S-06

MOTOR INSURANCE
(FOR SURVEYORS)

ACKNOWLEGMENT

This course is prepared with the assistance of:

Milind Shinde

Pratika Shinde

G – Block, Plot No, C-46, Bandra Kurla Complex, Bandra (E), Mumbai 400 051.

i
 S-06

MOTOR INSURANCE
(FOR SURVEYORS)

First Edition: 2023

ALL RIGHTS RESERVED

This course material is the copyright of Insurance Institute of India (III). This
course is designed for providing academic inputs for students appearing for the
examinations of Insurance Institute of India. This course content may not be
reproduced for any commercial purpose, in part or whole, without prior express
written permission of the Institute.

The contents are based on prevailing best practices and not intended to give
interpretations or solutions in case of disputes, legal or otherwise.

This is only an indicative study material. Please note that the questions in the
examination shall not be confined to this study material.

Published by: Secretary General, Insurance Institute of India, G- Block, Plot C-46,
Bandra Kurla Complex, Bandra (E) Mumbai – 400 051 and Printed at

Any communication regarding this study material may be addressed to

ctd@[Link]
ii
 PREFACE

This book gives an idea of how a Motor Insurance Policy indemnifies and pays
compensation upon happening of any unfortunate incidence.

Nowadays a bike or a car is a dream of every individual and also there is need of
various types of commercial vehicles to cope up to the requirement of the
transport industry. More and more vehicle manufacturers are setting up plants
and manufacturing vehicles targeting the specific need, requirement and budget
of Indian customers. The advent of technology, strict pollution norms and use of
diversified energy in vehicles has put in before us various types of fuelled vehicles
on road. The Vehicle Laws, Traffic rules are amended from time to time with the
changing needs. According to Motor Vehicles Act, vehicle third party insurance
is made compulsory and accidental repair cost being covered by own damage
insurance, has brought popularity to Package policy of various types of vehicles
with add-on covers to suit customer need.

This book covers the topics related to various types of motor insurance policies
and its coverage and loss assessment after an accident and about the surveyor
profession. The motor insurance also covers various types of Third Party claims
which arise out of injury/ death of any third party by use of insured vehicle. Thus
the Legal system of Courts related to TP claims is also explained in the book.

Lastly, it should always be kept in mind by budding Surveyors that they are
independent professionals and have to act and assess loss impartially without
favouring insured or insurers and at the same time have to keep an eye on
fraudulent claims. They should also acquire not only Technical knowledge but
also an intrapersonal communication and negotiation skills which obviously
sharpen with the experience in the career. Learning being a never ending journey,
each student to excel has to get acquainted with the relevant Legal Acts and
various policies designed by different insurers.

This book is also useful for individuals working in Motor Insurance industry to
enrich their knowledge and will enable them to work in any domain confidently.

Milind Shinde
Insurance Surveyor, Investigator and Lawyer
DAE, GMIAE, LLB, AIIISLA, Forensic Handwriting Expert.

iii
 CONTENTS
CHAPTER
TITLE PAGE NO.
NO.
INTRODUCTORY: HISTORY OF MOTOR
1 1
INSURANCE
MARKET PRACTICE OF MOTOR
2 24
INSURANCE IN INDIA
3 MOTOR INSURANCE UNDERWRITING 46

4 TYPES OF MOTOR POLICIES 78

5 POLICY DOCUMENTS &ADD ON COVERS 116

MOTOR INSURANCE OWN DAMAGE
6 134
CLAIMS
7 THIRD PARTY LAIBILITY CLAIMS IN INDIA 175

8 MOTOR ACCIDENT CLAIMS TRIBUNAL 202

9 LEGAL ASPECTS 248

10 IMPORTANCE OF MOTOR VEHICLE ACT 278

11 GRIEVANCE REDRESSAL MECHANISM 311

FRAUD MANAGEMENT AND INTERNAL
12 326
AUDIT
USE OF TECHNOLOGY IN MOTOR
13 346
INSURANCE

iv
 CHAPTER 1
INTRODUCTORY: HISTORY OF MOTOR INSURANCE

Chapter Introduction

In this chapter you will know about the history of Motor Insurance and the
principles of insurance contracts applicable to Motor Insurance. You will learn
about the legal aspects of insurance including various definitions. You will also
learn the History of Motor Third Party pool, its concept and it’s working.

Learning Outcomes

A. History of Motor Insurance and Principles of Insurance

B. International Legal Scenario in Motor insurance

S-06-MOTOR INSURANCE (FOR SURVEYORS) 1

A. History of Motor Insurance and Principles of Insurance

1. History of Motor Insurance

a) Motor Insurance

Motor Insurance, a fascinating branch of insurance, had its beginnings in the

United Kingdom in the early part of the last century. The first motor car was
introduced into England in 1894.

i. Third party liability insurance: The first motor policy was introduced in
1895 to cover third party liabilities.

ii. Comprehensive insurance: By 1899, accidental damage to the car was

added to the policy, thus introducing, the ‘comprehensive’ policy along
the lines of the policy issued today.

iii. First motor insurance company: In 1903, the Car and General Insurance
Corporation Ltd. was established mainly to transact motor insurance,
followed by other companies.

iv. Compulsory third party insurance: After World War I, there was
considerable increase in the number of vehicles on the road as also in the
number of road accidents. Many injured persons in road accidents were
unable to recover damages because not all motorist were insured. This
led to the introduction of compulsory third party insurance through the
passing of the Road Traffic Acts, 1930 and 1934. The compulsory
insurance provisions of these Acts have been consolidated by the Road
Traffic Act, 1960.

b) Law and Practice of Motor Insurance in India

i. Motor Vehicles Act, 1939: The Motor Vehicles Act was passed in 1939
introducing the law relating to compulsory third party insurance.

ii. Motor Vehicles Act, 1988: The Motor Vehicles Act, 1988 (Act No. 59 of
1988) has replaced the earlier 1939 Act, and it became effective from 1st
July 1989.

iii. Transition from Tariff to non-Tariff: The business was governed by a

Tariff till December 2006, and from 1st January 2007 it is now non-Tariff.
However, IRDA, the Indian regulatory authority for insurance has directed
insurers in India to continue to follow the Tariff policy wordings,
principles of insurance and associated legal aspects of Motor Insurance
contracts.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 2

 c) New Trends in Motor Insurance

General insurance industry has seen new trends and motor insurance is one
of the chief contributors.

i. Increased Volume of Claims

A high number of claims are to be processed in Motor TP segment. The

insurance industry has achieved a very high growth rate.

ii. Lack of Standardised Processes

The industry is in strong need for benchmarking the processes to global best
practices. The online sale of standard Motor Insurance Policies has
contributed to almost 7-8 % of the total premium so far.

iii. Increased Litigation Costs

The current trend is 72% of TP claims go into litigations. A strong need is felt
to have standard compensation packages for which the insurance industry is
constantly pursuing, as it will lead to drastic reduction in number of cases
going to the Tribunals making available instant compensation to hapless
accident victims and their families and reducing the work load of judiciary.

iv. Technology

The advent of newer technology has brought in efficiency in processing

claims, increased analysis is possible and a good deal of IT security has
become necessary.

v. Increasing Frauds

We are in dire need to introduce some methodology which will ensure 100%
Third party insurance be it levy on sale of petrol or Third party long term
insurance enforced by RTA with Registration of Vehicle. The advent of new
technology and online policies have made easy for customers to buy insurance
but at the same time have also increased frauds by deceiving the technology
loopholes.

vi. Increased Competition

As per The Motor Vehicles Act, 1988 the insurance of all motor vehicles is
mandatory, if the insurance companies arrange insurance and renewal of the
insurance policies of all these uninsured vehicles (which is their basic duty)
then the incurred claim ratio would further come down.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 3

2. Applicability of Principles of Insurance

A motor insurance contract has all the ingredients of general contract in respect
of insured’s duty to disclose material facts and insured’s right to insure any legal
interest, legal liability or damage to third party property, besides insurer is
bestowed with the duty to indemnify and as a corollary accrues right of
subrogation and contribution.

Definition

Insurance is a contract, recognised by the law, in which the insurer undertakes

to run the risk to a pre-specified extent, subject to terms, conditions and
warrantees and pays compensation for an agreed consideration to the insured /
owner of the property on the happening of the event insured against.

Important

Unique Contract: Insurance of motor vehicle is unique as it combines in itself

damage to insured motor vehicle and insurance against liability towards damage
to third party property and / or any personal injury / death sustained by third
party or passengers or persons in employment as described in the policy or arising
out of the use of the insured property.

The liability part of the motor insurance cover is a statutory duty cast by the
Motor Vehicles Act, 1988 by which the owner of a motor vehicle cannot use or
cause use of his vehicle in a public place, as prescribed in Chapter XI, Section
146 (1) of the 1988 Act. The Fundamental principles of insurance contract are
doctrine of utmost good faith, insurable interest, indemnity along with its
corollaries subrogation and contribution and doctrine of proximate cause. A brief
summary of the principles is discussed hereunder.

a) Principle of Uberrimae Fides in Motor Own Damage Insurance

Contracts of motor insurance are governed by the doctrine of uberrimae fides

(utmost good faith). The doctrine of utmost good faith imposes a legal obligation
on the proposer to disclose all material facts to the insurers, in order that the
parties to the contract are placed in the same position or on an equal footing
with reference to their knowledge of the subject matter of insurance.

Example

In Turner vs. Green, the plaintiff was informed of an accident but he did not
disclose the same to insurer. Had the defendant been aware of the happening of
the accident, he would not have entered into a contract at all.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 4

It would, therefore, be necessary for the proposer to submit details as asked for
in the Motor Proposal Form. These terms will enable the insurer to decide the
acceptance of the proposal and if necessary, will enable restriction to the scope
of insurance cover or impose restriction on driving the vehicle by named persons
only.

i. Contractual duty of utmost good faith: The use of ‘proposal form’ is

compulsory and the ‘declaration clause’ in the proposal form modifies
the ‘Common Law duty’ into a ‘Contractual duty of utmost good faith’.
The effect of this modification is that the answers given in the proposal
form become continuing warranties. The answers are required to be
literally true and correct. Any wrong answer, irrespective of its
materiality, will render the insurance contract voidable by insurers,
although the burden of proving concealment or misrepresentation rests
on the insurance company.

b) Insurable Interest

Insurable interest is the insured’s legal right to insure. In Motor Insurance vehicle
is the property, which is exposed to loss or damage. The insured also has a legal
liability towards third parties; he may suffer financial loss if he incurs that
liability under law through the use of the vehicle. Therefore, the insured has
insurable interest, which entitles him to insure the vehicle against damage and
liability risk. In motor insurance following class of persons have an insurable
interest in the vehicle:

S-06-MOTOR INSURANCE (FOR SURVEYORS) 5

Diagram 1: Class of persons having insurable interest in the vehicle

i. Owner

The Motor Vehicles Act, 1988 stipulates that the owner of a motor vehicle
shall arrange for the registration of the vehicle with the Registering
Transport Authority. For Registration of a vehicle evidence of valid insurance
in the form of a Certificate of Insurance or Cover Note is a prerequisite to
comply with the 1988 Act. Therefore, the owner of a motor vehicle by virtue
of his title and possession has an insurable interest which must be existing
throughout the ownership of a vehicle i.e.,
(a) at the time of taking insurance,
(b) during the currency of the period of insurance,
(c) at the time of claim and
(d) at the time of renewal of the policy

ii. Seller

The seller of a motor vehicle has an insurable interest until the property, in
the motor vehicle passes on to buyer. In certain cases, e.g. an unpaid vendor
of the motor vehicle can exercise the right of lien to the extent he has an
insurable interest.

iii. Buyer

The buyer of motor vehicle acquires insurable interest as soon as the contract

S-06-MOTOR INSURANCE (FOR SURVEYORS) 6

 of sale is completed, though he may not be in possession of the vehicle.

iv. Hire Purchase

If a vehicle is purchased under a hire purchase agreement or lease agreement,

the financier remains owner of the vehicle and insurance should be arranged
in their name.

However, Section 51 of the 1988 Act requires registration of the vehicle in

the name of user, with Owner’s right endorsed in the registration document.
In view of this, the insurance policy is issued in the name of the user
incorporating Financiers (Owner’s) interest clause as per India Motor Tariff
IMT 5 and 6 in consonance with general regulations number 19 and 20
respectively.

The clauses provide that in respect of loss or damage to the motor vehicle
(which loss or damage is not made good by repair or replacement) the monies
shall be payable to the Owner, i.e., the Financiers. A hire purchase financier
of a motor vehicle has an insurable interest until all the instalments are
repaid.

v. Hypothecatee

In hypothecation agreement, the ownership in the vehicle is with the user

only, but financiers continue to have an insurable interest to the extent of
the loan outstanding. A clause is incorporated in the policy to protect the
Pledgee’s interest as per IMT 7 in consonance with General Regulations 21
incorporating an insurable interest to the extent of money so advanced or
outstanding. The person advancing money in respect of motor vehicle under
a hypothecation agreement remains a beneficiary.

vi. Joint Owners

Joint owners of the vehicle or partners of a firm have insurable interest in

the Motor Vehicle as per partnership provisions.

vii. Motor Traders

Motor traders e.g., garage proprietors have insurable interest as bailees in

respect of loss or damage to customers’ vehicle that are in their custody for
repair purpose. Motor Traders Policy covers such liability separately.

viii. Hotel Owners

Hotel owners are baileys either for reward or otherwise of a vehicle and as
the goods held in trust / possession have an insurable interest until the
vehicle is in their possession or entrusted by them to hotel security agency.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 7

 ix. Legal Heirs

Legal heirs to an intestate person, executor’s administrators, official

assignees, official receivers have an insurable interest.

x. User

The owner insured may drive the vehicle on his own or may authorise other
persons to drive his vehicle. Strictly speaking the user is liable under common
law and law of torts to any third party liability, but the owner is deemed to
act as an Agent under 1988 Act in arranging the indemnity on behalf of such
other persons who may drive the vehicle with his permission and incur
liability. Otherwise, the injured third parties will have no recourse to recover
damages.

c) Indemnity

Insurance contracts are contracts of indemnity, that is to say, the insured is

placed after loss, as far as possible, in the same position as he was immediately
before the loss. This principle ensures that the insured does not make a profit
out of his loss. In motor insurance principle of indemnity is applied in following
ways:

i. Total Loss (TL)/Constructive Total Loss(CTL) /Theft Claims

For TL/CTL/Theft claims, the principle of Insured’s Declared Value (IDV) is

applied. It is the sum insured agreed at the commencement of the policy
between insurer and the insured, based on manufacturers’ price of new
vehicle at the commencement of the policy period subject to depreciation at
agreed rates as provided in the Motor policy document. IDV remains constant
throughout the policy period and will not be subjected to further depreciation
for TL/CTL/Theft claims during the policy period.

ii. Repair Claims

In case of claims for repair of the vehicle, the indemnity is computed on the
cost of parts replaced less depreciation, taking into consideration the nature
of parts, age and usage of the vehicle. The depreciation table for repairs as
per General Regulation 9 of India Motor Tariff is different from the one
applicable for TL/CTL/Theft losses as per General Regulation 8.

iii. Third Party Liability

In respect of Third Party liability, the incurred damages are awarded

including the interest component as indemnity, including the limits of liability
for Personal Accident (PA) owner driver claims as specified in the policy. The

S-06-MOTOR INSURANCE (FOR SURVEYORS) 8

 Policy also provides indemnity for legal costs as awarded.

d) Doctrine of Subrogation and Contribution

i. Subrogation

Subrogation is the transfer of rights from the insured to the insurer when the
loss or damage to the vehicle is caused by the negligence of another person.
Insurers’ exercise the rights to recover the loss from the person so responsible
under common law. The doctrine of subrogation operates only after the claim
is paid. A policy condition, however, provides for subrogation before the
payment of the claim.

In the case of theft of parts from a private car, the insurers are entitled to
the stolen parts when recovered, by virtue of the application of the doctrine
of subrogation. In practice, however, subrogation stands modified by Knock
for Knock Agreement (Chapter 7) between insurers. The insured is required
to extend full cooperation and join the insurer as co-plaintiff in any legal suit
of recovery.

In case the insured himself recovers damages through legal proceedings

without any assistance from the insurer and perchance the insurer has settled
the claim, the insurer will be entitled to the benefit of recovery so made by
the insured to the extent of amount of claims paid.

ii. Contribution

Contribution arises when there is double insurance (refer GR.24), that is,
when the same vehicle is insured under two policies. According to the policy
condition, the loss is shared pro-rata between the two insurers.

e) Proximate Cause

The doctrine of proximate cause applies to motor insurance similar to other

classes of insurance. The loss or damage to the vehicle is indemnified only if it is
proximately caused by any of the insured perils. The doctrine also applies to third
party claims. The third party injury or damage must be proximately caused by
the use of the vehicle, by or on the instructions of the insured, for which he is
held legally liable to pay damages.

f) Suppression of material fact

A car met with an accident and it was damaged. The Car was not insured at the
time of accident. Next day the owner obtained insurance cover for the same
vehicle showing someone else’s vehicle of same colour, make, model with his
own vehicle’s Registration number plates put on it and after few days lodged a
OD claim with the Insurers. The policy is void on account of suppression of

S-06-MOTOR INSURANCE (FOR SURVEYORS) 9

material fact on the part of the owner and hence the insurance company will not
be liable.

g) Payment of premium

a) A moped was insured under Motor policy and the premium cheque was
sent for renewal of policy when due. However, cheque was dishonoured,
and owner paid cash, insurers accepted and sent a cover note. In between
loss occurred which was rejected by insurers. It was held by the Supreme
Court that that the insurers were liable [(SC 2009)].

b) Insurers did not deposit premium cheque with the Bank, for insurance of
motor vehicle. A Third Party claim was reported. The Insurers were held
liable [(Oriental Insurance Company Ltd. Vs Gowramma 1988)]

h) 64 VB – Advance Payment of Premium

a) Duty of insurance company on dishonor of cheque

As on the date of accident, policy was cancelled as cheque issued by the

insured towards payment of premium was dishonored and the same was
intimated to insured and concerned Regional Transport Office. This has been
held as substantial compliance of Section 64 VB of the Insurance Act 1938.
The court held that “The cancellation of policy of Insurance Company for non-
payment of premium amount or dishonor of cheque issued for payment of
premium is governed by the provisions of the Insurance Act 1938.”

In [(Tata AIG Vs Balaguruvaiah) MFA no 9795/ 2010 (MV) dated Mar 15, 2013]
Karnataka High Court held that in case of dishonor of cheque, Insurance
company cannot be held liable for payment of compensation if it has duly
intimated the insured and the concerned Regional Transport Office.

b) Interpreting the word “date":

Accident occurred at 4.00 a.m. on the date on which the policy was obtained.
The cover note was issued commencing w.e.f. 5.30 p.m. but in the policy
issued thereafter, no time was mentioned. Owner contended that the policy
commenced with the commencement of the date of issue. Whether a policy
issued expressly specifying the date and time of issue on the cover note or
the policy, covers the risk in respect of accident occurred earlier on the same
day, the premium for which was paid and policy was taken after the accident.
– Held [1992 ACJ 292 Karnataka (D.B.)] - No.

Interpreting the word "date" used in Section 64 VB of the Insurance Act 1938,
insurance policy is meant to cover liability incurred by the owner of a vehicle
or property as a result of accident taking place in future and not in respect
of an accident which has already taken place.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 10

 In this case the time and date of issue was mentioned on the cover note, but
in the policy the time was not entered and only date of commencement was
mentioned. The insurance policy is issued in continuation of the cover note
and one cannot be read in isolation. Both should be read together.

c) Retention of cheque by agent:

An Agent accepted cheque towards premium covering sheds and promised to

issue cover note after inspection of the premises. No proposal form was
submitted by the insured. The premises caught fire and were extensively
damaged. Whether mere acceptance of premium by agent from the insured
amounts to a concluded contract of insurance, so as to foist liability upon the
Insurance Company? The matter was still under negotiation and no binding
contract resulted. [1992 ACJ 503 Bombay] Even there was no interim contract
for limited period in the form of cover note. There was no implied or express
acceptance of the proposal hence no liability of insurance company. Merely
because of retaining the said cheque for over a period of four months or
because no steps were taken in returning the cheque even though intimation
of, fire and loss, was given to it immediately. In fact said cheque was not
even en-cashed by appellant and was returned later. Therefore, mere
retaining of cheque has not passed on any benefit to the appellant.

d) 64 VB Advance payment of Premium

Section 64 VB of Insurance Act, 1938 for advance payment of premium renders

contract void ab initio in case of dishonor of cheque and it must be
communicated to insured and RTA effectively to exonerate from of payment
by Insurer.

Test Yourself 1

Which of the following statement is correct with regards to insurable interest of

partners in a motor vehicle?

I. Partners always have equal insurable interest in the motor vehicle

II. Partners have insurable interest in the motor vehicle as per the partnership
provisions
III. As per the provisions of the Motor Vehicle Act, the partner with the highest
stake in the partnership always has the entire insurable interest in the motor
vehicle
IV. As per the provisions of the Partnership Act, the partner with the highest
stake in the partnership always has the entire insurable interest in the motor
vehicle

S-06-MOTOR INSURANCE (FOR SURVEYORS) 11

 General Regulations of Motor Tariff

The standard documentation and General Regulations include:

 Proposal form GR2

 Policy form GR3
 Cover Note (GR 22)
 Certificate of insurance (GR 23)
 Cancellation of insurance and double insurance (GR 24)
 Cancellation and issuance of fresh certificate of insurance (GR 25)
 Certificate or cover note destroyed, torn, soiled, defaced or mutilated
(GR 26)
 Extension of geographical area (GR4): (IMT 1)
 Geographical zones (GR 10)
 Insured’s declared value (GR 8)
 Schedule of depreciation for arriving at IDV
 Depreciation on parts for partial loss claims (GR 9)
 Period of insurance (GR 11)
 Premium rates for short period cover (GR 12)
 Short period scale
 Rating
 Discounts
 Extra benefits (add-ons)
 No claim bonus (GR 27)
 Compulsory deductibles (GR 40)
 Vehicles subject to hire purchase gr 19 (IMT - 5) / lease vehicles GR 20
(IMT - 6)
 Vehicles subject to hypothecation (GR 21) (IMT - 7)
 Transfers (GR 17) (IMT - 3)
 Change of vehicle (GR 18)
 Submission of Statistics (GR 47)
 Interpretation of India Motor Tariff (GR 48)

 Types of Motor Vehicles

Meaning and classification of motor vehicles

Definition

A “Motor Vehicle” has been defined in the Motor Vehicle Act 1988, Section 2 (27)
as a mechanically propelled vehicle adapted for use upon roads, whether power
of propulsion is transmitted thereto, from an external or internal source and
includes a chassis to which a body has been attached and a trailer but does not
include a vehicle running upon fixed rails.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 12

Classification of motor vehicles: For the purpose of insurance, motor vehicles
are classified into 3 broad categories, viz. Private cars, Motorcycles and
Commercial vehicles. There are also sub-classifications in some of the categories.

a) Private cars

Vehicles used solely for social, domestic and pleasure purposes and business
or professional purposes, but not for carriage of goods other than samples.
Three wheeled cars for private purpose are also covered.

b) Motor cycles / scooters

Motor cycles / scooters are mechanically propelled two wheelers with or

without side car: Mechanically propelled three wheelers with engine capacity
not exceeding 350 cc.

c) Commercial vehicles

The erstwhile Tariff defined and described these vehicles subject to further
rationalization vide IRDA/NL/ORD/MPL/077/03/2012 dated 29th March, 2012
and the categorization for the purpose of rating being followed in the market
is as follows:

Class Type of vehicle

A Goods Carrying Vehicles
A-1 Public Carriers
A-2 Private Carriers
A-3 Goods Carrying Motorised 3 Wheelers And Motorised Pedal Cycle
(Public Carriers)
A-4 Goods Carrying Motorised 3 Wheelers And Motorised Pedal Cycle
(Private Carriers) and (i) Tractors, ii) Dumpers, iii) Milk vans, iv)
Oil and Petrol transport vehicles ; v) Refrigeration/ pre cooling
units ; vi) Tankers; vii) Tippers predominantly used for
commercial purpose. (Earlier included in Class D vehicles).
B Trailers
C Public Passenger Service Vehicles for Hire Or Reward
C-1 3 or 4 wheeler PSV_PCC(Passenger carrying capacity) less than <
6
(Taxis/Pvt. car type owned by Hotels and hired by them to their
guests)
C-2 4 or more wheeled PSV - more than PCC 6>
3 wheeled psv(Public Service Vehicle) _ pcc more than 17>
C-3 MOTORISED 3 WHEELD PSV PCC 6> ,< 17 FOR HIRE OR REWARD
C-4 MOTORISED 2 WHEELED PSV FOR HIRE OR REWARD
D MISC and SPECIALTYPE 51 types of vehicle included
E ROAD TRANSIT RISKS ONLY

S-06-MOTOR INSURANCE (FOR SURVEYORS) 13

 F Motor Trade (ROAD RISKS) ONLY
G INTERNAL RISK ONLY

a) Goods carrying vehicles

These were earlier classified as “Private Carrier” and “Public Carrier” and
are used for commercial purpose.

According to the Motor Vehicles Act 1988, goods carrying vehicle is called
“Goods Carriage”. There is no categorisation of Public carrier and Private
carrier. However, they are still classified as public and private carrier for
rating purposes under class A.

b) Tankers

These vehicles are classified under class A-4. The tankers are used for
transport of non-solid goods viz., Liquids like water, Milk, edible oils,
Petroleum goods, chemicals, Bitumen etc. and as gases in liquid form like
LPG, oxygen, Nitrogen etc.

The tankers are built in the truck itself or as trailer depending on the capacity
and its usage. The tankers are manufactured depending on the products,
capacity and the law governing the particular product.

c) Tippers

These are goods carrying transport vehicle used for carrying loose and bulk
goods viz. mining materials, sand, blue metals, coal etc. These tippers
normally operate for short distance only like Harbours, cement factories,
Mines, Earth work, Road work etc. and are 2 cu meters of load areas up to
100 cu Meters presently working in mines.
These vehicles have power take off shaft in the gear box to drive the hydraulic
pump which develops the pressure used for lifting the load body with the help
of telescopic jack. The cabin for the tipper is almost similar to common truck.

d) Trailers

These vehicles Section 2 (28) are classified under class B.

Definition

Trailer is any truck, cart, carriage or other vehicle, without means of self-
propulsion including agricultural implements drawn or hauled by self-propelled
vehicle.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 14

 Trailers are of two types

i. One version has axels at both the ends coupled with tow bar arrangement
or by fifth wheel coupling.

ii. In another version the rear portion will have the axel and the front portion
will be mounted on the prime mover.

Trailers can also be classified as:

i. Trailers Used for Passenger Transport: the trailers used for passenger
transport are always similar in nature in body construction. In goods
transport, the trailers are connected with various types of bodies’ viz.
load body, platform, tanker and special applications like asphalt mixing
machines.

ii. Running Gear: this is also a kind of trailer but without the loading area.
One end of the loading compartment is mounted on the axle area of the
running gear. This does not possess any drive. Air for brake and electrical
connection is provided from the prime mover. This type of running gear
is used in the LPG tankers (articulated vehicle).

The rear mounting beds of LPG tanker will be mounted on the running gear.
The number of axles (single or double axles) in the running gear will be
according to the load carrying capacity of LPG tank. The other trailers will
have main chassis frame from the prime mover up to the rear end.

e) Passengers carrying vehicles

All vehicles used for hire or reward with different registered passenger
carrying capacity are categorised under class C. These may be metered or
non-metered. They also include vehicles owned by hotels and hired to guests.
Three–wheeler motorized vehicles are also part of this class of vehicle.

f) Miscellaneous and special types of vehicles

These are categorised under class:

 Ambulances
 Breakdown Vehicles
 Cinema Film Recording and Publicity Vans
 Cranes Fitted with lift apparatus, breakdown vehicles
 Delivery Truck-pedestrian controlled
 Dispensaries
 Dust Carts, Water Carts, Road Sweepers etc.
 Excavators
 Electric Trolleys or

S-06-MOTOR INSURANCE (FOR SURVEYORS) 15

  Fire Brigade and Salvage Corps Vehicles
 Footpath Rollers
 Fork Lift Trucks
 Hearses
 Levelers
 Mobile Shops and Canteen Vehicles
 Mobile Surgeries and Dispensaries
 Plane loaders
 Refuse Carts
 Road Rollers, Road Sprinklers also used as Fire Fighting Vehicles
 Site clearing and leveling plant
 Traction Engine Tractors – Angle Dozers, Bull Dozers etc. Tractors
Pedestrian Controlled
 Tractors – used for agricultural, forestry, tar spraying etc.
 Trailer fitted as Cinema Film Recording and publicity Vans. Dust carts,
water carts, Fire brigade, mobile plants, mobile shops and canteen
clearing and leveling plant, Tar spraying

g) Road transit risks only

h) Motor trade (road risks) only

i) Internal risk only

 Motor Third Party Pool

1. Dysfunctional Motor Market

Motor insurance commands a large slice of the miscellaneous insurance business

in India. Unfortunately, it also has the highest claim ratio due to Third Party
Liability predominately due to Commercial Vehicles. The advent of private
insurers saw a skewed development in the motor portfolio. The more profitable
private car and two wheeler business was targeted by the private insurers and
the commercial vehicles were left to the public sector insurers, who could not
refuse to insure against Third Party risks as they were mandated to insure in
terms of the Motor Vehicle Act 1988. They thus opposed detariffing.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 16

B. International Legal Scenario in Motor insurance

International Legal Scenario: Germany, England, France, Australia, South

Africa, USA

1. Germany

Motor Third Party insurance in Germany is based on the German Road Traffic
Acts. The motor insurance liability is based on Tort i.e., negligence of the driver
of the vehicle is required to be proved to claim compensation. Insurance is
compulsory. The law specifies limits for death or injury and property damage. It
allows for payment of lump sum or annuity or step by step throughout the life of
the claimant. It is the practice to pay annuity in the case of minors and severely
injured persons who may be unable to manage their finances e.g. due to brain
injury. The limits of liability presently prevalent are as follows:

Death or injury Maximum Lumpsum Euro 600,000

Maximum Annuity Euro 30,000 pa
Death or injury of several Maximum Lumpsum Euro 3,000,000
people from same occurrence Maximum Annuity Euro 180,000 pa
Property damage Euro 1,000,000

2. England

Motor insurance in India has followed the practice of Motor insurance in England
the difference in practice in England presently is with regard to the formation of
a Motor Insurance Bureau (MIB) comprising most insurers offering motor
insurance, although Lloyds underwriters are not its member but they usually
follow similar practices with regard to TP Liability.

i. Liability for injuries to third party is unlimited.

ii. Property damage is STR. 1,000,000/-. However, insurers provide wider

property damage cover.

The Motor Insurance Bureau takes on responsibility to compensate Third Parties

for motor accidents involving vehicles that are uninsured, or untraced. This is
possible as they maintain a fund contributed by all the members. This is similar
to our system of Solatium Fund for Hit and Run cases. The MIB goes further by
paying for compensation where the vehicle is uninsured i.e. identified with no
insurance

3. France

Motor Third Party liability in France is a legal obligation based on strict liability.
Insurance is compulsory. Liability for injuries is unlimited whereas property
S-06-MOTOR INSURANCE (FOR SURVEYORS) 17
damage is limited. Contributory negligence is applied only in the case of driver
claims. Thus third parties get claims irrespective of contributory negligence.
Unidentified and uninsured vehicles victims’ are compensated from the
Guarantee Fund (Fonds de Garantie).

Compensation may be in lump sum or annuity for severely injured persons or

minors. Compensation settlement offers must be made within the stipulated time
frame otherwise the interest rate payable on compensation amounts is doubled.

4. Australia

Third Party personal injury is compulsory in Australia but the practice of

insurance differs among the States. The fund and payout for such liability is
maintained by the States of South Australia and Victoria. The cost is included in
the licence registration fees or vehicle registration fees. New South Wales and
Queensland require insurance through the state specified insurers. The
Queensland government controls the price for the cover. Property damage is not
compulsory and may be insured with the OD insurance.

5. South Africa

Personal injury liability is paid by the state In South Africa. A percentage on the
price of motor fuel is allocated for this fund.

6. USA

Motor Third party insurance practice differs among the states of the USA. It may
also differ based on the category of vehicle e.g. personal, commercial etc. The
term is called ‘financial responsibility liability’. Each state has different
minimum limits required but these are not binding and claimants can sue for tort
liability which can be substantial.

The Department of Motor Vehicles (DMV) ensures minimum liability coverage is

in place. This coverage may be in the form of:

i. Cash deposit with the authority

ii. Surety bond from licenced surety providers
iii. Self-insurance
iv. Insurance through licenced insurers within the state

Proof of such coverage being in place, has to be provided to the Department of

Motor Vehicles. Failure to do so could result in cancellation of the registration or
impounding of vehicle or fines or imprisonment. The compensation limits would
be in the following manner:

i. Injury to one person

ii. Injury to more than one person from one occurrence

S-06-MOTOR INSURANCE (FOR SURVEYORS) 18

 iii. Property damage

Texas: This would be written as 25 / 50 / 25 which translated is US$ 25000 /

50000 / 25000 for each of the above heads. These limits apply in the state of
Texas.

Alaska: In Alaska it is 50 / 100 / 25 or California 15 / 30 / 5.

New York: New York has different limits for injury and death for one or more
than one thus 25/50//50/100//10.

The practice is for owners to take additional covers to the extent they can afford
to cover tort liability.

Test Yourself 2

In Germany, in case of death of a person, the maximum lumpsum amount that

can be paid under Motor Third Party insurance is ________.

I. Euro 3,00,000
II. Euro 4,50,000
III. Euro 6,00,000
IV. Euro 7,50,000

S-06-MOTOR INSURANCE (FOR SURVEYORS) 19

SUMMARY

In this Chapter you studied the Indian and the International Scenario in Motor
Insurance. The Basic principles of insurance such as Utmost good faith, Insurable
interest, and indemnity, doctrine of subrogation and contribution and proximate
cause were learnt in detail.

Answers to Test Yourself

Answer 1

The correct answer is II.

Partners have insurable interest in the motor vehicle as per the partnership
provisions.

Answer 2

The correct answer is III.

In Germany, in case of death of a person, the maximum lumpsum amount that

can be paid under Motor Third Party insurance is Euro 6,00,000.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 20

Self-Examination Questions

Question 1

The owner of a motor vehicle by virtue of his title and possession has an insurable
interest ___________.

I. At the time of taking insurance

II. At the time of claim
III. At the time of renewal of the policy
IV. All of the above

Question 2

In India, motor insurance has the highest claim ratio due to Third Party Liability,
predominately due to ___________.

I. Private Cars
II. Commercial Vehicles
III. Two-wheelers
IV. All of the above

Question 2

The cabin for the tipper is almost similar to which of the following?

I. Trailer
II. Common truck
III. Water Tanker
IV. Bitumen Tanker

Question 4

Which of the following proposal form is required to be submitted by the insured

before the commencement of cover, and at renewal in case of material
alternation or in case of change of insurer?

I. GR 2
II. GR 3
III. GR 22
IV. GR 23

S-06-MOTOR INSURANCE (FOR SURVEYORS) 21

Question 5

According to GR 40, the compulsory deductible for Motorised two wheelers is:

I. Rs. 200
II. Rs. 100
III. Rs. 50
IV. Rs. 500

Question 6

In _________, unidentified and uninsured vehicles victims are compensated from

the Guarantee Fund (Fonds de Garantie).

