"Act-Only Insurance" Of Private Vehicle Only Covers Third-Party, Not Occupants: Rajasthan HC Sets Aside 'Recover & Pay' Order Against HDFC Ergo

Rajasthan High Court has affirmed that in the case of a private vehicle insured against the “Act only Policy”, the insurance company is not liable to compensate the occupants of the vehicle since they are not considered to be the “third parties” as required under the Motor Vehicles Act, 1988 (“Act”). The Court said:

“The position of law as it stands at present is that in case of a private vehicle insured against “Act only Policy”, the liability of occupants is not covered as the protection of Chapter-XI of the Motor Vehicles Act, 1988 is only available against the third party risks and the occupants of a private vehicle are not third parties. And in such cases direction to pay and recover cannot be issued to the insurer.”

A bench of Justice Nupur Bhati was hearing an appeal filed by the HDFC Ergo General Insurance Company Limited (“Insurance Company”) against a judgment of the Motor Accidents Claims Tribunal (“Tribunal”) as per which the Insurance Company was directed to pay to the occupants of an insured jeep that was involved in an accident owing to rash and negligent driving of the driver.

The tribunal held the owner and driver of the vehicle to be liable, directed the Insurance Company to pay compensation to the occupants and then recover the same from the driver and the owner of the jeep.

It was the case of the Insurance Company that the jeep was a private vehicle insured under “Act only policy” or “liability only policy” and consequently risk of the occupants was not covered since such occupants were not considered as “third party” under the Act. The Insurance Company also argued that no premium was charged to cover the risk of the occupants.

Agreeing with the arguments put forth on behalf of the Insurance Company, the Court referred to certain Supreme Court decisions.

In the case of National Insurance Co. Ltd. v Balakrishnan, the Supreme Court had distinguished between an “Act only Policy” and a “Comprehensive/package policy” to say that the latter covered the liability of the insurer towards the occupants of the vehicle too, however, the former stood on a different footing which did not cover a third-party risk of an occupant in the vehicle.

Furthermore, in the case of United India Insurance Company Limited v. Vinod Kanwar, the Apex Court held that a “pay and recover” order could only be passed to satisfy the award in respect of third-party risk. It was held that as per the Act, there was no statutory requirement to cover the risk of the occupant of a private car, and an order of “pay and recover” could only be made in respect of liability towards third parties.

Similar observations were given in Balu Krishna Chavan vs. The Reliance General Insurance Company Ltd. and Ors. wherein the Supreme Court held that if the Insurance Company was held to be not liable, then no direction to “pay and recover” could be passed ordinarily.

In light of the above analysis, the Court held that since the jeep was insured against the “Act only Policy”, it only covered the liability of a third party and the occupants of the vehicle did not fall under “third party”. Hence, since the Insurance Company was not liable, no order of “recover and pay” could have been passed against it.

“In the present case, the vehicle was evidently insured as a 'Private Car Liability Only Policy'/'Act Only Policy' wherein the risk of the occupants was not covered and also no premium was received by the appellant insurance company for the occupants of the vehicle.”

Accordingly, the order of the Tribunal was set aside and the appeal was allowed.

Title: HDFC Ergo General Insurance Company Ltd. v Smt. Rajbala & Ors.

Citation: 2024 LiveLaw (Raj) 219

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