Insurers of "Act Only" policies are liable to indemnify employers for deceased employees under the Employees’ Compensation Act.

The deceased, Naginbhai Dayabhai, a Police Constable, died in a motor vehicle accident on March 24, 2007, while on duty driving a motorcycle owned by the State of Gujarat. An unknown tempo allegedly dashed against the motorcycle.

The legal heirs filed a claim under Section 163A of the Motor Vehicles Act, 1988 (MV Act) against the State (as owner) and New India Assurance Co. Ltd (the Insurer).

The Tribunal awarded Rs. 4,50,000/- but held the State solely liable, exonerating the Insurance Company because the policy was an "Act Only" policy and did not specifically cover the driver/employee.

The State appealed, disputing its liability and the exoneration of the insurer.

1. Whether the Tribunal erred in entertaining the claim petition under Section 163A of the MV Act against the owner when the deceased himself was driving the vehicle.

2. Whether the Insurance Company is liable to indemnify the State (employer) for the death of an employee under an "Act Only" policy pursuant to Section 147 of the MV Act.

Section 163A of the MV Act, which provides for compensation on a "structured formula basis" without requiring proof of negligence.

Section 147(1)(b) of the MV Act, which mandates compulsory insurance coverage for the death or bodily injury of an employee (such as a driver) arising out of and in the course of employment.

National Insurance Co. Ltd. v. Prembai Patel (2005) 6 SCC 172, which established that even under an "Act Only" policy, an insurer is statutorily liable to indemnify the employer to the extent of the liability under the Employees’ Compensation Act, 1923.

The Court observed that under Section 163A, the claimants need not prove negligence, only that the death occurred due to the use of a motor vehicle.

Although the deceased was a Police Constable, the court determined he was an "employee" under the Employees’ Compensation Act, 1923, as he was engaged in driving a motor vehicle for his employer.

The Court reasoned that Section 147 of the MV Act contains a statutory requirement to cover employee risks.

Therefore, even though no additional premium was paid for a "comprehensive" policy, the "Act Only" policy must, by law, cover the employer’s liability for an employee's death in the course of duty.

The court found that the Tribunal erred in applying cases related to "pillion riders" or "permissive users" (like M. Laxmi or Ramkhiladi) to an employee-driver scenario.

The Court partly allowed the appeal, maintaining the compensation of Rs. 4,50,000/- but modifying the liability; as the State had already deposited the full amount, it was granted the liberty to recover the Insurance Company’s portion from the insurer through appropriate legal remedies.