I. Portugal
II. Spain
III. France
IV. Italy

Answers to Self-Examination Questions

Answer 1

The correct option is IV.

The owner of a motor vehicle by virtue of his title and possession has an insurable
interest at the time of taking insurance, during the currency of the period of
insurance, at the time of claim and at the time of renewal of the policy.

Answer 2

The correct option is II.

In India, motor insurance has the highest claim ratio due to Third Party Liability,
predominately due to Commercial Vehicles.

Answer 3

The correct option is II.

The cabin for the tipper is almost similar to common truck.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 22

Answer 4

The correct option is I.

GR 2 proposal form is required to be submitted by the insured before the

commencement of cover, and at renewal in case of material alternation or in
case of change of insurer.

Answer 5

The correct option is II.

According to GR 40, the compulsory deductible for Motorised two wheelers is Rs.
100.

Answer 6

The correct option is III.

In France, unidentified and uninsured vehicles victims are compensated from the
Guarantee Fund (Fonds de Garantie).

S-06-MOTOR INSURANCE (FOR SURVEYORS) 23

 CHAPTER 2
MARKET PRACTICE OF MOTOR INSURANCE IN INDIA

Chapter Introduction

In this chapter you will know about the earlier and current market practices of
Motor Insurance in India. You will also learn about the legal aspects applicable in
India and about International practices.

Learning Outcomes

A. Market practice of Motor Insurance in India

B. Indian Motor Tariff
C. Principles and practice of premium computation
D. Motor Underwriting

S-06-MOTOR INSURANCE (FOR SURVEYORS) 24

A. Market practice of Motor Insurance in India

Motor Vehicle insurance in India was governed by India Motor Tariffs effective
from 01-08-1989 till December 2006. The Authority vide circular no.
021/IRDA/F7U/Sep 06 dated 28-09-2006 stated that w.e.f. 01-01-2007 all the
tariffs stand withdrawn subject to the condition that insurers shall not vary the
coverage, terms and conditions, wordings, warranties, clauses and endorsements
in respect of covers that were under tariffs.

Further rationalisation has been done vide IRDA/NL/ORD/MPL/077/03/2012

dated 29th March, 2012. Insurers were given freedom to quote individual rates for
the Motor insurance products excluding Third Party Liability. The Third Party
Liability premium is still being regulated by the IRDAI. All other terms conditions
and rules of the erstwhile India Motor Tariff are still in use. However, the rates
they proposed to quote for Own Damage section were required to be filed with
the regulator before circulation.

The third party liability premium is being regulated by the IRDAI for the reason
that being a loss making portfolio on the one hand and being statutory insurance
as per law on the other, freeing the pricing would have led to spiraling of Third
Party Premium to the detriment of policyholder.

1. Caveats for filing add-on covers

The IRDAI subsequently permitted insurers to file add-on covers to the main
product from 1st April 2009 with the following caveats:

a) Insurers are permitted to file variations in deductibles from those

prescribed under the erstwhile Fire, Engineering, IAR and Motor OD Tariffs
subject to written disclosures and acceptance by the insured prior to
finalisation of the insurance policy.

b) Insurers are permitted to file add-on covers over and above the erstwhile
tariff covers in Fire, Engineering, IAR and Motor OD with appropriate
additional premiums. ‘Loss of Use’ and ‘Waiver of Depreciation’ under
motor OD insurance is some example.

c) Revised products, subject to approvals under File and Use guidelines may
be offered to the current policy holders on renewal. In other words,
insurers are not permitted to cancel/withdraw existing insurance
products to replace them by the revised products. However, insured shall
have the option to cancel their existing policies on short period scales and
go in for the revised products.

d) In the development process of motor insurance products and prices, the

Insurance Regulator has laid down File and Use guidelines as given
hereunder:
S-06-MOTOR INSURANCE (FOR SURVEYORS) 25
 i. Design of products should be on sound and prudent norms in a transparent
manner and provide value to the customer.
ii. Simple language should be used in all literature of the product. The terms
should be clearly defined and in a simple easy language.
iii. The product should be a genuine insurable risk product with a real risk
transfer element.
iv. It should comply with the rights of IRDA (Protection of Policy Holders
Interest) Regulation -2002 and subsequent amendments.
v. Similar wordings for similar products or requirements across various
products to be maintained e.g., renewal terms, cancellation, and
arbitration clauses must be alike across all products.
vi. Pricing should be based on appropriate data and sound technical
justifications.
vii. Terms and conditions should be fair.
viii. Margins built into rates should be consistent with insurers’ experience.
ix. Unprincipled rate cutting and inappropriate underwriting to combat
competition should be avoided.

Although the insurers have been freed from the tyranny of tariff norms for Motor
OD rating, they continue to follow the erstwhile Tariff guidelines including
wordings.

Test Yourself 1

Motor Vehicle insurance in India was governed by India Motor Tariffs effective
from 01-08-1989 till _________.

I. December 2005
II. December 2006
III. December 2007
IV. December 2008

S-06-MOTOR INSURANCE (FOR SURVEYORS) 26

B. Indian Motor Tariff

i. Schedule of depreciation for arriving at IDV

Age of the vehicle % of depreciation

for fixing IDV
Not exceeding 6 months 5%
Exceeding 6 months but not exceeding 1 year 15%
Exceeding 1 year but not exceeding 2 years 20%
Exceeding 2 years but not exceeding 3 years 30%
Exceeding 3 years but not exceeding 4 years 40%
Exceeding 4 years but not exceeding 5 years 50%

IDV of vehicles over 5 years old and obsolete vehicles are to be decided by
the insured and insurers mutually.

For the purpose of TL/CTL claim settlements, IDV does not change during the
currency of the policy. It is clearly understood that the liability of the insurer
shall in no case exceed the IDV subject to reduction of the value of the wreck
on “as is where is” condition.

ii. Depreciation on parts for partial loss claims (GR 9)

The following rates of depreciation are applied for replacements of parts for
partial loss claims for all categories of vehicles/accessories:

i. Depreciation for all rubber/nylon/plastic parts, tyres and 50%

tubes, batteries and airbags
ii. Depreciation for all fibre glass components 30%
iii. Depreciation for parts made of glass Nil

(In case of consolidated bill is provided for painting then painting material
component shall be considered as 25% of total painting charges for the purpose
of applying the depreciation. In case where the paint material part bill is given
separately, 50% depreciation on paint material has to be applied.)

Rate of depreciation for all other parts including wooden parts is as follows:

Age of the vehicle % of depreciation

Not exceeding 6 months Nil
Exceeding 6 months but not exceeding 1 year 5%
Exceeding 1 year but not exceeding 2 years 10%
Exceeding 2 year but not exceeding 3 years 15%
Exceeding 3 year but not exceeding 4 years 25%
Exceeding 4 year but not exceeding 5 years 35%
Exceeding 5 year but not exceeding 10 years 40%
S-06-MOTOR INSURANCE (FOR SURVEYORS) 27
 Exceeding 10 years 50%

This depreciation tables form part of the policy terms.

iii. Period of insurance (GR 11)

No policy is permitted to be issued or renewed for any period longer than 12

months, except Third Party Cover for new private cars and two wheelers. (In
view of IRDA circular no IRDA/NL/CIR/MOT/143/06/2020 dt. 08/06/2020). It
is however, permissible to extend the period of insurance for any period less
than 12 months, for the purpose of arriving at a particular renewal date.

iv. Premium rates for short period cover (GR 12)

All premiums charged under Motor Insurance Policies are on annual basis.
Insurance for less than twelve months is granted by charging premium on
Short Period Scale followed by the insurers as a general rule. Short period
covers are not granted for Liability Only Policies.

v. Short period scale

Period % of annual premium

rate
Not exceeding 1 month 20%
Exceeding 1 month but not exceeding 2 months 30%
Exceeding 2 months but not exceeding 3 months 40%
Exceeding 3 months but not exceeding 4 months 50%
Exceeding 4 months but not exceeding 5 months 60%
Exceeding 5 months but not exceeding 6 months 70%
Exceeding 6 months but not exceeding 7 months 80%
Exceeding 7 months but not exceeding 8 months 90%
Exceeding 8 months Full annual premium

vi. Rating

The OD rates are detariffed but third party premium is being regulated by the
IRDAI. Loading on tariff premium rates by 100% may be applied for adverse
claims experience of the vehicle insured and individual risk perception as per
insurer’s assessment. If the experience continues to be adverse, a further
loading of 100% on the expiring policy may be applied.

No Claim Bonus (NCB) is earned only on the Own damage section of the
Package policy covering all classes of vehicle except Motor Trade Policies,
Road Transit Risks, Road Risks, Internal Risks. For policies covering Liability
including Fire &/or Theft risks the NCB will be applicable on the Fire and/or

S-06-MOTOR INSURANCE (FOR SURVEYORS) 28

 Theft premium only. An insured becomes entitled to NCB only at the renewal
of the policy after the expiry of the full duration of twelve months.

No Claim Bonus is a discount on premium of the Own Damage (OD) portion of

vehicle when a policy is renewed, provided insured has not made any claim
during the last policy period of one year. The NCB can be accumulated up to
a maximum limit of 50% on OD premium.

All types of vehicles % of discount

on od premium
No claim made or pending during the preceding full 20%
year of insurance
No claim made or pending during the preceding 2 25%
consecutive years of insurance
No claim made or pending during the preceding 3 35%
consecutive years of insurance
No claim made or pending during the preceding 4 45%
consecutive years of insurance
No claim made or pending during the preceding 5 50%
consecutive years of insurance

Insured can transfer full benefits of NCB, even when he shifts his motor
insurance to any other Insurance company. No Claim bonus is incorporated in
the policy as per the following table:

Discount on premium is uniform for all types of vehicles, ranges from

minimum 20% to maximum 50%, corresponding with 1 to 5 consecutive claim
free years as per Table.

NCB is to be computed on OD premium after deducting rebate for Vehicle

Laid Up. Failure to write to previous insurer within 21 days and failure to
reply by previous insurer within 30 days amounts to breach of Tariff.

(a) No Claim Bonus (NCB) Transferability: The percentage of applicable NCB

is computed on the Own damage premium. The NCB follows the fortune
of the original insured and not the vehicle or the policy. In case the
customer is switching/changing to a company from any other insurance
company, and have accrued some NCB from previous insurer, insured can
get the same transferred in case the vehicle is insured within 90 days of
renewal due date. The same applies in case insured is shifting from
current insurer to other insurance company.

In the event of transfer, the new owner is not entitled to the NCB and
hence the proportionate amount will be recovered;, if the new owner is
not presently entitled to NCB or not enjoying NCB.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 29

 (b) Evidence for NCB: The NCB will be transferred at the same rate that
insured is entitled to get from the previous insurance company on renewal
of the policy. The NCB will be available; provided he can produce
evidence that he was entitled to No Claim Bonus from his previous
insurance company. Evidence can be in form of:

 A renewal notice or

 A letter confirming the NCB entitlement from the previous insurer or

 A written declaration (kindly note that in case of a false declaration,

the policy will be subject to cancellation or claim may be prejudiced.

(c) NCB on Substituted Vehicle or on Death of the Insured: NCB can be

allowed on a substituted vehicle. However, the substituted vehicle must
be of the same class as the vehicle on which the NCB has been earned. In
the case of an individual owner, in the event of death of the individual,
where the custody of the vehicle passes to the spouse and/or children
and/or parents or others, the NCB entitlement can be transferred to the
legal heir.

(d) NCB earned by an institution: The percentage of NCB earned on a vehicle

owned by an institution during the period when it was allotted to and
exclusively operated by an employee can be passed on to the employee,
if the ownership of the vehicle is transferred in the name of the employee.
This will however require submission of a suitable letter from the
employer confirming that prior to transfer of ownership of the vehicle to
the employee, it was allotted to and exclusively operated by the
employee during the period in which the NCB was earned.

(e) Allowing lesser NCB: In practice a few insurers are allowing lesser NCB
than entitled on transfer. e.g., 3 year old Private Car - Santro with 45%
NCB entitlement is allowed only 25% NCB by the transferee insurer.

There is also a practice to allow lesser NCB on Substitute Vehicle

belonging to different sub-class.

Example

A Maruti 800 Pvt. Car is substituted by a Mercedes Benz, though the NCB
entitlement is 50% on substitution, the transferee insurer is allowing only 35%.

(f) NCB on Vehicle Sold but not Replaced: If a vehicle is sold but not
replaced immediately the NCB earned could be claimed within three years
of cancellation of policy sold, for any fresh insurance. In practice insurer
is now allowing lesser NCB than entitled, keeping in mind sub-classes

S-06-MOTOR INSURANCE (FOR SURVEYORS) 30

 involved? In the two-wheeler and commercial category the discount and
entitlement period for such cases have also been curtailed in practice.

vii. Compulsory Deductibles (GR 40)

(a) Claims under Own Damage section of policies covering all classes of
vehicles viz. 2 wheelers, 3 wheelers, private cars, taxis, commercial
vehicles of all classes, including where restricted covers as per GR 45 A/B
granted (Fire &/or Theft Risks) are subject to a compulsory deductible as
follows:
Private cars:

Not exceeding 1500 cc Deductible Rs. 1000/-

Exceeding 1500 cc Deductible Rs. 2000/-

Motorised two wheelers: Deductible Rs. 100/-

Diagram 1: Commercial vehicles

Commercial vehicles

The following deductibles are being charged in general practice but some insurers
apply higher deductibles for specific categories of vehicles or usage e.g. Toyota
Quails, Tata Sumo or Commercial vehicles.

Capacity Deductible
Rs.
Taxis Not exceeding 1500 cc 500
Exceeding 1500 cc 1000
Goods Carrying Not exceeding 7500kg GVW 500
vehicles Between 7500kg GVW and 16500kg GVW 1000
Exceeding 16500GVW 1500
Not exceeding 17 passengers 500

S-06-MOTOR INSURANCE (FOR SURVEYORS) 31

 Passenger Between 17 passengers and 36 1000
carrying passengers
vehicles Exceeding 36 passengers 1500
Miscellaneous 0.5% of IDV
types of subject to
vehicles min 2000

*GVW is the Gross Vehicle Weight which is defined as the empty weight of the
vehicle plus the permitted load capacity.

(b) Endorsements

 For commercial vehicles, excluding taxis and 2 wheelers for carrying

passengers IMT 21, 23

 For Pvt. Cars, 3 Wheelers - rated as Pvt. Cars, 2 wheelers and taxis
IMT 22

(c) Exclusion under (a) of Endorsement 21 can be reinstated at additional

premium.

(d) Voluntary Excess Discount: Insured willing to bear a higher amount of

loss for OD claims in addition to the compulsory excess under the policy
will be entitled to a discount on the premium depending on the additional
excess they are willing to accept. The discounts range from 2% to as high
as 35% of OD premium.

viii. Vehicles subject to Hire Purchase GR. 19 (IMT - 5) / lease vehicles GR

20 (IMT - 6)

All Policies and Certificates are issued in the name of Hirer/ Lessee. Policies
are not issued in joint names. The owner’s/leaser’s interest is protected by
issue of an endorsement.

ix. Vehicles subject to Hypothecation (GR 21)(IMT - 7)

The policies are issued in the name of registered owner. The interest of the
hypothecatee is protected by means of endorsement. In all the above cases
the coverage of PA for owner-driver will be the insured named in the policy.

x. Transfers (GR 17) (IMT - 3)

On transfer of ownership, the liability only cover either under a Liability only
policy or under a Package policy is deemed to have been transferred in favour
of the person to whom the motor vehicle is transferred with effect from the
date of the transfer. This is in accordance with the requirement of the Motor

S-06-MOTOR INSURANCE (FOR SURVEYORS) 32

 Vehicles Act 1988 which requires that Third Party Liability insurance coverage
should be subsisting to protect the rights of third parties.

The transferee must apply within 14 days from the date of transfer in writing
under recorded delivery to the insurer, who has insured the vehicle with the
details of the registration of the vehicle, the date of transfer of the vehicle,
the previous owner of the vehicle and the number and date of the insurance
policy, so that the insurer may incorporate necessary changes in their record
and issue a fresh Certificate of Insurance under the provisions of MV Act 1988.
The certificate issued to previous insured is to be surrendered.

In the case of Package policies, transfer of “own damage” section of the

policy in favour of the transferee is made only on receipt of specific request
from the transferee with explicit consent of transferor. If the transferee is
not entitled to NCB shown on the policy, or is entitled to lesser percentage
of NCB, the insurer shall recover the proportionate amount at the time of
transfer.

A fresh proposal form is to be obtained for all transfers. An administrative

fee is charged to issue fresh Certificate of insurance.

In case of transfer of Package policies, evidence of sale and surrender of

previous certificate of insurance is essential. If for any reason the old
certificate of insurance cannot be surrendered, a proper declaration to that
effect is to be taken from the transferee before a new certificate is issued.

xi. Change of Vehicle (GR 18)

An insured vehicle under a policy can be substituted by another vehicle of the

same Class subject to evidence of continuation of cover and adjustment of
premium if any, on pro-rata basis from the date of substitution (IMT-4), for
the balance period of the policy.

xii. Towing Charges

The insured can avail enhanced towing charges depending upon the category
of the vehicle in additional to the limit already provided on payment of
additional premium.

Vehicles Addl. Towing Amount

Pvt. Car up to Rs.1500
Two wheeler up to Rs.300/-
Commercial Vehicle
Two wheeler up to Rs.300/-
Three wheeler up to Rs.750/-
Three wheeler Rs.751-Rs.1500 T.C.
Taxi up to Rs.1500/-
S-06-MOTOR INSURANCE (FOR SURVEYORS) 33
 Taxi Rs.1501 – Rs.3000/- T.C.
Other Commercial Vehicle Up to Rs.10000/- T.C.
Other Commercial Vehicle Rs.10001/- to Rs.20k T.C.
Motor Trade Policy Up to Rs.300/-
Motor Trade Policy Rs.301/- to Rs.500 T.C.

xiii. Submission of Statistics (GR 47)

xiv. Interpretation of India Motor Tariff (GR 48)

Amendments subsequent to discontinuance of tariff

Tariff system after detariffing

Subsequent to de-tariffing most insurers continue to follow the tariff system and
rates as base premium. They are then working out discounts and loading on the
basis of their perceptions of risk. These may be in the form of a matrix for
different risk exposures, similar to the system introduced in the tariff for Third
Party loading. Based on the points so obtained the premium may be loaded or
discounted. (Refer Annexure F at the end of this Chapter)

The motor tariff was withdrawn with effect from 1st Jan 2007. Insurers are
permitted to devise their own premium structure for Own damage coverage. The
third party liability premiums continue to be under tariff and the rates are as
advised by IRDAI.

Policy wordings as per the erstwhile tariff are to be continued, however,

additional covers as add-ons to the main policy including any deviations from the
erstwhile tariff rates for the standard products are permitted to be devised by
the insurers and filed with IRDAI under File and Use guidelines before introduction
into the market.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 34

C. Principles and practice of premium computation

1. Introduction

The policy holders and businesses are complaining steep hikes. Transporters are
facing difficulties for compulsory third party coverage. Insurers are still finding
premiums inadequate. The Market is highly Competitive, tending towards
aggressive marketing, with innovative products, and intervention of IT
governance in customer services. Stringent Regulatory Norms ( Solvency norms,
Protection of Policy Holders’ Interest and Shareholders’ Interests), end of Soft
Market Regime and restrictions from Reinsurance Market, Change in Legal
Environment, Rising Customers Expectations and Increasing Consumerism are
taking its toll.

2. Indian Motor Insurance market

Lack of experience in free pricing regime relates to factors associated with policy
holder, associated with the vehicle, relating to coverage aggravating risk
including factors that can’t be measured like risk aversion and repeated traffic
violations for want of any mechanism and factors which can be measured in
theory but are impractical to find correlation.

Current market constitutes high value cars which do not increase in risk exposure
on a linear scale, but tend to flatten out after a certain point. While the relativity
of 40% may be reasonable for the larger cities, we would expect a similar pattern
in other heavily populated areas such as Chennai and Bangalore, which currently
charge lower rates.

Basis of rates in India is engine capacity and carrying capacity of the vehicle, Sum
insured; and Geographical location. India after deregulation of market is geared
to adopt a selective pricing and marketing approach, targeting profitable
segments and avoiding loss-making ones.
The claim costs for some suburban areas are 20% to 40% higher than for others,
under a possible strategy in the short term. The need of the hour is be quick in
claims settlement and be aggressive in pricing aspect. The premium-setting
model is expected to ensure neither excessive pricing nor non-viable premium
through undercutting. The Pricing mechanism should encourage reduction of
losses.

a) Rating factors

Rating factor are those factors which have direct impact on out go of insurers.
These include variables which can be measured vis-a-vis variables which
cannot be measured but have substantial contributory impact on vehicle
damage or even third party liability and its extent or those which cannot be
measured at all.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 35

 b) Pricing methodology

Fundamental principle of insurance pricing is to receive sufficient premiums

to fund the expected claim costs, administrative costs, acquisition cost,
catastrophic cost, Deviation in cost if any say Floods/ Earthquake; provide an
expected profit to compensate cost of obtaining the capital to support sale
of coverage.

Premium consists of a pure premium to cover expected losses and Loss

adjustment expenses. The premium is to be loaded by operating expenses
depend on the extent and variety of Policy holder services insurer agrees to
provide e.g. Sales, Commission; advertising expenses and Taxes; Cost of
handling claims, allowances for contingencies covering margin and interest
incomes including underwriting gain or profit needed to offer incentives in
competitive environment.

c) The pricing objectives

The three most important objectives of pricing relate to Premium adequacy,

Fairness, Simplicity, Consistency and Flexibility.

i. Premium adequacy is to generate needed premium to pay for claims and

management expenses. Assure fair rate of return to the investor of the
fund sufficient to finance continuing growth and expansion by ensuring
reasonableness or just rate in competitive market.

ii. Fairness must discriminate among the buyers fairly; rates should not be
same for heterogeneous groups like Saloon cars and SUV’s and must not
differ for homogeneous groups like Maruti cars of different models.

iii. Simplicity, Consistency and Flexibility: Simple to understand and

inexpensive to use, rate must not change frequently under daily changing
circumstances (with claims reported within certain period).

d) Type of rating in motor insurance

i. In motor insurance the risk exposure varies so each risk is individually

evaluated and rated accordingly as per the underwriter’s perception of
the risk, termed as judgement rating.

ii. Motor risks are classified on the basis of some features (Class rating) and
are rated subjectively according to the exposures dividing amount of
incurred losses and loss adjustment expenses by the number of exposure
units.

iii. When specific risk differs within the same class, Merit Rating is carried
out which modifies class rate based on individual loss experience. In

S-06-MOTOR INSURANCE (FOR SURVEYORS) 36

 motor the impact of age, gender leads to Schedule Rating or individual
rating. The accrual of NCB gives experience rating. It is different from
retrospective rating that modifies the insurance cost on the basis of the
current experience allowing refund or additional premium e.g.
adjustment of premium after the expiry of the policy.

iv. Differential Rating: Under differential rating the pricing is left to each
Company with freedom for including add-on covers. Differential rating is
the rating based on scientific method of pricing the product on Make and
Model basis. The most crucial aspect of rating in motor insurance is claims
cost. Therefore, every factor which adds to claims cost is of utmost
importance.

v. New Features: If we peruse rating factors of high tech vehicles, vehicle

geometry and the relative situation of the parts, sophistication in make
and new features are also important while determining motor insurance
rates. Market for new vehicles tends to be replacement oriented due to
the monopoly of dealers and lack of skilled labour in outside garages.

Replacement items in each vehicle are dependent on parts availability;

spares cost valuation; obligatory repairs and replacement to do
committed repairs. Imported vehicles repairs are difficult due to non-
availability of spares in local markets.

e) Motor premium rating

The overall premium is equal to expected cost of all claims + Expenses +

required profit margin for all risks underwritten.

While ultimate claims cost is equal to paid losses + reported outstanding

losses + estimated IBNR costs.

The Motor premium rating is based on two principles. One is determination

of differential rating and other is pricing different risk groups. The estimated
ultimate cost of claims is determined by examining past 2 to 3 accident Yrs.
As the insurer has to apply rates for future time, adjustment in actual cost is
done for:

 Expected future claims inflation by examining past date of payment

till claims are paid under newly rated policies.

 Expected future claims inflation by taking into consideration changes

in Policy Conditions between the past coverage and new policies based
on more scientific approach.

Expected future claims inflation for gap in receipt of premium and claims
payment for expected investment earnings besides an allowance for direct and

S-06-MOTOR INSURANCE (FOR SURVEYORS) 37

indirect administrative costs. This is more pronounced in third party claims which
take several years in final settlements.

Following 36 factors need close attention in Motor Premium rating:

i. Vehicles: 1. Make and Model, 2. Age of vehicle, 3. Year of manufacture

4. Insured’s declared value, 5. Crash test compliance norms for each
model, 6. Colour of the vehicle,

ii. Use of vehicle: 7. Military disposal vehicles 8. Imported cars 9. Sports

cars 10. Extra fittings 12. Distance travelled by the vehicle 13. Use as
taxi/goods carrying, passenger or miscellaneous vehicles.

iii. Geographical area: 14. Topography of Area e.g. hills, coastal region etc
15. Parking location 16. Density of population 17. Density of road traffic
18. Quality and construction type of roads.

iv. Driver: 19. Gender 20. Driving experience 21. Age 22. Health, Common
defects of vision 23. Personal hazard of the driver and habits 24. Traffic
violations by drivers 25. Accident proneness of driver.

v. Proposer [Link] 27. Claims experience 28. Using multiple drivers

and multiple vehicles 29. Credit rating of the insured 30. Moral hazard.

vi. Accident repairing facilities: 31. Garage facilities 32. Manufacturer’s

spare parts availability and pricing policy 33. Repair/ Replacement
philosophy, 34. labour cost, [Link] time schedule data, painting
component).

vii. Safety features: [Link] tracking facility for stolen vehicles

Test Yourself 2

Differential rating is the rating based on scientific method of pricing the product
on_____________.

I. Incremental basis
II. Make and Model basis
III. Piecemeal basis
IV. Claim formula

S-06-MOTOR INSURANCE (FOR SURVEYORS) 38

D. Motor Underwriting

a) Motor policy premium computation

The tariff format for computation of Motor premium is still being followed as
given below:

Own Damage Third Party

Premium Premium
Description Rs. Description Rs.
1 1
a Basic OD a Basic TP
b Bi-fuel kit b Bi-fuel
Electronic
c equipment c Passangers Liability
d Other add-ons 2 Other Liability
Driver, Conductor,
Total Premium a coolies
Non-fare paying
2 Discounts b pasengers
a Voluntary excess 3 PA
Automobile Ass.
b Membership a Owner-driver
Named passangers, Paid
c Anti-theft device b driver
No Claim Bonus -----
d % c Un-named passengers,
Total TP Premium (B)
Net OD Premium (A) Total Premium (A+B)

The Premium computation chart in all policies is as above with minor

variations. The premium rates were charged in the erstwhile tariff on the
basis of various factors as follows:

i. Private Car: The Own damage premium was based on the:

 Zone of registration of the vehicle

(a) Zone 1 Major cities :Ahmedabad, Bangalore, Chennai, Hyderabad ,

Kolkata, Mumbai, New Delhi and Pune.
(b) Zone 2 Rest of India

 Cubic capacity

(a) below 100cc

(b) Exceeding 1000cc to 1500cc
S-06-MOTOR INSURANCE (FOR SURVEYORS) 39
 (c) Exceeding 1500cc

 Age of the vehicle

(a) Below 5 years

(b) 5 to 10 years
(c) Over 10 years

From the Table given above, the rate is ascertained and applied to the IDV.
This becomes the Basic OD Premium. To this the add-on premium for
additional items is included and shown separately. For example Bi-fuel kit
@4% on the value is added, so also for electronic fittings a similar rate is
added.

Thereafter, the discounts are allowed on reducing balance i.e., the Total
Premium as above is discounted for each discount head individually. The last
discount is always the NCB.

The TP premium is based on Zone and cubic capacity. In the case of private
car no additional premium is charged for Passenger Liability, hence nothing
under this head would be charged. All add-ons like Liability for driver, PA to
owner-driver, PA to passengers would be charged. The total premium would
comprise the TP premium. The Total of OD and TP would thus be the Final
motor premium.

Example

A two year old Maruti Omni registerd at Ujjain (MP) is Bi-fuel (10000/-) car;
having carrying capacity (4 + 1) and IDV 150000/-; An Air conditioner is installed
for Rs 15000/- ; the Insured is a member of Automobile Association and has
earned 35% NCB. He has employed a paid driver and wants to cover PA for
passengers and driver for Rs. 50000/- each. Calculate Total premium payable.

Premium Computation

Rs.
Basic OD (Zone 2 , Age 2yrs, cc below 1000) @ 3.039% on 150000 4558.50
AC @4% on 15000 600.00
Bi-fuel 4% on 10000 400.00
Total 5558.50

Discount Automobile Association 5% (max) 200/- 200.00

NCB 35% of (5558.5-200) i.e. 5358.5 x 35/100 938.50
NET OD (A) 3600.00
S-06-MOTOR INSURANCE (FOR SURVEYORS) 40
 Basic TP 500.00
Bifuel vehicle 60.00
PA owner driver 100.00
LL to driver 25*1 25.00
PA to driver 25*1 25.00
PA to unnamed passengers 25*4 100.00
Total TP (B) 810.00
Total premium (A) +(B) 4410.00

b) Two-wheelers: A similar practice would be adopted.

c) Commercial vehicles: In the case of commercial vehicles the following

variations would apply. There were three Zones 1) Metro cities 2) Other
state capitals 3) Rest of India. Instead of CC the GVW (Gross Vehicular
Weight)- for goods carrying vehicles; and passenger capacity for passenger
vehicles would apply.

d) Taxis up to 6 passengers the Private Car system would be followed.

However, for TP cover extra for passenger liability is to be charged. This
would be on registered passenger carrying capacity.

e) For other passenger carrying vehicles, the OD premium criterion is

based on:

i. Zone for plying vehicle

ii. Passenger carrying capacity and
iii. Age of vehicle.

For liability Section additional for liability to passengers is also charged

compulsorily. Liability for driver and conductor is also to be charged. Other
premium is as per the private car system.

f) Goods carrying vehicles

Rating is based on Age of the vehicle and for GVW not exceeding 12000 kgs.
And additional Rs. 27/- will be charged for each 100 Kgs or part thereof of
GVW in excess of 12,000 Kgs. In the case of liability Section besides driver’s
liability, persons employed for loading and unloading are also required to be
covered. The number is as permitted by the RTA (Regional Transport
Authority). In the normal course permitted total employees including driver
is six persons. In exceptional cases more may be permitted; to be verified
from RC book. Cover for Owner of goods as non-fare paying passenger is also
to be charged. Other covers are as per the Private car system.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 41

 g) Model wise Risk assessment

Risk Assessment of each model is to be assessed in arriving at premium rate

model wise. The underwriter has to take in account replacement items in
each vehicle, obligatory repairs and replacement required for committed
repairs; labour for work carried at road side garages, spares cost valuation;
availability of parts, etc.

SUMMARY

In this chapter you learnt the market practice of Motor insurance in India and
how after de-tarrif the individual insurers were allowed to quote individual rates.
IRDA also subsequently allowed to file add-on covers to the main product. You
learnt various tables related to arriving of IDV, age wise depreciation on vehicle
various category of parts. You also learnt various IMT endorsements and GR
whereas the different factors to be considered while underwriting a motor policy.

Answers to Test Yourself

Answer 1

The correct answer is II.

Motor Vehicle insurance in India was governed by India Motor Tariffs effective
from 01-08-1989 till December 2006.

Answer 2

The correct answer is II.

Differential rating is the rating based on scientific method of pricing the product
on Make and Model basis.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 42

Self-Examination Questions

Question 1

Who is allowed to cancel their existing policy and replace them with revised
products?

I. Insured
II. Insurer
III. IRDA
IV. Broker

Question 2

As per the File and Use guidelines of IRDA, products should have a
______________.

I. Profit element
II. Claim cost element
III. Real risk transfer element
IV. Claim and administration cost element

Question 3

In total loss claims, how is value of wreck decided?

I. “As is where is” basis

II. “Make and Model” basis
III. “Piecemeal” basis
IV. “Depreciation” basis

Question 4

If a motor policy is issued for less than 12 months period, the premium charged
is based on?

I. Pro Rata
II. Short scale period
III. Piecemeal basis
IV. Claim formula

S-06-MOTOR INSURANCE (FOR SURVEYORS) 43

Question 5

The NCB follows the fortune of the ____________.

I. Vehicle
II. Insurance company
III. Policy
IV. Owner

Question 6

A calculation of premium to cover expected losses and loss adjustment expenses

is called ________________.

I. Claim cost premium

II. Pure premium
III. Adjusted premium
IV. Loss ratio premium

Question 7

The Motor Premium rating does not depend upon which of the following factors?

I. Use of vehicle
II. Geographical area
III. Nearest police station
IV. Safety features

Answers to Self-Examination Questions

Answer 1

The correct option is I.

Only the insured is allowed to cancel his existing policies and replace them with
revised products launched by the insurance companies.

Answer 2

The correct option is III.

As per the IRDA File and Use Guidelines, all products designed by the insurance
companies should have a real risk transfer element.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 44

Answer 3

The correct option is I.

The reduction of the value of the wreck is based upon ‘as is where is” basis.

Answer 4

The correct option is II.

If a motor policy is issued for less than 12 months period, the premium charged
is based on short scale period.

Answer 5

The correct option is IV.

The NCB follows the fortune of the owner.

Answer 6

The correct option is II.

Premium consists of Pure Premium to cover expected losses and loss adjustment
expenses.

Answer 7

The correct option is III.

The Motor Premium rating depends upon

S-06-MOTOR INSURANCE (FOR SURVEYORS) 45

 CHAPTER 3
MOTOR INSURANCE UNDERWRITING

Chapter Introduction

In this chapter you will learn the practice of policy underwriting and the various
factors taken into consideration vehicle underwriting a risk. You will learn the IT
application in motor insurance underwriting and how IT intervention has created
a data for analysis and helped pricing of product to sustain market competition.

