Insurer Directed to Pay and Recover Compensation Despite Exoneration for Lack of Valid Fitness Certificate

On June 3, 2013, the appellants/claimants were traveling by car when they were struck by a truck (offending vehicle) driven rashly and negligently by Respondent No. 1.

Smt. Shipra Babbar sustained fractures in both legs (femur, tibia, and fibula), while Shailesh Bhatiya sustained a femur fracture.

Claims were filed under Section 166 of the Motor Vehicles Act seeking compensation.

The Motor Accident Claims Tribunal (MACT), Durg, awarded Rs. 1,54,336 to Babbar and Rs. 1,11,381 to Bhatiya, fastening liability solely on the driver and owner (Respondents 1 and 2) while exonerating the insurer (Respondent No. 3) because the offending vehicle lacked a valid fitness certificate at the time of the accident.

The claimants appealed for enhancement of compensation and to challenge the insurer’s exoneration.

1. Whether the compensation awarded by the Tribunal under heads of pain and suffering, transportation, special diet, and attendant charges was just and reasonable.

2. Whether the Insurance Company can be held liable to pay the compensation to the third-party claimants despite a breach of policy conditions regarding the fitness certificate.

The court applied Section 166 of the Motor Vehicles Act, 1988, regarding compensation for motor accidents.

It relied on the legal principle that the absence of a valid fitness certificate constitutes a breach of insurance policy conditions.

Most significantly, the court applied the "Pay and Recover" doctrine established by the Supreme Court of India in Amrit Paul Singh and another v. Tata AIG General Insurance Company Limited and others (2018) 7 SCC 558, which mandates that an insurer must first satisfy the award for a third party and subsequently recover the amount from the owner/driver in cases of fundamental policy breaches.

The Court observed that while the vehicle was insured, it lacked a valid fitness certificate on the date of the accident, which the Tribunal correctly identified as a policy breach.

However, the Court determined that the Tribunal erred in its quantum assessment, particularly awarding a mere Rs. 1,000 for "pain and suffering" despite grievous fractures requiring prolonged hospitalization.

For Smt. Babbar, the Court increased the "pain and suffering" award to Rs. 50,000 and enhanced other ancillary heads (transport, diet, attendant) to reflect the severity of double-leg fractures.

Similarly, for Shailesh Bhatiya, the "pain and suffering" was raised to Rs. 40,000 and the loss of income was recalculated based on minimum wages.

Regarding liability, the Court invoked Amrit Paul Singh to protect the claimants' interests as third parties, holding that the insurer must deposit the enhanced compensation first and seek recovery from the owner and driver later.

The Court directed Respondent No. 3 (Insurance Company) to deposit the entire amount with interest within two months and granted them the right to recover the same from the owner and driver of the offending vehicle in accordance with law.

All other conditions of the original award remained intact.