Insurance Company Liable to Pay and Recover Compensation Despite Loadman’s Status as Gratuitous Passenger

On 26.10.2021, the deceased, Murugan, was traveling as a loadman in an Eicher Lorry owned by Respondent No. 1 and insured by Respondent No. 2.

The vehicle capsized due to the driver’s rash and negligent driving, resulting in Murugan’s death.

The claimants sought compensation of Rs. 25,00,000/-.

The Motor Accident Claims Tribunal (MACT) awarded Rs. 16,91,000/- but held the owner (Respondent No. 1) exclusively liable, exonerating the Insurance Company (Respondent No. 2) on the grounds that the deceased was a gratuitous passenger/loadman traveling outside the cabin for whom no additional premium was paid.

The appellants (claimants) challenged this finding, seeking the application of the "pay and recover" doctrine.

1. Whether the Insurance Company can be completely exonerated from liability when a passenger (loadman) travels in a goods vehicle without specific additional premium coverage.

2. Whether the principle of "Pay and Recover" should be applied to protect the claimants despite a violation of policy conditions by the insured.

Section 147 of the Motor Vehicles Act, 1988, regarding the requirement of policies and limits of liability.

Rule 236 of the Tamil Nadu Motor Vehicle Rules, 1929, which pertains to the number of loadmen permitted in a goods vehicle.

The "Pay and Recover" doctrine as established by the Supreme Court in National Insurance Co. Ltd. v. Baljit Kaur and reaffirmed in Sunita v. United India Insurance Co. Ltd. [2026 (1) TN MAC 1 (SC)], which mandates that the insurer must first satisfy the award to third parties and subsequently recover from the owner in cases of policy violations involving gratuitous passengers.

The precedent in Kaminiben v. State of Gujarat (2026 Live Law SC 174) regarding insurer liability for gratuitous passengers.

The Court observed that while the deceased was traveling as a loadman and the Insurance Company argued that no additional premium was paid for such risk under the "Liability Only" policy, the policy (Ex.R.1) did show a premium of Rs. 50/- for "persons employed for other operations".

Even if the deceased were classified as a gratuitous passenger traveling in violation of policy terms, the Court emphasized that statutory insurance aims to protect third parties.

Following recent Supreme Court precedents, the Court reasoned that the Tribunal erred in exonerating the insurer entirely.

The Court held that in the interest of social justice, the insurer must satisfy the judgment amount to the claimants and exercise its right of recovery against the insured owner for the breach of contract.

The Court directed the Insurance Company to deposit the total compensation of Rs. 16,91,000/- with 7.5% interest within six weeks, with liberty to recover the deposited amount from Respondent No. 1 (Owner) as per the "Pay and Recovery Theory".