Learning Outcomes

A. Indian Market Rating

B. Importance of Statistical Data
C. Importance of Analytics and IT Intervention in Motor Insurance

S-06-MOTOR INSURANCE (FOR SURVEYORS) 46

A. Indian Market Rating

Indian market rating has been based on just 4 risk factors, which by and large are
used in the current market as guide rates. The discounts are based on
performance of motor portfolio and competition in the market to retain market
share although the claims continue to be prejudiced by several factors [(Test
Drive by Govind Johri, Associate Professor in Asia Insurance Post, January and
February 2008 p. 48-49]. The underwriter is required to collect relevant data on
various factors which affect the claims taking into consideration following
factors:

(a) The Vehicle

(i) Registration details

 Year of manufacture
 Age of vehicle

(ii) Insured declared value

(iii) Model guidelines vis-a-vis age of vehicle

 Auto crash test compliance

 Colour of the vehicle
 Military disposal vehicle
 Imported cars
 Sports car
 Extra fittings
 Distance Travelled by The Vehicle

(iv) Carrying capacity of the vehicle

(v) Seating capacity of the vehicle

(vi) Route Permit

(vii)Load Permit

(b) Usage of the vehicle

(i) Purpose for which the vehicle is used

 Private or Commercial or Agricultural or special purpose

 Use for social, domestic and pleasure purposes

S-06-MOTOR INSURANCE (FOR SURVEYORS) 47

 (c) Geographical area of operation

(i) Parking location

(ii) Metropolitan areas, state capitals, major cities, Urban and Rural areas

(iii) Coastal, hilly, desert, plain, Highways, local traffic

(iv) Climate of the area (cold regions, arid, hot)

(v) Traffic density, variety of vehicle on the road

(vi) Road conditions

(d) Driver of the vehicle

(i) Age of driver

 Driving experience of the person

 Driving history of the driver
 Driving violations
 Training and education of drivers

(ii) Drivers health condition

 Common defects of vision


(iii) Drivers habits and attitude (conscientious or aggressive)

(iv) Gender of the driver

(v) Occupation of the proposer

(vi) Credit Rating

(e) Claim Experience

(i) Other vehicles owned

(ii) Eligibility for no claim discount

(f) Other factors in determining premiums

(i) Auto Insurance

(ii) Vehicle Safety Features

S-06-MOTOR INSURANCE (FOR SURVEYORS) 48

 (iii) Multiple drivers and multiple vehicles

(iv) Sub classification

(v) Road Categories

(vi) Different settlement plans

(vii)Innovation of Product

Test Yourself 1

In case of motor insurance, which of the below data is appropriate for

underwriting purposes?

I. Age of the vehicle

II. Condition of vehicle
III. Other information culled from the proposal forms
IV. All of the above

S-06-MOTOR INSURANCE (FOR SURVEYORS) 49

B. Importance of Statistical Data

1. Need for and importance of statistics

a) Insurance helps cover cost of an unforeseen accident

The motor vehicle is probably one of the most expensive items a person owns.
Insurance protects this asset and helps him in coping with the financial loss
caused by accidents, damage or theft. Another reason is that while driving, a
person is responsible for the safety of:

i. Passengers
ii. Fellow drivers
iii. Other people's property
iv. Pedestrians, Road users
v. Insured

Insurance helps cover the costs of potential damages or injuries in case of an

unforeseen accident or theft. Above all, in India it is mandatory to have at
least a Third Party Motor Insurance before you can drive on the roads.

b) Competitive nature of Indian Motor Insurance Market

Motor insurance market in India has entered a highly competitive state. The
presence of both private and public sector insurers and the freedom to decide
the premium rates makes it imperative that the insurers follow sound
underwriting techniques and charge sustainable premiums. It is therefore
essential for them to ensure the information at their disposal is accurate and
up to date for appropriate decision making. This requires statistics of previous
underwritten risks.

c) Information appropriate for underwriting purposes

Information appropriate for underwriting purposes are:

i. Age of the vehicle,

ii. Condition of vehicle,
iii. Particulars of refurbished vehicles,
iv. Imported vehicles and
v. Other information culled from the proposal forms

d) Factor for rate of premium

As rates of premium are based on past loss experience. It is most essential to

maintain a detailed statistical structure for Motor Insurance. The rate of
premium depends upon four factors

S-06-MOTOR INSURANCE (FOR SURVEYORS) 50

 i. Claims cost,
ii. Commission,
iii. Expenses and
iv. Profit

The last three can be fairly estimated. But the claims cost is the unknown
component of the premium and has to be ascertained by statistical methods.

The erstwhile tariff provided for three main classifications of vehicles and
sub-classifications in each class (these classifications continue to be followed
at present). It follows that statistics of premium and claims should also be
maintained and collated on the same basis. The nature of the cover provided
is also relevant as different rates are provided for Own Damage, and Act only
covers. This factor should be incorporated in the statistical structure.

e) Estimating Outstanding Claims

Interpretation of statistics is as important as collation. For example, the

claims cost reflect not only the paid claims but also outstanding claims. But
there is a long gap in settlement of motor claims, especially third party
claims. This delay would mean that the true claims cost would be evident
only after 3 to 4 years. Therefore, it is essential that an effective system to
place proper estimates on outstanding claims be devised.

Once the claims cost is known, it is possible to develop incurred claims to

premium ratio in each classification to consider effecting appropriate
underwriting measures by the companies and rate revisions (upward or
downwards) by the them.

f) Prospective loss experience by suitable adjustments

The results of past loss experience has to be interpreted in the light of

changing conditions surrounding motor insurance business. Some adjustments
will have to be made and the figure, to some extent, projected into the future
taking into account annual increase in the number of vehicles, increase in
population, changes in road construction, changes in common or statutory
law, trends of third party awards, etc. In other words, past loss experience
will have to be converted into prospective loss experience by suitable
adjustments.

g) Role of IT systems in calculating premium rates on real-time basis

The value of motor insurance statistics depends upon the correctness of the
figures and the speed with which they can be produced. The collection,
collating and interpreting of statistical data has been considerably simplified
with the Information Technology Revolution.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 51

 The IT platforms have made it possible to capture a large variety of
information and subject it to analysis. A few motor insurers in India have been
able to decide premium rates on “real-time” basis i.e. their systems are
recording data of premium and claims on a continuous basis, this in turn is
assisting them in quoting premium rates for a particular risk on immediate
loss experience ratio.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 52

C. Importance of Analytics and IT Intervention in Motor Insurance

1. IT Intervention and Competition

IT is playing an ever greater role in insurance companies’ growth, with the help
of specific technologies. There is bound to be more pressure on the industry over
the coming years from greater competition, ever-more-fickle consumers and
increased regulation. Success in the insurance industry is expected to come from
two areas viz.

i. Cloud and
ii. Analytics

a) Cloud-based systems and solutions

A rare opportunity exists to broadly transform technology, replacing core

engines with fully integrated, cost-effective cloud-based systems for
distribution, underwriting, product development and claims. Investing in
cloud-based approaches to core insurance systems is bound to help reduce
operating costs, increase data access and improve speed to market.

The availability of cloud-based solutions both from third-party sites, as well

as internal private cloud initiatives are going to help a great deal in reducing
development time and the need for upgrades. It will also provide access to
best practices that cloud providers have gradually baked into their solutions.

But many companies running their own data centers need to approach this
opportunity in a gradual, deliberate fashion. Switching over to cloud for
cloud's sake from a well-functioning, on-premises system just wouldn't make
sense, and is a path fraught with issues.

2. Importance of Analytics and IT Intervention

a) Analytics vs. Analysis

Analytics is the discovery and communication of meaningful patterns in data,

especially valuable in areas rich with recorded information. Analytics relies
on the simultaneous application of statistics, computer
programmingand operations research to quantify performance and often
favors data visualisation to communicate insight.

Business firms commonly apply analytics to business data to describe, predict

and improve business performance. Specifically, arenas within analytics
include:

i. Enterprise decision management,

S-06-MOTOR INSURANCE (FOR SURVEYORS) 53

 ii. Retail analytics,

iii. Marketing optimisation and marketing mix analytics,

iv. Web analytics,

v. Wales force sizing and optimisation,

vi. Price and promotion modeling,

vii. Predictive science,

viii. Credit risk analysis, and

ix. Fraud analytics

Since analytics can require extensive computation, the algorithms and

software used for analytics harness the most current methods in computer
science, statistics, and mathematics.

Analytics is a two-sided coin:

i. On one side, it uses descriptive and predictive models to gain valuable

knowledge from data - data analysis.

ii. On the other, analytics uses this insight to recommend action or to guide
decision making - communication.

Thus, analytics is not so much concerned with individual analyses or analysis

steps, but with the entire methodology.

With the increased use of mobile communications, the stage is set for insurers
to develop more meaningful and mutually beneficial relationships with
policyholders. In auto / motor insurance, where advances in machine-to-
machine (M2M) communication, or telematics are spreading across the
marketplace, generating data to more precisely assess risk and reward for
policyholders who adhere to safe driving practices needs utmost attention.

The auto manufacturers are providing connected vehicle services to

discerning customers like

i. GPS,
ii. Emergency notification,
iii. Roadside assistance,
iv. Concierge services and
v. Other offerings

S-06-MOTOR INSURANCE (FOR SURVEYORS) 54

 Today, devices self-installed or plugged into a vehicle’s onboard diagnostics
(OBD) port, or professionally-installed black boxes, transmit driving behavior
and mileage data directly to insurers’ back offices. As a result, many insurers’
and brokers worldwide are leveraging telematics data to create more precise
rating variables that underpin new usage-based insurance (UBI) products. This
represents a sea change in policy underwriting, where models have
traditionally assessed risk and determined premiums based on group behavior
(typically demographics-based) and proxy variables such as credit scores.

As insurers’ risk models become more sophisticated through the use of

analytics applied to usage-based insurance UBI-generated data, a more
precise driver profile will emerge. Analytics will also streamline and
automate claims processes with real-time alerts and triggers, further
reducing expenses for the insurer and validating a better segmented book of
business.

b) IT Intervention and Data Analytics

Diagram 1: Key Areas in data analytics

On the data analytics side insurers must take good care of their data assets
and establish a strategy and architecture that will enable faster and more-
relevant analysis. The key areas are enterprise intelligence, enhanced
analytics, predictive analytics, data governance and data security. Each of
these are discussed below:

i. Enterprise Intelligence

Insurer is required to establish enterprise intelligence through common

standards and policies under a common architecture. Important data no
longer just comes out of the central relational database; it will come from
many sources, such as sensors and social media.
S-06-MOTOR INSURANCE (FOR SURVEYORS) 55
 ii. Enhanced Analytics

Enhanced analytics can capture data from all sources and turn it into
information that's relevant to the business.

iii. Predictive Analytics

Predictive analytics from this data will serve many parts of the organisation,
from fraud detection to underwriting to product development including
claims processing.

iv. Data Governance

Data only can be turned into something of value if the business has full faith
and trust in it. Cross-enterprise committees, centers of excellence or the
appointment of data stewards will help make sure everyone understands and
can benefit from the data that is available.

v. Data Security

Data is the most critical asset any organisation can have, and it is the very
foundation of anything insurance companies have to offer to the market.
Insurers must invest in best practices and technology to protect it.

c) The new Data-Driven Insurer

Data accumulation has never been a challenge for the insurance industry but
spurred by a more intensely competitive market and better, affordable
technology, insurers are embracing data-driven decision-making for more
effective marketing, pricing and loss reduction. Insurers are yet to realise
shifting from cost cutting measures, to more ambitious technology
interventions intended to assist competitive initiatives and drive efficiencies.

The emphasis has to be decidedly on projects intended to confer strategic

advantages and differentiation, as most insurers are heading for
transformation and growth. The insurers will have to leverage the assets they
are flooded with i.e., “data” - to take better decisions in marketing, pricing
and claim settlement besides fraud management.

Insurers have so far identified:

i. Analytics,
ii. Business intelligence,
iii. Data warehousing and
iv. Big data

S-06-MOTOR INSURANCE (FOR SURVEYORS) 56

 All of the above intend to help insurers make better use of the data they
have, access newly available data and make better, more informed decisions
to find opportunities, price them more effectively and reduce losses.

Analytics can be used to target the right people with the right message at the
right time. Computer processing power, third-party data and analytics are
maturing and becoming less expensive. "All of that is making analytics truly
worthwhile." The rise of digital media, in addition to offering new channels
to reach consumers, enables insurers to collect customer-response data
almost instantly, measure and understand the effectiveness of marketing
efforts, and quickly adjust them to increase their effectiveness.

Role of Insurance Information Bureau (IIB): IRDA is laying special emphasis

on the use of analytics in the industry for better structuring and pricing of
policies. "IRDA has backed up Insurance Information Bureau of India (IIB) for
collating data from the industry and then analysing them". IIB would become
self-reliant after a certain time once it started to sell analysed information
to the insurance companies both in India and abroad. The sale of some bad
policies had resulted in negative growth in the industry in the last few years
forcing the regulator to intervene to bring back confidence to the market.

d) Predictive Analytics in Claims

Predictive analytics is not just for fraud management in insurance industry

anymore, but the same can extend into other areas of Claims Management
such as

i. Surveyors and Loss Adjusters assignment,

ii. Loss-adjustment expense and
iii. Decision-support

However, there are several challenges to overcome.

Predictive analytics has been proven to improve claims-fraud management,

and over past several years it has played an important role in evolving pricing
by insurers. Besides fraud claims and pricing, insurance experts are now
identifying newer opportunities to apply predictive analytics in the claims
process which could trigger big changes in the industry.

There are indications that disruption may be starting to build from a claims
standpoint in insurance industry. The claims themselves are becoming both
more complex and better adapted to increased automation. More
complexities mean a claim, when it's for an automobile that's been designed
either not to be repaired for partial losses or not to have an accident at all,
the pricing is bound to become more rigorous.

i. How will insurers tend to adjust for such non repairable accident claims?

S-06-MOTOR INSURANCE (FOR SURVEYORS) 57

 ii. How insurers are going to handle such no accident vehicles on road?

Applying predictive analytics in claims especially with Surveyors and Loss

adjuster assignments, insurers can control staffing in Motor Verticals and over
all claims costs. Insurers have to ensure that they have placed right people
focused on the right decisions. This is where predictive analytics is being used
to support decision-making, and not to replace it. Providing automated
information and decision support to become productive, is increasingly
becoming key driver in the insurance market.

Predictive analytics in text mining, and drunken driving / drug-impaired

driving in automobile accidents: Drug-impaired driving is an increasingly
difficult problem for insurers, law enforcement officers, prosecutors, judges,
and policy makers. There are three reasons for identifying drug-impaired
driving for drivers involved in an automobile accident in the interest of motor
insurance stakeholders.

i. First reason relates to ‘claim recovery’. It is necessary to know that the

driver might have been under the influence of a

(a) Medication,
(b) Prescription,
(c) Drug, or
(d) Has consumed illegal narcotics

This will help the insurer assign a specialist who is able to efficiently
determine whether a drug-impaired condition existed at the time of the
accident. Generally determining whether a driver was driving under the
influence of a drug is much more complicated than determining whether a
driver was under the influence of alcohol. Furthermore, it is also necessary
to know whether the driver had been taking a medication such as an over-
the-counter product, prescription, drug, or illegal narcotic.

ii. Second reason relates to ‘assignment of liability’, and especially

subrogation opportunities. Finding that the other driver was under the
influence of a medication may be a cause for a subrogation recovery
against that driver / owner or provide enough additional evidence to
increase the likelihood or size of the recovery in case individual liability
is awarded.

iii. Third reason relates to ‘non-renewal’. If an insurer knows that the driver
had been involved in an accident while on a medication, prescription,
drug, or illegal narcotic, it may be a reason to not renew the cover or to
renew the cover at a higher rate.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 58

 Information not typically captured in insurer data systems is to be captured
whether one of the drivers in the accident was on a medication, prescription,
drug, or an illegal narcotic is extracted from the accident description. This
will improve the ability to predict the severity of an accident. Narrative data
can feed predictive analytics, improve claim-triage and subrogation recovery
opportunities, and empower a more intelligent approach to renewals and
rate-classification.

With driving under the influence of a drug representing a measurable though

largely unrecognised source of increased accident severity, automobile
insurers have an opportunity to extract value from text mining and better
manage the risk posed by driving under the influence of drugs.

i. Detection of driver under the influence of drug; driving while

intoxicated

Detecting drivers are under the influence of a drug is much more complicated
than detecting drivers who are driving under the influence of alcohol i.e.,
driving while intoxicated. Alcohol passes through the body in a reasonably
predictable manner and has an impact on a driver’s ability to operate a
vehicle safely. Field tests can be performed efficiently for driving while
intoxicated with acceptable accuracy. Furthermore, it does not matter
whether the blood alcohol content was due to the intake of beer, wine, or
hard alcohol; the sex, age, or body mass of the individual; or the length of
time since consumption. A blood alcohol content of 0.08 grams per deciliter
or higher is considered a per se case of driving while intoxicated.

ii. Drug-impaired Driving

By contrast, tests for medications and prescriptions are more difficult to

perform. It may take days, weeks, or months to obtain results. For the
impairment-impact of drugs on an individual’s ability to operate a motor
vehicle, there is no corollary to a blood alcohol content standard.

Detecting drug-impaired driving is a complex problem due to the large

number of substances with the potential to impair driving and impose the risk
of an accident, the variations in the ways that different drugs can impair
driving, the lack of basic information concerning the drugs that impair
driving, and the differences in the ways that the drugs can affect the body
and behavior.

iii. Identifying the presence of drugs in auto accidents

We need to increase the efforts to train law enforcement machinery to

recognise drivers that may be driving under the influence of drug. The typical
case is for an officer to perform “standardised field sobriety test” for a
driver’s blood alcohol content. If the Blood Alcohol Content is found to

S-06-MOTOR INSURANCE (FOR SURVEYORS) 59

 exceed the statutory limit, the officer is unlikely to test for drugs, and
consequently the incidence of driver under the influence of drug may be
understated.

If the Blood Alcohol Content does not exceed the statutory limit, the officer
may seek evidence for a driver under the influence of drug charge. Identifying
drivers under the influence of a drug is much more complicated than the
testing for alcohol with a “breathalyzer or urine test”.

For drug impairment, the tests may require a broader range of specimens
(e.g., blood, urine, oral fluid, sweat, and hair) and the present technology
often requires lab tests that may take longer time. This built-in delay and the
variety of potential results are bound to pose a challenge when it comes to
accurately tracking driver under the influence of drug instances, since the
pertinent information may not be available at the time of the accident or
when the police reports are prepared.

iv. Presence of drugs in automobile accidents

Insurers need to develop methods to efficiently read, organise, and analyse

large volumes of narrative data captured in accident descriptions, survey
reports, and other reports and documents where narrative information is
recorded in an unstructured text format. Within a single narrative report and
across reports, the same concept (such as taking his medications) can be
expressed in numerous ways.

The software has to be built developing methods to organise different-but-

similar expressions into a format that can be categorised and then included
in statistical analyses. A database on automobile accidents will have to
compile information on broad representative third party vehicular accidents.
The accidents will include:

(a) Single and multiple vehicle incidents,

(b) Drivers of various ages,

(c) Accidents occurring in a variety of environmental conditions

(d) Compile a narrative description of each accident, as well as the usual

information on number of vehicles, road conditions, weather
conditions, and time of day

(e) Describe the environmental conditions, vehicular movements, and

driver behaviour at the time of the accident

(f) Processing the accident descriptions: Narrative descriptions for the

accidents may be broken into phrases, and similar phrases can be
grouped together using analytical models. After removing prepositions

S-06-MOTOR INSURANCE (FOR SURVEYORS) 60

 and uninformative prepositional phrases, the result is a data file with
few million phrases

e) Identification of the Surprise Claim

Insurers are also giving importance to claims after the first-notice-of-
loss. There is greater emphasis for early identification of the surprise-
claims. Nobody seems to understand reasons for a claim that looks like
it's going to be Rs. 30,000 or Rs. 40,000 and becomes a Rs. 2,00,000
or Rs. 3,00,000 claim. Predictive models are applied not just at first-
notice-of-loss or preliminary report of injury, but during the claims
process, to enable them to much more rapidly identify and deal with
them, because those are the claims that need immediate attention to
avoid unpleasantness later.

f) Predictive Analytics for Commercial Lines of Business

Commercial insurance lines have lagged behind personal lines in
adopting predictive analytics because commercial lines tend more
toward an underwriting approach to pricing and risk management,
assuming that the computer can never replace the underwriter. But
some commercial insurance companies have begun to see that better
science—the type of science that modern predictive analytics can
provide—can help underwriters do their jobs more effectively.

The underwriter’s skill comes from centuries of the industry’s

collective experience and years of the underwriter’s personal
experience. Much of that skill derives from the underwriter’s intuitive
feel for the task. Underwriters have formed a kind of knowledge
center for the insurance industry, but their skills and intuition can’t
always be applied perfectly as markets change and more data
becomes available through third-party sources and other forms of
data, such as telematics.

Given better information and allowing underwriters to focus on the

important risks, they will make better decisions. Just as many
personal line carriers have discovered, a number of small and midsize
commercial line insurers have adopted predictive analytics for scoring
and pricing a tool that extends underwriters’ capabilities and
improves the accuracy of their predictions.
The same benefits are available to all commercial carriers.
Commercial lines data offers a tremendous predictive signal,
therefore companies are free to mine, if they are willing to embrace
state-of-the-art technology.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 61

Example

A large global carrier increased its commercial lines business profitably by

implementing a predictive analytics solution that provided actionable insight
based on a relatively low volume of commercial lines data. Segmentation models
showed that, of nearly $800 million in total premium, 19 percent of the exposures
were significantly underpriced and 34 percent significantly overpriced.

Lowering the rates on its overpriced business had a positive effect on the
company’s customer retention, and raising the rates on its underpriced accounts
quickly improved its bottom line. The newly identified variables were introduced
into the rating algorithm for faster, more accurate rating going forward.

g) Pricing and Underwriting for Predictive Analytics

Most companies adopting predictive analytics think of it exclusively as a tool

to help them with their pricing and underwriting. That’s an excellent
application, but it is only one of many possible ones.

Predictive analytics is also useful in the following, among other tasks:

i. Customer acquisition

How and where to prospect for good business is key to customer acquisition?
Effective customer acquisition efforts can help companies predict which
prospects are likely to respond to a specific marketing campaign.

ii. Target marketing

Where to find the right customers and how to identify good customers for
Target marketing? Optimal target marketing efforts are broader than
customer acquisition efforts and focus on defining which prospects are likely
to yield profitable business. Is

iii. Broker management

To help company understand how their agency or broker force is performing,

and how much of their “good business” is being submitted to your company.

iv. Cost reduction

To reduce costs, by making decisions on when to use outside data and when
not to use?

S-06-MOTOR INSURANCE (FOR SURVEYORS) 62

 v. Retention management

To understand which of your company’s clients are most likely to leave and,
in addition, which are likely to be profitable and unprofitable

vi. Claims process management

To understand which claims are likely to be fraudulent, which are likely to

develop into large claims, and other factors?

Example

A small insurance Company wanted to see whether it would be cost effective to

eliminate motor vehicle records (MVR’s) on a portion of its book of business,
enabling a reduction in both expenses and premium. The company used
predictive analytics to identify portions of the book where the reduction of
expenses would more than offset the lower premiums. The exercise ran 10 years
of data — more than 15 lakh Motor Vehicle Records through a predictive analytics
system and found that eliminating MVRs on certain business would drive several
crores more in profits annually.

Predictive analytics is not just a once-a-year exercise. There’s a tendency for

Insurers to think that they can complete an annual predictive analytics
process, then fix their pricing or implement other changes — and they will be
set until next year. They’re missing the point, however, that they ought to
be analysing the results throughout the year and changing and tweaking
wherever they can.

So, if a company carries out an analysis and incorporates the results in its
rate plan, the company’s executives should use analytics to measure the
results throughout the distribution force and apply the results in marketing
throughout the year, leveraging the work already done on pricing.

In other words, the full benefit of a predictive analytics approach is not

just where a company can use it, but how often the company can use it.

h) More Predictive Signals Gained

As we said earlier, it’s not a matter of how much data, or even how “clean”
your data is; it’s a matter of using the best available technology to analyse
the data, replacing traditional linear models with tool sets capable of
automatically identifying all relevant variables and analysing the predictive
power of interactions among them. If you believe you need to find new data
sources because you aren’t getting sufficient results and can’t get anything

S-06-MOTOR INSURANCE (FOR SURVEYORS) 63

 more out of your data, you probably are not using the best available
technology.

When it comes to getting every insight out of the data, it also doesn’t matter
how large or small you are. There are large global insurers with access to
sophisticated analytics tools that are not getting all of the available insights
out of their data. And there are mid-sized carriers using machine-learning
technology on relatively small data sets to optimise their businesses.

Example

A top auto insurance Company used a combination of traditional predictive

analytics methods, supplemented by more advanced modeling techniques. Using
this approach produced results in 18 months. The Insurers analytics team thought
they had extracted all predictive signals possible.

However, when machine-learning technology was applied to the same data, the
results were surprising. The results showed that 60 percent of the carrier’s
business was mispriced by more than 10 percent, up to 50 percent. And the
machine learning method worked significantly faster, producing results in only
eight weeks. If one wants optimal results, try using today’s sophisticated tools,
which take advantage of machine-learning-based predictive analytics.

All General Insurance companies’ small and large, personal and commercial
lines insurers’ should use modern machine learning based predictive
analytics, not just for pricing and underwriting, but for applications that
manage the entire life cycle of the customer. It’s easy to get started, and it’s
not necessary to have an army of scientists on the payroll. It will pay for itself
quickly, and ultimately it will help your company survive within an
increasingly competitive market.

Test Yourself 2

With regards to role of IT in the growth of insurance companies, success is

expected to come from ___________.

I. Cloud systems
II. Analytics
III. Both of the above
IV. None of the above

S-06-MOTOR INSURANCE (FOR SURVEYORS) 64

 TAC as Data Depository and TAC as National Repository

1. TAC as Data Depository

IRDA had earlier designated the TAC as the national repository of the insurance
statistical data on underwriting and claims of all motor insurers. Insurers are
required to capture all the relevant data and forward to the TAC on a quarterly
basis.

In addition to the data provided to the TAC, insurers are recording other
information of the vehicles insured by them to provide a competitive edge to
their acceptance of risks.

Example

i. Some insurers record the colour of the vehicles in private car insurance to
ascertain which colour is more accident prone. This is a common feature in
the international market.

ii. The regular parking space of the vehicle is another feature noted.

The statistical data is very exhaustive. The TAC has devised a standard format
for submission of statistics by all insurers. These data are to be submitted on a
quarterly basis. The IRDA is monitoring the prompt submission and penalising
insurers who do not provide the details within the timelines laid down.

Standardised codes are laid down for the majority of data required. As insurers
may have their own requirements and codes, they are permitted to use codes for
their specific requirements, in which case a Code master of such codes are to be
sent to the TAC along with the quarterly returns.

Example

An example of such code maybe a sub-zone code adopted by the insurer e.g.
Commercial Vehicle Zone A Sub-zone 2 (Delhi-NCR) etc.

The TAC data requirement is under three major sets. Various alphanumeric codes
have been assigned to the data e.g., Vehicle makes code, Insurer code etc. The
requirement is of individual records. The data sets are

i. Underwriting Policy data

ii. Claims paid data
iii. Input data

It may be mentioned at this juncture that owing to the dilution of functions of

TAC in recent years, the IRDA has constituted the Insurance Information Bureau
S-06-MOTOR INSURANCE (FOR SURVEYORS) 65
(IIB) which has taken the place of TAC as data depository. Hence reference to
TAC may be read as reference to IIB.

a) Underwriting Policy Data

Underwriting Data Input: Policy data set

 Name of insurer and the underwriting office

 Policy year and number
 If endorsement, its number
 RTA location and Code
 Policy code- type of policy e.g. Liability or Package or TP with Fire
 Class code- the class of vehicle e.g., Commercial vehicle Auto
rickshaw
 TAC Make code- code allotted by the TAC for most vehicle make and
Models e.g. Maruti Omni 8 seater code is 10018
 Insurer Make code- code allotted by individual companies, if any
 Zone code
 Vehicle Age, carrying capacity
 Registration No, Chassis No, Engine No, colour
 IDV
 Permit, Nature of goods
 Road type
 Driver, age, experience, claims history, qualification
 Incurred claims
 TPPD statutory cover
 Anti-theft device
 Automobile association membership, voluntary excess, vintage car
 Own premises, special design, side car, special rating
 NCB entitlement and percentage
 Premiums- gross basic OD, electrical, bi-fuel, trailers, Net OD
 Premiums- gross basic TP, trailers, Bi-fuel, Driver LL, Cleaner LL,
Coolies, conductor, owner PA, other PA, other TP, Net TP

The data required is very comprehensive. It captures most of the details

available in the proposal. It is however identity neutral as it does not require
the name or address of the proposer. All possible additional covers are also
recorded individually as well as the discounts opted.

Underwriting Data Output: The macro data statistics that can be generated
are with regard to the motor portfolio distribution among all insurers; the
classes and sub-classes of vehicles and their distribution across the national
zones and premium quantum distribution across all classes of vehicles and the
nature and extent of the additional coverage of various risks.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 66

 b) Claims Paid Data

Claims Data Input: The claims data requirement sets out to capture a
detailed picture of the types, nature and quantum of claims paid separately
for OD and TP.

OD paid claims set

 Name of insurer and the underwriting office

 Policy year and number
 If endorsement, its number
 RTA location and Code
 Policy code-type of policy e.g. Liability or Package
 Class code- the class of vehicle e.g. Commercial vehicle auto rickshaw
 TAC Make code- code allotted by the TAC for most
 Vehicle make and Models e.g. Maruti Omni code is
 Insurer make code - code allotted by individual companies, if any
 Zone code
 Vehicle Age, carrying capacity
 Registration No, Chassis No, Engine No, colour
 IDV
 Permit, Nature of goods
 Road type
 Driver, age, experience, claims history, qualification
 Incurred claims
 TPPD statutory cover
 Claim year and No., child claim no-if practiced by insurer multiple
claims for same accident
 Date of loss, place of loss, pin code, intimation date
 TAC nature of loss (NOL) code, insurer NOL code, if other
 Date of claim payment, nature of loss Total or other, and amount
claimed and paid, expenses paid, interest if any paid
 On account payment if made
 Basis of settlement if code maintained by insurer
 Outstanding OD claims at end of year
 OD summons type- Civil Court or Consumer Forum

TP paid claims set

 Name of insurer and the underwriting office

 Policy year and number
 If endorsement, its number
 RTA location and Code
 Policy code-type of policy e. g. Liability or Package
 Class code- the class of vehicle e.g. Commercial vehicle, Auto
rickshaw

S-06-MOTOR INSURANCE (FOR SURVEYORS) 67

  TAC Make code- code allotted by the TAC for most vehicle make and
Models
 Insurer make code- code allotted by individual companies, if any
 Zone code
 Vehicle Age, carrying capacity
 Registration No, Chassis No, Engine No, colour
 IDV
 Permit, Nature of goods
 Road type
 Driver, age, experience, claims history, qualification
 Incurred claims
 TPPD statutory cover
 Fatal or non-fatal
 TP amount claimed, paid
 Award paid amount
 Petition date, summons type
 Claimant age, sex, current annual income, Provision annual
 income, occupation
 Nature of injury, percentage of disability, income loss days
 Next hearing reason
 Children <25 yrs
 Children >25
 Damaged property details
 Number of dependents
 Written statement filed and date
 Policy filed
 Whether compromise, criminal-date
 Insured defended,
 Section 170 filed, court order, Company’s evidence date, drivers,
evidence date
 Claimant or deceased in charge sheet
 Post mortem date, reason for death
 Interest rate

An analysis of the claims data input highlights the detailed information sought
to be obtained on the losses. It is a first step in the systematic recording of
nature and types of losses. At the macro level it provides a picture of the
extent of losses faced by insurers across all categories of vehicles and sub-
classes.

c) Input Data

Insurers’ records are now created, recorded and stored on a computerised

system. The information for underwriting has to be accurate and complete to
generate the policy document, and accounting links. Most of the underwriting
information generated is in terms of the TAC requirement. There will be a
few deviations to incorporate the additional underwriting features that the

S-06-MOTOR INSURANCE (FOR SURVEYORS) 68

 respective insurer consider relevant and essential for their underwriting
practice and their record inputs will provide for this.

Underwriting Input Data: The particulars of every risk accepted by the

insurers are obtained and can be grouped as under

Vehicle particulars

 The class and sub-class of the vehicle e.g. private car or taxi; private
or public use
 Area of operation &/or zone of registration
 The make, model, year, engine and chassis No, carrying capacity.
 The colour of the vehicle and its mileage readings.
 Additional fittings installed
 Persons driving the vehicle, age, their experience, licence particulars
of owner, others regularly driving the vehicle and regular employed
driver.
 Coverage- the insurance coverage taken with all add-ons and
deductions. Each field is captured separately.
 Value of the vehicle and all additional fittings, individually
 Premium charged and discounts allowed.
 With the underwriting data computerized the claims process has also
to be linked. The claims process too has been computerized from the
time of intimation of the loss to its settlement all are recorded and
tracked. This monitoring has speeded up the claim settlement
process.

Claims Input Data: General

 Vehicle detail – in addition to what is required for underwriting,

above, the permit and fitness details, load carried
 Driver details- driver age, education level, experience of driving,
endorsements if any
 Accident details –location area type of road e.g. city, national
highway, state highway, village, hilly etc.
 Surveyors appointed- spot , final, re-inspection
 Investigators appointed if any
 Provisions for unpaid claims and reasons for being unpaid
 Own Damage - Nature and type of damages sustained, extent, value,
recoveries if any
 Third Party - Injured persons, nature, type and extent of injury, age,
income, Case Nos. Court jurisdiction, Claimants –age dependency;
Amounts awarded, legal fees and other expense

S-06-MOTOR INSURANCE (FOR SURVEYORS) 69

 d) Output Data

The collating and processing of the above data provides a platform for the
insurer to take appropriate decisions on motor insurance. The underwriting
and claims data provide a number of useful MIS for insurers

2. TAC as National Repository for Statistical Data

a) Underwriting Output

i. Loss ratios for different classes and subclasses of motor vehicles

It can be used to compare with the data for the individual insurer to ascertain
the deviation from national average - positive or negative. This will provide
the insurers with the appropriate base premium to be charged for the classes.
The underwriting response to adverse ratio can then be worked upon

ii. Loss ratio for different makes and models of vehicles

A comparison of these ratios can highlight the more loss prone vehicles and
measures to counteract them.

The output on claims break-up between OD and TP claims across the various
classes individually and collectively. Adverse OD claims can result in follow-
up action, in the form of loading of premium or applying specific terms or
restrictions.

The statistical data output on age of vehicles and the loss ratios thereon can
generate appropriate responses for acceptance of risks and the terms
thereof.

Distribution of vehicles across RTA zones can assist in deciding targets for
development of business or shrinking of market based on loss ratios.

b) Claims Output

The claims reports generated from the data are normally expressed in the
following forms

i. Claims paid in absolute terms against premium class wise. This statement
will give an overall picture of the profitability or otherwise of the motor
portfolio of insurers across class wise

ii. Distribution of premium and claims coverage - wise and class-wise. This
is snapshot of the distribution of premium and claims for OD and TP. It is
still on absolute terms but gives a truer picture of the underwriting
practice of companies. OD premiums are within control of insurers; hence

S-06-MOTOR INSURANCE (FOR SURVEYORS) 70

 high claims here reflect poor underwriting or unexpected catastrophic
events for the year.

iii. Incurred claims ratios are a truer picture of the business as they adjust
for previous years losses. Claims paid in the period and outstanding at the
end of the period less outstanding at the start of the period. Here too the
statistics can be generated on consolidated basis or break-up as to
coverage and even age and vehicle category basis.

It cannot be more emphasised that an accurate and comprehensive data

collections is essential for generating outputs that would be valuable to
an insurer in deciding the risks to accept and the appropriate terms to
ensure a profitable portfolio in a competitive environment.

c) Other Outputs

There is a strong perception among insurers that TP premiums are unviable.

