of the insurer.
- The driver-cum-owner did not appear before the Tribunal or the High Court, despite being served notice.
Relief Sought
The appellants sought:
- Enhancement of compensation under heads of loss of income, loss of consortium, loss of estate, and funeral expenses.
- Reversal of the insurer’s exoneration and application of the "pay and recover" doctrine to make the insurer liable first, with right to recover from the owner.
The Legal Issue
The central questions were whether the insurance company could be directed to pay compensation despite the driver’s unlicensed status, and whether the compensation awarded by the Tribunal adequately reflected the deceased’s income and dependency loss under established legal principles.
Arguments Presented
For the Petitioner
The appellants relied on Jawahar Singh v. Bala Jain (2011) and Vimalaben Ratilal More v. Sukhmay K Roy (2025) to argue that the insurer’s liability to third parties is primary and cannot be avoided due to policy breaches between insurer and owner. They contended that the doctrine of "pay and recover" is well-established to protect innocent victims and that the Tribunal’s failure to include prospective income (10% under Pranay Sethi) and under-awarded heads like loss of consortium and funeral expenses rendered the award inadequate.
For the Respondent
The insurer argued that the driver’s lack of a license was a clear breach of policy conditions, evidenced by his admission in police statement (Exhibit-33) and failure to produce license despite notice (Exhibit-41). They distinguished Jawahar Singh and Vimalaben Ratilal on the ground that those cases involved minor drivers, whereas here the driver was an adult. They further contended that the Tribunal’s compensation was reasonable and that the interest rate of 9% was excessive given prevailing banking rates.
The Court's Analysis
The Court examined the statutory framework under Section 168 of the Motor Vehicles Act, 1988, which empowers Tribunals to adjudicate disputes between claimants and insurers, owners, or drivers jointly or severally. It held that the insurer’s liability to third parties is not contingent on the owner’s compliance with policy terms. The Court emphasized that the purpose of the Act is to ensure swift and adequate compensation to victims, irrespective of technical breaches between insurer and insured.
"The law is not that only when a driver is a minor that the order for pay and recover can be made. The law, succinctly put, is that when there is a breach of policy condition, a third party may not be subjected to the technicality of breach of terms and conditions between the owner and the insurer, nor could such third party be made to suffer in those circumstances."
The Court rejected the insurer’s attempt to distinguish Jawahar Singh and Vimalaben Ratilal, noting that the rationale for "pay and recover" is not limited to minors but applies whenever a third party is prejudiced by the insurer’s contractual defenses. It affirmed that the insurer’s right to recover from the owner is not extinguished but can be enforced through execution proceedings before the same Tribunal, without requiring a separate suit, as clarified in National Insurance Co. Ltd. v. Baljit Kaur.
Regarding compensation, the Court applied the multiplier method from Sarla Verma v. Delhi Transport Corporation and the prospective income rule from Pranay Sethi. It held that for a 55-year-old agriculturist, a 10% addition to established income is mandatory. The Tribunal erred in not including this, reducing the monthly multiplicand from Rs. 3,300 to Rs. 2,200 after 1/3rd deduction for personal expenses. Applying a multiplier of 11 (for age 55), the future loss of income was recalculated at Rs. 2,90,400. Loss of consortium was enhanced to Rs. 96,800 (Rs. 48,400 x 2 dependents), and loss of estate and funeral expenses were each raised to Rs. 18,150, in line with prevailing judicial norms.
The Verdict
The appellants succeeded. The Court held that the insurer must pay the full compensation to the claimants first, with a right to recover the amount from the owner through execution proceedings. The compensation was enhanced to Rs. 4,23,500, with interest at 9% per annum on the enhanced portion. The Tribunal was directed to disburse the amount within eight weeks.
What This Means For Similar Cases
Pay and Recover Applies Regardless of Driver’s Age
- Practitioners must now argue that the "pay and recover" doctrine applies to all cases of policy breach - including unlicensed, intoxicated, or uninsured drivers - provided the victim is innocent.
- Insurers cannot invoke policy exclusions to deny immediate payment to third parties.
- Execution proceedings under Section 168 are sufficient for recovery; no separate suit is required.
Compensation Must Reflect Prospective Income and Judicial Norms
- For deceased aged 50 - 60, 10% prospective income must be added to established income under Pranay Sethi, even for agriculturists.
- Loss of consortium should be awarded at Rs. 48,400 per dependent, not as a nominal sum.
- Funeral expenses and loss of estate should be awarded at Rs. 18,150 each unless exceptional circumstances justify deviation.
Interest Rates Must Account for Delay and Inflation
- Interest on compensation must reflect the time lag between accident and award, not current banking rates.
- A 9% rate is justified for delays exceeding 15 - 20 years, as inflation erodes real value.
- Courts must reject insurer arguments seeking lower interest rates based on market trends alone.
