Insurance policy lapsed, pay and recover cannot be applied: Bombay high court

The Bombay high court (HC) on Tuesday held that the “pay and recover” principle — which requires the insurance companies to first pay accident claims to families of the victims and then recover the amount from the owner of the offending vehicle — cannot be applied in cases where the insurance policy has lapsed
The Bombay high court held that the “pay and recover” principle — which requires the insurance companies to first pay accident claims to families of the victims and then recover the amount from the owner of the offending vehicle — cannot be applied in cases where the insurance policy has lapsed. (Getty Images/Purestock)
The Bombay high court held that the “pay and recover” principle — which requires the insurance companies to first pay accident claims to families of the victims and then recover the amount from the owner of the offending vehicle — cannot be applied in cases where the insurance policy has lapsed. (Getty Images/Purestock)
Published on Nov 17, 2021 06:09 PM IST
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ByKanchan Chaudhari, Mumbai

The Bombay high court (HC) on Tuesday held that the “pay and recover” principle — which requires the insurance companies to first pay accident claims to families of the victims and then recover the amount from the owner of the offending vehicle — cannot be applied in cases where the insurance policy has lapsed and there is no subsisting insurance contract on the date of the incident.

The court was hearing an appeal filed by the Oriental Insurance Company, challenging the March 28, 2014 order of the Motor Accident Claims Tribunal at Nashik, holding the insurer jointly liable to pay compensation of 6.68 lakh to family members of Milind Gaikwad, who had died in a road accident.

Justice NJ Jamadar said the principle can be legitimately resorted to where there exists a contract of insurance and the insurer is exonerated from the liability on account, some breach of conditions of insurance or causes of like nature, but not where there exists no such contract.

The incident had taken place on February 4, 2009, when the deceased was riding a motorcycle on his way to Satpur industrial estate and another motorcyclist Uday Pathak, crashed into him. Twenty-seven-year-old Milind was severely injured and eventually succumbed to the injuries.

Gaikwad’s family members instituted an accident claim under section 166 of the Motor Vehicles Act, 1988 before the Tribunal, which held that the accident occurred due to rash and negligent driving of the offending motor-cycle and the vehicle owner and his insurer - Oriental Insurance Company were jointly liable to pay compensation.

The insurer had questioned the tribunal order primarily contending that there was no subsisting insurance contract between the insurance company and owner of the offending vehicle on the date of the incident and the tribunal erred in holding the insurance company jointly liable to pay the compensation.

HC accepted the contention, noticing that the insurance certificate specifically mentioned that the policy was valid from October 17, 2006, to October 16, 2007, and as such expired long before the accident of February 4, 2009. However, after the HC held that the insurance company cannot be held jointly liable for paying the compensation, the claimants urged the court to apply the principle of “pay and recover,” directing the insurance company to pay the compensation first and then recover it from the vehicle owner.

It was argued on behalf of the claimants that they would be left in the lurch and the beneficial object of the Motor Vehicles Act, 1988 would be defeated if no such order based on the “pay and recover” principle was issued. The counsel for the insurer opposed the plea by submitting that the principle of “Pay and Recover” cannot be resorted to where there is no subsisting insurance contract.

HC accepted the contentions of the insurance company. “Undoubtedly, the beneficial nature of the legislation must be kept in view. Yet, the principle of purposive construction cannot be stretched to such an extent as to fasten the liability on a party, who is not at all liable to satisfy the award, for the only reason that in the past there was a contract of insurance between the insurer and insured,” said justice Jamadar.

“The jural relationship between erstwhile insurer and insured gets snapped with the term of insurance coming to an end,” the bench added and exonerated the insurance company from the liability to pay compensation to an accident victim, Milind Gaikwad, a Nashik resident.

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Saturday, November 27, 2021