However they have been unable to raise the rates due to the absence of clear
and authentic data. Thus one of the major benefits in generation of and
maintenance of data by an independent central repository will assist in
proving this perception and provide an opportunity in raising the premium
rates.

i. The statistical data on record can generate many other outputs e.g.
distribution of survey work among surveyors or advocates in case of motor
TP

ii. Analysis of data on TP claims across various courts could help in more
accurate provisioning of outstanding claims filed in various courts. E.g.
There is a general belief that courts in some states are more liberal in
awarding compensation to applicants. The detailed statistical data can
over a period support or refute such belief.

iii. They can even provide details of quantum of claims paid to various
repairers, the nature of damage and extent could decide whether the
payments are reasonable or exorbitant.

iv. The data could also provide trends on claims settlements for various types
of loss or damage for corrective action to be taken, where necessary

Information technology’s benefits are only as good as the raw information

supplied. It therefore requires a strong commitment and interest from the
top management of organisations to ensure that the need for and importance
of accurate raw data and the outcome’s benefits are brought to the notice of
all concerned.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 71

 In a de-tariff environment the availability of statistical data to determine
prices and profitability is of great importance. It is therefore essential that
such information is available quickly and comprehensively. Thus a well-
planned and comprehensive information technology platform must be the
goal of every insurer.

3. Future of Auto Insurance

In the technology world, the latest advancement is only as good as the next thing
coming down the line. The auto industry is constantly bringing us new
technologies, whether it is for

i. Safety,
ii. Entertainment,
iii. Usefulness or
iv. Simply for pure innovation

Many new car technologies are either specifically built for safety or at least have
some sort of safety focus to them. Some of it will help keep us safe, some will
give us information like never before and some will let us kick back and just enjoy
the ride.

Equipment and features the public takes for granted today -- electric ignition,
automatic front and rear windshield wipers, power steering, airbags, cruise
control and many more -- began life as unexpected advances that dazzled the
public.

Example

When GM introduced the first automatic transmission -- its Hydra-Matic Drive --

in the 1940 Oldsmobile, it was an expensive option and more of a curiosity than
a "got -to-have" feature. Today automatic transmissions have advanced to the
point of providing as many as eight forward gears, driver-shift options,
computerised driver-adaptable shifting and different shifting modes, such as
"sport," "touring" and "snow." But in 1940, not stirring the transmission yourself
was a radical concept and only well-heeled risk takers pointed up the extra cash
for the new technology. Today's "cutting edge" is tomorrow's "commonplace."

a) Fully Autonomous Vehicles

Also known as driverless cars, already exist in prototype (such as the Google
driverless car), and are expected to be commercially available around 2020.
According to urban designer and futurist Michael E. Arth, driverless electric
vehicles in conjunction with the increased use of virtual reality for work,
travel, and pleasure could reduce the world's 800 million vehicles to a fraction
of that number within a few decades. This would be possible if almost all
private cars requiring drivers, which are not in use and parked 90% of the

S-06-MOTOR INSURANCE (FOR SURVEYORS) 72

 time, would be traded for public self-driving taxis that would be in near
constant use.
i. This would also allow for getting the appropriate vehicle for the particular
need a bus could come for a group of people, a limousine could come for
a special night out, and a Safari could come for a short trip down the
street for one person.

ii. Children could be chauffeured in supervised safety.

iii. Driving under the influence of intoxication (DUIs) would no longer exist,
and few hundred thousand lives could be saved each year.

b) V2V (Vehicle-to-Vehicle) Automobile Technology

V2V is an automobile technology designed to allow automobiles to “talk” to

each other. V2I is an extension of V2V and allows vehicles to communicate
with the roadside infrastructure. Collectively they are known as V2V2I or V2X.
The V2X-connected vehicles vision is extensive and has the following goals:

i. All vehicles have communication equipment that allows continuous

connection to all nearby vehicles.

ii. All vehicles have communication equipment that allows continuous

connection to all roadways infrastructures.

iii. Many V2X applications to improve safety, traffic flow, energy usage and
others will be developed. Many yet unforeseen V2X applications are likely
to emerge.

iv. V2X will become an enabling technology for future cruise-assisted

highways and autonomous driving.

v. The deployment timing of this vision is uncertain, but deployment will

probably start between 2015 and 2020 in Europe and the US. Japan has
already started to deploy V2I- based systems. V2V is expected to be
significant by 2020 and will become prevalent by 2025.

The IHS Automotive topical report, V2X Technology's Arrival Key to Accident
Reduction and Prevention, looks at the current status of the V2X market with
reviews of key US, Japan and European Union projects. V2X application,
business models and deployment options are also explored. The market
potential of V2V is projected based on three forecast scenarios -
conservative, expected and aggressive forecasts are included in a
spreadsheet model, which has details on four regions: United States, Western
Europe, Japan and worldwide.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 73

 The V2X Technology's Arrival “Key to Accident Reduction and
Prevention” report is available on IHS Automotive Advanced Driver Assist
Systems (ADAS) Portal. The portal, powered by IHS iSuppli, allows users to
quickly assess potential market demand and attach rates for key ADAS and
safety systems used in the production of light vehicles. The portal includes
profiles of all production vehicles around the world, as well as industry news,
technology reports, supplier profiles, OEM-supplier relationships, regulation
and mandate details and industry forecasts segmented by application and
geographic region.

c) Alternatives to the Automobile

Established alternatives for some aspects of automobile use include public

transit such as

i. Buses,
ii. Trolleybuses,
iii. Trains,
iv. Subways,
v. Tramways light rail,
vi. Cycling, and
vii. Walking

Car-share arrangements and carpooling are also increasingly popular – the US

market leader in car-sharing has experienced double-digit growth in revenue
and membership growth between 2006 and 2007, offering a service that
enables urban residents to "share" a vehicle rather than own a car in already
congested neighborhoods. Bike-share systems have been tried in some
European cities, including Copenhagen and Amsterdam. Similar programs
have been experimented with in a number of US Cities. Additional individual
modes of transport, such as personal rapid transit could serve as an
alternative to automobiles if they prove to be socially accepted.

Test Yourself 3

The TAC data requirement is under three major sets. The requirement is of
individual records. The data sets are:

I. Underwriting policy data, Claims paid data and Input data

II. Underwriting policy data, Premium collected data and Input data
III. Underwriting policy data, Premium collected data and Output data
IV. Policy issued data, Premium collected data and Output data

S-06-MOTOR INSURANCE (FOR SURVEYORS) 74

SUMMARY

In this chapter you learnt how the policy is underwriter taking in to consideration
various risk factors. You learnt that IT application in motor insurance the
response time of insurers towards customers has minimized. IT intervention has
created a data for analysis and helped forecast risk and competitive pricing of
product to sustain in current market completion. You also learnt the role of TAC
and IIB in insurance industry.

Answers to Test Yourself

Answer 1

The correct option is IV.

In case of motor insurance, the following data is appropriate for underwriting
purposes: Age of the vehicle, Condition of vehicle, and other information culled
from the proposal forms.

Answer 2

The correct answer is III.

With regards to role of IT in the growth of insurance companies, success is
expected to come from cloud systems and analytics.

Answer 3

The correct option is I.

The TAC data requirement is under three major sets. The requirement is of
individual records. The data sets are: Underwriting policy data, Claims paid data,
Input data.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 75

Self-Examination Questions

Question 1

___________ is the discovery and communication of meaningful patterns in data,

especially valuable in areas rich with recorded information.

I. Analysis
II. Analytics
III. Statistics
IV. Business Intelligence

Question 2

A blood alcohol content of ________ or higher is considered a per se case of

driving while intoxicated.

I. 0.08 grams per deciliter

II. 0.8 grams per deciliter
III. 8 grams per deciliter
IV. 80 grams per deciliter

Question 3

Insurers are required to capture all the relevant data (related to motor insurance)
and forward to the TAC on ____________.

I. Ad-hoc basis as and when requested

II. Yearly basis
III. Half-yearly basis
IV. Quarterly basis

S-06-MOTOR INSURANCE (FOR SURVEYORS) 76

Answers to Self-Examination Questions

Answer 1

The correct option is II.

Analytics is the discovery and communication of meaningful patterns in data,

especially valuable in areas rich with recorded information.

Answer 2

The correct option is I.

A blood alcohol content of 0.08 grams per deciliter or higher is considered a per
se case of driving while intoxicated.

Answer 3

The correct option is IV.

Insurers are required to capture all the relevant data (related to motor insurance)
and forward to the TAC on a quarterly basis.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 77

 CHAPTER 4

TYPES OF MOTOR POLICIES

Chapter Introduction

In this chapter you will learn about various types of Motor Policies, Liability Cover
under Package Policies, coverage for various vehicles, Motor Trade Policies,
Scope of Motor Trade Internal Risks Policies, New technologies in cars and in auto
field.

Learning Outcomes

A. Types of motor policies

B. Coverage for motor policies
C. Motor trade policies

S-06-MOTOR INSURANCE (FOR SURVEYORS) 78

A. Types of Motor Policies

The introduction of private insurers in India in 2000 following the passing of the
Insurance Regulatory and Development Authority Act has brought about intense
competition in the market for insurance business. Non-life or general insurance
business too has been exposed to this competition. However, the existence of
the Tariffs in Fire, Motor Engineering and Workmen’s Compensation muted this
competition to some extent.

There has been a cut-throat competition in the other non-life business and a
scramble for the best risks in the Tariff business. As the restrictions of the Tariff
were seen to be a barrier for differentiation of product and development of new
products, the insurers were demanding scrapping of the tariffs and freedom to
devise policy wordings and determine rates to grow in the market.

The Insurance Regulatory and Development Authority (IRDAI) has withdrawn the
India Motor Tariff with effect from 1st January 2007. However the wordings of
‘Liability Only’ Policy are retained and the rates for ‘Liability Only’ policy are
regulated by the IRDAI. With regard to ‘Own Damage’ covers the existing policy
wordings are to be continued but insurers are given freedom of pricing and
permitted to provide add on covers after obtaining the Regulator’s approval. The
erstwhile India Motor Tariff wordings will remain as Standard cover.

The following two policy forms continue to be used:

i. Liability only and

ii. Package policy,

The Authority has prescribed proposal forms for third party ‘Liability Only’ policy
for private car, two wheelers and commercial vehicles.

Motor Insurance business in India was governed by India Motor Tariff since the
1970’s subject to amendments, the last being in July 2002. Although the Tariffs
were discontinued from 1st January 2007, however the policy wordings are
required to be continued until such time that IRDAI permits the change in policy
wordings, terms and conditions. The existing policies are now termed as standard
policies with insurers free to provide add-on covers as approved by IRDA under
the “File and Use guidelines”.

i. Liability Only Policy

This form covers, ‘Act Liability’ and ‘Personal Accident risk to owner/driver’.
“Liability Only” Policy is called Standard Form for ‘Liability Only’ policy. This
form applies uniformly to all classes of vehicles, whether Private Cars,
Commercial Vehicles, Motor Cycles or Motor Scooters, with suitable amendments
in ‘Limitations as to Use’, ‘Drivers Condition’ and some special Conditions.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 79

ii. Package Policy

Package Policy form provides wider cover for ‘own damage’, ‘Act liability’ and
‘PA to owner / driver’, with suitable modifications based on the class of vehicle
covered. It can also be extended to cover additional liabilities such as liability to
employees of the insured who may be traveling in or driving the employer’s cars,
augmented Third Party Property Damage Liability, etc.

Insurers could, restrict the cover under the Own Damage section of Package
Policy without reduction in premiums or increase the premium. However,
‘Liability only’ cover cannot be modified.

Restricted cover for Fire and / or Theft Risks (GR 45A) :

When the vehicle is in garage and not in use policies may be granted to cover the
risks of Fire and/or Theft only (without Liability Only cover), based on a written
declaration from the insured stating that the vehicle will not be used at all for
the duration of the policy period. Premium rates are offered for the
aforementioned risks under GR 16.

Restricted cover for Liability Only and Fire and / or Theft Risks (GR 45B) :

It is possible to issue policies covering the vehicle for the restricted Liability Only
with Fire and/or Theft risks.

Risk Covered Premium

Liability Only Policy with Fire Liability Only Premium + 25% of the appropriate
only cover OD Premium for the vehicle.
Liability Only Premium + 30% of the appropriate
Liability Only Policy and Theft
OD Premium for the vehicle.
Liability Only Policy and Fire & Liability Only Premium + 50% of the appropriate
Theft OD Premium for the vehicle.

(Vehicles that are rated under Class-D of the Tariff for Miscellaneous and Special
Types of Vehicles are not eligible for the issuance of this restricted insurance)

Bundled Policies:

IRDAI has sets out the guidelines for Motor Own Damage Insurance cover for
package products as well as stand-alone motor third party insurance. A bundled
cover was permitted-one year for Own Damage alongwith long term Third Party
cover for new Private Car/new Two-wheelers for three years and five years
respectively. The Long-term stand-alone Own Damage policies will not be
allowed.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 80

1. Third Party Cover

a) Liability to third parties: The policy covers the insured’s legal liability
for accidents occurring out of the use of the vehicle, in a public place,
anywhere in India. This liability is subject to the Limit of Liability as laid
down the Policy and Schedule are as follows:

i. Death or Bodily injury to any person as far as is necessary to meet the

requirements of the Motor Vehicles Act 1988 --------- Liability as incurred

ii. Damage to property of any person up to Rs. 6000/-

iii. In the case of goods carriage, the owner of the goods or his representative
traveling with the goods is also covered.

iv. In the case of Passenger Service Vehicles (hire or reward), the passengers
are also covered.

v. In Commercial Vehicles employees connected with running of the vehicle

i.e. Driver, Conductor, Loading / Unloading Operators are entitled as per
the Employee’s Compensation Act, 1923.

b) Personal accident to owner-driver

i. The owner of an insured vehicle is termed as ‘owner-driver’. The Personal

Accident to Owner-Driver cover is provided to owners of all individually
owned vehicles. Vehicles registered in the name of a Company or
organizations do not have compulsion of this cover. The provision was
included in ‘Liability policy’, as it was observed that in most motor
accidents, no other vehicle was involved while the owner, traveling in the
vehicle suffering an injury, was not entitled to compensation.

The situation got accentuated, if the injured owner was not having any
insurance to cover himself. The owner or family thus landed in financial
distress. To mitigate the financial loss faced by the family, this coverage
is provided.

ii. The insurer undertakes to pay compensation to the owner-driver for

bodily injury or death in the event of an accident directly connected with
the vehicle or whilst driving or mounting or dismounting or traveling as a
co-driver, caused by accidental, external, violent and visible means
within 6 calendar months of such injury.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 81

 Nature of injury Scale of
compensation
Death 100%
Loss of two-limbs or sight of two eyes or one 100%
limb and sight of one eye
Loss of one limb or sight of one eye 50%
Permanent Total Disablement (PTD) 100%

iii. Provided that the total compensation in all types of vehicles is Rs.
15,00,000/-.

iv. The injury must not be intentional and/or, the person must not be under
the influence of intoxicating liquor or drugs.

v. The owner-driver must be the registered owner of the vehicle insured and
holding a valid and effective driving licence as per Rule 3 of the Central
Motor Vehicle Rules 1989.

vi. The Company will also pay all costs and expenses incurred with its written
consent.

vii. In the event of death of Insured persons, the legal heirs or personal
representatives will be treated as if insured and nominee is to be
provided compensation as per PA Owner driver Liability policy.

viii. A vehicle owner can purchase a separate "Compulsory Personal Accident

Cover" policy to protect himself against unintentional hazards while
driving his own vehicle. This standalone PA policy is available for all types
of vehicle, including private cars, taxis, two-wheelers, and commercial
vehicles. The policy is offered for one year and offer compensation to
the beneficiary in case of the insured person's death or incapacity while
travelling in the insured vehicle.

ix. This cover is not available for vehicles owned by a Company, a

partnership firm or a similar body corporate or where the insured does
not hold an effective license.

c) Companies’ right to defend

The Company may at its own option:

i. Arrange for representation at any inquest or fatal Inquiry for any Third
Party death and

ii. Undertake the defense of proceedings in any Court of Law involving

Insured Vehicle.
S-06-MOTOR INSURANCE (FOR SURVEYORS) 82
 d) Avoidance of certain terms and right of recovery

The Insured persons are entitled to the benefits in terms of the Motor Vehicle
Act 1988. No provision in the policy shall affect the right of any person
indemnified by the policy, to recover an amount by virtue of the Motor
Vehicle Act 1988.

e) Application of limits of indemnity

In the event of any accident involving indemnity to more than one person any
limitation in the forms of the policy on the amount of any indemnity shall
apply to the aggregate amount of indemnity to all persons indemnified and
such indemnity shall apply in priority to the insured.

f) General exclusions

The Company is not liable for any claim when the vehicle is used:

i. In breach of “Limitations as to Use’

ii. In contravention of “Drivers Clause”

iii. Contractual liability claims

iv. Liability to employees other than those connected with the operations of
the vehicle. (It is in terms of the Employee’s Compensation Act 1923, for
employees connected with the operations of the vehicle, provided the
accident arises out of and in the course of employment.)

v. Passengers carried by reason of or in pursuance of a contact of

employment are covered.

vi. Any liability to passengers traveling, entering mounting or alighting from

the vehicle other than under the Motor Vehicle Act 1988. Employee
traveling as passenger is not covered. (Note: passengers traveling in public
passenger vehicles are required to be covered under the MV Act 1988.
Passengers in private vehicles are not required to be covered separately.)

vii. Losses arising directly or indirectly due to war and war like perils.
However, any claim for damage, which the insured can prove is
independent of such perils, will be payable.

viii. Any liability arising directly or indirectly from nuclear weapon material.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 83

Conditions

The policy and schedule shall be read together. All words defined under the
policy shall carry the same meaning wherever they may appear in the policy
or schedule:

i. Notification of claim: Notice in writing to be given to the Company

immediately on the occurrence of a claim. All summons, legal notices and
similar documents, must be submitted to the Company. The Insured if
aware of any prosecution Inquest or Fatal Inquiry relating to an accident
which can result in future claim must inform Company in writing of such
matters.

ii. No admission, offer, promise or payment: The Insured cannot commit to

any admission or settlement without insurance companies prior written
consent.

Insurers can take over the defense or settlement at their discretion. In

such event Insured must provide all assistance and cooperation. Any
payment not covered under the policy can be recovered from the Insured.

iii. Maintenance of Vehicle: Insured should take all steps to maintain the
vehicle in efficient condition. The Insurer can examine the vehicle, driver
or any employee of the insured at all times.

iv. Cancellation: The insurer can cancel the policy by giving 7 days notice to
the Insured, by recorded delivery at last known address. The insurer is
permitted to retain premium on pro-rata basis for the period the policy
was in force and refund the balance. Insured can cancel policy by 7 days
notice by recorded delivery.

The insured is entitled to return of premium after deduction of amount

on ‘short period rates’ provided no claim has occurred under the policy.
The return of premium is subject to the Minimum premium retention by
the Insurers. Cancellation on transfer of ownership cannot be done, unless
proof of insurance being done elsewhere, is provided

v. Contribution: If more than one insurance policy has been taken for the
same liability, the Insurer will contribute a ratable proportion of any
compensation, cost or expense.

vi. Arbitration: All disputes on quantum on claim shall be referred to

decision of sole arbitrator appointed by the parties to the dispute in
writing within 30 days of invocation of Arbitration by any party. If they
are unable to agree on sole arbitrator then panel of three arbitrators to
be appointed –one each by each party to the dispute and the third by the

S-06-MOTOR INSURANCE (FOR SURVEYORS) 84

 two arbitrators. The third arbitrator will be presiding arbitrator and will
conduct the proceeding according to the Arbitration Act 1996.

(a) If dispute is on liability then the matter cannot be referred to

arbitration.
(b) No suit or action can be taken unless arbitration award has been
obtained.
(c) If Insurer rejects claim and the insured does not file a suit in a court
of law within 12 months of the rejection then it will be presumed that
the claim has been abandoned and not recoverable.

vii. Due Observance of terms and Conditions as precedent to Liability

The Insured is required to observe and fulfill all the terms and conditions of
the policy. All statements and answers in the proposal form are to be made
truthfully by the Insured.

[Link] of the policy in the event of death of the insured

In the event of the death of Insured, the policy will remain valid for three
months, from the death or until expiry of the policy (whichever happens
earlier). The legal heirs are required to have the policy transferred in their
name or take a fresh policy within this period.

To obtain the transfer or new policy the legal heir is required to make an
application to the Insurers within the time allowed and submit along with the
application, following documents:

(a) Death Certificate

(b) Proof of title of the vehicle
(c) Original Policy

g) Schedule

The Schedule contains the following information:

i. The Policy No.

ii. The Insurer

iii. The Insured Name, Address, Business or Profession

iv. The period of insurance: From: time and date to midnight date

v. The Motor Vehicle: Registration Mark, Engine and Chassis Nos., Make,
Type of Body, Capacity, Year

S-06-MOTOR INSURANCE (FOR SURVEYORS) 85

 vi. Geographical Area

vii. Limits of Liability

For injury or death Decided by court (as incurred liability)

For property damage Rs. 6000/- per accident

viii. Limitations as to Use

This depends on the category of vehicle and will differ accordingly. This can
be explained with the help of the following example:

Example

Use only under a permit within the meaning of the

Stage Carriage/Contract MV Act 1988 or such a carriage falling under sub-
Carriage/Goods section (3) of the MV Act 1988.
Carriage/
The policy does not cover use for:
a) Organised racing
b) Speed testing

ix. Driver Clause

This states the person or class of persons entitled to drive the vehicle. This
can be explained with the help of the following example:

Example

Stage Carriage/Contract Any person including Insured:

Carriage/
 Provided that the person driving holds an
effective driving licence at the time of the
accident and is not disqualified from holding
or obtaining such a licence

 Provided also that the person holding an

effective Learner’s Licence may also drive the
vehicle when not used for the transport of
passengers at the time of the accident and
that such person satisfies the requirements of
Rule 3 of the Central Motor Vehicle Rules 1989

x. The schedule incorporates the proposal and declaration. Thereafter the

signature of the authorised insurer appears.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 86

2. Additional Covers under Liability policies

There are variations between the “Liability only policies” and “Liability cover
provided under the Package policies”. The variations are as follows:

a) Occupants / pillion rider; loading unloading of operators

i. In the case of private cars and two-wheelers the death or bodily injury
includes occupants/ pillion rider carried in the vehicle.

ii. For commercial vehicles it includes loading/unloading operators for goods

carriage vehicles

b) Wider property damage liability cover

In the case of Property damage cover, wider liability is being provided.

i. The limits specified for Motorised two-wheelers Rs. 100000/-

ii. All other vehicles Rs. 750000/-

The limit of Rs. 6000/- is applied when the insured opts out of wider Third
Party Property Damage (TPPD) cover (a discount in premium is allowed).

c) Wider property damage belonging to others

The policy does not cover property held in trust or in control of the insured.
This implies that property belonging to others, lying with insured is not
covered.

d) Place where liability arise

i. The cover for liability is not restricted to “Public Place” for private cars
and two wheelers used for personal use. In the “liability only “policy this
restriction applies.

ii. For commercial vehicles liability is restricted to public place, not beyond
limits of any carriageway or thoroughfare for loading/unloading.

iii. In the case of commercial vehicles damage to bridge, viaduct road, or

anything beneath by vibration or weight of the vehicle or load carried is
not covered.

e) Towing of disabled vehicles

Commercial vehicles policy permits this service provided it is not done for
hire or reward. The policy will pay for liability arising out of such towing
service.
S-06-MOTOR INSURANCE (FOR SURVEYORS) 87
 f) Limitations as to use for commercial vehicles

i. For Goods Carrying Vehicle: Use only for carriage of goods within the
meaning of the MV Act 1988.

g) The policy does not cover

i. Use for organised racing, pace making, reliability trial or speed testing.

ii. Use whilst drawing a trailer except the towing (other than for reward) of
any one disabled mechanically propelled vehicle.

iii. Use for carrying passengers in the vehicle except employees(other than
driver) not exceeding six in number coming under the purview of EC Act
1923.

iv. For Passenger carrying vehicle: Use only for carriage of passengers in
accordance with the permits (Contract or Stage carriage) issued within
the meaning of the MV Act 1988.

(a) Use for organised racing, pace making, reliability trial or speed testing

(b) Use whilst drawing a trailer except the towing (other than for reward)
of any one disabled mechanically propelled vehicle

h) Additional covers

The ‘Liability only policy’ can be extended to cover additional risks. These
may be optional or essential. Inclusion of each of these covers involves
incorporating an endorsement to the policy.

i. Essential cover

(a) Passenger Liability in Public Passenger Service Vehicles: This is an

essential cover for all passenger vehicles i.e. taxi, buses, and rickshaws
subject to additional premium.

(b) Bi-fuel Vehicles: This is also an essential cover for vehicles fitted with bi-
fuel arrangement i.e., in addition to Petrol or Diesel they have
attachments for CNG or LPG as fuel for running the vehicle, are subject
to increased hazard in the event of accident. Such vehicles require an
endorsement in the Registration Certificate by the RTA. In such cases an
additional premium is to be charged for Third Party liability cover.

(c) Liability for persons employed in connection with the operation of the
vehicle: The MV Act 1988 provides for liability to employees connected

S-06-MOTOR INSURANCE (FOR SURVEYORS) 88

 with the operations of the vehicle i.e. driver, conductor, employees
engaged in loading/unloading operations in goods vehicle. Liability for
these employees arise under the Employee’s Compensation Act 1923 is
also an essential cover. This liability is covered by charging an additional
premium.

ii. Non-essential covers

(a) Personal accident covers for un-named passenger: The policy can be
extended to cover PA benefits to passengers in the vehicle. The benefits
are similar to that provided for the owner/driver. However, the Sum
Insured can be selected by the insured and ranges between Rs. 10000/-
to 200000/- per passenger. The premium on the Sum Insured selected is
to be charged on the basis of the authorised passenger carrying capacity
of the vehicle.

(b) Liability for non-fare paying passengers: Employees other than those
connected with the operations of the vehicle are not entitled to
compensation under the MV Act 1988. Their liability would arise under the
Employee’s Compensation Act 1923, or if not an employee/ workman
under Common Law.

Non-fare paying passengers can be covered only when the permit of the
vehicle allows such carrying or the MV Act 1988 permits.

Example

Under Section 147 of the Act 1988, it is necessary to compulsorily cover Owner
of Goods being carried in goods carrying vehicle.

Test Yourself 1

The existence of the Tariffs in ________ muted competition to some extent?

I. Fire
II. Motor Engineering
III. Workmen’s Compensation
IV. All of the above

S-06-MOTOR INSURANCE (FOR SURVEYORS) 89

B. Coverage for Motor Policies

1. Coverage for Private Car

Package Policy: There are minor variations in the coverage for Own Damage for
Private cars and Two-wheelers under the Package Policy. The variations are being
clarified as we go along.

Section I – Own Damage

a) Risks covered

The Company will ‘indemnify’ the Insured against loss

i. Fire, explosion, self-ignition or lightening; (Note: As regards “explosion”
peril, both external and internal explosions are deemed to be covered.)
ii. Burglary, housebreaking or theft;
iii. Riot and strike;
iv. Earthquake (fire and shock damage);
v. Flood, typhoon, hurricane, storm, tempest, inundation, cyclone,
hailstorm, frost;
vi. Accidental external means;
vii. Malicious act;
viii. Terrorist activity;
ix. Landslide / rockslide.
x. Whilst in transit by road, rail, inland waterway, lift, elevator or air;

b) Contract to indemnify

The contract is not to “pay” the loss to the insured, but to “indemnify” him
against his loss. Thus if parts are damaged in an accident and are replaced
with new parts, the new price will not be paid, rather the new cost will be
depreciated for age of the vehicle i.e., new cost reduced by actual
depreciation; and the balance will be payable.

c) Loss or damage of accessories

It is covered only if the accessories are on the Motor car.

Example

If the accessories are detached and kept separately in a garage and are destroyed
as a result of any peril mentioned above e.g., fire to the garage, they will not be
covered by the Motor policy. The term “accessories” do not apply to the engine
of a car, for it is an essential part of the vehicle.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 90

 i. Loss or damage to accessories in the case of two-wheelers, theft of
accessories is not covered unless the vehicle is also stolen at the same
time. This can be covered as an add-on risk by charging additional
premium. There is no satisfactory definition of the word “accessory”.

Definition

The word “accessory”, means generally those parts which are directly supplied
by the manufacturer along with the car, but which are not essential for the
running of the motor car, are considered as accessories.

It should be noted that music systems, air-conditioners and other electric or

electronic items, etc. fitted nowadays by the motor car owners on their Cars,
will not be considered as accessories, but they will be considered as extra fittings
and will not be covered unless they are separately described and valued in the
Schedule of the Policy.

ii. Extra fittings: which are standard and provided as inclusive with the
vehicle by the manufacturer need not be separately described and are
deemed to be included in the value proposed for insurance. For example:
a DX or LX model vehicle has built-in extra fitting like Air conditioner,
Music system or Power steering/windows. These are part of the
Manufacturers selling price and included in IDV. In this case the standard
premium rate is charged and no extra-fitting premium rate is chargeable
separately.

d) Deduction for depreciation

Depreciation is deducted for parts replaced following an accident as follows:

For all rubber/nylon/plastic parts, tyres and tubes,

batteries and airbags 50%
For all fiberglass components 30%
For all parts made of glass Nil
For all other parts as a percentage based on the age of the vehicle as follows:
Age of vehicle % of depreciation
Not exceeding 6 months Nil
Between 6 months and 1 year 5%
Between 1 year and 2 years 10%
Between 2 years and 3 years 15%
Between 3 years and 4 years 25%
Between 4 years and 5 years 35%
Between 5 and 10 years 40%
Over 10 years 50%

S-06-MOTOR INSURANCE (FOR SURVEYORS) 91

 e) Exclusions under “own damage” section

The insurer will not be liable to make any payment for:

i. Consequential loss, Depreciation, Wear and Tear, Mechanical or Electrical

Breakdown, Failures and Breakage; and

ii. Damage to tyres unless the motor car is damaged at the same time when
the liability of the insurer is limited to 50% of the cost of replacement;

iii. Any accidental loss or damage suffered whilst the insured or any person
driving with the knowledge and consent of the insured is under the
influence of intoxicating liquor or drugs.

f) Consequential loss

The policy covers only direct loss caused by an accident to the car. The
insured may suffer loss of use of the car during repairs, in the form of cost
and expenses of alternate transportation. This is a consequential loss, which
is not covered.

g) Depreciation, wear and tear

These losses are not in the nature of accidental fortuitous events. In course
of time, motor vehicle, like any other property, suffers wear and tear due to
use. Since wear and tear is inevitable, it cannot be insured. The word
“depreciation” used in the exclusion which claimant is expected to bear, is
in terms of the principle of indemnity. In the latter case, the policy clearly
indicates the rates of depreciation to be applied in respect of parts replaced.

i. Depreciation caused due to accident: However, when vehicle meets with

a serious accident and is repaired to be placed in a satisfactory manner,
even so it may have depreciated in value as a result of the accident, in
the sense that, if it is offered for sale, the owner may realise lesser value
than what it would have fetched prior to the accident. This kind of
depreciation is excluded by the policy even though directly caused by the
accident.

ii. Mechanical or electrical breakdown, failures, and breakages:

Mechanical breakdown is associated with wear and tear; as such a
breakdown is caused by metal fatigue. However, subsequent damage
following mechanical breakdown is covered by the policy. If the steering
rod breaks and causes an accident resulting in damage to the car, claim
in respect of breakage in steering is not payable, but subsequent or
consequential damage to the car is accidental and claim in respect of that
will be admissible.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 92

 h) Protection and removal costs

If the motor car is disabled by reason of loss or damage covered under the
policy, the insurer will bear reasonable cost of protection and removal to the
nearest repairers and of redelivery to the insured but not exceeding in all Rs.
1,500/- in respect of any accident.

i) Authorisation for repair

The insured may authorise repairs necessitated by damage covered under the
policy, provided that:

i. The estimated cost of such repairs does not exceed Rs. 500/-.

ii. The insurer is furnished forthwith a detailed estimate of the cost, and

iii. The insured gives the insurer full assistance to see that such repair is
necessary and the charge reasonable.

j) Sum insured - Insured’s Declared Value (IDV)

The IDV is deemed to be the Sum Insured for the purpose of the policy and is
fixed at the commencement of each policy period for the insured vehicle.
The IDV is generally treated as the Market Value throughout the policy period
without further depreciation for Total (TL) or Constructive Total Loss (CTL)
claims. CTL is understood as when the repair and retrieval cost of the vehicle
as permitted under the policy exceeds 75% of the IDV.

The IDV is usually fixed on the basis of the manufacturers’ listed selling price
of the brand and model and is adjusted for depreciation (as per schedule
below)

% of
Age of the vehicle
depreciation
Not exceeding 6 months 5%
Between 6 months and 1 year 15%
Between 1 year and 2 years 20%
Between 2 years and 3 years 30%
Between 3 years and 4 years 40%
Between 4 years and 5 years 50%

S-06-MOTOR INSURANCE (FOR SURVEYORS) 93

Example

Maruti Swift 2007 Model to be renewed in 2011, Manufacturers selling price for
new Swift in 2011 is Rs. 550000/-.
IDV for 2007 model will be 50% of 550000 = 275000/- with depreciation 50% (4 to
5 yrs).

IDV for vehicles over 5 years and obsolete vehicles is to be determined on the
basis of an understanding between the insurers and insured.

2. Coverage for Two Wheeler

The coverage for a two wheeler is similar but with the following amendments.

i. The two wheeler policy covers theft of accessories only if the vehicle is
stolen at the same time.
ii. Protection and removal costs to the extent of Rs. 300/- only
iii. Authorisation for repairs restricted to Rs. 150/-.

Section II - Liability to Third Parties: This has been dealt with Liability To Third
Parties supra.

It is to be noted that the coverage under the Package policy is wider as discussed
under liability cover under package policies.

a) General exceptions (application to all Sections of the policy). The Insurer

shall not be liable in respect of:

i. Any accident, loss, damage or liability caused, sustained or incurred

outside the Geographical Area (described in the Schedule of the Policy).

ii. Any claim out of any contractual liability.

It will be appreciated that the policy covers only legal liability; therefore,
no other liability assumed by the insured under any agreement or contract
is covered.

Whilst the insured vehicle is:

(a) Being used otherwise than in accordance with the ‘limitations as to

Use’. The Schedule of the Policy describes these ‘Limitations as to
Use’.

(b) Being driven by any person other than a Driver as stated in the Driver's
Clause. The Clause is described in the Schedule of the Policy.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 94

 iii. Nuclear risks exclusion clause: loss, damage, liability arising from
ionizing radiations or nuclear waste process of nuclear fission.

iv. Any accident loss, damage or liability directly or indirectly,

proximately or remotely arising from War, and kindred peril.

The burden of proving that loss, damage or liability arose independently

of the said occurrences shall be on the Insured. Unless this burden is
satisfactorily discharged, there is no liability on the Insurer to pay such
claims.

v. Deductible Franchise (also known as excess): The Company shall not be

liable for each and every claim under Section 1 (loss or damage to the
insured vehicle) of the policy in respect of deductible as stated in the
policy schedule.

b) Conditions of the policy: The policy contains a number of conditions

which are expressly stated to be conditions precedent to liability of the
insurers.

i. Notice of Loss

Notice should be given immediately to the insurer upon the occurrence of any
accident, loss or damage and, in the event of any claim the insured should
give all information and assistance as the insurer may require.
Every letter, claim, writ, summons, etc. should be forwarded to the insurer
immediately on the receipt of insured.

