In Motor Accident Claims, Insurers Must Pay Third-Party Victims and Recover from Owners Despite Policy Breach.

On December 11, 2018, the appellant-claimant was riding his motorcycle when respondent No. 1, driving a motorcycle (GJ-7-CN-5544) in a negligent manner, collided with him from behind.

The appellant sustained a wrist fracture and sought compensation of Rs. 3,00,000/-.

The Motor Accident Claims Tribunal (MACT), Nadiad, in its judgment dated January 3, 2022, exonerated the insurance company (Respondent No. 2) from liability on the grounds that the driver lacked a valid driving license, based on an oral statement to the Investigating Officer (IO) and testimony from an insurance official.

The appellant challenged this exoneration, seeking a "pay and recover" order.

Whether the insurance company is liable to satisfy the award in favor of a third-party victim despite an alleged breach of policy conditions (absence of a valid driving license).

Whether the evidence produced by the insurance company was sufficient to establish a fundamental breach of policy conditions.

The Court primarily applied Section 149 of the Motor Vehicles Act, 1988, which imposes a statutory obligation on insurers to satisfy judgments against persons insured in respect of third-party risks.

It relied on the precedent set by the Hon’ble Supreme Court in National Insurance Co. Ltd. vs. Swaran Singh (2004) 3 SCC 297, which established that even in cases of policy breach, the insurer must pay the third party and may subsequently recover from the insured.

The Court further applied the "pay and recover" principle as affirmed in United Insurance Co. Ltd. v. Minor Sobhnaben Madhobhai Patadiya 2026 (1) GLR 148 and the procedural directions for recovery laid down in Oriental Insurance Co. Ltd. vs. Nanjappan (2004) 13 SCC 224.

The Court observed that the insurance company failed to produce substantive evidence, such as RTO records or the testimony of an RTO officer, to prove the driver lacked a license; the IO’s testimony regarding an admission was deemed hearsay and was not reflected in the charge-sheet under Sections 3 or 181 of the MV Act.

However, the Court held that even assuming a breach existed, the Motor Vehicles Act is "social welfare and benevolent legislation" intended to protect innocent third parties.

Since the claimant is a third party, the dispute regarding the license is strictly between the insurer and the insured.

Consequently, the Tribunal erred in exonerating the insurer instead of applying the "pay and recover" doctrine, which ensures the victim receives immediate relief while preserving the insurer's right to seek indemnity from the tortfeasor.

It held that the Insurance Company (Respondent No. 2) is statutorily bound to pay the determined compensation to the claimant first.

The Court granted the Insurance Company liberty to recover the said amount from the owner of the vehicle (Respondent No. 1) in accordance with the law and the principles established in the Nanjappan case.