The Madras High Court has reaffirmed a foundational principle in motor insurance law: insurers cannot escape liability to third-party victims merely because the driver lacked a valid license. This judgment reinforces the protective intent of the Motor Vehicles Act, ensuring that victims of road accidents receive timely compensation regardless of the insured’s breach of policy terms.
Background & Facts
The Dispute
The deceased, M. Vijayakumar, died on 3 August 2019 after a vehicular accident on ECR Road, Salavankuppam. The vehicle involved, registered as TN 07 AJ 6981, was driven by an individual who did not possess a valid driving license at the time of the incident. The accident resulted in the vehicle overturning, colliding with an electric post, and catching fire. The legal representatives of the deceased filed a claim petition seeking compensation under the Motor Vehicles Act, 1988.
Procedural History
- 29 July 2019: Accident occurred involving the insured vehicle.
- 2020: Claim petition (MCOP No. 831 of 2020) filed before the Motor Accidents Claims Tribunal (MACT), Chennai.
- 21 January 2025: MACT awarded Rs. 29,17,500/- to the claimants, holding the insurer liable.
- 2025: Appellant - Insurance Company filed Civil Miscellaneous Appeal (CMA No. 2001 of 2025) challenging the award.
- 5 December 2025: Parties filed a joint memo agreeing to revised compensation of Rs. 37,50,000/-.
Relief Sought
The appellant sought to set aside the Tribunal’s award, arguing that the insurer should not be liable due to the driver’s lack of a valid license and the respondents’ failure to produce it despite notice. The respondents sought affirmation of the award and payment of compensation.
The Legal Issue
The central question was whether an insurer can avoid liability to third-party victims under Section 147 of the Motor Vehicles Act, 1988 when the driver of the insured vehicle was unlicensed, and the insurer has only issued notices to the insured that were returned unserved.
Arguments Presented
For the Appellant
The insurer contended that the driver’s lack of a valid license constituted a clear breach of policy conditions under the insurance contract. It relied on the return of unserved notices to the driver and owner as evidence of deliberate non-cooperation. It argued that the Tribunal erred in not drawing an adverse inference against the owner’s wife, who was served but did not appear. The insurer cited policy clauses and Section 146 of the Act, asserting that indemnity should not extend to illegal acts.
For the Respondent
The claimants countered that mere issuance of unserved notices does not establish the absence of a valid license. They emphasized that the insurer failed to produce any official record from the Regional Transport Office confirming the driver’s disqualification. They relied on the uncontroverted testimony of PW2, an eyewitness, and argued that the insurer’s obligation to compensate third parties is statutory and non-negotiable under Section 147.
The Court's Analysis
The Court examined the interplay between Section 147 of the Motor Vehicles Act and the precedent in National Insurance Co. Ltd. v. Swaran Singh. It noted that while the insurer established a prima facie case of breach - through RW1’s testimony and the returned notice - the law does not permit insurers to deny compensation to innocent third parties on such grounds.
"Even in cases of breach of policy conditions due to disqualification of the driver or absence of a valid licence, the insurer is obliged to indemnify the third-party victims and may thereafter recover the compensation from the insured."
The Court emphasized that the purpose of Section 147 is to ensure social justice and protect victims, not to shield insurers from contractual breaches by the insured. The fact that another Tribunal had already ordered the same insurer to pay compensation in a connected case (MCOP No. 546 of 2019) reinforced the consistency required in adjudication. The Court also noted that the insurer had already deposited Rs. 42,11,680/- with the MACT, indicating its capacity to pay.
The Court further held that non-appearance by the owner’s wife, even if deliberate, cannot be equated with proof of license invalidity without corroborating official records. The burden of proving disqualification lies squarely on the insurer, and unserved notices alone are insufficient.
The Verdict
The appellant’s appeal was dismissed. The Court held that the insurer must pay compensation to third-party victims under Section 147, irrespective of the driver’s lack of a valid license. The insurer is entitled to recover the amount paid from the insured or their legal representatives, but not from the victims.
What This Means For Similar Cases
Third-Party Compensation Is Non-Negotiable
- Practitioners must advise claimants that Section 147 guarantees compensation regardless of the insured’s breach.
- Insurers cannot use policy exclusions to delay or deny payment to victims.
- Claims should be pursued directly against the insurer first, with recovery actions against the insured pursued separately.
Notice Alone Is Not Proof of Breach
- Issuing notices to the insured or driver, even if returned unserved, does not discharge the insurer’s burden of proving license invalidity.
- To establish disqualification, insurers must produce RTO records, license verification certificates, or official affidavits.
- Courts will not draw adverse inferences against non-appearance unless statutory proof of breach is otherwise established.
Recovery Mechanism Is Clear and Separate
- Insurers may file recovery suits against the insured under Section 147(2) after paying the claimant.
- Recovery proceedings must be initiated independently and cannot be used to withhold payment to victims.
- This judgment reinforces the two-track system: pay the victim first, recover from the insured later.