In the event of any impending prosecution, inquest or fatal inquiry, the

insured should immediately inform the insurer in writing.

In case of theft or other criminal act, which may be the subject of a claim,
the insured should give immediate notice to the Police and cooperate with
the insurer in securing the conviction of the offender

ii. No, Admission, Offer, Promise or Payment

The insured should not settle or make any payment in respect of any claim or
admit liability or make any other admission with respect to the accident or
any claim arising there from, without the written consent of the insurer.

The insurer shall be entitled, if he so desires, to take over and conduct in the
name of the insured , the defence or settlement of any claim or to prosecute
in the name of the insured any claim for indemnity. The insured should give
any information or assistance which the insurer may require for the purpose
of resisting or settling any claim.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 95

 iii. Safeguarding the Vehicle from Loss or Damage
The insured is expected to take all reasonable steps to safeguard the motor
car from loss or damage. He is also obliged to maintain it in an efficient
condition.

In the event of any accident or breakdown the motor car should not be left
unattended without proper precaution being taken to prevent further damage
or loss.
If the motor car is driven before necessary repairs are affected, any extension
of the damage or any further damage shall be entirely at insured's own risk.

iv. Cancellation

The insurer may cancel the policy by sending seven days notice by recorded
delivery to the insured, and in such event he will return to the insured the
premium paid less the pro rata portion thereon for the period the policy has
been in force.

The policy may be cancelled by the insured on seven days notice and provided
no claim has arisen during the currency of the policy, the insured shall be
entitled to a return of premium, less premium at the insurance company's
Short Period Rates for the period the policy has been in force.

However, where the ownership of the vehicle is transferred, the policy cannot
be cancelled, unless evidence that the vehicle is insured elsewhere is
produced.

v. Contribution

If at the time any claim arises, there is any other existing insurance covering
the same loss, damage or liability, then the insurer shall not be liable to pay
or contribute more than its ratable proportion of such loss, damage,
compensation, costs or expenses.

vi. Arbitration

This condition provides for settlement of disputes under the policy through
arbitration which is a less expensive and faster method of settlement than
litigation. Only disputes regarding the amount or quantum of the claim can
be referred to arbitration. If the insurer has disputed or denied liability under
the policy, then the insured will have to take recourse to a court of law.

The arbitrator has to be appointed in writing by the parties in difference. If

the parties cannot agree upon a single arbitrator, then two disinterested
persons are to be appointed as arbitrators, of whom one shall be appointed
in writing by each of the parties. If either party shall refuse or fail to appoint
an arbitrator within two calendar months after receipts of notice in writing

S-06-MOTOR INSURANCE (FOR SURVEYORS) 96

 by the other party in accordance with the provisions of the Arbitration
Act,1996 then the other party shall be at liberty to appoint a sole arbitrator.

In case of disagreement between the arbitrators, the difference will have to

be referred to the decision of an Umpire, who has to be appointed by the
arbitrators in writing before entering on the reference. The Umpire has to sit
with the arbitrators and preside at the meetings.

It shall be a condition precedent to any right of action or suit upon the policy
that award by such arbitrators or Umpire of the amount of the loss or damage
shall be first obtained.

A claim will be deemed to be abandoned or time-barred if a suit is not filed

in a court of law within 12 calendar months from the date the insurer declines
liability for the claim. Thus this condition stipulates a time limit for filing
suit.

Note: There is no bar on the claimant filing a case in Consumer Court due to
this condition. However, it must be ensured that such a case is filed within
two years of the accident.

Similarly, if the policy is taken in the individual name, the claimant can have
recourse to Insurance Ombudsman after 30 days of filing complaint with
insurance companies Grievance Redressal Cell. However, time limit for filing
application with Insurance Ombudsman is one year.

vii. Observance of Conditions as precedent to liability

This last condition stipulates that due observance and fulfillment of the
terms, conditions and endorsements of the policy and the truth of the
statements and answers in the proposal form shall be conditions precedent
to any liability of the insurer under the insurance.

c) The schedule of the policy

The Conditions are preceded by a clause which states that the Policy and the
Schedule shall be read together and any word or expression to which a
specific meaning has been attached in any part of the Policy or of the
Schedule, shall bear the same meaning wherever it may appear. The purpose
and the effect of this clause is to link the Schedule to the policy.

Salient information in the Schedule

i. Policy Number, name and address of the insured, his business or

profession.

ii. Geographical Area.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 97

 iii. Details of the insured car viz.: Registration mark - number, make of
vehicle, type of body, cubic capacity, year of manufacture, seating
capacity including driver, insured estimate of value (i.e. IDV) Chassis and
Engine numbers.

iv. Limitations as to use: - Use only for social, domestic and pleasure purpose
and for the insured's business. The Policy does not cover use for hire and
reward or for organised racing and pace, making, reliability trials and
speed testing, the carriage of goods (other than samples) in connection
with any trade or business or use for any purpose in connection with the
Motor Trade.

v. Driver's clause: Driver: Any person including insured. Provided that the
person driving is holding an effective driving licence at the time of the
accident and is not disqualified from holding or obtaining such a licence.
Provided also that the person holding an effective learner's licence may also
drive the vehicle and such a person satisfies the requirements of Rule 3 of
the Central Motor Vehicles Rules, 1989.

Definition

The Motor Vehicles Act, 1988 defines "driving licence" as the licence issued by a
competent authority as defined in Chapter II of the Act, authorising the person
specified therein to drive, otherwise than as a learner, a motor vehicle or a motor
vehicle of any specified class or description.

Limits of Indemnity

Under Section II -1 (i) As per Motor Vehicles Act 1988

Rs.750000/- in respect of any one claim or
Under Section II- 1(ii)
series of claims arising out of one event.

Note: Motor Vehicles Act, 1988 provides for unlimited liability for third party
death or bodily injury claims. The amount awarded becomes payable without
limit.

vi. Bonus Clause

The policy provides for a ‘No claim discount’ for each claim free year, on the
own damage section of the premium of the policy. The discount starts at 20%
rising to 50% over 5 years. The discount is available within a period of 90 days
from the expiry of the policy.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 98

3. Coverage for Commercial Vehicles

All vehicles plying for hire or reward are termed Commercial Vehicles. Indian
Insurers continue to follow the classification of vehicles under this category as
laid down in the erstwhile tariff. The policy wordings and parameters for rating
are also continued to be followed with amendments as individually incorporated
by insurers through “File and Use” procedures.

Scope of standard form for commercial vehicles package policy

Section 1 - Loss or damage: The perils covered are identical, subject to the
following additional exclusions:

i. Loss or damage caused by overloading or strain of the motor vehicle, and

loss or damage to accessories by burglary, housebreaking or theft unless
the motor vehicle is stolen at the same time

ii. Loss or damage to tyres tubes mudguards; lamps bonnet side parts
painting of damaged portion. (This exclusion can be covered as an add-on
under IMT 23).

The protection and removal cost values differ for the category of vehicle involved

Section II - Liability to third parties: As per ‘Liability only policy’ liability to

third parties for bodily injury &/or death, Property damage and Personal accident
cover for owner driver with additional cover for passenger liability, wider legal
liability of Driver/ Cleaner and Labourers, Owner of goods or his representative
whilst carried in goods carriage.

Section III - Towing disabled vehicles:The policy permits towing of a disabled

vehicle and covers both liability and damage in the process of towing. However,
the towing should not be carried out for hire or reward. It will also not cover
damage to the towed vehicle or property carried on it.

Section IV - Personal accident cover for owner/driver: This is similar to the

coverage mentioned above:

a) Personal accident to owner/driver: Avoidance of Certain Terms and

Rights of Recovery: The clause is identical to the Private Car Package
policy

b) General exceptions: All the six exceptions are similar to Private Car
package policy

c) Deductible (excess): The OD section is subject to deductible for each and

every claim. The amount of deductible differs based on category and class
of vehicle.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 99

 d) Conditions: The conditions of the policy are similar to the Private Car
Package policy. Condition 3, however, provides that if a valid claim for
TPPD arises the insurer will pay up to their maximum liability and
relinquish conduct defence or settlement of the case. The insured then
has to manage defence and conduct for the balance liability and costs.

i. Carrying Hazardous Chemicals: The commercial Vehicle policy provides

for strict compliance to Motor Vehicle Rules for vehicles carrying
hazardous chemicals. (Refer Annexure I)

(a) Central Motor Vehicle Rule 129-A (Spark arrestor) Goods carrying
Vehicles transporting dangerous or hazardous goods are required to be
fitted with a spark arrestor.

(b) Central Motor Vehicle Rule 131 to 133 places responsibility on

consignor, transporter and driver carrying such hazardous or
dangerous substances to take all precautions and comply with all
safety aspects during transportation.

The steps include full information about the nature of the goods being
carried, holding a Public Liability Act policy. Drivers Licence to be
endorsement for Hazardous goods transportation. The schedule is similar to
the Private Car except for the

(a) Limitation as to Use clause- refer to Liability Chapter

(b) Driver clause – as per Liability only Schedule

The above policy terms apply to Commercial vehicles for the carriage of
Goods / Passengers, Trailers, Miscellaneous Class of Vehicles etc.

e) Extensions: The OD sections of the motor policies can be extended to

cover a number of benefits and also coverage for some exclusion under
the policy:

i. Additional electronic or electrical fittings: Fittings installed in the

vehicle by the insured can be covered by express description and Value.
Premium will be charged additional

ii. Installation of CNG/LPG Kit: can be covered on payment of additional

premium.

iii. Fibre glass fuel tanks: The trend to lighter vehicles means that such
components are being installed in motor vehicles. The cost is substantial
and hence can be covered under the policy on additional premium.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 100

 iv. For commercial vehicles loss or damage to tyres tubes lamps mudguards
etc., which is exclusion can be covered with additional premium.
However, expenses for these items will be subject to a 50% excess. Thus
if these cost are around Rs. 32,000 only Rs. 16,000 will be payable.

Test Yourself 2

If the motor car is disabled by reason of loss or damage covered under the policy,
the insurer will bear reasonable cost of protection and removal to the nearest
repairers and of redelivery to the insured but not exceeding in all ______ in
respect of any accident.

I. Rs. 1,000/-
II. Rs. 2,500/-
III. Rs. 1,500/-
IV. Rs. 5,000/-

S-06-MOTOR INSURANCE (FOR SURVEYORS) 101

C. Motor trade policies

1. Motor trade policies

Policies are available to cater to the special requirements of Motor Trade. These
policies are taken by a Motor Trader who may be either a dealer or distributor of
brand new vehicles or secondhand vehicles or he may be engaged in their
overhaul or repair. In the course of his business, he will have to demonstrate the
vehicles to his prospective clients by giving a trial run.

To enable him to do so, the transport authorities allow him number plates which
are known as Trade Certificates which he can temporarily attach to the vehicle
being taken out on the public road for trial runs. Alternatively, these plates are
allotted the names of the drivers who will be demonstrating the vehicles.

Normally, Trade Certificates are used in case of brand new vehicles which are
unregistered and named driver plates are used for driving secondhand registered
vehicles. The Motor Trade will handle a variety of vehicles which will be
constantly changing. These vehicles are his stock-in-trade and therefore he has
full insurable interest, either as owner or bailey.

A Motor Trader is also exposed to legal liability for accidental bodily injury, fatal
or otherwise, and/or damage to property of third parties, caused by:

 Negligence in connection with the use of the vehicles, and/or

 Defects in the plant or premises of the Motor Trader.
Two types of policies are available:

 Standard Form of Motor Trade 'B' Policy, and

 Standard Form of Motor Trade Internal Risks Policy

2. Standard Form of Motor Trade 'B' Policy

The cover provided by the policy is in respect of accident, loss or damage

sustained whilst the motor vehicle is:

 In public place, or
 Temporarily garaged during the course of a journey elsewhere than in or
on any premises owned by or in the occupation of the insured.

Section I - Loss or Damage: Risks Covered and Exclusions

These are identical to those covered under the Commercial Vehicle ‘Package
Policy’.

a) Deduction for depreciation: The deduction percentages are identical to

those applying to Private Package Policy.
S-06-MOTOR INSURANCE (FOR SURVEYORS) 102
 b) Costs of Protection and Removal: The insurer will bear such costs up to
Rs. 150/- any one accident.

c) Depreciation for Arriving at IDV: The Deduction percentages are

identical to those applying to Private Car Package Policy. The clause
allowing the insured to authorise minor repairs up to certain limits does
not appear in this policy.

Section II - Liability to Third Party

a) This Section provides similar cover as under Commercial Vehicles 'B'

Policy. Also, the exclusions (a) to (e) are identical to those in the
Commercial Vehicles 'B' Policy.

b) The insurer will pay all costs and expenses incurred with its written
consent.

c) The insurer will indemnify any Driver, provided that such Driver:

i. Is not entitled to indemnity under any other policy,

ii. Shall, as though he were the insured, observe, fulfill and be subject to
the terms, exceptions and conditions of the policy.

Provisions 4 and 5, i.e. provisions relating to representation at any inquest etc.

and indemnifying legal representative are identical to those in the Commercial
Vehicles 'B' Policy.

Section III – Trailers

The indemnity provided by Section I (Own Damage) and Section II (Liability to

Third Party) is extended to any vehicle (Mechanically propelled or otherwise)
attached to the Motor Vehicle for the purpose of being towed.

This extension is subject to the following provisions:

i. The Limits of Liability shown in the Schedule of the Policy are not
increased by this extension;
ii. The insurer shall not be liable in respect of damage to property conveyed
by the towed vehicle;
iii. There is no liability in respect of loss, damage and/or liability sustained
or incurred whilst the motor vehicle is towing a greater number of vehicles
than is permitted by law.

Note the difference: This Section differs from Section III of Commercial
Vehicles 'B' Policy, which deals with "Towing Disabled Vehicles".

S-06-MOTOR INSURANCE (FOR SURVEYORS) 103

 a) Avoidance of certain terms and right of recovery

This is the usual Clause that appears in all other policies. It was explained in
detail when we were considering the scope of Private Car 'Package' Policy.

b) Application of limits of indemnity

In the event of any accident involving indemnity to more than one person,
any limitation of the amount of indemnity shall apply to the aggregate
amount of indemnity to all persons indemnified and such indemnity shall
apply in priority to the insured.

c) General exceptions applicable to all sections of the policy

All the six General Exceptions are the same as in the Commercial Vehicles
'Package' Policy. The exclusion regarding "influence of intoxicating liquor or
drugs" appears in the last extension together with the exclusion of War and
allied perils.

d) Deductible

Insurer is not liable for each and every claim under Section-1 (Loss of or
damaged to the vehicle insured of this policy in respect of the deductible
stated in the schedule)

e) Conditions of the policy

The conditions are the same as under Commercial Vehicles 'Package' Policy.
However, with the introduction of Insured’s Declared Value, the said
conditions have become identical for both Commercial Vehicle Package Policy
as well as Motor Trade Policy.

f) All trade certificate or all named drivers must be declared for insurance.
The Tariff does not permit giving subsequent Trade Certificates or Named
Drivers a different type of cover from that issued in connection with the
first Trade Certificate or Named Driver.

g) The schedule of the policy

The insured motor vehicle is described as any motor vehicle, property of the
insured or in his custody or control bearing a particular Trade Certificate
number. All steam-driven vehicles are excluded. Limits of liability are stated
separately for:

i. Own Damage
ii. Death or bodily injury of third parties, which is unlimited as per the Motor
Vehicles Act, 1988

S-06-MOTOR INSURANCE (FOR SURVEYORS) 104

 iii. Third Party Property Damage. The Motor Vehicles Act limits it to Rs.
6,000/- per accident or event. Higher limits up to Rs. 750000/- are
available at additional premium.

iv. The insured "Motor vehicle" is categorised under:

(a) Named Driver basis, and/or
(b) Trade Certificate basis.

h) Limitation as to use

Use only for motor trade purposes: The policy does not cover use for hire or
reward or for organised racing, pace-making, reliability trials or speed
testing.

i) Driver

Any of the following: Any person including insured - Provided that the person
driving is holding an effective driving licence at the time of the accident and
is not disqualified from holding or obtaining such licence, provided also that
the person holding an effective learner's licence may also drive the vehicle
and such a person satisfies the requirements of Rule 3 of the Central Motor
Vehicles Rules, 1989

j) No claim discount

In the revised Tariff, No Claim Bonus is not applicable to trade Policies (Road,
Transit Risks, Road Risks and Internal Risks) as mentioned in G.R. 27 of the
IMT.

3. Motor Trade Internal Risks Policy

In contrast to the Motor Trade Road Risks Policy (which offers cover in respect of
vehicle in a public place but not in or on the premises of the Insured or in his
occupation), this policy applies to accident, loss or damage or liability arising out
of an event occurring only on the Insured's business premises.

This insurance has not become popular in India owing to the fact that motor
repairers, garage owners and dealers have relied on the disclaimer clause which
is inserted by them in the agreement whilst accepting customers' vehicles for
repairs, etc. Though, they remain exposed to common law liability which
cannot be avoided with inclusion of disclaimer clause.

Section I – Damage: Subject to the Limit of Liability shown in the Schedule of

Policy, the indemnity under this Section in respect of damage to any motor
vehicle, including its accessories, whilst thereon:

S-06-MOTOR INSURANCE (FOR SURVEYORS) 105

 i. The property of the insured or any member of the insured's family or
household,

ii. Caused by accidental external and visible means, and

iii. Occurring in or on the premises - that is, insured premises mentioned in

the policy,

iv. Insurer reserves the option to repair, reinstate or replace the vehicle or
any of its parts or its accessories or to pay in cash the amount of the
damage.

Exceptions of the own-damage Section: The Insurer shall not be liable to pay:

i. For loss of use, depreciation, wear and tear, mechanical or electrical

breakdowns, failures or breakages,
ii. For damage to tyres by application of breaks or by puncture, cuts or
bursts.

a) Excess: Section I - damage to own vehicles - is subject to an "excess" of

Rs. 50/- for two wheelers and Rs. 500/- for others any one accident or a
number of accidents arising out of one cause.

b) Limit of liability for own damage: The Tariff provides for a limit of Rs.
50,000/- any one accident.

Section II - Liability to the Public Risks: This Section indemnifies the Insured
against all sums, including claimant’s costs and expenses, which the Insured shall
become legally liable to pay in respect of:

a) Accidental death or bodily injury to any person other than a person in

the Insured's service or a member of the Insured's family or household;

b) Accidental damage to:

i. Any motor vehicle (including its accessories whilst thereon) held in trust
by or in the custody or control of the Insured;

ii. Other property not being property belonging to or held in trust by or in

the custody or control of the Insured; occurring, in on or about the
premises through:

(a) The negligence of the Insured or any person in the service of or acting
on behalf of the Insured, or

(b) By or through any defect in the premises or in the ways, works,

machinery or plant therein.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 106

 The Insurer will pay all costs and expenses incurred with his written consent.
In the event of the death of the Insured, the indemnity is available to his
legal personal representatives.

c) Limits of liability

Under Section II (1) in respect of any one claim or number of claims arising
out of one cause...... As per Motor vehicles Act, 1988 is unlimited.

Under Section II (2) in respect of any one claim or number of claims arising
out of one cause.... Rs.6, 000.

The Tariff however provides for following higher limits:

i. Property damage excluding damage to vehicles..... Rs. 1, 50,000/- any

one accident.

ii. Damage to vehicles property damage.... Rs. 1, 50,000/- any one accident.

The policy bears certain similarities with Motor package policy and general
public liability policy.

(a) Firstly, the policy covers accidental damage to the insured motor
trader’s vehicles under the own damage section. This cover applies
only when the vehicle is on the premises. If the vehicle is on the road,
then the Motor Trader's road Risk Policy will be applicable.

(b) Secondly, the policy covers insured's legal liability for death of or
bodily injury to third parties or damage to their properties due to
negligence. This is similar to the cover provided by general public
liability for accidental damage to vehicles, which are entrusted to
him, say, for repairs, due to negligence. Here the insured is a bailey
and hence liable for accidental damage to vehicles through his own or
his employee's negligence.

d) General exceptions (applicable to both the Sections)

The Insurer shall not be liable in respect of:

i. Accident, loss, damage or liability due to:

 War and allied perils

 Flood, volcanic eruption, earthquake and other convulsions of nature

ii. Damage to property caused directly; or indirectly by fire or explosion.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 107

 iii. Any consequence of burglary, housebreaking or theft or any attempt
thereat (such a risk can be covered under a separate Burglary Policy)

iv. Damage to property sustained while it is being worked upon and directly
resulting from such work,
v. Any defective workmanship,

vi. Death, injury or damage caused by or through any demolition or of

structural alteration or addition to the premises or by or through the
installation of any equipment.

vii. Death, injury or damage caused by or through or in connection with the

use by the insured of power driven cranes, elevators, lifts or hoists other
than car hoists having a lift not exceeding six feet or its equivalent,
viii. Any liability which attached by virtue of an agreement but which would
not have attached in the absence of such agreement,

ix. Death, injury or damage resulting from the driving elsewhere than in or
on the premises of any vehicle by the Insured or any person in the service
of or acting on behalf of the Insured,

x. Damage to any motor vehicle or its accessories caused by weather

conditions.

xi. Any accident, loss, damage to any property or any loss or expenses
resulting or arising there from or consequential loss.

xii. Any liability caused, contributed, arising from radiations or contamination

by radioactivity nuclear fuel or nuclear waste.

e) Deductible

Insurers are not liable under Section - I of this policy in respect of the
deductible stated in the Schedule in respect of each and every claim.

f) Conditions of the policy

i. The Policy and the Schedule shall be read together as one contract.

ii. Every notice or communication shall be delivered in writing to the Insurer.

iii. Notice of claims: This should be given as soon as possible to the Insurer
with full particulars, every letter, claim, writ, summons and process
should be notified to the Insurer immediately on receipt. Any impending
prosecution, inquest of fatal injury should also be notified immediately to
the Insurer.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 108

 iv. No admission, offered, promise or payment shall be made by the Insured
without the consent of the Insurer. The insurer is entitled if he so desire,
to take over and conduct in the name of the Insured the defence or the
settlement of any claim and he shall have full discretion in the conduct
of any proceedings and in the settlement of any claim the Insured is
obliged to give all such an information and the assistance as the insurer
may require.

v. The Insured shall exercise care in the selection of competent employees

and shall take all reasonable steps to safeguard from damage the insured
property and maintain the premises in good repair. The insurer shall have
full access at all reasonable times to the premises and to examine by their
authorised representative any vehicle insured under the Policy.

g) Premium

For Motor Trade Internal Risks Insurance, rates of premium are based on:

i. Superficial area of premises, that is, land and buildings occupied by the
insured for the purpose of motor trade business. Different are provided
for areas ranging from 200 sq. m. to 2000 sq. m. with an additional
premium of 1,000 sq. m. or part thereof in excess of 2000 sq. m.

ii. Wages: A percentages premium on the wages paid to employees subject

to adjustment at expiry of the policy.

For this purpose, Condition no. 6 of the Policy is relevant, briefly, it states:

i. The first and all renewable premiums are to be regulated partly upon the
amount of wages, salaries and other earnings paid by the insured to
employees during each period of insurance.

ii. The name of every employee together with the amount of wages, salaries
and other earnings shall be properly recorded by the Insured.

iii. The Insured shall at all times allow the Insurer to inspect such a record.
The Insured is required to submit to the Insurer a correct account of such
wages, salaries and other earnings paid during the period of insurance
within one month from the expiry date of such a period of insurance

iv. If the amount of so paid shall differ from the amount on which premium
has been paid, the difference in premium shall be met by further
proportionate payment to the Insurance Company, or subject to the
Company's usual scale of minimum premiums, by refund of the company,
as the case may be.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 109

 v. In the event of any extension or alteration of the premises during the
currency of the Policy, the Insured shall be immediately notify the
Company thereof and shall pay to the Company any adjusted premium
required in a respect of such extension or alteration.

h) Cancellation

The Insurer may cancel the Policy by sending seven days’notice to the Insured
and in such an event will return to the Insured the premium paid less the pro
rata portion thereof for the period the Policy has been in force.

i) Contribution

If there is any other insurance covering the same damage or liability, the
Insurer shall not be liable to pay more than his rate able proportion of any
damage, compensation, costs or expenses.
In connection with any one claim or number of claims arising out of one cause,
the Insurance Company may pay to the Insured the amount of indemnity
payable under the policy, and upon such payment being made, the Company
shall relinquish the conduct and control of proceedings, and be under no
further liability in connection with such claim or claims except for the
payment of costs and expenses of litigation incurred prior to the date of such
payment.

j) Arbitration

If any difference shall arise as to the quantum of the claim, such difference
shall be referred to arbitration, as per the provisions of the Indian Arbitration
Act, 1996. It is clearly understood that no dispute could be referred to
arbitration if the company has disputed or not accepted liability under the
policy.

If the company shall disclaim liability to the insured and such claim shall not,
within 12 calendar months from the date of such disclaimer have been made
the subject matter of suit in a Court of Law, then the claim shall for all
purpose be deemed to have been abandoned and shall not thereafter be
recoverable under the policy.

The due observance and fulfillment of the terms, exceptions, conditions and
endorsements of the Policy and the truth of the statement and answers in the
proposal shall be conditions precedent to any liability of the Company to
make any payment under this Policy.

The Schedule of the Policy: Amongst the other standard details, the Schedule
contains the estimated annual Wage roll of all the employees.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 110

 Address and superficial area of the Premises is also stated in the Schedule.

Limits of Liability under both the Sections of the Policy are shown and these
limits have already been discussed with the consideration of the two Sections
of the Policy.

1. New technology in auto field

a) Zero accident rate

Google’s driverless car has now clocked more than 300 000 miles without a
single accident whilst under the computer’s control, raising the possibility of
a future of driverless vehicles. Should such technology be widely adopted
which could be the answer to reducing the road accidents and may even result
in reduced insurance premiums.

Experts believe that due to the system’s accuracy, driverless vehicles could
help reduce the number of fatalities that occur on the roads daily. “The
extent of motor vehicle accidents remains a serious problem in India and is
most often the result of human error. Consequently, a driverless system could
help to eradicate careless and negligent driving behaviour, thereby reducing
the number of accidents. If this is the case, and fewer accidents occur, then
the cars could also be built lighter, allowing for less fuel consumption.”

If the risks posed by driverless vehicles do prove to be less than those posed
by traditional vehicles, the insurance premium charged should also reduce.

b) Constant cross communication

In theory, this would make the industry even more competitive, forcing
insurance companies to include additional value added services to make their
respective offerings more attractive. However, while the traditional risks
posed by driver driven vehicles may be substantially mitigated, the reality is
that it will take a long time for cars to be introduced with the new driverless
system and to be able to drive on the streets with absolute
autonomy. Compatibility of all vehicles to enable constant cross
communication with each other is the crux here as otherwise the sizeable
benefits offered by such a system would soon to be obsolete.

c) Sluggish take up of this technology

As a result, a major concern for any insurance company that opts to provide
a reduced premium in response to the driverless system being implemented
is that a sluggish take up of this technology would mean that the risks posed
by other drivers on the roads would remain as widespread as before.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 111

 Even with a high take-up of driverless vehicles, the introduction of such
technology would mean insurance contracts would certainly have to be
revisited. “With an insurance policy being a contract between the insurer and
the insured, certain terms and conditions may need to be tweaked in order
to ensure that comprehensive cover is not compromised.”

Exclusions such as driving under the influence of alcohol (DUIA) may no longer
need to be applied. However, one of the most contentious legal issues may
be that of third party claims. The fact that you are no longer driving the car,
but rather the car is driving it raises a number of questions:
 Can someone still be sued in his or her personal capacity?
 Would the owner or driver of the vehicle now assume the negligent
position of the vehicle?

The qualifying criteria for negligence to exist may now have to question:

 Would the reasonable person (vehicle) have foreseen the consequence of

his/her (its) actions?
 Would the reasonable vehicle have taken the necessary steps to safeguard
against this consequence? and lastly
 Did this vehicle take the necessary steps to safeguard against such a
consequence?”

The introduction of this new mode of transport would also require transport
laws to be revisited. “This will include legislation regarding speaking on the
cell phone whilst driving, licensing of vehicles and drivers, as well as the
possible impact on claims submitted against the Road Accident.
“The principle behind driverless technology is very positive and so far the
technology appears to be proving a success. However, the phasing in of this
type of technology will take a long time, especially in emerging markets
where older cars remain on the roads for far longer”.

Test Yourself 3
A applies to motor trade internal risks policy accident, loss or damage or liability
arising out of:
I. An event occurring at a public place
II. An event occurring on the insured's business premises
III. Both I and II
IV. None of the above

S-06-MOTOR INSURANCE (FOR SURVEYORS) 112

V.

SUMMARY

In this chapter you learnt about the coverage’s under liability only and package
policy. You learnt the various types of Motor Policies and the different coverage
for various types of vehicles. You studied the Schedule of the policy, its
coverage’s, exclusions, and terms and conditions applicable to an individual
policy. You also under stood the concept of IDV, depreciation and excess.

Answers to Test Yourself

Answer 1

The correct answer is IV.

The existence of the Tariffs in Fire, Motor Engineering and Workmen’s

Compensation muted competition to some extent.

Answer 2

The correct answer is III.

If the motor car is disabled by reason of loss or damage covered under the policy,
the insurer will bear reasonable cost of protection and removal to the nearest
repairers and of redelivery to the insured but not exceeding in all Rs. 1,500/- in
respect of any accident.

Answer 3

The correct answer is II.

A motor trade internal risks policy applies to accident, loss or damage or liability
arising out of an event occurring only on the insured's business premises.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 113

Self-Examination Questions

Question 1

In the event of the death of insured, the policy will remain valid for ______ from
the death or until expiry of the policy (whichever happens earlier).

I. Three months
II. Six months
III. Seven months
IV. Nine months

Question 2

No claim bonus is earned only on the Own damage section of the Package policy
covering all classes of vehicle except Motor trade policies, ________.

I. Road Transit Risks

II. Road Risks
III. Internal Risks
IV. All of the above

Question 3

The surveyor will assess the claim on a Constructive Total Loss (CTL) basis under
which of the circumstance/s?

I. Whenever a surveyor finds that a vehicle is beyond repairs

II. Whenever a surveyor finds that the cost of loss repair exceeds 75% of the IDV
III. Both of the above
IV. None of the above

S-06-MOTOR INSURANCE (FOR SURVEYORS) 114

Answers to Self-Examination Questions

Answer 1

The correct answer is I.

In the event of the death of insured, the policy will remain valid for three months,
from the death or until expiry of the policy (whichever happens earlier).

Answer 2

The correct answer is IV.

No claim bonus is earned only on the Own damage section of the Package policy
covering all classes of vehicle except Motor trade policies, Road Transit Risks;
Road Risks: Internal Risks.

Answer 3

The correct option is III.

Whenever a surveyor finds that a vehicle is either beyond repairs or the cost of
loss repair exceeds 75% of the IDV; he assesses the claim on a Constructive Total
Loss basis (CTL).

S-06-MOTOR INSURANCE (FOR SURVEYORS) 115

 CHAPTER 5

POLICY DOCUMENTS & ADD ON COVERS

Chapter Introduction

In this chapter you will learn about various types of motor policy add on covers
available in motor insurance. You will also learn the need and importance of each
document right from underwriting to claim settlement.

Learning Outcomes

A. Types of Add-Ons
B. Documents Related to Motor Insurance

S-06-MOTOR INSURANCE (FOR SURVEYORS) 116

A. Types of Add-Ons

a) Understanding riders available in the market

Based on this leeway to insurers the following extra Cover or Add-ons are now
being offered by insurers. These benefits are only available for owners of Private
cars. In most of these add-on covers, the onus of proving the damage caused by
exclusion does not apply on the insured, unlike the practice for the standard
cover wherein proving exclusion is on insurer.

i. Depreciation reimbursement: The depreciation under the standard

policies for replacement of parts damaged in an accident covered under
the policy is being waived under this add-on. The cover is, however,
conditional to the age of vehicle being below 3 years and not more than
two OD claim having been lodged during the policy period. The repair of
the vehicle to be done at the insurers approved repairer. The deductibles
under the policy will be applicable.

(a) The variations among insurers may be on partial reimbursement, if

repairs at insured’s regular repairer.

(b) A restriction on the maximum claims for this benefit in a policy year.

(c) Tyres and batteries would be excluded.

ii. Return to invoice

In the event of the insured vehicle being a TL/CTL the insurer will pay the
difference between the claim admissible and the sale invoice price of the
vehicle or new replacement value of same make and model value, whichever
is less. The policy will pay in addition the first registration fees and road tax
incurred on the insured vehicle. The coverage is subject to the vehicle being
not more than 3 years old and the insured being the first registered owner of
the vehicle. The IDV of the policy will be as decided by the insurers and value
as on the commencement date of the policy. The Sum insured will be the
maximum liability under the policy. The policy will not pay if the TL/CTL or
theft claim is not admissible.

iii. No Claim Bonus Protection

The NCB earned on the vehicle is 25% or more and no claims in the previous
2 years or a brand new vehicle entitled to 25% or more NCB can opt for this
cover. This NCB will be protected if not more than 1 claim is made during the
policy period provided that the renewal is affected on or before 90 days of
expiry of the policy. The clause also provides that claims for damage to all
glasses or partial theft of accessories only have occurred and no other

S-06-MOTOR INSURANCE (FOR SURVEYORS) 117

 damages to the insured vehicle have been claimed, the loss will not be
treated as a claim by the insurer.

In the event of theft of vehicle, if insured purchases a new vehicle and insures
with the insurer within 90 days of the theft, the existing NCB will be
applicable. In effect the loss will not be treated as a TL/CTL. The insured is
required to provide Renewal Notice or copy of previous policy with
declaration of NCB along-with the proposal form to avail of this cover.

iv. Repair of glass, rubber, fiber and plastic parts

In the event of claim for damages only to glass, fiber, plastic or rubber parts
the insured undertakes to repair these items instead of replacing them the
NCB will not be affected. The repairs must be undertaken at the insurers
approved repairers and no other claims for damage to the vehicle are
involved.

v. Emergency transport and hotel expenses

In the event of the insured vehicle being damaged in an accident rendering it

un-usable, the cost of hotel accommodation at nearest city and return to
home including taxi fare will be allowed under this extension provided there
is a valid claim under the policy for this accident.

