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Shortcomings galore in Motor Vehicles Amendment Bill: Experts

25 June, 2007

Chennai June 24 - It is well known that insurance companies pay a lot more in claims settlement than the premium they collect for `motor third party, because the law, more or less, has made it mandatory for the insurer to pay the person hit by an insured motor vehicle.

In 2006-07, insurance companies collected about Rs 2,000 crore as `third party premium and have been saddled with claims close to Rs 5,000 crore. The total outstanding third party claims on the four public sector non-life insurance companies, including those being contested in the courts, is about Rs 2.80 lakh crore.

The industry blames the lacunae in the central Motor Vehicles Act and the pro-victim stance of the judiciary for these losses. The Act, last amended in 1988, is coming up for an overhaul now. Last month, the Motor Vehicles Amendment Bill, 2007, was placed before Parliament.

But many experts in the insurance industry feel that the Motor Vehicles Amendment Bill, 2007, leaves a lot to be desired. Today, the problem with motor insurance is the rampant fraud that takes place to the detriment of the insurance company vehicles are substituted, unconnected incidents shown as accidents involving a motor vehicle.

Moreover, insurance companies are made to pay even if they could establish negligence on the part of the third party and often the burden of proof is on them even when they have no means of proving.
The amendment Bill does little to change the situation. The following are the shortcomings of the Bill. These have been collected from speeches made at a seminar organised last week by the Industrial Economist magazine and from interviews with experts.

Who is the `third party'?
If an insured vehicle hits a man on the road, the insurer is liable to pay the victim. But what if the victim is a co-passenger in a car or a pillion rider on a two-wheeler? Is the insurance company still liable to pay? What if a vehicle was a six seater, but eight were travelling in it when it fell into a ravine? Should the insurance company pay compensation to six or eight? If only six, then which six? What if the deceased was really the cause of the accident? What if the killed passengers were stowaways on a goods carrier?
"It is high time this ambiguity is removed. Unfortunately, there is no amendment in the Bill in this regard," says Mr S. Srinivasan, Deputy General Manager-Legal, Royal Sundaram.

Considering the centrality of `third party' to problems facing the insurers, it is essential to define `third party'. Absence of a definition is a gap, which has not been plugged in the Bill.

Burden of proof
The law provides certain `defences' to the insurance company to avoid paying liability. For example, if the driver of the vehicle did not have a valid driving licence, or the vehicle was plying without a valid permit, the insurer need not pay. However, the insurance company will have to prove that the driver did not have a licence or the vehicle did not have a permit.
It is an established principle in law that while the burden of proof is usually on the person asserting a proposition, but where facts are `within the special knowledge' of an individual, the burden would be only on that person. The standard illustration is that of a ticketless traveller, when a person is charged with ticketless travel, it is up to that person to prove that he is holding a ticket and not the ticket examiner.

Facts such as the driver was holding a valid licence are 'within the special knowledge' of the insured and it is nearly impossible for the insurer to prove. The amendment Bill does nothing to remedy the situation.

'Pay and recover'
Today, if the victim has to be paid a compensation and the insurance company is entitled not to pay under the statutory defences, the insurer will still have to pay the victim and recover the amount from the insured.
Experts feel that this is grossly unfair. They observe that the concept of `pay and recover comes to play in cases where the insurer had a defence arising out of the insurance contract and not under those prescribed in the Motor Vehicles Act. But over time, courts have ignored the distinction between contractual defences (such as non-use of the vehicle in certain areas) and those available under law (such as driving without a licence). Again, the amendment Bill is silent on the issue.

Suo motu action by courts
Under the existing law, the amount of compensation paid is determined by the formula provided in Section 163 A. The amendment Bill introduces a new section 163 B which says that the victim could get a higher compensation by proving negligence on the part of the vehicle owner or driver. Another section says that the victim could choose relief under either 163 A or 163 B and if he fails to get relief under one, he cannot go to the other.

But the Motor Claims Tribunal has the powers to alter the application from one section to the other. In other words, while a party cannot retrace his steps once having exercised the option, the tribunal is enabled to do so. Experts feel that what a party cannot do on his own, the courts cannot be allowed to do for him.

The Bill does nothing to recognise `contributory negligence' as a defence available to the insurer. If a person who is drunk suddenly strayed into the middle of the road and got hit, the insurance company will still have to pay, even if the fact that he was drunk and came in the path of the vehicle is established.

Tribunal's permission
In an accident compensation case, the victim sues the motor vehicle owner. The owner will have to defend himself and if he loses the case, the insurer pays the victim on behalf of the owner. Obviously, the insurer stands to lose if there is a collusion between the insurer and the victim.
In such cases, should the insurer not be allowed to contest the case? Under Section 170, the insurance company is indeed allowed but after taking the permission of the Tribunal first.

This, experts say, is unacceptable. They call for deletion of Section 170, which the Bill retains.