A landmark ruling by the Kerala High Court has clarified the extent of an insurer’s liability under the Motor Vehicles Act when a two-wheeler is overloaded beyond its permitted seating capacity. The judgment resolves conflicting precedents and establishes a clear, equitable framework for compensation distribution in fatal accidents involving multiple unauthorized passengers.
Background & Facts
The Dispute
On 11 December 2009, a motorcycle registered as KL-36/A-4429, ridden by Aneesh V.V., collided with a telephone post while carrying two pillion riders - Sujatha and Pichai Kani’s son - both of whom died instantly. The motorcycle’s seating capacity was legally restricted to one rider and one pillion rider, but two passengers were carried, violating both traffic regulations and the insurance policy terms. The rider held no valid driving licence at the time of the accident.
Procedural History
- 2010: Two separate claims filed before Motor Accidents Claims Tribunal, Pala: OP(MV) No.161 of 2011 (Sujatha’s heirs) and OP(MV) No.571 of 2010 (Pichai Kani’s heirs).
- 2013: Tribunal awarded ₹4,36,500 and ₹4,26,000 respectively, holding the insurer liable for both claims with right of recovery against the owner-rider.
- 2014 - 2015: Both claimants and insurer filed appeals before the Kerala High Court, challenging quantum of compensation and insurer liability.
The Parties' Positions
- Claimants: Argued insurer must pay full compensation to both families, relying on United India Insurance Co. Ltd. v. K.M. Poonam and Minor Antony Danny K. v. Manjula K.S.
- Insurer: Contended liability is limited to one pillion rider under policy terms and National Insurance Co. Ltd. v. Anjana Shyam, and sought exclusion of the second passenger.
Relief Sought
Claimants sought enhancement of compensation under Sections 163-A and 166 of the Motor Vehicles Act. The insurer sought to limit its liability to the higher of the two awards, but only for one permitted passenger.
The Legal Issue
The central question was whether Section 149 of the Motor Vehicles Act compels an insurer to pay compensation to all claimants in an accident involving unauthorized passengers, or whether liability is strictly confined to the number of passengers permitted under the vehicle’s policy and registration.
Arguments Presented
For the Appellant/Petitioner (Claimants)
Relied on United India Insurance Co. Ltd. v. K.M. Poonam and Minor Antony Danny K. v. Manjula K.S., arguing that the insurer’s obligation under Section 149 is to ensure full compensation to victims, regardless of policy breaches. They contended that denying payment to the second pillion rider would defeat the humanitarian purpose of the Act and violate the principle of ubi jus ibi remedium. The court’s power under Article 142 was invoked to ensure complete justice.
For the Respondent/State (Insurer)
Invoked National Insurance Co. Ltd. v. Anjana Shyam, asserting that Section 149 does not extend liability to persons carried in excess of the vehicle’s permitted seating capacity. The insurer argued that policy conditions explicitly limited coverage to one pillion rider, and allowing claims for unauthorized passengers would encourage reckless driving and undermine insurance underwriting norms.
The Court's Analysis
The Court undertook a detailed comparative analysis of Anjana Shyam and K.M. Poonam, recognizing both as binding precedents but differing in factual context. In Anjana Shyam, the Supreme Court held that insurers cannot be compelled to pay for passengers carried in violation of policy terms, as the statutory obligation under Section 149 is limited to the scope of the policy. The Court emphasized that the insurer’s liability is not absolute but circumscribed by the terms of the contract and statutory limits.
"The insurance company can be held liable only to pay the highest award in respect of the two claim petitions and the amount thus deposited shall be equally apportioned between the claimants in the two claim petitions."
The Court distinguished K.M. Poonam on the ground that its direction to pay and recover was issued under Article 142 of the Constitution, which empowers the Supreme Court to do complete justice but cannot be mechanically applied by High Courts as a precedent for overriding policy terms. The Kerala High Court held that while Article 142 is extraordinary, it cannot be invoked routinely to override statutory and contractual limitations.
The Court also affirmed that the rider’s lack of a valid licence and the vehicle’s overloading constituted clear breaches of policy conditions, which do not automatically nullify the insurer’s liability under Section 149, but do restrict its scope to the permitted number of passengers. The tribunal’s award of penal interest at 9% was set aside, citing National Insurance Co. Ltd. v. Keshav Bahadur, which limits interest to statutory rates.
The Court further refined compensation calculations under Section 163-A and Section 166, applying the Pranay Sethi and Sarla Verma principles to fix notional income, apply multipliers, and eliminate duplication under heads like loss of love and affection versus loss of consortium.
The Verdict
The claimants won on compensation enhancement, but the insurer won on liability scope. The Court held that the insurer’s liability is limited to the highest award among claimants, to be apportioned equally among victims, with recovery from the owner. The tribunal’s award of penal interest was quashed, and compensation was enhanced for both claimants under proper statutory heads.
What This Means For Similar Cases
Liability Is Confined to Permitted Capacity
- Practitioners must now argue that insurers are not liable for compensation to passengers carried beyond the vehicle’s permitted seating capacity.
- Claims for unauthorized passengers must be directed against the owner-rider, not the insurer.
- The insurer’s obligation under Section 149 is not a blanket guarantee but a conditional one tied to policy terms.
Compensation Distribution Must Be Proportional
- In multi-victim accidents with overloading, insurers must pay only the highest award, split equally among claimants.
- This prevents windfall gains to claimants while ensuring the insurer is not penalized for the owner’s breach.
- Tribunals must now calculate apportionment before directing payment, not award full sums to all.
Penal Interest Is Per Se Illegal
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Any award of penal interest above statutory rates (6 - 8%) is void under Keshav Bahadur.
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Practitioners should immediately object to such awards in pending cases and seek deletion on appeal.
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Interest must be calculated from the date of petition at 6% per annum, not from date of award.
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Claimants must now focus on proving notional income with documentary evidence, especially for informal sector workers.
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Loss of consortium and loss of love and affection are mutually exclusive - courts will delete duplicate awards.
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Future prospects (40%) and multipliers (18 - 20) must be applied strictly per Pranay Sethi and Sarla Verma.