The sum insured is to be decided in advance and will range between Rs.
10,000/- to Rs. 50,000/-. The per occurrence limit will not exceed 50% of Sum
Insured. Variations of this cover are offered by most insurers. Differences may
be on Sum insured, time limitations, distance limitations, excluding perils like
riot and strike flood earthquake.

vi. Loss of personal belongings

This covers loss of personal belonging lying in the insured vehicle due to perils
covered under the Own Damage section of the policy, following an accident
to the insured vehicle. Personal belongings do not include money, securities
or valuable or goods of trade or samples and items of similar nature. The Sum
Insured is to be decided at the time of taking insurance and cannot exceed
Rs. 50,000/-. A deductible of Rs. 250/- applies. The policy will pay only if the
claim for damage to the vehicle is admissible.

vii. Key replacement

Cost of replacement of locks and keys, if vehicle is broken into or cost of

replacement of lost /stolen keys. The sum insured ranges between 10000/-
and 35000/. The per occurrence limit is 50% of Sum Insured. Own Damage
Claim is not a condition precedent for this cover.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 118

 viii. Daily allowance

This cover is available in the event of damage to the vehicle by an insured

peril wherein time taken to repair the damages or recovery will exceed 3
days. The policy will pay costs incurred for hired transport up to 10 days for
normal damages and 15 days for TL/CTL losses during the policy period. The
period starts from the following calendar day of the vehicle reaching the
insurers authorized repairers and ends on the date of repairer’s intimation to
take delivery. Time taken for repair to items not related to accident will not
be allowed. The allowance ranges from Rs.600/- to Rs.2000/- per day
depending on the category of vehicles. Repairs to be undertaken at insurers
authorized repairers. Claim solely for damage to windscreen or glass is not
admissible for this cover.

ix. Engine protector

The coverage under this add-on is for accident to vehicle resulting in damage
to internal parts of engine due to water ingression/leakage of lubricating oil
and/or damage to gear box as a result. The extension will pay for
repair/replacement of these parts including labour.

x. Spot assistance

The coverage under this extension provides for a number of emergency

services that a vehicle owner could face in daily usage of the vehicle. Some
of these emergencies may not involve accidental damage to the vehicle. The
extension applies to the insured’s city of residence and within a distance of
100 kms from city. Repairs/services of insurers authorized repairer to be
availed.

(a) Flat battery - providing alternative arrangements to make the vehicle

mobile again

(b) Spare keys - in event of loss arrange for pick-up and delivery of spare keys

(c) Flat tyre - arrange for refill /replacement of flat tyre

(d) Minor repairs following mechanical or electrical breakdown

(e) Towing following accident or breakdown

(f) Urgent message relays following accident or breakdown

(g) Medical co-ordination- details of nearest medical facilities for emergency

medical treatment

S-06-MOTOR INSURANCE (FOR SURVEYORS) 119

 (h) Fuel assistance-empty fuel tank or contaminated fuel immobilizing the
vehicle, the policy to provide 3 litres of fuel at cost

(i) Taxi service - from breakdown site to max distance of 50 kms. Extendable
to 100kms

(j) Accommodation for one day following immobilization of vehicle due to

accident

(k) Legal advice - telephonic legal advice for maximum 30 minutes.

The last 4 benefits may be restricted to once or twice during the policy
period. The other benefits may be for 3- 4 times during the policy period as
approved.

xi. Other riders

(a) Nil depreciation: Depreciation will not be deducted for replacement of

parts for partial loss claims (TL and CTL will be settled on the basis of
IDV). The cover is provided for up to 3 years for private cars and two
wheelers.

(b) Ambulance charges cover: This provides for the charges towards
transportation of insured persons in ambulance to the hospital.

(c) Daily Allowance cover: Many insurers are also offering daily allowance
cover in case the vehicle meets with an accident and is undergoing repair

(d) Personal belongings cover: Under this cover, the insurer indemnifies the
insured for the personal belongings.

xii. Roadside Assistance

Roadside assistance is a service that provides necessary help in case an

insured is stranded on the road when his car breaks down. For Example -
Breakdown cover may include jump starting an automobile, towing a
vehicle, helping to change a flat tire, providing a small amount of fuel
when a vehicle runs out of it, pulling out a vehicle that is stuck in snow
or helping people who are locked out of their cars etc.

a) Service under Road Side Assistance

The representative services provided under Roadside Assistance are:

i. Breakdown support over phone

S-06-MOTOR INSURANCE (FOR SURVEYORS) 120

 ii. Minor Repairs

iii. Flat Tyre

iv. Battery jump start

v. Arrangement of keys

vi. Towing on breakdown/accident

vii. Arrangement of rental vehicle

viii. Arrangement/ Supply of fuel

ix. Arrangement of Accommodation

x. Message Relay

A maximum four times related to any of the services opted by the insured
would be allowed under this add-on. The insured would be able to claim only
for the services opted for by him at the time of policy issuance. The insured
may choose to opt for any one or more of these at the time of policy issuance.
To get roadside assistance, insured can call on Toll-Free no. and follow the
IVR (Interactive Voice Response) instructions.

b) Exclusions in Road Side Assistance

Services for Road Side Assistance will not be provided under below mentioned
scenarios:

i. Providing the above mentioned services under conditions of earthquake,

war, invasion, rebellion, revolt, riot, civil commotion, civil war,
exceptional adverse weather conditions, acts of terrorism, nuclear
fission, strike, act(s) of government(s), government; agencies; judicial;
quasi-judicial authorities.

ii. Any claims where the insured’s vehicle is being used for the purpose of
racing, rallying, motor-sports, or is not being used / driven in accordance
with applicable laws and regulations.

iii. Any claim where the insured’s vehicle can be safely transferred on its own
power to the nearest garage / workshop.

iv. Any claims triggered by theft; any kind of consequential losses.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 121

 v. Any loss which is covered under any other insurance policy or
manufacturer’s warranty or recall campaign or under any other such
packages at the same time.

vi. Any expenses for supply or replacement of parts / consumables.

vii. Any loss / damage caused to the insured’s vehicle when it is being used /
driven against the recommendations of the owner’s / manufacturer’s
manual.

viii. Any claims where services have been availed of without the prior consent
of the Company.

Insurance Company generally provides assistance. Additional costs incurred

for purchase of car parts, fuel, taxi fare etc. are to be borne by the customer.
Roadside Assistance service is available 24 x7

Test Yourself 1
Under the OD section of the policy, the sum insured for ‘loss of personal
belongings’ cannot exceed _________.
I. Rs. 12,500
II. Rs. 25,000
III. Rs. 50,000
IV. Rs. 1,00,000

S-06-MOTOR INSURANCE (FOR SURVEYORS) 122

B. Documents Related to Motor Insurance

The process of insurance involves different types of documents. From the time
of acceptance of the risk, to the settlement of the claim for loss or damage,
specific written documents are required. The main documents and their
importance are detailed below:

1. Proposal form

The proposal form is the basis of motor insurance contract. It is so designed as

to elicit all information necessary for a proper evaluation and for rating of the
risk. The questions commonly asked in proposal forms are:

a) Particulars about the proposer:

i. Proposer's name in full to establish the identity of the insured who is one
of the parties to the contract and may place the insurer on enquiry
concerning the moral hazard.

ii. Address: The proposer's address is necessary for communications and is a

cross checks on the area of use of the vehicle.

iii. Occupation: The answer to this question is important for underwriting

private car and commercial vehicle risk and has an important bearing on
the moral hazard. The answer is fair indication of the social status of the
proposer and it will provide some indication of the extent and for what
purpose the vehicle is likely to be used.

iv. Physical disability and mental infirmity: The answers to these questions
are important, but it is difficult to get precise answers particularly in
respect of persons other than the insured who may drive the car.

v. Previous convictions: A record of convictions for driving offences

requires close investigations. The enquiry is generally limited to a period
of five years.

b) Details of vehicles to be insured:

i. Registration letters and numbers: For identification of the vehicles.

ii. Make of the vehicle - Engine and Chassis numbers: These are required
for verification in case of accident.

iii. Year of manufacture: This is necessary because some insurers do not give
comprehensive cover for vehicles manufactured earlier than a
predetermined period or impose restrictions on older vehicles. It also
helps in the calculation of IDV for purpose of insurance.
S-06-MOTOR INSURANCE (FOR SURVEYORS) 123
 iv. Type of body, Seating Capacity and Cubic Capacity for private cars:
Rating is based on value and cubic capacity and Licensed Carrying
Capacity (goods or passengers), as the case may be, in case of commercial
vehicles.

v. Date of Purchase and Price paid.

vi. Insured’s declared Value of the vehicle.

vii. Colour of vehicle and speedometer reading, average distance traveled and
frequency. This indicates usage and helps in determining wear and tear
or over usage based on occupation/ business.

viii. Additional fittings, modifications in the vehicle. This provides information

on additional covers that can be offered or additional risk exposure.

c) Details of other vehicles: owned by the proposer and details of accidents

during the past 3 to 5 years. These details give some idea about the
physical and moral hazard.

d) Details of insurance history: This is required to ascertain whether there

were any adverse features, such as decline of risk, cancellation of policy
or imposition of special terms and conditions.

e) Questions relating to extra benefits: for which additional premium is

charged and of information for which discount of premium is granted,
such as no claim discount earned, voluntary excess to be borne, etc.

f) Certain other particulars: in case of commercial vehicles, are required -

the type of permit and in the case of passenger vehicles, the total licensed
passenger carrying capacity. It is essential that the proposer should decide
within which class the vehicle falls because the certificate of insurance is
worded accordingly.

If it is found that the vehicle is being used for a purpose not permitted by
the certificate, the user is liable to penalties for contravention under the
Motor Vehicles Act.

g) Declaration Clause: The answers to the questions are followed by

declaration which is in the nature of a warranty that the answers are
correct and shall form the basis of contract with the company. The
declaration makes it a contractual Duty of Good Faith.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 124

2. Proposal form for ‘Liability Only Policy’

With a view to simplifying proposal forms, the IRDAI has, as a first step prescribed
proposal form for ‘Liability Only Policy’. The proposal form explains briefly the
coverage available under the Motor Vehicles Act 1988 and the respective
provisions applicable thereto.

3. Certificate of Insurance

This is a document evidencing that a motor vehicle is insured against third party
liability as required under the Motor Vehicles Act, 1988. It is an offence to use a
vehicle without a proper Certificate of Insurance issued by an authorised insurer.

The insurance company is under a duty to inform the Registering Authority that
the policy has not followed the cover note, within 7 days of the expiry of the
cover note as required under section 147 (4).

The only exceptions are Government vehicles and such other vehicles as may be
specifically excluded by the Government. The form of the Certificate of
Insurance is prescribed in Form 51 of the Central Motor vehicle Rules 1989.

Certain common features appear in all types of certificates of insurance. These

are:

i. Policy Number ……………………Certificate Number……………………….

ii. Name of Registration Authority
iii. Particulars of vehicle insured: Registration mark and number or
description of the vehicle insured
iv. Geographical Area: INDIA
v. Business or Profession
vi. Effective date of commencement of insurance for the purpose of the Act
vii. From ------------------- O’clock on
viii. Date of expiry of insurance. Midnight on ----------------------
ix. Persons or classes of Persons entitled to drive*
x. Limitations as to use*
xi. Full address of the issuing office
xii. Date of issue

These are followed by a certified declaration by the Insurer:

“I/we hereby certify that the Policy to which this Certificate relates as well
as this Certificate of insurance are issued in accordance with the provisions
of the Chapters X and XI of the Motor Vehicles Act, 1988”.

* The differences in the Certificate of Insurance for different types of vehicles

are to be found in the items viii) and ix) above.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 125

 a) Private Car and Motor Cycle Certificate of Insurance

The wordings are as follows:

i. Persons or classes of persons entitled to drive

Any person including the insured Provided that the person driving holds an
effective driving license at the time of the accident and is not disqualified
from holding or obtaining such licence.

Provided also that the person holding an effective Learner’s Licence may also
drive the vehicle and that such a person satisfies the requirements of Rule 3
of Central Motor Vehicles Rules 1989.

When the vehicle is used for Transport of goods: add the following words:

 when not used for the transport of goods at the time of accident
 When the vehicle is used for Transport of passengers: add the following
words
 when not used for the transport of passengers at the time of accident

ii. Limitations as to Use:

The policy covers use for any purpose other than

I. Hire or reward or
II. The carriage of goods (other than samples or personal luggage)
III. Organised racing,
IV. Pace-making,
V. Reliability trials,
VI. Speed testing,
VII. Any purpose in connection with Motor Trade.

b) For Commercial Vehicles

For Commercial Vehicles, the wordings vary according to the type or class of
vehicle. For Goods Carrying Vehicles (whether own goods or general
cartage) and Passenger Carrying Vehicles, the description of Persons or
classes of Persons entitled to Drive, and the declaration by the insurer is the
same as in the case of Private Car above, but as regards Limitations as to
Use, the wording differs, as under:

i. Limitations as to Use: (for Goods Carrying Vehicle - own goods or

general cartage)

S-06-MOTOR INSURANCE (FOR SURVEYORS) 126

 The policy covers use only under a permit within the meaning of the Motor
Vehicles Act, 1988 or such a carriage falling under sub section 3 of section 66
of the Motor Vehicles Act, 1988

The Policy does not cover use for:

(1) Organised racing, pace making, reliability trial or speed testing.

(2) Use whilst drawing a trailer except the towing (other than for reward) of
any one disabled mechanically propelled vehicle.

(3) Use for carrying passengers in the vehicle except employees (other than
driver) not exceeding six in number coming under the purview of
Employee's Compensation Act,1923.

ii. Limitation as to Use (For Passenger Carrying Vehicle)

The policy covers use only under a permit (Contract Carriage or Stage
Carriage) within the meaning of the Motor Vehicles Act, 1988 or such a
carriage falling under sub section 3 of section 66 of the Motor Vehicles Act,
1988.

The Policy does not cover use for:

(1) Organised racing, Pace making, Reliability trial or Speed testing.

(2) Use whilst drawing a trailer except the towing (other than for reward) of
any one disabled mechanically propelled vehicle.

c) Persons or classes of persons entitled to drive Misc and Special Types

of vehicle

i. Agricultural and Forestry Vehicles

Use only for Agricultural and Forestry purpose

ii. Ambulances/Hearses

Use only for Ambulance purpose or Hearse’s purpose

iii. Cinema Film Recording and Publicity Vans, Delivery trucks, Pedestrian
controlled trolleys and Goods carrying Tractors, vehicle used for Driving
Tuitions

Use in connection with insured’s business

S-06-MOTOR INSURANCE (FOR SURVEYORS) 127

 iv. Cranes – Breakdown Vehicles, Mobile cranes and Goods Carrying Vehicles
having a crane as part of or fixed to the vehicle or trailer corps vehicle

Use in connection with insured’s business

v. Dumpers dust carts, Water carts, Road sweepers and tower wagons,
Mechanical Navies, Shovels, Grabs, Excavators, Mobile plant, Road rollers,
Site clearing and leveling plant and tar sprayers

Use in connection with insured’s business

vi. Fire brigade and Salvage Corps Vehicles – Use for ** purpose

vii. Mobile shops and canteens - Use in connection with insured’s business

d) Driver: Any of the following:

i. The insured.
ii. Any other person who is driving on the Insured's order or with his
permission

Provided that the person driving holds or had held and has not been
disqualified from holding or obtaining an effective driving license at the time
of the accident and is not disqualified from holding or obtaining such licence
as per the Motor Vehicles Act 1988

Provided also that the person holding an effective Learner’s Licence may also
drive the vehicle **** and that such a person satisfies the requirements of Rule
3 of Central Motor Vehicles Rules 1989.

When the vehicle is used for:

****Transport of goods: add the following words

- when not used for the transport of goods at the time of accident

**** Transport of passengers: add the following words

- when not used for the transport of passengers at the time of accident

4. Cover Note

A cover note is usually issued when the policy and certificates of insurance cannot
be immediately issued for any reason. Cover note contents are prescribed in Form
52 (Rule 142 (1) of Motor vehicle Rules 1989).

A cover note which has to be issued in a prescribed form is valid for a period of
15 days. If for any reason the company is not able to issue the policy within the

S-06-MOTOR INSURANCE (FOR SURVEYORS) 128

period, the validity of the cover note shall be extended by 15 days at a time but
in no case the total period shall exceed 60 days.

Form of Cover Note

Motor Vehicle Insurance Cover Note Number …………………

The insured described in Form 52 referred to below; having proposed for

insurance in respect of the Motor Vehicle(s) described in the Schedule and having
paid the sum of Rs.... as premium, the risk is hereby held covered in terms of
the Company's usual form of.... policy applicable thereto (subject to any special
conditions or restrictions which may be mentioned overleaf) unless the cover be
terminated by the company by notice in writing, in which case the insurance will
thereupon cease and proportionate part of the annual premium otherwise
payable for such insurance will be charged for the time the Company has been
on risk.

Make Year of Cubic Gross Licence Insured’s Declared Value

and manufacture capacity vehicle carrying For For accessories
Reg. of weight capacity vehicle not included in
the (Goods (Passenger Rs. Manufacturers
vehicle carrying carrying listed selling
vehicle) vehicle) price

Engine No., Chassis No.

Additional Risks, if any
Special Conditions
FORM 52
(See Rule 142 (1) of Motor vehicle Rules 1989)
Registered Mark and No. or description of the vehicle(s) insured
Name and address of Insured
Make and cubic capacity, type of vehicle(s) etc
Effective date of commencement of Insurance for the purpose of the Act Time
…………………a.m. /p.m. Date
Date of expiry of insurance
Persons or classes of persons entitled to drive
Any Limitation as to use of Motor vehicle
The period of validity of the cover note will expire on …………………………..

The Cover Note incorporates a Certificate:

I /We hereby certify that this cover note is issued in accordance with the
provision of Chapter XI of the Motor Vehicles Act 1988.

Authorised Insurer

S-06-MOTOR INSURANCE (FOR SURVEYORS) 129

5. Policy forms: The policy form consists of the following sections:

a) Recital clause

This clause reads as follows

“Whereas the Insured by proposal and declaration dated as stated in the

Schedule which shall be basis of this contract and is deemed to be
incorporated herein has applied to the Company for insurance hereinafter
contained and has paid or agreed to pay the premium as consideration for
such insurance in respect of accident, loss or damage occurring during the
Period of Insurance”.

b) Operative clause

i. Operative clause of a private car package policy specifies the risks

covered and the risks excluded:

I. Section I deals with the loss or damage to the vehicle;

II. Section II deals with the liability to third parties;

ii. Operative clause of Commercial Vehicle Policies:

(a) Section III deals with towing of any mechanically disabled vehicle.

iii. Operative Clause in Motor Trade Policies, Section III deals with Trailer
attached to the Vehicle.

iv. General Exceptions: These are exclusions applicable to entire policy.

v. Conditions

c) Schedule

i. The schedule of a Private Car Policy

This consists of typewritten matter relating to individual details of the

contract. The column provides for:

 Policy Number
 Name of the Company
 The insured's name and address and Business or Occupation
 Period of Insurance
 Geographical Area
 Registration Mark and other details of the vehicle
 Limitation as to use
 Driver

S-06-MOTOR INSURANCE (FOR SURVEYORS) 130

  Premium Computation
 Date of signature of Proposal and Declaration
 Signature of authorised officer

ii. The Schedule of Commercial Vehicle Policy will contain 'Licensed

Carrying Capacity' instead of 'Seating Capacity' and also an additional item
showing 'Limits of Liability' under Section 11 - 1(i) and Section 11 - 1 (ii)

6. Endorsement

An endorsement is a written evidence of an agreed change in the policy. It is a

document that incorporates changes in the terms of the policy. An endorsement
can be of two types:

a) Premium bearing endorsement: endorsement for which additional

premium is charged.

Example

Some of the examples are:

 Transfer of ownership
 Addition of LPG/ CNG kit
 Change of RTO location

b) Non-premium bearing endorsement; endorsement for which no

additional premium is charged.

Example

Some of the examples are:

 Rectification in contact details

 Rectification in engine/ chassis number
 Addition of hypothecation

An endorsement may be issued at the time of issuing the policy to provide

additional benefits and covers (e.g. Legal Liability to Driver) or to impose
restrictions (e.g. excess accidental damage in a public carrier policy). The
wordings of these endorsements are as per erstwhile Tariff. An endorsement
may also be issued subsequently to record changes such as change of address,
change of name, change of vehicles etc. There are 72 Endorsements carried
forward from the erstwhile tariff.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 131

Test Yourself 2

The insurance company is under a duty to inform the Registering Authority that
the policy has not followed the cover note, within ______ of the expiry of the
cover note as required under Section 147 (4).

I. One month
II. 15 days
III. 10 days
IV. 7 days

SUMMARY

In this chapter you learnt about the various types of motor policy add on covers
available in motor insurance industry to suit the purpose and necessity of insured.
You also learnt about the various document such as proposal form, certificate of
insurance, cover note, policy forms and various documents required in claim
settlement.

Answers to Test Yourself

Answer 1

The correct option is III.

Under the OD section of the policy, the sum insured for ‘loss of personal
belongings’ cannot exceed Rs. 50,000.

Answer 2

The correct answer is IV.

The insurance company is under a duty to inform the Registering Authority that
the policy has not followed the cover note, within 7 days of the expiry of the
cover note as required under Section 147 (4).

S-06-MOTOR INSURANCE (FOR SURVEYORS) 132

Self-Examination Questions

Question 1

A cover note which has to be issued in a prescribed form is valid for a period of
______.

I. 7 days
II. 15 days
III. 30 days
IV. 3 months

Question 2

All proposal forms elicit full particulars of settled and outstanding claims in
connection with any motor vehicle owned or driven by the proposer during the
last preceding________.

I. 4 to 6 years
II. 2 to 4 years
III. 3 to 5 years
IV. 1 to 3 years

Answers to Self-Examination Questions

Answer 1
The correct option is II.

A cover note which has to be issued in a prescribed form is valid for a period of
15 days.

Answer 2

The correct answer is III.

All proposal forms elicit full particulars of settled and outstanding claims in
connection with any motor vehicle owned or driven by the proposer during the
last preceding 3 to 5 years.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 133

 CHAPTER 6
MOTOR INSURANCE OWN DAMAGE CLAIMS

Chapter Introduction

In this chapter you will learn about the concept of motor insurance claims, motor
claims work-flow procedures and type of accidents &losses. You will also learn
about the role of the Surveyor in general and his role in loss minimisation in motor
insurance. Towards the end of the chapter we will see the role of insurance and
fleet owners in road safety. Lastly you will learn the consensus vs scientific
approach in claims.

Learning Outcomes

A. Motor Own Damage Claims

B. Motor Insurance Claims Procedures
C. Types of Losses
D. Surveyor and his role in Loss Assessment/ Minimization
E. Role of Road Safety in Insurance

S-06-MOTOR INSURANCE (FOR SURVEYORS) 134

A. Motor Own Damage Claims

1. Doctrine of cause of Accident

The cause of accident and probable damage caused due to a particular reason is
the most important aspect to be taken into consideration in all motor claims.
There is always a direct relationship between the cause of accident and damages
to the vehicle out of a particular reason and depends on the transmission of the
impact load; jerk load and absorption of these load waves at different points by
the chassis of impact cling upon the circumstances of accident, intensity and
structure of the vehicle.

Example

A head on collision damage to damper pulley confirms the damages to crank

shaft. Similarly club housing cannot be damaged unless there is positive
displacement of the engine backwardly.

A Motor Surveyor can prepare the list of effected parts / assemblies if he knows
the correct cause of accident. At times actual cause of accident is little different
than that recorded in the claim form by the insured while the estimate gives
some other description.

Generally shearing forces do not apply in the accident and most of the time they
are bending forces. It can be ascertained only on the spot, whether the particular
part has suffered a direct impact or indirect impact. An analytical study of such
claim reveals that the cause of accident is mechanical breakdown in the vehicle
due to sudden shearing off a particular part, which caused the vehicle to go out
of control resulting in damages to vehicle going off the road.

As a matter of fact, Motor Insurance Policy does not cover break down of a part
which was the material cause of accident. The insured fabricate the cause of
accident with an intention to cover such part.

Similarly, there are cases where shearing off front axle is claimed in commercial
vehicles which took place due to structural failure of the metal and will be
termed as Mechanical Breakdown which is not covered in the Motor Insurance
Policy.

Example

A car dashed with the rear end of a truck but the damages claimed were very
different than what could have been actually caused. The damages will be
horizontal line damages but during inspection it was revealed that the damages
were caused due to shearing forces applied to the vehicle along vertical line.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 135

The surveyor was at loss to justify the claim due to the cause of accident given
in the claim form. During discussions insured finally agreed that in fact the
accident took place with an electric pole but with a fear of police case by the
electricity board, insured had not mentioned the actual cause.

1. Various Causes of Accident

a) Fire Damage to Vehicle

Damage to vehicle due to fire needs a good deal of care in investigation to

ascertain, if possible, the origin of fire. The most usual cause of motor vehicle
fires is the failure of electrical system and these most frequently follows
repairs which have involved removal of the engine at some point of time. This
usually causes the wiring to be disturbed which breaks down the insulation
and results in a fire perhaps months later.

The reconstruction and repair of vehicles seriously damaged by fire is an

extremely difficult proposition and unless there is a very big margin between
the cost of repairs and writing off the vehicle, it frequently proves more
economical to deal with the claim on a Total loss or Cash in lieu of loss.

b) Loss caused by Mechanical / Electrical Break Down

Loss caused by Mechanical / Electrical Break Down are excluded from the
policy cover, but any damage consequent thereon would normally be the
subject of indemnity. Generally mechanical breakdown will be deemed to be
confined to actual unit in which the initial failure took place thus, if a
connecting rod big end bolt fractured with the result that the connecting rod
came out through the side of the crank case, this would be regarded as a
mechanical breakdown of the engine and the whole of the damage be
excluded.

On the other hand if a fan blade broke and went through the radiator the fan
blade would be excluded as mechanical breakdown but consequential damage
caused to the radiator would be subject of indemnity under the policy.

c) Loss caused by Frost

Most insurance policies cover frost subject to suitable precaution having been
taken as specifically laid down by underwriters’ and include either:

i. The correct quantity of anti-freezing mixtures to be added to the water

in the cooling system and regularly maintained at correct proportion or
ii. The cooling system is to be entirely drained.

The surveyor is required to differentiate between frost damage and crack

near the top face of the block which can be productively repaired by
S-06-MOTOR INSURANCE (FOR SURVEYORS) 136
 electrode deposition without any dismantling of the engine unit as the
process is cold one. If it is necessary to fit a new cylinder block the question
of depreciation has to be considered.

d) Loss of Use of Vehicle

Where the claim is made for hiring similar replacement vehicle we must take
into account an allowance to be deducted from the normal hiring charges to
represent the saving of running costs which would have been incurred had
the owners own vehicle would have been used.

e) Manhole Cover Stolen

This is a menace which results in damage to vehicle and at time even bodily
injury or loss of life in some circumstances. Such motor accidents are covered
by the Motor Insurance Policy. However, the right of recovery is subrogated
to insurance company from the person liable to maintain. Municipal
Authorities who are liable for upkeep and maintenance of such property are
legally liable under Common Law for loss or damage caused to any person
using the road in public place.

f) Auto Crashes - Multiple Cars Crash

The high speeds in Automobiles being current craze have brought in the
probability of multiple car crashes due to one vehicle meeting with an
accident either due to collision or overturning or a policeman stopping a
vehicle for check all of a sudden or fog obscuring the visibility of driver in
winter season. Such accidents may increase the liabilities many folds and are
fit to be reinsured.

g) Vehicle Lying in Garage or Valet Parking

Fire or accident to a vehicle during repairs at garage: It has been noted that
the vehicles lying with dealers or repairers garages at time meet with
accident either by the repairers’ mechanics driving the vehicle, even when
the mechanic is just dropping the owner after the vehicle has been handed
over for repairs. The garage owner becomes legally liable due to the fact that
he has taken vehicle as, goods in trust, for repair work. Even a vehicle parked
in a garage overnight will also cause the liability to be on garage owner. The
Motor Insurance Policy does not cover liability of garage owner and the owner
of the vehicle has a right to recover damages if any contributed by garage
owners or his employees whilst the vehicle is lying in garage or used , tested
by garage workers.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 137

2. Salvage / Scrap Disposal

The word salvage means the things that are saved from a disaster or accident.
However, in insurance claims salvage is used to denote damaged parts for which
replacements have been allowed as the damaged part cannot be repaired i.e.,
cannot be salvaged. This is an anomaly. Salvage should be appropriately referred
to as SCRAP.

3. Accident Repairing Cost

Although third party losses are less controllable, but motor damage losses may
be contained to a large extent, if leakage during vehicle repairs in regard to over-
pricing of spare parts, inclusion of obligatory parts, over-charging of labour cost
or replacement of repairable parts are closely monitored.

Further at times, repairs lead to lesser efficiency of the vehicle and greater
proneness to serious accidents due to inappropriate facilities available with
garages undertaking repairs as compared to manufacturers. The following factors
are assessed for Post Automotive Repair:

i. Labour charges /Time schedule and Rate

ii. Painting component / Technology used in painting

iii. Spare parts pricing

Manufacturer’s / Dealers’ current strategy is to earn profits through accident

repair jobs at the insured’s cost. Over charging to insurers need to be eliminated
by replacing the current ‘live and let die’ policy of manufacturers and Dealers
by ‘live and let live’ approach. We need to identify accident prone parts, claim
prone parts and spare parts price revision pattern, repair cost basis, including
PML concept to keep a check on claim cost.

a) Repair techniques

There are various steps in repairing automobiles:

i. Welding: Welding is of two types a. Hot welding and b. Cold welding

ii. Glass and plastic repairs; Glass cracks and plastic cracks can now be
removed by various technologies thus reducing the cost of replacement.

iii. Denting is possible for fiber parts as well.

iv. Denting / body works: These are generally out sourced to small roadside
denters or generally unqualified persons. Denting is also slowly moving

S-06-MOTOR INSURANCE (FOR SURVEYORS) 138

 towards technology driven affair, where the dents are removed by
creating vacuum to keep the tensile strength of body parts intact.

v. Painting: Painting is by various methods which have different costs

involved

(a) Brush painting

(b) Hot painting
(c) Dip painting

4. Compensation for Third Party Injury or Property Damage

Compensation for third party injury or property damage is decided by

Compromise through Mediation, Conciliation through Lok-adalats and MACT
Awards.

5. The Consensus vs. Scientific Approach

The claims are settled by a team work of the insured, the repairer, surveyor and
duly accepted by the insurer. A scientific approach to the art of assessment is in
the offing and will ensure proper settlement and pave way to a healthy
relationship amongst all the stake holders.

6. Science of Damage Estimation and the Technology Support

Insurance claims estimating system are available for vehicle damage estimation
which can be used by Surveyor and Repair garages to obtain information about
spare parts, labour charges and repair operations for automobile repairs that
enables an insurance surveyor to quickly and accurately estimate damage to
various parts of a vehicle.

Computerised insurance estimating systems are known which provide access to

large amounts of parts information such as:

i. Parts prices,
ii. Availability of parts,
iii. Labour estimates and
iv. Replacement operations

Furthermore various systems for storing and retrieving texts and associated data
and graphics are also known.

Example

The text menus and graphics have been stored in computer memory and
displayed in separate windows on screen. Controls have also been provided to

S-06-MOTOR INSURANCE (FOR SURVEYORS) 139

scroll windows up and down, left and right to thereby display different portions
of texts menus and graphics.

The insurance claims estimation methods allow the Surveyor to analyse damage
to various ‘layers’ of a vehicle. If damage to an ‘outer layer’ of a vehicle is
visible, the insurance estimator will quickly perform a damage estimate using the
catastrophe or drill in and drill out features. Nevertheless, the estimator will be
reminded to also look for damage in ‘lower layers’ of the vehicle that are not
readily visible. Conversely, a Surveyor may begin estimating damage to a vehicle
by focusing on the interior of a vehicle which has significant interior damage.
The method then reminds the Surveyor not to overlook slight damage to outer
layers of the vehicle.

The catastrophe feature of the method permits insurance Surveyors to quickly

and accurately perform a large number of damage estimates, when damage is
primarily to outer layer of the vehicle, such as damage resulting from hail, sand,
or wood. The invention allows an insurance Surveyor to select a desired vehicle
part for repair, replacement, or other operations, in a number of quick and
convenient ways, and gives the Surveyor a number of options. The invention also
prevents “double charging” when there is a possibility that a vehicle part may
be selected more than once.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 140

B. Motor Insurance Claims Procedures

Motor insurance claims due to use of vehicle in public place involve property
damage and bodily injury &/or death caused to third party including passengers
travelling in the vehicle and the employees engaged in driving, loading and
unloading of vehicle as envisaged in MV Act, 1988 besides damages caused to
vehicle resulting in total and partial loss due to accident or fire and/or theft of
the vehicle.

a) Own Damage Claims

Diagram 1: Own damage claims

From the procedural viewpoint claim settlement involves three phases -

preliminary scrutiny, assessment of the loss and settlement.

i. Preliminary Scrutiny Phase

On receipt of notice of loss, the policy records are checked to verify that the
policy is in force and that it covers the said vehicle involved in the accident.
The loss is entered in the ‘Claims Register’ and a ‘Claim Form’ is issued to
the insured for completion and return. In case of commercial vehicles, it is
the practice of insurers to arrange for a survey of the vehicle at the spot of
the accident.

This establishes genuineness of the accident and prevents probability of

unwarranted damages and as a consequence excessive claim amounts. The
surveyor usually checks the vehicle, driver’s documents, as also load, carried,
if any.

The insured is required to submit a detailed estimate of repairs from any

repairer of his choice. Generally, these repairs are acceptable to the insurer,
but at times they may ask the insured to obtain repair estimate from another
repairer, if they have reason to believe that the competence, moral hazard
or business integrity of the repairer first chosen is not satisfactory.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 141

 ii. Assessment Phase

Independent automobile surveyors are assigned the task of assessing the

cause and extent of loss where the loss is more than Rs. 50,000/- (as per
insurance Act 1938). They are provided with a copy of the policy, the claim
form and the repairer's estimate. They inspect the damaged vehicle, discuss
the cost of repair or replacement with the repairer and submit their survey
report.

In respect of minor damage claims, where the loss is less than Rs. 50,000/-
independent surveyors are not necessarily appointed. The insurers' in house
officials or their own automobile engineers inspect the vehicle and submit an
assessment report.

iii. Settlement Phase

The survey report is examined and settlement is effected in accordance with

the recommendations contained therein. The usual practice is to authorise
repairs directly with the repairer to whom a letter is issued to the effect. In
this letter of authorization the repairers are also instructed to collect directly
from the insured the amount of deductible, if applicable to the claim, and
also the amount of depreciation to be borne by the insured, before delivering
the repaired vehicle to him.

The repairers are also instructed to keep aside the salvage of damaged parts,
if there are any, for being collected by the salvage buyer nominated by the
insurers. Or else, if the repairer/insured were willing to retain the salvage,
its value, as indicated by the surveyor, is deducted from the claim bill. On
receipt of final bill after completion of repairs and a satisfaction note or
discharge voucher from the insured that the vehicle has been repaired to his
satisfaction, payment to the repairer is made. This mode of settlement of
claim is commonly known as Cashless Settlement.

Sometimes, the repairer is paid directly by the insured, in which case the
insured is reimbursed on submission of a receipted bill from the repairers. In
either case, discharge voucher or receipt is obtained. The Claims Register,
the Policy and renewal records are marked that the claim is paid indicating
the amount of claim and the amount of salvage recovered, if any.

Information Technology (IT) has helped improvement in claim management.

Most private insurers have centralised their claim settlement process with a
dedicated call centre team on 24 hours basis.

In the event of a loss the insured is required to telephonically contact the call
centre on the number provided in the policy, and provide the policy
particulars. The details are immediately verified and a claim number is
allotted.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 142

 The insured is also queried on the details of the accident and the location of
the vehicle at the time of accident. If towing assistance is required, this is
arranged through the approved towing service provider or repairer.

1. Claim Documents

Claim Form: The format and the contents of the claim form differ from insurer
to insurer but the claim form contains questions relating to the following
particulars:

a) The Insured

The name of the insured, address, occupation, policy number, date of

payment of last premium to identify the policy in the insurers' records, and
to supplement the preliminary scrutiny. All the answers on the claim form are
verified with the policy records and discrepancy if any is cleared up as soon
as possible.

b) The Vehicle

The details required in an accident in respect of the vehicle concerned are,

i. Make and year,

ii. Horse power or cubic capacity,

iii. Registered letters and number,

iv. Whether the claimant is the owner of the vehicle or is it hired to him
under a hire purchase agreement, and is it registered in his name? If not,
the full name and address of the owner has to be given.

