Sikkim High Court Refuses To Invoke 'Pay & Recover' Principle Where Licensed Driver Hired By Insured Handed Over Vehicle To Unlicensed Driver

The Sikkim High Court has rejected the application of the 'Pay & Recover' principle in a case where a licensed driver, hired by the insured, allowed an unlicensed driver to operate the vehicle.

Justice Meenakshi Madan Rai was hearing an appeal against an award passed by the Motor Accidents Claims Tribunal at Gangtok granting compensation of Rs Twenty Four lakhs in favour of the claimant and permitting Insurer to recover the same from the Appellant herein (owner of the vehicle), respondent No 3 (authorized driver) and the respondent No 4 (unauthorised vehicle driver).

The bench observed,

"It is clear, the Appellant as the owner of the vehicle in accident had placed his driver, Respondent No.3, in-charge of the vehicle, the said driver had a valid and effective license at the time of the accident. That, it was Respondent No.3, who has acted irresponsibly and in an inebriated condition handed over the vehicle to Respondent No.4. The vehicle had been placed in the charge of Respondent No.3 with the express and implied mandate that it would be driven by him and none else. Consequently, there is no breach of the terms of the contract by the Appellant."

Assailing the award the appellant-owner argued that he had entrusted the vehicle to a licensed driver, who under the influence of alcohol, handed over the vehicle to another individual who caused the accident due to reckless driving.

The Counsel contended that the Claims Tribunal failed to consider the ratio laid down in Skandia Insurance Company Ltd. vs. Kokilaben Chandravadan and Others wherein it was held that the exclusion clause in the contract of insurance, making the owner absolutely liable, irrespective of circumstances leading to an unlicensed driver driving the vehicle, must be “read down”, being in conflict with the main statutory provision.

Furthermore it was contended that the owner was not liable for an accident caused by an unlicensed person, when the licensed driver employed by the owner left the vehicle unattended, contrary to express or implied orders of the owner.

The authorized driver submitted that he is also to be exempted from making payment to the Insurer, in view of the fact that he had allowed the Respondent "unauthorized driver" to drive the vehicle being conscious of the circumstance that he was not in a position to drive at the relevant time. Since it was the unauthorized driver who had caused the accident, the Appellant being the owner of the vehicle was vicariously liable to indemnify the claim put forth and not him as erroneously ordered by the Claims Tribunal, he argued.

In order to adjudicate upon the matter the court referred to National Insurance Co. Ltd. vs. Swaran Singh and Others and observed that in order for the insurer to avoid liability, it must prove that the insured committed a breach of policy conditions, such as using a disqualified or invalidly licensed driver, as stated in Section 149(2)(a)(ii) of the MV Act. The insurer must also demonstrate that the insured was negligent and failed to exercise reasonable care in fulfilling the policy condition regarding the use of vehicles by a licensed driver or one who was not disqualified, the court underscored.

"Mere absence of, fake or invalid driving license or disqualification of the driver for driving at the relevant time, are not in themselves defences available to the insurer against either the insured or the third parties", the bench explained.

Deliberating further on the subject the bench said that only when the insurer is able to prove that there has been a breach of condition of the insurance policy that the Tribunal can conclude that the insurer is liable to be reimbursed by the insured, for the compensation and other amounts which it had paid to the third party under the award of the Tribunal.

"In other words "pay and recover‟ can only be ordered by the Tribunal when a breach of the policy conditions are established by the insurer", the bench reasoned.

Commenting on the impugned award the court said that the Tribunal has failed to comprehend the provisions of Sections 147 and 149 of the MV Act. The Appellant, as the vehicle owner, entrusted the vehicle to a licensed driver, who irresponsibly and while intoxicated, handed over the vehicle to Respondent No.4. The vehicle was explicitly and implicitly meant to be driven only by Respondent No.3 and hence there is no breach of the contract terms by the Appellant, the bench maintained.

Accordingly, it directed the Insurer to pay compensation to the claimant within a period of two months.

Case Title: Suresh Khati Vs Santosh Chetry @ Santosh Chettri and Others

Citation: 2023 LiveLaw (Sik) 5

Click Here To Read/Download Judgment