Policy breach does not defeat third-party compensation; insurer must pay first and recover from the owner.

On 30 December 2016, deceased Mulsinh Dhulsinh Chauhan was travelling on the mudguard of a tractor bearing registration No. GJ-2-AG-8250, to which a trolley was attached. The tractor, allegedly driven rashly and negligently at high speed, overturned, causing fatal injuries to the deceased.

The Motor Accident Claims Tribunal, Mahesana at Visnagar, awarded compensation of ₹8,84,877 with interest at 9% per annum from the date of the claim petition.

Although the Tribunal held that travelling on the mudguard constituted a breach of the insurance policy conditions, it directed the insurer to first pay the compensation and permitted it to recover the amount from the vehicle owner.

The insurer challenged only the direction of “pay and recover” under Section 173 of the Motor Vehicles Act, 1988.

1. Whether the deceased’s travelling on the tractor’s mudguard constituted a breach of the insurance policy conditions such that the insurer was not contractually liable to bear the compensation.

2. Whether, notwithstanding such breach and absence of contractual liability, the insurer could be directed to pay the compensation to the claimants in the first instance and recover it from the vehicle owner.

The Court proceeded under the statutory scheme of the Motor Vehicles Act, 1988, including the appellate jurisdiction under Section 173.

Relying on New India Assurance Co. Ltd. v. Asha Rani, the Court recognised that the insurer is not liable under the policy for an unauthorised or gratuitous passenger in a goods vehicle.

However, following Shivaraj v. Rajendra, V. Renganathan v. Branch Manager, United India Insurance Co. Ltd., Saju P. Paul v. National Insurance Co., and Manuara Khatun v. Rajesh Kumar Singh, it applied the “pay and recover” doctrine in the interests of effective and expeditious compensation to victims.

The Court also relied on Kaminiben v. Oriental Insurance Co. Ltd., which reiterated that the insurer may be directed to pay the award initially and recover it from the insured in the same proceedings where the claimant was an unauthorised or gratuitous passenger.

The Tribunal had found that the deceased was travelling on the tractor’s mudguard, despite the tractor having seating capacity only for its driver, thereby establishing a breach of the policy conditions.

Nevertheless, the existence of a valid insurance policy covering the tractor on the date of the accident and the benevolent object of the motor accident compensation legislation justified requiring the insurer to satisfy the award initially.

The Supreme Court authorities drew a distinction between the insurer’s ultimate contractual liability and its obligation, in appropriate cases, to pay the claimants first and pursue recovery against the insured.

Applying that settled principle, the High Court found no error in the Tribunal’s direction permitting recovery by the insurer after payment.

The insurer was directed to remain liable to pay the awarded amount to the claimants in the first instance, with liberty to recover the amount from the tractor owner.

The Tribunal was directed to disburse the amount lying in deposit or in fixed deposit, together with accrued interest, after due verification and deduction of court fees, if applicable.