It is necessary to make sure that the claimant is registered owner of the

vehicle. In India, motor policies are not allowed to be issued in any other
name except that of a registered owner. If the answer to the above question
is in the negative, it will be necessary to scrutinise the original proposal form
to find out who had proposed for this insurance.

If the claimant himself was the proposer, even though he was not the
registered owner, it will be obvious that the relevant question in the proposal
form was wrongly answered, in which event the contract will be treated as
void and the claim will not be payable.

The information whether any hire purchase company is involved becomes

necessary with a view to ascertaining, whether the claim proceeds in the
event of Total Loss or a loss not reimbursed by payment to the repairers has

S-06-MOTOR INSURANCE (FOR SURVEYORS) 143

 to be paid to the hire purchase party, whose name is recorded in the policy
by virtue of Standard endorsement.

It may so happen that the registered owner in whose name the policy has
been issued was driving another car not belonging to him at the time of the
accident and the claim has been lodged for damage to this car or for personal
injuries to a Third Party under the "Driving Other Car" Clause. In India the
owner of the car remains liable for the own damage and third party claim, if
the person driving the vehicle involved in accident, was doing so with due
permission of the registered owner.

In some countries it is necessary to point out to the claimant that ‘driving

others car clause’ does not apply to Section I (Damage to Vehicle) of the
Policy but to Section II - (Third Party Section) only. He will, therefore, have
to be advised to ask the registered owner to approach his own insurer for
reimbursement of own damage loss, while the third party claim will be borne
by ‘drivers clause’ in his Motor Insurance.

Author Note

In India we do not have any provision of insurance for “driving other’s car”
liability Insurance. It may cause a peculiar situation where an uninsured vehicle
is driven by a non-registered owner in contravention of the Third party mandatory
insurance resulting in criminal liability on person driving other car for accidental
death, while authorizing to drive an uninsured car remains a civil liability under
MV Act 1988.

Even in the Third Party Claims, the Motor Accident Claims Tribunals in India
hold the owner of the car involved in the accident to be responsible to pay
compensation to the injured Third Parties. Thus, even for a personal injury
claim the insurer of the car will have to be notified and not the insurer of the
person who was driving the car at the material time.

It is for this reason that the "Driver Clause" omits any mention that "the
insured may also drive a motor car not belonging to him and not hired to him
under a Hire Purchase Agreement", as was formerly the case.

For a Commercial vehicle, these additional questions are asked:

i. Registered laden weight .... unladen weight ....

ii. Nature of goods carried.

iii. Was the vehicle loaded to capacity?

iv. What was the weight of goods carried?

S-06-MOTOR INSURANCE (FOR SURVEYORS) 144

 c) The Use of the Vehicle

There is need to ascertain use of vehicle by posing the following questions:

i. Please state the exact purpose for which the vehicle was being used at
the time of the accident:

ii. Was it being used solely for social, domestic and pleasure purposes?

iii. If the vehicle was being used for business purposes, please state

(a) Upon whose business was it being used?

(b) Were goods being carried? If so, state their nature.

(c) Was the vehicle being used for hire or reward?

(d) Were passengers being carried? If so, please state how many and their
relationship to the insured.

The purpose of these questions is to ascertain whether the condition relating

to “Limitation as to Use" was complied with or not.

d) The Driver

i. Name of the Driver; Age ............; Address of the driver.........

ii. Is driver (a) Owner (b) Owner's Paid Driver or (c) Owner's relative or friend?

iii. Was he sober and fully competent to drive?

iv. No. of driving license............. Is it temporary or permanent?

v. Date of Expiry..............

vi. Has it been endorsed, If so, particulars .............?

vii. Was it being used within the terms of the "limitations as to use?

viii. Has Driver previously been involved in an accident?

ix. If paid Driver, how long has been in the employment of the claimant?

x. Have the Police charged the Driver, and if so, why?

S-06-MOTOR INSURANCE (FOR SURVEYORS) 145

 All these questions have to be answered. Very few of them are inapplicable,
even if the insured was driving. For example, it is curious how often the
details given in the notice of accident form, about the duration for which the
insured has held a license and the number of endorsements, differ from the
information supplied in the proposal form. It is important to ascertain the
relationship between the driver and the insured.

It is also essential that the driver was sober and not under the influence of
liquor or drugs at the material time. Otherwise, the own damage claim will
not be payable. However, any third party claim for death / personal injuries
only will not be affected in terms of the clause contained in "General
Exceptions" of the policy.

The information in regard to the type of the driving license and its expiry
date will have to tally with the requirements of the "Drivers Clause" printed
on the schedule of the policy. According to this clause, the person driving
must hold a valid and effective driving license. It must be valid for the
particular type of vehicle which met with an accident.

Example

For example, if the license is restricted to drive a Light Motor Vehicle (L.M.V)
the driver is prohibited from driving a Heavy Motor Vehicle (H.M.V.).
Similarly, if the license issued only to drive motor cycle, it is not valid to for
driving a private car.

The "Expiry Date"of license will disclose whether the license was current at the
time of the accident. If the license has already expired, the Driver Clause
provides that the person driving must have held a license in the past and is not
disqualified from obtaining such license. The important point to be borne in mind
in such cases is that the driver must have had a permanent license in the past
and which had expired. If he had held only a learner's license in the past and
which was not followed by a Permanent License, the claim will not be payable.
Even when the permanent license had expired prior to the date of accident, the
claim will not be settled until the driver applies for and produces a fresh license.

Definition

The Motor Vehicles Act, 1988 defines "driving license" as license issued by a
competent authority authorising the person specified therein to drive, otherwise
than as a learner, a motor vehicle of any specified class or description.

Therefore, under the new Motor Vehicles Act, 1988, a "Learners License" is
not considered to be a "Driving License".

S-06-MOTOR INSURANCE (FOR SURVEYORS) 146

 The information regarding the name of the driver assumes importance when
a policy contains a 'Driver Clause' which is amended to exclude a particular
person from driving by adding the words "other than Mr. / Mrs. ........" after
the words "Any Person". This practice is usually followed whenever a proposal
for Private Car is received from an aged person who is not in a position to
drive safely, or from a handicapped person who is unable to drive a car.

"Is there any other Policy indemnifying you or the Driver in respect of this
accident?" This is to ensure that contribution, if applicable, is enforced.

i. Date, Time, Place

ii. Estimated speed of the vehicle ............ km per hour. A short description
of the Accident, Loss or Break-down.

If accident was caused by the fault of any Third Party, the name and address
of such person(s):

i. Date, Time, Place

ii. What has been stolen? Estimated cost of replacement

iii. If theft occurred while vehicle was standing in street, was it unattended?
If so, how long? If car was in garage, was forcible entry made? When was
the theft reported to the insured? By whom discovered and when?

iv. Have Police been notified? If so, when and with what result? Name of
Police Station and Station Diary Number.

v. Is paid Driver kept? If so, how long has he been in the service of the
insured?

vi. Is any person suspected?

e) Witnesses

i. Names and addresses of all witnesses of Accident

ii. Passengers in Car, Independent Witnesses, If Witnesses' names were not

taken, reason therefore.

iii. Did a Police Constable witness Accident or take particulars? If so, the
Constable's Number.

iv. Was Accident reported to Police? If so, the name of the Police Station and
Station Diary Number (SDN).

S-06-MOTOR INSURANCE (FOR SURVEYORS) 147

 v. Was any statement, as to fault, made by witnesses or drivers at any time?
If so, a copy has to be attached.

vi. Name, Address, Full extent of personal injuries or Damage to property

vii. Has notice of any Claim been given to the Insured?

viii. The Insured is advised to "dispatch to the Company forthwith and

unanswered any written Communication which may have been received".

f) Injury to Driver / Occupants

The question reads:

"Was any injury sustained by your Driver or Occupants of your Motor Vehicle
or by any third party? If so, state fully extent thereof.

If any injured person has been removed to a Hospital or Medically attended

to, give name and address of the Hospital or Doctor."

g) Damage to the Vehicle

i. Full particulars of the Damage.

ii. Estimated cost of repairs.

iii. Address where damaged vehicle may be inspected at ... on...

h) Sketch

The claim form provides space for a rough sketch of the scene of accident.

The claim form concludes with a declaration which reads as follows:

"I / We the above named, do hereby, to the best of my / our knowledge and
belief, warrant the truth of the foregoing statements in every respect; and I
/ We agree that if I / We have made, or in any further declaration the
Company may require in respect of the said accident shall make any false or
fraudulent statement, or any suppression or concealment, the Policy shall be
void and all rights to recover there under in respect of past or future
accidents shall be forfeited."

The Survey Report

The survey report would amplify the information obtained in the claim form
and also incorporate additional information. There is no standardised form

S-06-MOTOR INSURANCE (FOR SURVEYORS) 148

 for survey report, but the following information is expected in a survey
report.

a) The Accident

i. Date of Occurrence, Time,

ii. Place (Street, Road, Town) under Police Station

iii. Cause of Accident:

iv. Any Special features:

v. No. of Photographs attached:

b) The Assessment of loss

Sr. No. Repairer’s Surveyor’s

Estimate Assessment
1 Labour
2
a) Parts
b) Less Depreciation at %
3 Less Depreciation on
Painting
4 Excess, if any
5 Salvage

*Note : The depreciation on painting will be 12.5% of consolidated painting

bill or in case where the paint material part bill is given separately, 50%
depreciation on paint material has to be applied.

c) Net Liability of Insurer

Labour + Parts (Less Depreciation) - Excess - Salvage = Rs……………………

d) General Observations

These would relate to compliance with policy conditions, warranties, etc.,

and would be followed by surveyor's recommendations regarding the payment
of the claim. If adverse features are involved, the surveyor would leave the
settlement question to the insurers, giving his reason.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 149

 Other Documents

The other documents required for processing the claim are:

i. Driving License

ii. Registration Certificate Book

iii. Fitness Certificate: This applies to Commercial Vehicles. Section 56 of the

MV Act 1988 specifically states that the Vehicle registration is invalid
without the ‘Fitness certificate’. The fitness certificate once issues is
valid for a period of 2 years and needs to be renewed thereon.

iv. Permit

v. Authorization (in case of accident outside Home State)

vi. Police Report

vii. Repairs Estimate

viii. Final Bill from repairers

ix. Satisfaction Note from the insured

x. Receipted bill from the repairer, if paid by insured

Technical aspects of, problems involved in assessment and settlement

The exclusions under Section I of the operative clause of the comprehensive

policy lead to several disagreements between the insured and insurers.

a) Own damage claims are far more than the third party claims. These claims
may be of minor nature (e.g., mere scratching), or of major nature (e.g.
head-on collision or total loss by fire or theft).

b) The motor insurance policy is not a maintenance contract; it is a contract

of indemnity. Many a time, repair or replacement will result in
improvement in the vehicle.

Example

For example, the liability under the policy is restricted to paint of the portion
affected by the accident, but the insured would naturally expect the entire car
to be painted to avoid a "patchy appearance". In such cases, the insured is
expected to contribute towards the additional cost of repainting the entire car.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 150

 c) Sometimes with older vehicles particularly - dismantling of a vehicle
reveals certain defects which are not directly connected with the
accident but still will have to be made good for a satisfactory repair of
the whole vehicle.

Example

For example, the effect of rust is revealed only after dismantling and will have
to be rectified before a new part is fitted. These costs are in the nature of
maintenance expenses and the insured will have to bear the costs of these
incidental repairs which are not directly related to the accident.

d) Another area of misunderstanding between the insured and insurers is

that of depreciation charged when old parts are replaced by new ones.
Here again, the insured is expected to bear a certain part of the cost. This
is based on the principle of indemnity whereby the insured must neither
benefit by the accident nor be left to suffer.

This is implied not by any specific condition in the policy but by the operative
clause itself which reads "The Company will indemnify the insured against
loss etc."

The rate of depreciation varies according to the type of part replaced, the
age of the vehicle and its general maintenance. The rate of depreciation is
highest for rubber parts, whereas no depreciation is applied when windscreen
glass is replaced. Depreciation ranging from 25% to 30% is charged on
replacement of 'cabin and body' of a public carrier, because wood is subject
to weather conditions and fatigue and the joints of cabin would be loosened
due to operating conditions such as uneven loading, bad road conditions, high
speed, overloading, etc.

Therefore, insurers endeavor to ensure, especially with older vehicles, that

damage caused by general deterioration of body work is not claimed for as
accidental damage. The edges of body panels become rusted or corroded in
the course of time.

Example

For example, sea water has a highly corroding effect upon metal. When
accidental damage repairs are carried out, some wear and tear too will have to
be made good. The principle of indemnity demands that the insured must
contribute to the cost. When damaged parts are replaced by new, an allowance
is sought from the repairers towards the value of salvage. Alternatively, old parts
are recovered and sold as scrap or if of no economic value salvage is destroyed.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 151

 The standard Package Policy makes express provision concerning deduction
for depreciation at the rates, mentioned in the policy, in respect of parts
replaced.

As depreciation applicable is now expressly spelt out in the Policy Form, this
area of misunderstanding is removed for all Vehicles.

e) Differences also arise on the question of repair or replacement and it may

be more profitable for the repairer to replace a new part than to repair
an old one. If the part is repairable and the safety of the vehicle is not
impaired, then the repair is insisted upon. The work is entrusted to
competent repairer or to makers or to a firm of specialists. A good deal
of specialisation has crept in motor repair work. There are specialist firms
for welding, repair or replacement of chassis frames, radiators, coach
work, painting etc.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 152

C. Types of Losses

Types of Losses

The different types of losses include the following:

a) Total Loss or Constructive Total Loss

A vehicle is treated as total loss mainly when it is considered that economical

repairs are not possible. Whenever a surveyor finds that a vehicle is either
beyond repairs or the cost of repair exceeds 75% of the IDV; he assesses the
claim on a Constructive Total Loss basis (CTL). However, before releasing the
actual payment to the insured, the insurers collect

i. Registration book and Taxation receipt,

ii. Ignition keys in duplicate and
iii. Blank TO and T.T.O. forms duly signed by the insured

The above documents are collected so that salvage can be transferred in the
name of the salvage buyer. If the vehicle is beyond repairs and has to be
scrapped the R.C. Book and the keys will have to be returned to the
Registering Authority for cancellation.

For computing Total loss value of a vehicle on the date of loss, we need to
work out:

i. Depreciated cost of chassis (x) by deducting cost of all five new tyres’
(including stepney) from replacement value of the vehicle having same
specification and make as on date of loss by applying depreciation on
chassis as applicable and adding back 50% cost of tyres’.

ii. Thereafter depreciated value of Body (Y) is worked out on applicable

higher deprecation due to wood work / upholstery etc. on the cost of body
fabrication.

Total loss without salvage = [X+Y – Excess clause]

The salvage is collected by insurer and disposed off later to reduce their
claims out go.

The fair value of salvage on “as is where is basis” is the difference of expected
value of the damaged vehicle after necessary repairs and replacement [X]
(this value is the fair market resale price after arranging necessary repairs
and replacements) from the estimated value of parts and labour for
replacement, to bring the vehicle in roadworthy condition [Y] (after
considering depreciated values)

S-06-MOTOR INSURANCE (FOR SURVEYORS) 153

 Fair value of salvage [S] = [X] - [Y]

b) Total Loss due to Theft

Total loss can also arise due to theft of the vehicle remaining untraced by the
police authorities. This loss due to theft will have to be supported by a copy
of the First Information Report (FIR) lodged with the Police authorities
immediately after the theft has been detected. The Police authorities
register complaint allotting it a number of the entry made in the Station
Diary. This number, which is usually known as SDE (Station Diary entry) No.
or C.R. No. (Crime Register) has to be quoted by the insured in the claim
intimation to the insurers.

An assessor may be called to investigate the theft claim of a vehicle if it is

necessary to ascertain following information from the insured:

i. Detailed circumstances surrounding the event

ii. Time and place of leaving the vehicle and time of discovering loss

iii. When Police was informed?

iv. Details given in FIR lodged with Police

v. Full details of vehicle and log book if any maintained

vi. Date of purchase of vehicle

vii. Price originally paid

viii. Any major items of expenditure which might have brought the condition
of the vehicle above average

ix. Manufacturers price list on the date of loss

It is usual for insurers to wait for at least a month after the vehicle was stolen.
The police keep the investigations on until the vehicle is traced and delivered
to its owner. However, if they do not succeed in recovering the vehicle after
a period of 90 days, they file away the claim, certifying that the theft of
vehicle is classified as true but untraceable. This untraced Certificate is
essential before a Total loss claim following theft of vehicle is settled by the
insurers.

The documents to be submitted by the insured will be the same as those

described above. If the R.C. book and Taxation Certificate are also stolen
along with the vehicle, it will be necessary for the insured to obtain duplicate

S-06-MOTOR INSURANCE (FOR SURVEYORS) 154

 ones from the Registering Transport Authority and thereafter to be deposited
with the insurers.

The only additional documents will be a letter addressed by the insured to

the R.T.A. informing about the loss of the vehicle due to theft and filling of
a Non-Use Form so that he is not made liable to pay the taxes.

Some insurers also obtain from the insured an ‘indemnity bond’ which is
special type of discharge on a stamped paper, whereby the insured
undertakes to refund the claim amount, if the vehicle is subsequently traced
and delivered to him by the police. He also undertakes in the Discharge Form
to pay any taxes which may be outstanding against the stolen vehicle. The
ignition keys, R.C. Book etc. are kept in safe custody by the insurer so that
these are made readily available if the vehicle is traced at a later date.

It is always prudent to inform the concerned Registering transport Authority

by a Registered A/D post, that a Total loss claim is being processed for
payment in respect of the stolen vehicle and to request them not to transfer
the ownership of the vehicle to anyone. This will prevent a thief from
disposing off the stolen vehicle.

Again, there have been occasions, when the Registering Authorities have
informed the insurers in reply that the vehicle has not been registered by
them or that the vehicle is already plying in someone else's name. This has
exposed the frauds perpetrated by certain gangs insuring non-existing
vehicles.

The IDV is the liability payable in the event of a Total Loss, whether due to a
Theft or Total Loss. It is defined in the Policy and this is the ultimate liability
payable by the insurers in such circumstances.

Example

A scooter insured for Rs. 15,000/- met with a serious accident. The net repair
liability is Rs. 12,000/-. The salvage value of the damaged scooter is Rs.
5,000/. Calculate the net liability of the Insurance Company.

Answer

Since repairing liability is more than 75%, the claim is to be treated as

Constructive Total Loss and liability of the Insurance Company would be:

IDV Rs. 15,000

Less Salvage Rs. 5,000
Less Excess Rs. 50
Net liability Rs. 9,950 – subject to cancellation of policy

S-06-MOTOR INSURANCE (FOR SURVEYORS) 155

 c) Recovery of Stolen Vehicles

Claims on repair basis also arise when the stolen vehicles are recovered in
damaged condition and / or stripped of some parts. In such cases, the
procedure followed is the same as in the case of accidental repairs, except
that spot survey is always essential as soon as the vehicle is brought in the
police premises. If this is not done and if the insured is allowed to remove it
directly to the repairer's garage for final survey, it is most likely that some
more items will be found missing at the time of final survey.

But in cases where the stolen vehicle is recovered after the theft claim has
been paid by the Insurers, the insured loses his insurable interest in the IV as
he has subrogated all his rights to the Insurers. Hence, now the Insurer
becomes the rightful owner of the recovered vehicle and can take possession
of the same from the police and then take the necessary action for its
disposal.

Example

A private Maruti Swift 2005 model insured for Rs. 3 lacs from 1.4.2009 to
31.3.2010 met with an accident on 15.1.2010. The surveyor has assessed the loss
as under:

Labour charges Rs. 15,000

Painting charges (labour) Rs. 10,000
Cost of Radiator Rs. 7,000 less Salvage
Cost of Head Lights Rs. 3,000
Cost of Wind Screen Rs. 4,000
Cost of Grill Rs. 2,000
Cost of Bumper Rs. 6,000
Salvage value of parts Rs. 100

Calculate the net liability

Answer

Labour + Painting Rs. 25,000

Cost of Head Lights Rs. 3,000 Nil Depreciation
Cost of Radiator Rs. 7,000 Less Depreciation 35% (parts 4
years to 5 years) = Rs. 4,875
Cost of Wind Screen Rs. 4,000 Nil Depreciation
Cost of Grill / Bumper Rs. 8,000 Less 50% Deprecation being
plastic parts = Rs. 4,000
Less Salvage Rs. 100
Less Claim Excess Rs. 500
Claim Payable Rs. 40,274

S-06-MOTOR INSURANCE (FOR SURVEYORS) 156

 Assessment on Repair Basis

While calculating the loss on repair basis, the estimates submitted by the
insured consists of three heads:
i. List of parts claimed for replacement.
ii. General repairs and labour charges
iii. Cabin / Body / Show repairing and labour charges

Insured is allowed to opt for his repairer so that vehicle is repaired to his
entire satisfaction and repairer is required to attend repairs properly as
recommended by Surveyor. The settlement on repair basis is subject to
suitable depreciation on mechanical parts on the basis of year of manufacture
and on rubber / plastic and fiber parts.

Similarly labour charges include charges for dismantling of various

assemblies, replacing new parts and for repairing of mechanical assemblies
which includes refitting / repairing / reconditioning e.g., realigning of Front
axle, Chassis, Wheel repairing, Suspension leaves re-cambering /resetting,
Seats repairing etc. Finally the repair charges for dent removal and painting
are also taken into consideration. The principle of contribution is applicable
while finalising assessment to comply the requirement of indemnity.

All the damaged parts (salvage items) for which replacements are allowed
becomes the property of insurer. The settlement on repair basis is subject to
suitable depreciation and principle of contribution applicable for the
requirement of indemnity.

In the case of Commercial Vehicles, particularly when Goods carrying vehicles

meet with serious accident in remote parts on the highway; it is usual practice
for insurers to arrange for what is known as a "Spot Survey". This consists of
inspecting the vehicle at the site of the accident in ‘as is, where is’ condition
and noting down the damages sustained by it. The final survey is carried out
when the vehicle is brought to the repairer's garage. The spot surveys help to
establish the extent of damage caused by the accident, so that it is not
exaggerated by the claimant after the vehicle reaches the place of repair.

d) Cash loss (Net of salvage) Settlement

When a claim is settled on repair basis, the payment is made either direct to
the repairers against his bills / cash memos or to the insured on production
of receipted bill of the repairer. Wherever a claim is settled on Total Loss
basis, the salvage becomes the property of the insurer.

However, under certain circumstances, insurers settle Total Loss claims

without claiming the salvage (Net of salvage basis) or reimburse the insured
with his repairs bills without submission of repairs bill or without even
verifying whether the vehicle is or will be repaired or not (cash Loss basis).

S-06-MOTOR INSURANCE (FOR SURVEYORS) 157

 These types of settlements are in the nature of compromise mode of
settlements and are known as "Cash Loss" settlements, which are usually
resorted to in the case of Commercial Vehicle claims payable on 'repairs'
basis.

e) Cash loss settlement

By their very nature, repairs to a vehicle have to be carried out by different

workshops depending on whether it is tin-work, body-work or mechanical
work, etc. The owner of a vehicle is in no position to finance the entire job
himself, especially when the outlay is large and has to wait for reimbursement
from the insurers, after the complete job has been carried out and verified
by the surveyor.

In such a situation, both the parties to the insurance contract come to an

arrangement, whereby the insured agrees to accept a sum which is lower than
the assessed amount by, say 25% to 30% and the insurer agrees to pay it in
cash without insisting that the repairs will be carried out. In fact, the insured
is free to do what he wishes with the vehicle, e.g. he can even sell the vehicle
in "as is, where is" condition. The cut in the assessed amount is supposed to
take care of this possibility and / or to represent the expenses such as sales
tax, excise etc., which the insured may not have to incur if he chooses to
repair the vehicle by fixing up second-hand spare parts.

This mode of settlement is also adopted when the claim is assessed for Total
loss. But difficulties are encountered in disposing of the salvage or when a
reasonable amount is not forthcoming as value of the salvage. In such cases,
the value of the salvage is mutually agreed upon, as recommended by the
surveyor, and this is deducted from the amount of Total Loss as assessed by
the insured. In other words, the insured is reimbursed on Net of salvage on
Total Loss basis and allowed to retain the salvage.

i. When the insured insists on repairs even though Total Loss settlement
adjusting the salvage value available is more economical to the insurer.
In such circumstances, a 'Cash Loss' amount representing the ‘Net Total
Loss’ is reimbursed to the insured, allowing him to get repairs at his own
cost.

ii. When the insured purchases spare parts but he is not in a position to hand
over purchase bills, these losses are settled as “Cash Losses" without
insisting on bills for an amount which is suitably scaled down.

f) Cash less settlement

Most insurers have entered into agreement with a host of repairers including
authorised repairers of the manufacturers to repair the insured vehicles claim
by charging inadmissible costs only and the admissible claim costs are directly

S-06-MOTOR INSURANCE (FOR SURVEYORS) 158

 paid by Insurance Company directly to the repairer. These are termed as
Preferred Garages. This facility is offered to private car insured’s only.

Customers opting for repairs at these preferred garages are required to drive
or tow the vehicle to the garage. All claim formalities like completion of claim
form, submission of vehicle documents are immediately completed by
garages. The surveyor is sent by the insurer to the garage for assessment of
the loss.

Once the vehicle is repaired the insured is informed to collect the vehicle and
pay the difference in charges i.e., the inadmissible cost of repairs like
depreciation, deductible and other unrelated charges. The rest of the
payment is made directly by the insurers to the garage.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 159

D. Surveyor and His role in Loss Assessment/ Minimisation

1. Role of Surveyor

It is regrettable that it has become tedious for getting claims settled by insurance
companies for accidents covered under the Motor Insurance policy. The most
plausible reason is the dependence of insurance companies on Surveyors. The
Surveyors are independent licensed professionals, but they have to depend on
insurance companies for allocation of survey work and are paid their survey fees
by insurers. This has rendered them predisposed in fulfilling insurance company’s
objectives of paying genuine claims and in this process have developed a
distrusting approach towards claimants. They feel that they are doing a favour
to the assured in recommending settlement of their claims. This approach needs
to be altered. The insurance contract is a contract of utmost good faith on the
part of both insured and insurer including the agencies supporting it. The very
purpose of insurance company’s service is to “pay claims, if any, and repudiate,
only if it is a must”.

Therefore, reliability, dependability and courtesy of the Surveyor along with his
knowledge, expertise of the subject should be the main criteria for enrolling a
surveyor in a company’s panel. Insurance Surveyors and Loss assessors (Licencing,
Professional Requirements and Code of Conduct Regulations) 2000 Chapter VI
gives code of conduct viz.

i. To behave ethically and with integrity implying fairness and truthfulness,

ii. Strive for objectivity,

iii. Carry out his work with due diligence, care and skill,

iv. Keep him up dated, and

v. Provide free professional training

These statutory obligations render Surveyors accountable for their professional

work and cannot afford to make a mistake and go with impunity.

Approach of the insurers’ on survey / Surveyors is that of trust and their

expectation from Surveyor can be summarised as - “allow repairs, replacement
as if the vehicle is yours; assess the claim as if money is yours.” This requirement
from a Surveyor expects immediate Survey, dedication to the profession,
reporting without delay and fair deal with all concerned. Surveyor’s work is,
therefore, directly affected by IRDA’s regulations and the approach of the
insurers on survey / Surveyors and finally their personal qualities and technical
qualifications.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 160

2. Steps in Motor Survey

Two important steps in motor survey are a) human relationship and b) surveying
ability.

a) Human Relationship

Human relationship is the most overlooked factor. Although the field of work
covered is automobile assessing, it comprises basic principles of engineering.
Technical ability is of prime importance, besides natural flair for work and
experience. The automobile assessor is normally holding the scales between
the interest of his principals, the insured and the repairer.

The qualities of a Surveyor which go to make a first class professional are

especially his attitude and relationship with the insured, insurer and repairer.
Some of the qualities are as hereunder:

Absolute integrity which will need the Surveyors to have his Do’s and Don’ts
in tune with accepted norms:

i. Attitude of positivity - to be careful but should not appear to be so.

ii. Fair mindedness - in assessing the loss

iii. Tact and ability – in handling relations

b) Surveying Ability

The surveying relates to thorough practical engineering training with a high

standard of technical knowledge, knowledge of cost of repairs, extreme
thoroughness and capacity for hard work. Surveying is required for

 Valuation of vehicle,
 Spot Survey,
 Preliminary Survey
 Final Survey and
 Re-inspection Surveys

i. Technical Knowledge

The assessment is not an accounting activity but the result of a technical

knowhow ensuring that the repair charges assessed by the Surveyor will be
sufficient to bring back the vehicle to pre-accident condition. He must check
all the suspected parts, authorise necessary dismantling and clearly explain
the difference between dismounting and dismantling. A careless assessment
combined with an inexperienced repairer may culminate into a major
accident due to un-rectified defects.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 161

 ii. Cost of repairs

The other aspect of assessment is determining cost of repairs which are based
on following two systems:

(a) Time Basis or man hour basis more suited to manufacturers though
some manufacturers of motor vehicle give a schedule of man hours
required for each job and within certain limits the correct man hours
can be fixed in advance. But this basis of assessment is most abused.

(b) Job basis or contract basis is based on piece rates are fixed on the
basis on past experience of the time and material taken in completing
similar jobs.

iii. Extreme thoroughness

The thoroughness is mainly required in checking internal parts to avoid a

supplementary estimate with a list of internal parts due to an array of broken
parts being exhibited by repairer in the next visit. The Surveyor must permit
an opportunity to repairers to dismantle assemblies in his presence to rule
out unnecessary liabilities and avoid dissatisfaction of insured.

iv. Capacity for hard work

The Surveyor’s work has no time schedule, and the assessor is required to
travel and work according to the availability. He is required to spend long
hours on site of repairs which have a telling effect on his health.

3. Guidelines on Automobile Survey

Motor surveyor requires good technical knowledge about repair ability, prevailing
market conditions, availability of spares, cost of repairs, and an ability to
convince repairer and insured and take spot decisions.

Wherever, a surveyor has to be appointed for assessing a loss / claim, it shall be

so done within 72 hours of the receipt of intimation from the insured. A surveyor
is requested orally or through mail which he is required to acknowledge and
confirm his acceptance and inform the insured when he shall conduct the survey.
At the time of accepting a survey, unless it is a spot survey, the surveyor is to be
provided a copy of Claim Form to ascertain date of registration and Cause of
accident and Estimate of repairs to decide mode of settlement.

The survey report is to be submitted promptly, even subject to verification of RC

/ DL / Permit / load Challan etc., by the insurer if not available at the time of
survey. Verification / attestation by the surveyor or insurer have to be done on
production of original documents without believing photo copies which can be

S-06-MOTOR INSURANCE (FOR SURVEYORS) 162

easily manipulated. This will save the complaints of non-performing survey or
submission of manipulated photos made available by insured. Other details to be
noted / recorded are:

i. Identity of the subject matter

ii. Cause of accident

iii. Nature and extent of damage

iv. Third party damage – persons and property

v. Photos

vi. Identity of the subject matter

vii. Registration number

viii. Engine Chassis Number and all major assemblies

ix. Make and Model,

x. Type of Body, Colour of the vehicle

xi. Class of vehicle,

xii. Type of goods carried/ weight of goods , Weighment slip, Trip sheet

xiii. Odometer reading

a) Pre-accident Condition of the Vehicle

In Motor Insurance there is no pre-insurance inspection, except when fixing

IDV for vehicles more than five year old or if a total loss vehicle is to be
insured, or if there is a break in insurance before successive renewal. This is
mainly for valuation of the vehicle for TL / CTL and theft risk or for
establishing state of repairs.

Generally when a claim is preferred by the insured, insurer gets a chance to

inspect the vehicle. Therefore, Surveyor is required to give a detailed report
of pre-accident condition of the vehicle. This will enable insurer to form an
accurate impression about the condition, value and road worthiness of the
vehicle insured by them. It is sometimes revealed that the vehicle was not
maintained in an ‘efficient condition’ i.e., vehicle was not found road
worthy. Since this is a breach of a condition of the policy, the claim may not
be admitted. The loss or damage to a vehicle may be caused due to wear and

S-06-MOTOR INSURANCE (FOR SURVEYORS) 163

 tear e.g., loose steering wheel, shoeless brakes, bald tyres’ or tyres devoid
of tread.

b) Cause of Accident

The cause of accident is determined by obtaining drivers/ occupants,

statement giving cause and nature of accident along with the address and
phone numbers. Surveyor should form his opinion befitting of the
circumstances and concurrent with driver and occupants’ version.

c) Nature and Extent of Damage

All vehicular damages, marks on the vehicle, reporting available oil in various
assemblies in case of Fire accident, type of failure / breakage if any; list of
missing parts, hanging parts or parts removed and list of parts which could
not be examined due to their peculiar location must be given. The surveyor
need not list suspected parts or parts to be checked.

d) Third Party Damage

Surveyor must obtain:

i. Details of persons involved in the accident,

ii. Property damaged and third party vehicle involved if any;

iii. Total number of occupants with available details;

iv. Nearby hospitals where accident victims were admitted /discharged;

v. Sketch of accident site with reference to accident site identification like

mile stone, culverts, bridges etc., covering from the point of view of
impact to its final position showing tyre or any other marks;

vi. Copy of FIR

e) Photos

The photos must be by a digital camera imprinting date and time of survey
and signed on the back, duly highlighting with necessary description. Similarly
pencil traces of engine chassis number must be verified with plate affixed on
the vehicle and Registration book, permit (if commercial vehicle), explosive
licence (if hazardous goods carrying vehicle) etc., especially mentioning the
fact in the report.

The surveyor is required to instruct the insured to remove the vehicle to a

place of safety without delay to avoid theft of parts. The surveyor shall be

S-06-MOTOR INSURANCE (FOR SURVEYORS) 164

 subjected to the code of conduct laid down by the authority while assessing
the loss and shall communicate his findings to the insurer within 30 days of
his appointment with a copy of the report being furnished to the insured, if
he so desires. Where, in special circumstances of the case, either due to its
special and complicated nature, the surveyor shall under intimation to the
insured, seek an extension from the insurer for submission of his report. In no
case shall a surveyor take more than 6 months from the date of his
appointment to finish his report.

If an insurer finds it incomplete in any respect or wants any clarification he

shall require the surveyor under intimation to the insured, to furnish an
additional report on those specific issues. This facility of calling for an
additional report by the insurer shall not be resorted to more than once in
the case of a claim. Such a request may be made by the insurer within 15
days of the receipt of original survey report. The surveyor on receipt of this
communication shall furnish an additional report within 3 weeks of the date
of receipt of communication from the insurer.

f) Spot Survey

The main purpose is to

i. Reduce opportunity of moral hazard

ii. Establish actual cause and nature of accident,

iii. Register actual damage to the vehicle without allowing room for
tempering,

iv. Take spot decision on major damages,

v. Facilitate removal to workshop, dismounting / dismantling needed and

repairs at the spot

vi. Check substitution of parts like radiator, stub axles, steering assembly,
batteries and sometimes even front axle, I Beam etc.,

vii. Verify third party involvement in respect of bodily injury or property

damage or other vehicles involvement.

g) Final Survey

Final survey is accepted on receipt of Claim form and Estimate of repairs and
insurers are to be informed if the spot survey has been conducted. The
surveyor while inspecting the vehicle has to study the nature and extent of
impact step by step to form an opinion as to probable cause and nature of

S-06-MOTOR INSURANCE (FOR SURVEYORS) 165

 accident. This is cross checked with the statement given in claim form and
any radical difference need be investigated.

