For third-party claims, insurers must pay first and recover from owners despite fundamental policy breaches.

On 19 October 2016, P. Anilkumar was riding his motorcycle when a tractor bearing Registration No. TN 83 W 5427 allegedly driven rashly and negligently collided with him, causing fractures and other grievous injuries.

He was treated as an inpatient and claimed compensation of ₹10,00,000 under the Motor Vehicles Act, 1988.

The Motor Accidents Claims Tribunal, Tirupattur, held that the accident resulted from the tractor driver’s negligence and awarded ₹1,75,548 under various heads, including disability, pain and suffering, medical expenses, loss of income, and amenities.

The insurer appealed, contending that the tractor was attached to an unregistered, unnumbered and uninsured trailer, that the vehicle had been let out on hire, and that the driver did not possess a valid driving licence on the date of the accident.

The Tribunal had rejected these objections and directed the insurer to indemnify the vehicle owner, principally because the insurance policy was valid on the date of the accident and the insurer had not sufficiently proved the alleged policy violations.

1. Whether the attachment of an unregistered, unnumbered and uninsured trailer to the insured tractor constituted a breach of the insurance policy and statutory requirements under the Motor Vehicles Act, 1988?

2. Whether the tractor driver possessed a valid and effective driving licence on the date of the accident?

3. Whether, despite the established policy violations, the insurer was required to satisfy the compensation award first and recover the amount from the vehicle owner?

The Court applied Sections 61 and 66 of the Motor Vehicles Act, 1988, concerning registration of trailers and the requirement of a permit for transport vehicles.

It relied on the third-party liability principles stated in National Insurance Co. Ltd. v. Swaran Singh, (2004) 3 SCC 297, as followed in Shamanna v. Divisional Manager, Oriental Insurance Co. Ltd., (2018) 9 SCC 650, and National Insurance Co. Ltd. v. Laxmi Narain Dhut, (2007) 3 SCC 700, under which an insurer may be directed to pay the third-party claimant first and recover the amount from the insured where a breach of policy conditions is proved.

The Court also referred to Bajaj Allianz General Insurance Co. Ltd. v. Lakshmi, CMA No.1640 of 2017, for applying the pay-and-recover principle where an uninsured or unregistered trailer was attached to an insured tractor.

The insurer bears the burden of proving the breach and the absence of a valid driving licence; once such breach is established in a third-party claim, pay and recovery may be ordered.

The Court found that the claimant had admitted that the tractor was attached to a trailer loaded with coconut fibre, while the insurance policy covered only the tractor and contained no particulars of, or premium for, the trailer.

The trailer was therefore unregistered, unnumbered and uninsured, establishing a breach of the policy and statutory requirements.

The Court further examined the driver’s licence and held that it was valid only up to 13 August 2008, whereas the accident occurred on 19 October 2016; the Tribunal’s contrary finding was unsustainable.

Although these circumstances relieved the insurer of ultimate liability as against the owner, the claim was by an injured third party.

Applying the principles in Swaran Singh, Shamanna and Laxmi Narain Dhut, the Court held that the insurer must satisfy the award first and may thereafter recover the amount from the owner.

The compensation awarded by the Tribunal—₹1,75,548, with interest and costs—was not disturbed.

However, the order was modified to direct HDFC Ergo General Insurance Co. Ltd. to pay the compensation to P. Anilkumar first and recover the amount from S. Logeswari, the owner of the tractor, because the tractor was operated with an unregistered and uninsured trailer and by a driver without a valid and effective licence.

Payment, after deducting any amount already deposited, was directed within four weeks, after which the claimant could withdraw the amount in accordance with the Tribunal’s order.

No costs were awarded.