Distinction between a contract of insurance and reimbursement of the liability of the owner of the vehicle under MV Act

supreme court of indiaIn National Insurance Co. Ltd.Versus Abhaysing Pratapsing Waghela and OTHERS [AIR 2008 SCW 6178 ]
A distinction must be borne in mind between a contract of insurance which has been entered into for the purpose of giving effect to the object and purport of the statute and one which provides for reimbursement of the liability of the owner of the vehicle strictly in terms thereof. In that limited sense, a contract of insurance entered into for the purpose of covering a third party risk would not be purely contractual. We may place on record that an ordinary contract of insurance does not have a statutory flavour. The Act merely imposes an obligation on the part of the insurance company to reimburse the claimant both in terms of the Act as also the Contract. So far as the liability of the insurance company which comes within the purview of Sections 146 and 147 is concerned, the same subserves a constitutional goal, namely, social justice. A contract of insurance covering the third party risk must, therefore, be viewed differently vis-a-vis a contract of insurance qua contract.

18. In National Insurance Co. Ltd. vs. Laxmi Narain Dhut (2007) 3 SCC 700, this Court opined :

“23. As noted above, there is no contractual relation between the third party and the insurer. Because of the statutory intervention in terms of Section 149, the same becomes operative in essence and Section 149 provides complete insulation.

24. In the background of the statutory provisions, one thing is crystal clear i.e. the statute is beneficial one qua the third party. But that benefit cannot be extended to the owner of the offending vehicle. The logic of fake license has to be considered differently in respect of third party and in respect of own damage claims.”

The same view was reiterated in Oriental Insurance Co. Ltd vs. Meena Variyal and Ors. (2007) 5 SCC 428 ) stating :

“14. The object of the insistence on insurance under Chapter XI of the Act thus seems to be to compulsorily cover the liability relating to their person or properties of third parties and in respect of employees of the insured employer, the liability that may arise under the Workmen’s Compensation Act, 1923 in respect of the driver, the conductor and the one carried in a goods vehicle carrying goods.”

This Court in Oriental Insurance Co. Ltd. vs. Sudhakaran K. vs. and Ors. (2008) 8 SCALE 402 ) held :

“14. The provisions of the Act and, in particular, Section 147 of the Act were enacted for the purpose of enforcing the principles of social justice. It, however, must be kept confined to a third party risk. A contract of insurance which is not statutory in nature should be construed like any other contract.”

This Court in Oriental Insurance Co. Ltd. vs. Inderjeet Kaur (1998) 1 SCC 71 ) held that once a certificate of insurance is issued, the insurance company would not be absolved of its obligations to third parties

Yet again in Deddappa and Ors. vs. Branch Manager, National Insurance Co. Ltd. (2008) 2 SCC 595, having regard to the provisions contained in Section 54(v) of the Insurance Act, 1938, in the fact situation obtaining therein, it was opined :

“A contract is based on reciprocal promise. Reciprocal promises by the parties are condition precedents for a valid contract. A contract furthermore must be for consideration.”