MV Act | Insurance Company Can Recover Compensation From Insured If Clear Breach Of Policy Conditions Proved: Kerala High Court

The Kerala High Court recently upheld the right of insurance companies to recover compensation amounts from the insured (vehicle owner) if the driver involved in the motor accident did not have a valid driving license, as long as the insurance company proves its defence under Section 149(2) of the Motor Vehicles Act.

Justice C. Jayachandran emphasised that the insurer must establish a clear breach of policy conditions by the owner to be entitled to reimbursement and that the insured was guilty of negligence and failed to exercise reasonable care in ensuring that the driver had a valid driving license at the time of the accident.

"Insofar as the insurer's claim for reimbursement from the insured, all what is required is to establish a clear breach of a policy condition in terms of Section 149(2)(a)(ii). This Court will further clarify that, if the findings/stipulations in Clauses (iii), (iv) and (vi) are satisfied, the insurer will be entitled to seek complete exoneration of the liability, that is to say, even as against third party; else, the insurer will be duty bound to own the claim as against the third party, but in which case he will have the liberty to seek reimbursement from the insured upon establishing a clear violation of a condition of the policy."

The Court was deciding upon an appeal moved by the third respondent insurance company challenging the award of the Motor Accidents Claims Tribunal. They were aggrieved by the denial of their right to recover from the insured due to the driver's lack of a valid license at the time of the accident.

The main question before the Single Judge was whether the insurance company had the right to recover the compensation amount from the vehicle owner since the driver did not possess a valid driving license at the time of the accident.

Advocates George Cherian and Standing Counsel K.S Santhi appearing for the appellant insurance company contended that the driver involved in the accident, which resulted in the death of a 7-year-old girl, had no valid license at the time of the accident. Therefore, they argued that the insured vehicle was driven in violation of the policy condition.

However, the Tribunal ruled that the insurance company failed to prove that the absence of a license contributed to the accident and thus imposed the responsibility on the insurance company without a corresponding enabling direction to recover the amount from the owner/insured.

The appellant maintained that argued that they should not be required to provide evidence to show that the insured did not exercise adequate care regarding the driver's valid license, as this information is known only to the insured. They contended that once it is established that the driver had no valid license at the time of the accident, recovery should be granted from the insured/owner.

However, Advocate P.K Sajeev appearing for the owner (2nd respondent) argued with precedents that to avoid liability, the insurer must prove that the insured was negligent in fulfilling the policy condition related to the driver's valid license. Reliance was placed in several rulings to indicate that recovery from the insured cannot be sustained if the insurer fails to establish a breach of policy condition by the insured.

After hearing the parties and considering the evidence, the High Court found that the driver was not duly licensed to drive the car in question at the time of the accident.

The Single Judge then recalled that Section 149(2)(a)(ii) of the Motor Vehicles Act states that the breach of policy condition, such as lack of a valid driving license of the driver, can be used by the insurer as a defence.

However, following the decision in National Insurance Company Ltd. v. Swaran Singh [(2004) 3 SCC 297], it was clarified that the breach must be a fundamental factor contributing to the accident for complete exoneration of the liability.

"...the liability mulcted on the insurer to prove that the insured/owner was guilty of willful breach of conditions is only in the light of the requirements of law in seeking complete exoneration of the liability; and not for the purpose of the owner being absolved of any liability; whatsoever." 

The Court also emphasised that the courts have adopted a very liberal approach in interpreting the Motor Vehicles Act, a beneficial statute, from the standpoint of a claim by a third party/victim, whereas the same protection is not being afforded to the owner of the vehicle, insofar as the insurer's claim for recovery/reimbursement is concerned.

Thus, for a claim against a third party, the insurer has to prove its defence under Section 149(2) and (7) to seek reimbursement of the compensation amount. This implies that the insurer must demonstrate not only a breach of policy condition but also establish that the insured was negligent and that the breach contributed significantly to the accident.

However, for the insurer's claim for reimbursement from the insured, it is sufficient to prove a clear breach of a policy condition as per Section 149(2)(a)(ii). If the insurer fulfils the additional stipulations mentioned in the findings, they can be completely exempted from liability against the third party. Otherwise, the insurer will be obliged to pay the claim against the third party but can seek reimbursement from the insured by proving a clear violation of a policy condition.

The Court thus highlighted the importance of the insurer's duty to establish negligence on the part of the owner in verifying the driver's license. It ruled that the insured owner must take reasonable care in ensuring that the driver possesses a valid driving license and that failure to do so would be deemed a breach of policy conditions.

The Judge acknowledged that the insurance company had satisfactorily proved the breach of the policy condition in this case and thus, held that the insurer was entitled to recover the compensation amount from the insured.

As such, the appeal was allowed. 

Case Title: National Insurance Co Ltd v. Jareesh & Ors

Citation: 2023 LiveLaw (Ker) 377

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