If investigation is required the surveyor may carry out certain tests to

determine whether parts have sustained accidental damage. The extents of
damage, bent distortion sustained have to be verified. Serial numbers of
assemblies have to be physically checked.

In case surveyor feels that the claims may have to be treated on salvage loss
/ cash loss. Total loss basis, the serial number of tyres should also be noted
during the first inspection. The final surveyor should make him comfortable
in using all common workshop equipment and machinery e.g. checking chassis
frame alignment commonly claims to save tyre wear out.

h) Re-Inspection

Re-inspection is a loss control measure carried out on receipt of Final Survey

report as well as photographs. It is resorted to verify whether the insured has
repaired the vehicle as assessed and whether all replacements allowed have
been actually replaced and the salvage of parts is also inspected to determine
appropriate economic value.

Further the re-inspection would require noting down serial number of

assemblies replaced / repaired. Re-inspection is neither resurvey nor
investigation. If any internal parts replacement is doubtful say for want of
salvage, re inspection surveyor is merely required to report to insurer and
should not go for dismantling of parts.

4. Role of Motor Surveyor in Loss Minimisation

Surveyors are expected to play a crucial role in loss minimisation as far as motor
claims are concerned. Besides inspection of the vehicle for valuation, spot
survey, final survey and re-inspection; loss minimisation is achieved in following
manner:

i. Ascertaining actual cause of accident and establishing a relation between

“cause of accident” and damages caused there from. Studying the
damages to the vehicle and scrutinising estimates keeping in view the
cause of accident and probable damages

ii. By preparing an outer periphery of the damages at the spot and furnishing
identification marks and their correct position.

iii. Assessment of genuine losses by segregating wear and tear and losses
caused due to poor upkeep.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 166

 iv. By ascertaining intrinsic value of salvage and some time helping in disposal
of salvage to contribute to reduction of losses.

v. Apprising insurers about the impact of new technology used in cars and
its implications on claims out go to help rate the risk adequately.

Test Yourself 1

Wherever, a surveyor has to be appointed for assessing a loss / claim, it shall be

so done within ________ of the receipt of intimation from the insured.

I. 72 hours
II. 48 hours
III. 36 hours
IV. 24 hours

S-06-MOTOR INSURANCE (FOR SURVEYORS) 167

E. Role of Road Safety in Insurance

Concerns of Community

Traffic accidents comprising Road accidents, Rail-Road accidents and Other

Railway accidents were the major contributors of accidental deaths by un-natural
causes. ‘Road accidents’ cases in the country have marginally decreased by 0.02%
during 2012 compared to 2011 [check below Table] while the casualties in road
accidents in the country have increased by 1.6% during 2012 as compared to 2011.
Their proportion of deaths due to road accidents to total deaths due to un-natural
causes has slightly increased from 37.3% in 2011 to 37.4% in 2012.

Table – 1

Share of ‘Road accident deaths’ in total ‘Accidental deaths’ by un-natural causes

during 2015 to 2019

Number of accidental deaths Percentage share of ‘Road

Sl. Year Road Total un- accident’ deaths in un-
No. accidents natural natural total deaths
(1) (2) (3) (4) (5)
1 2015 1,48,707 4,13,457 42.9
2 2016 1,51,801 4,09,537 43.4
3 2017 1,50,093 3,89,441 45.1
4 2018 1,52,780 4,04,933 44.2
5 2019 1,54,732 4,12,959 43.9

Road safety has become one of the greatest social problems of our time. On an
average each year there are over 1,50,000 road accidents with number of persons
killed and injured exceeding 31,000 and 1,20,000, respectively.

The technical requirements applicable to systems, components, separate

technical units and vehicles should be harmonised and specified in regulatory
acts. Those regulatory acts should primarily seek to ensure a high level of road
safety, health protection, environmental protection, energy efficiency and
protection against unauthorised use.

This is a problem which concerns the entire community and can be dealt with
only by a multi-pronged action in which multiple government departments such
as Police, Public Works Department. Transport Registration Authorities, Road
Research Laboratories, Organisations such as All India Motor Congress, Road
Transport Operators' Associations, Automobile Manufacturers etc., Vehicle
Owners, Users and pedestrians have to participate.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 168

2. Road Safety Promotion by Insurance

The General Insurance Industry plays a fairly significant role in promoting road
safety and preventing road accidents, although its contribution can, at best, be
of an indirect nature. The premium rating is so structured as to encourage loss
prevention on the part of the motoring public. Substantial incentives in the
premium are offered if the insured establishes an accident free record. Again,
premium discounts are offered if the insured is willing to bear a portion of the
loss himself. These incentives not only result in reduced cost of insurance but
also encourage careful driving.

Insurer's indirect contribution to road accidents prevention is also exemplified in

their system of the underwriting which involves careful 'risks selection' and 'risk
improvement'. The bad driver or the accident prone driver is penalised by
compulsory excess; older vehicles are accepted only after satisfactory inspection
or subject to restricted coverage. These measures have the effect of giving the
insured a personal stake in preventing accidents.

1. Causes of Accident

The multiple losses which occur in road transportation can be traced to three
types of causes

i. 'Human Cause' (e.g. drunken driving, over-speeding and other violations

of traffic law etc.),

ii. 'Physical Cause' (e.g. poor maintenance, overloading, untrained drivers

etc.) and

iii. 'Environmental Cause' (e.g. bad road conditions, inadequate lighting,

insufficient traffic signs and signals, loitering animals, multiple type of
transport on roads, poor traffic sense etc.).

In other words, there are four primary factors responsible for road accidents:

i. The driver
ii. The vehicle
iii. The road users
iv. The road

The largest numbers of accidents are attributable to driver's fault.

i. Driver education

The critical area of remedial action for the reduction of road accidents would
be the elimination or at least minimisation of driver error. Thus driver
education and training assumes crucial importance. The training imparted by

S-06-MOTOR INSURANCE (FOR SURVEYORS) 169

 the motor training schools must be intensive and adequate to provide the
skills needed in complex and varied traffic situations. Driver training ought
to be designed not only to provide the necessary driving skills but also to
develop in the driver a strong sense of ‘personal and social responsibility’
for safe operation of motor vehicle. It is also essential that testing standards
of Road Transport Authorities must be stringent and not available for a dime.

In advanced countries, numerous analysis pertaining to traffic accidents

indicate that ‘human factors’ such as bad habits, ignorance, lack of skill,
psychophysical disabilities, wrong driving attitudes and other personal
limitations account for the majority of accidents.

ii. Pedestrian behaviour

These negative factors also influence pedestrian behaviour, especially in the

major cities and towns, where there is heavy concentration of population.
Improving pedestrian behaviour is a long term process. It is essentially a
matter of self-discipline. Safety consciousness and civic sense will have to be
fostered right from the elementary school level. Secondly, enforcement of
traffic laws by the police and the law courts will bring about more responsible
pedestrian behaviour.

iii. Compulsory vehicle Maintenance

Defective vehicle ranks second among the causes contributing to road

accidents. The issue has three dimensions:

(a) Regular maintenance of the vehicle on a voluntary basis,

(b) Compulsory maintenance through periodical inspection of vehicles by

Road Transport Authorities and

(c) Post-accident repair inspection by both the Insurance Surveyors and the
Road Transport Authorities in case of major damage.

2. Role of Fleet Operators

Stick to high standards of maintenance, but the majority of truck operators in

the country are single operators who neither have money nor the capacity to
manage regular upkeep and maintenance of their vehicle. Therefore, the role of
the inspection wing of the Road Transport Authority becomes all the more
significant. Large fleet operators (both in the private and public sectors) have
shown concern for fuel conservation and accident prevention.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 170

Example

Several private operators, State Road Transport Corporations and public owned
corporations have installed tachographs in their vehicles which is a precision
instrument which records a vehicle's driving pattern along the route for a period
of 24 hours. It gives an accurate record of the distance travelled, stoppages en-
route (authorised or unauthorised), braking pattern, various speed levels etc.
The Tachograph provides irrefutable evidence in case of accidents by giving
relevant information about the speed, time and place of accident. For the driver,
it is also an assurance of safety as he will be warned when he is over-speeding.
The Tachograph promotes good driving habits and these results in saving of fuel
and maintenance costs and reduction of road accidents.

A number of countries in the world notably, Japan, Germany, France,

Switzerland, Sweden, Brazil and Australia have made it mandatory equipment in
public transport vehicles.

3. Transport Development Council

The increasing importance of road transport in the national economy has been
recognised and the Transport Development Council of the Ministry of Shipping
and Transport is actively engaged, inter alia, in suggesting to the State
Governments various measures for expansion and modernisation of road
transport. Some of the recommendations of this Council, having a bearing on road
safety, relate to:

i. Strengthening or creating facilities for highway testing, control and

research for consideration of State Governments who is vested the bulk
of road construction. For example, a model scheme for organising State
Testing and Control Laboratories prepared by the Central Road Research
Institute has been circulated to the States for their implementation.

ii. Planning, design and construction of road facilities.

iii. Adequate, proper and systematic maintenance of the National Highways

and other roads in the country, through regular re-surfacing, routine
maintenance operations and "Special Repairs" and "Flood Damage" repairs.

iv. Creation of separate Traffic Engineering cells in the Public Works

Department to serve as a focal agency to analyse all the traffic and
accident data on a continuing basis, enabling identification of the
vulnerable accident-prone spots and the remedial measures to be
adopted.

Studies by various agencies show that quite a number of road accidents

occurred at junctions and at check-barriers. The Transport Development
Council has made recommendations for improving barrier design and
S-06-MOTOR INSURANCE (FOR SURVEYORS) 171
 construction of lay-byes. It is also found that a large number of side road
intersections are poorly designed which contribute to high rate of accidents
at these locations. The Transport Development Council’s recommendations
relate to installation of road sign markings, channelisation, etc. The
Transport Development Council is regularly monitoring the progress made by
the State Governments in all these areas. The other agencies engaged in Road
Research are:

i. The Central Road Research Institute, New Delhi, set up in 1952, conducts
research on road engineering under the administrative control of the
Ministry of Shipping and Transport.

ii. Highway Research Board set up in 1973, under the auspices of the Indian
Roads Congress for the promotion and coordination of road research at
the national level.

iii. The Road Wing of the Union Ministry of Shipping and Transport is also
engaged in road research and promotion of application of new techniques
in the safe construction of roads and bridges.

Test Yourself 2

'Violations of traffic laws' leading to accidents on the road will be classified under
which of the below causes of accidents?

I. Human Cause
II. Physical Cause
III. Environmental Cause
IV. None of the above

S-06-MOTOR INSURANCE (FOR SURVEYORS) 172

SUMMARY
In this chapter you learnt about the causes of accident, accident repairing, modes
of own damage claim settlement, and the role of the Surveyor in loss
minimisation in motor insurance. We also learnt the role of insurance and fleet
owners in promotion of road safety and the consensus vs scientific approach in
claims.

Answers to Test Yourself

Answer 1

The correct option is I.

Wherever, a surveyor has to be appointed for assessing a loss / claim, it shall be
so done within 72 hours of the receipt of intimation from the insured.
Answer 2

The correct option is I.

'Violations of traffic laws' leading to accidents on the road will be classified

‘Human Cause’ of accidents.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 173

Self-Examination Questions

Question 1

'Loitering animals' leading to accidents on the road will be classified under which
of the below causes of accidents?

I. Human Cause
II. Physical Cause
III. Environmental Cause
IV. None of the above

Question 2

In case of a stolen vehicle, the police keep the investigations going until the
vehicle is traced and delivered to its owner. However, if they do not succeed in
recovering the vehicle after a period of _______, they file away the claim,
certifying that the case is classified as true but undetected.

I. 45 days
II. 60 days
III. 75 days
IV. 90 days

Answers to Self-Examination Questions

Answer 1

The correct option is III.

'Loitering animals' leading to accidents on the road will be classified under

environmental cause of accidents.

Answer 2

The correct option is IV.

In case of a stolen vehicle, the police keep the investigations going until the
vehicle is traced and delivered to its owner. However, if they do not succeed in
recovering the vehicle after a period of 90 days, they file away the claim,
certifying that the case is classified as true but undetected.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 174

 CHAPTER 7
THIRD PARTY LAIBILITY CLAIMS IN INDIA

Introduction

In this chapter you will learn various principles of insurance applicable in claims
the necessity of TP insurance. You will learn in detail the types of negligence and
its effect on amount of compensation in TP injury and death claims.

Learning Outcomes

A. Third Party Claims Management in India

B. Types of Claims
C. Legal Aspects of Third Party Claims

S-06-MOTOR INSURANCE (FOR SURVEYORS) 175

A. Third Party Claims Management in India

Third Party Claims Management occupies a very vital cog in the wheel of an
insurer. It forms a major component of the portfolio of any insurer. From
Ambassador to Nano, India has come a long way in the development of
automobile sector. India is now the 11th largest producer of motor vehicles

The basic insurance concepts and general principles change contextually, in

relation to compulsory motor insurance. General principles per se may be the
bedrock or foundation of insurance, but they have to be and must be tailored for
understanding and appreciating the construction of the applicability of such
general principles in the light of statutory nature of the contract of motor
insurance and benevolent intention of the Parliament, reflecting the will of the
people, to provide succor and relief to the innocent victims of rising tide of motor
accidents what with the exploding vehicle population and alarmingly slow quality
growth of the infrastructure component vis-a-vis the road network, poor traffic
laws compliance in India. That is the purport of Third Party Claims management,
to drive home the truths and be told as they are.

Statutory Liability in Motor Portfolio

Motor insurance is different specie altogether in the context of contract of

Insurance and the Third Party liability insurance. It is premised on the fact that
motor insurance is compulsory vide Section 146 MV Act, 1988. In view of the
statutory nature of the said liability, the Courts tend to come to the rescue of
the victims. In [(Skandia Insurance Claim) 1987 ACJ 411] the Supreme Court after
adverting to [(Captain Itbar Singh) 1958-65 ACJ 1 (SC)] made it clear that the
purpose of a contract of motor insurance was to provide protection to the
community of unsuspecting motor accidents victims.

Ponder over this

Third party motor insurance is a bleeding portfolio for general insurers with high
claims ratio in excess of 120 per cent in recent times. It was not intended for the
insurer to obtain motor insurance premium and run their business on commercial
lines. Hence, it needs to be primarily understood and kept in mind that the
construction of a Motor Insurance Policy viz. a Third Party liability would be
diametrically different from the construction of the same contract in relation to
an own damage liability. This distinction need be kept in mind while
understanding the verdicts of the courts and pursuing further litigation in relation
to awards of Motor Accident Claims Tribunals.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 176

1. Necessity for Third Party Insurance

Important

Section 146 of the of 1988 Act provides that no person shall use (except as a
passenger), or allow any other person to use, a motor vehicle in a public place,
unless the vehicle is covered by a policy of insurance complying with the
requirements of the current MV Act 1988.

Section 146 is amended (by Amendment Act 1994) to cast an additional duty that
the owner of the vehicle carrying dangerous or hazardous goods shall also go in
for a policy of insurance under the “Public Liability Insurance Act, 1991”.

“Public place” whether a thoroughfare or not, to which the public have a right
of access and includes any place or stand at which passengers are picked up or
set down by a stage carriage”. (See Para 8(p) for definition,)

It is not merely driving of the vehicle without insurance to contravene the Act
1988. The sheer presence of motor-vehicle in stationery condition, in public place
will also constitute the ‘use’ of vehicle. Secondly, the ‘use’ should be made in
a ‘Public place’.

Definition

Any place or stand at which passengers are picked up or set down by a stage
carriage is a “public place”.

The law is not so much concerned with the ‘ownership of the place’ as with its
‘use or user’. Ownership of place may be private, but if use is by public, it is a
public place.

However, a person driving a motor vehicle merely as a paid employee will not be
treated as contravening the Act 1988 if he has no knowledge that there is no
policy in force. Section 146 seeks to protect members of public using public
places from the risks of accidents caused by the ‘user’ of motor vehicles. “The
motor vehicle can be likened to a wild animal; whosoever keeps it, does so at
his risk”.

A Court can only pass an award or decree. It cannot ensure that such an award
or decree results in actual payment because the person held liable may be
insolvent or may not have sufficient resources to meet the award. To overcome
the situation, the law has made it obligatory that no motor vehicle shall be used
unless third party insurance is in place. The law also provides that the judgement
obtained shall not be defeated by the incorporation of exclusion clauses in the
Policy other than those authorised by Section 149 of the Motor Vehicles Act, 1988.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 177

Important

All motor policies, therefore, contain a clause called “Avoidance of certain

terms and right of recovery” reading as under:

Nothing in this policy or any endorsement hereon shall affect the right of any
person to recover an amount under or by virtue of the provision of the Motor
Vehicles Act.

But the insured shall repay to the Company all sums paid by the Company, which
the Company would not have been liable to pay but for the said provisions.

2. Exemptions

The provisions relating to compulsory third party insurance do not apply to any
vehicle owned by the Central Government or a State Government and used for
Government purposes unconnected with any commercial enterprise.

Exemption may also be granted by the appropriate Government for any vehicle
owned by:

i. The Central Government or a State Government, if the vehicle is used for

Government purposes connected with any commercial enterprise:

ii. Any local authority;

iii. Any State Transport undertaking, (for example, where such undertaking
is carried on by a State Government or any Road Transport Corporation
established under the Road Transport Corporation Act, 1950).

However, the above exemption is made only if a fund is established and

maintained by that Authority for meeting any liability arising out of the use of
any vehicle. The fund has to be established in accordance with the Rules framed
under the MV Act 1988.

3. Requirements of Policies

The policy is required to be issued by an ‘authorised insurer’, i.e. an insurer in

whose case the requirements of the Insurance Act, 1938, are complied with.
Section 147 of the Motor Vehicles Act, 1988 requires that the policy of insurance
must provide cover:

i. Against any liability which may be incurred by the insured in respect of

death of or bodily injury to any person, including owner of the goods or
his authorised representative carried in the carriage, or

S-06-MOTOR INSURANCE (FOR SURVEYORS) 178

 ii. Damage to any property of a third party; or

iii. Against death or bodily injury to any passenger of a public service vehicle,
caused by or arising out of the use of the vehicle in a public place.

The policy, however, shall not be required to cover:

i. Any contractual liability;

S-06-MOTOR INSURANCE (FOR SURVEYORS) 179

B. TYPES OF CLAIMS

Death Claims

Disability Claims

Property Damage Claims

Limits of Liability: A policy of insurance is required to cover any liability incurred

in respect of an accident

i. There is unlimited liability for third party death or personal injury.

This would cast upon the insurance companies the duty to satisfy the
entire judgement, and no proportion thereof, can be shared by the
insured unless the liability of the insurer is exonerated in terms of the
statutory defenses contained in Section 149(2) of the Act 1988.

ii. In respect of damage to any property of a third party out of one

accident, a limit of Rs. 6,000/- (Rupees six thousand only). As per the
Act ‘Property’ includes goods carried in the Motor Vehicle, roads, bridges,
culverts, causeways, trees, posts and milestones. Insurers in India are
providing increased coverage for property damage viz. Two wheelers Rs.
1,00,000/-; other vehicles Rs. 7,50,000/-. This increased cover does not
include goods carried on the vehicle.

Test Yourself 1

As per the 'limits of liability' specified in the MV Act, in respect of damage to any
property of a third party out of one accident, the limit is ________.

I. Rs. 6,000/-
II. Rs. 12,500
III. Rs. 25,000
IV. Rs. 50,000

S-06-MOTOR INSURANCE (FOR SURVEYORS) 180

C. LEGAL ASPECTS OF THIRD PARTY CLAIMS

1. Legal aspects of Third Party Claims

The legal position is that under Section 146 of 1988 Act, necessity for insurance
against Third Party risk is mandatory which provides that no vehicle shall ply in
a Public Place without a valid insurance.

The duty to give information as to insurance to any person / claimant is stipulated

under Section 151 as hereunder:

If any third party/claimant approach the owner of the vehicle for details of the
policy issued he shall furnish the details without refusing.

a) Third Party (TP) Claim

A Third Party claim can be filed under Section 166 for ‘Fault Liability’. Section
166 provides application for compensation and explains as to how, where and
by whom an application for compensation is to be preferred. An application
for compensation can be made to any of the following Claims Tribunal:

i. Within whose jurisdiction accident occurred.

ii. Within whose jurisdiction the claimant resides or carries on his business.

iii. Within whose jurisdiction the defendant resides.

2. Negligence

a) Definition of Negligence

Negligence is a specific Tort and in any given circumstances, it is the

failure to exercise that degree of care, which the circumstances demand.
Negligence may consist in omitting to do something, which ought to be
done in either a different manner or not at all.

The claimants were, therefore, required to plead and prove negligence to

sustain a claim. This led to manifold problems as the claimants were
handicapped by their inability to adduce eyewitness accounts or organise a
witness to be examined in a far flung place. The prejudice caused by such
imposition of a burden was significantly reduced when the Supreme Court
ruled that the maxim res ipsa loquitur would apply to arrive at the culpability
of tort - feasor and the burden would shift to the claimants to rebut the
presumption arising there from.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 181

Important

MAXIM res ipsa loquitur means accident speaks for itself.

It was held that Courts should not succumb to niceties, technicalities and
mystic maybe and allow culpable drivers escape liability. It was held that the
initial burden was squarely on the claimants to establish negligence, without
proof no compensation could be awarded. The preponderance of probabilities
to fix negligence would suffice and technical niceties would need to be
eschewed.

General principles applicable to Motor Third Party Liability insurance are

discussed below.

3. Modification in Doctrine of Uberrimae Fides

It is important to note that compulsory third party insurance has introduced a

modification in the doctrine of utmost good faith. Notwithstanding, the insurers
entitlement to avoid or cancel or may have avoided or cancelled the policy, the
insurer is mandated by law to pay to the third party, the award decreed plus the
costs and interest awarded, as if the insurer were the judgment debtor. Insurers’
right to defend in this context is also restricted to specific conditions under
Section 149(2). The principle of utmost good faith has been modified by Indian
legislature to this extent.

a) Judgment Debtor

The contract of Motor Insurance permits the insurer to avoid its liability in
various circumstances e.g.

i. Dishonour of premium cheque,

ii. Post-accident insurance,

iii. The vehicle in question remaining unidentified though it is covered in a

fleet,

iv. Driving licence of the driver is not found effective, and valid,

v. Vehicle is used for the purpose other than the purpose insured for, etc.

If these circumstances do not fall within the purview of Section 149 (2) of
1988 Act, the insurer cannot invoke defence and escape liability awarded
against the insured. The terms of contract between insurer and insured,

S-06-MOTOR INSURANCE (FOR SURVEYORS) 182

 which determine their inter se rights and liabilities, are different from
statutory liability of the insurer for the third party risk.

If a Certificate of Insurance has been issued complying with statutory

insurance provisions of the 1988 Act, Judgement in respect of compulsory
third party liability will be awarded against Insurance Company even though
the insurer is entitled to avoid the Policy.

b) Benevolent legislation

It is a benevolent legislation as far as compensation is payable towards third

party liability. The insurer has to pay to the third party, the amount decreed
including cost and interest awarded, as if the insurer was the judgment
debtor, subject to the statutory limit of property damage and / or unlimited
liability in case of death or disability.

c) Deep Pocket Theory

An insurer is required to pay to Third Parties, even though he may be entitled

to avoid or cancel the policy or may have avoided or cancelled the policy.
The proviso is an offshoot of deep pocket theory, which requires a capable
person to bear. The remedy available to the insurer is to proceed against the
insured for breach of contract and to recover the amount so paid to satisfy
award under the provision of the Act, 1988. The insurer is, however, not liable
to pay, where the insurer cannot be fastened statutory liability under the
provisions of 1988 Act as given in Chapter X, XI and XII read with the Central
Motor vehicle Rules 1989.

The contract between the insurer and the insured may permit the insurer to
avoid his liability under various circumstances. However, if these
circumstances do not fall within the purview of Section 149 (2) of Act 1988,
the insurer cannot invoke them in its aid and escape statutory liability
towards the third party risk. The terms of the contract between the insurer
and the insured, which determine their ‘inter se’ rights and liabilities are
different from statutory liability of the insurer for the third party risk.

The remedy available to the insurer is to proceed against the insured for the
breach of the insurance contract and to claim reimbursement of the amount
paid to satisfy the award. However, if the insurer is not statutorily liable e.g.,
liability of passengers carried in Goods Carriage Vehicle, save as provided in
the Act 2007, insurer is under no obligation to pay to third party.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 183

4. Insurable Interest

a) Under MV Act 1988

The statutory nature of the contract of insurance is always kept in mind while
dealing with the Third Party claims. That it is meant to come to the rescue
of the innocent motor accidents victims, is never lost sight of. Parliament had
mandated Section 157 of MV Act, 1988 granting compulsory transfer of
benefits of a contract of insurer in favour of the purchaser of the vehicle.

It is generally understood that the person seeking insurance must have a legal
right to insure the subject matter of insurance. Therefore, insurers insist on
the Registration Certificate of the vehicle being in the name of the insured,
at the time of availing cover. But as per Section 146 Motor Insurance cover is
compulsory, and it is a settled law that any user of the road is required to
ensure, that there was a valid policy in force at all times. It is equally well
accepted that such insurable interest need not flow from ownership or
registration of the vehicle alone.

Example

In [1991 ACJ 625] the Madras High Court ruled that it did not matter whether the
Registration Certificate was in the name of A and the policy of insurance in the
name of B, so long, as there was a cover existing as on date of accident.

More importantly, it needs to be understood that the sale of a motor vehicle,

come under Sale of Goods Act, 1930 and not under MV Act, 1988. So, even if
the Motor Vehicle was not transferred in the name of purchaser, the
purchaser would still be the legal / defacto / de jure owner as on the date
of purchase, as held by the Supreme court in [1980 ACJ 233] itself, which is
good and binding law.

5. Principle of Subrogation

Definition

Subrogation is the transfer of legal rights of an insured against third party, to the
insurer, when the loss or damage to the vehicle is caused by the negligence of
any other person.
Insurer steps into the shoes of insured’s rights, remedies and options following
settlement of a claim under the policy and the insurer may also exercise
administrative control over claims, suits and other proceedings accordingly in the
name of the insured. Under common law, subrogation operates after the claim is
paid.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 184

In case of insurance of motor vehicle, loss or damage to a stationary vehicle
whilst parked may be caused by another vehicle and the owner / insurer of the
offending vehicle will become liable. Subrogation usually arises when there is
collision among two vehicles, one of, which is to be blamed for the accident.

Recovery of loss from the owner of the offending vehicle, involves issues such as
negligence and the same will have to be determined and liability is to be properly
established by the courts, for recovering the loss.

However, insurers do not acquire any better title of interest than what the
insured possessed at the time of accident, and if insured has no right of action,
the insurers too in turn do not acquire any rights. As the insurer steps into the
shoes of the insured to enforce the principle of subrogation, the right of recovery
of Insurer from the third parties is limited to the amount of claim settled and any
excess amount so recovered, will have to be passed on to the insured / owner of
the vehicle.

This also infers that the insured is barred from making any admission himself or
compromising the amount of recovery from third parties, after the insurers have
settled his claim.

However, in practice, subrogation has been modified by Knock for Knock

agreement between insurers in case of liability arising out of physical damage to
vehicles involved and respective insurers meet full liability of vehicles insured by
them.

6. Non-applicability of Principle of Contribution to Third Party Liability

The Principle of Contribution does not apply to third party liability for death or
bodily injuries arising out of the use of the motor vehicle and the Courts do not
entertain any plea from the insurer seeking ratable contribution for this liability
under their policy.

Section II of the Motor Policy dealing with liability to third parties stipulates that
in terms of and subject to the limitations of the indemnity, the insurer will
indemnify any driver who is driving the motor car on the insured’s order or with
his permission, provided that such driver is not entitled to indemnity under any
other policy

In commenting upon the ratable proportion clause appearing in the policy, Mr.
Raoul Colinvaux in his book, ‘The Law of Insurance’, discusses the rights of the
insured / driver vis-a-vis the insurer as hereunder:

The burden of proving that the assured is entitled to call upon the other insurer
to pay in the event of a loss lies upon the insurer who is praying the clause in his
aid. If both policies are legally binding covering risks, they will become
enforceable and contribute a ratable proportion of the loss.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 185

The contribution condition need be specially worded in Private Car Policies to
cover the owner of the motor vehicle for third party liability while driving cars
not belonging to him so that the liability of such drivers is contributed by them.

7. Doctrine of Causa Proxima

The application of the doctrine of causa proxima or rule of proximate cause is

equally important. The definition of the rule of proximate cause was laid down
in Pawsey vs. Scottish Union as hereunder:

Definition

Proximate cause is an active and efficient cause that sets in motion a train of
events, which brings about a result without the intervention of any force started
and working actively from a new and independent source.

The maxim ‘causa proxima non remota spectaur’ meaning that the proximate
and not the remote cause is the factor to be taken into account. The aforesaid
loss is the loss against which the motor vehicle is insured under the policy.

Loss or damage to a motor vehicle may be occasioned by one cause or a

combination of causes.

Example

A stationary vehicle may be hit by another vehicle in running condition from the
rear end, the stationary vehicle may injure persons or damage property, but in
deciding the cause of claim or admissibility of the claim, the principle to be
looked into is what the direct or dominant cause of loss is?

8. Duty of Insurers to Satisfy Judgments

Section 149 of 1988 Act provides that: If, after a Certificate of Insurance
complying with compulsory insurance provisions of the Act 1988 has been issued,
judgment for compulsory third party liability is obtained against an insured
person, and then the insurer has to pay to the third party the amount decreed
plus costs and interest awarded, subject to the sum insured under the policy.
The important point to be noted here is that the insurers have to pay the third
parties even though they may be entitled to avoid or cancel the policy or may
have avoided or cancelled the policy.

a) Rights of Insurers

Before the commencement of the proceedings, the insurers are entitled to

receive notice through the Court or the Claims Tribunals, as the case may be,
S-06-MOTOR INSURANCE (FOR SURVEYORS) 186
 of the bringing of the proceedings or in respect of any judgment awarded so
long as execution is stayed thereon pending an appeal. The insurer who
receives the notice is entitled to be made a party thereto and to defend the
action only on any of the following grounds given Section 149 (2):

Section 149 (2): (A). There has been breach of a specified condition of the
Policy, being one of the following conditions, viz.:

i. A condition excluding the use of the vehicle:

(a) For hire or reward, where vehicle is on the date of the contract of
insurance a vehicle not covered by a permit to ply for hire or reward,
or
(b) For organised racing and speed testing, or

(c) For a purpose not allowed by the permit under which the vehicle is
used, where the vehicle is a transport vehicle, or

(d) Without side-car being attached, where the vehicle is a motor-cycle;

or

ii. A condition excluding driving by a named person or persons or by any

person who is not duly licensed, or by any person who has been
disqualified for holding or obtaining a driving license during the period of
disqualification; or

iii. A condition excluding liability for injury caused or contributed to by

conditions of war, civil war, or civil commotion; or

Section 149 (2): (B) That the policy is void on the ground that it was obtained
by non-disclosure of a material fact or by representation of fact which was
false in some material particular.

The insurer can evade liability only by raising successfully any of the defenses
listed above and not by any other manner. For insurers are impleaded in the
suit Condition 2 of the Motor policy requires the insured to give notice to
insurance company about the suit. The Act, however, provides that any sum
paid by the insurer in or towards the discharge of any liability of any person
which is covered by the Policy by virtue only of this proviso shall be
recoverable by the insurer from that person.

9. Rights of Third Parties against Insurers on Insolvency of the Insured

Section 150 of 1988 Act provides for the rights of third parties in the event of the
insolvency of the insured or in the event of winding up, when the insured is a
Company. The Act provides that if, either before or after that event, any third
party liability is incurred by the insured, his rights against the insurer under the

S-06-MOTOR INSURANCE (FOR SURVEYORS) 187

Policy are transferred to the third party to whom the liability was incurred. When
such transfer takes place, the insurer will be under the similar liability to the
third party as he would have been to the insured person, but:

a) If the liability of the insurer to the insured person exceeds the liability of
the insured person to the third party, the insured person’s rights against
the insurer in respect of the excess are not affected. For Example: the
Act provides for TPPD to the extent of Rs. 6,000/- only, whereas the
insurers liability under Private Car policy is Rs. 7,50,000/-. Thus the TP
claimant will be entitled to claim up to 7,50,000/-

If the liability of the insurer to the insured person is less than the liability of
the insured person to the third party, the rights of the third party against the
insured person in respect of the balance are not affected.

In the event of an insured becoming insolvent or making arrangements with his

creditors (insured is a company, being wound up) the rights of the insured under
the policy will be transferred to and vest in the injured third party. In other
words the injured third party is able to recover compensation direct from the
insurers. In the absence of this provision, any sum recovered by the insolvent
insured from his insurance company would have formed part of his assets to which
his creditors would lay a claim in proportion to their debts.

10. Settlement between Insurers and Insured Persons

Section 152 of 1988 Act provides that no settlement made by the insurer in
respect of third party liability is valid unless the third party concerned is a party
to the settlement. Further Section 152 provides that when the insured becomes
insolvent (or if the insured is company is wound up) no agreement made between
the insurer and the insured person (after liability has been incurred after
insolvency and winding up proceedings have been commenced) shall be effective
to defeat the rights transferred to the third parties.

11. Effect of Death of Insured Person

Section 155 of 1988 Act provides that if the insured person dies after incurring
third party liability, then the cause of action survives against the insured’s
estate, or legal heirs or against the insurer. If this provision was not made, then
the third party’s right of action against the negligent owner of the vehicle would
die with the death of the owner. This explains why the Third Party section of a
Motor policy always contains a paragraph stating that the company will indemnify
the insured’s legal representative in terms of the policy in the event of the
insured’s death.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 188

12. Duty to Furnish Information

a) Section 151 of 1988 Act casts a duty on a person who has incurred a
liability to a third party to disclose all particulars of his insurance if
demanded by the third party. The duty also applies to the insurer who is
expected to give an inspection of the policy and other documents to the
injured party.

b) Section 160 of 1988 Act provides that a Registration Authority or the

officer in charge of a Police station is required to furnish identification
marks of the vehicle and the name and address of the person using the
vehicle at the time of accident or of the injured person,

i. if required by a third party who alleges that he is entitled to claim

compensation in respect of an accident; or

ii. If required by an insurer against whom a claim has been made in respect
of any Motor vehicle.

The liability to pay compensation for victim’s accident arises under the law of
tort, i.e. the motorist’s negligence has to be established. The majority of these
victims are from the weaker and poorer sections of the society who neither have
any knowledge of the legal remedies available to them nor the financial means
to pursue them. Besides, if the third party is guilty of his contributory negligence,
then the compensation is scaled down depending upon the degree of contributory
negligence.

The question of negligence has to be decided in a Court of Law or Tribunal and

litigation is prolonged and expensive process. Trials of claims cases before Courts
or Tribunals are generally long drawn out and involve considerable trouble and
expenditure to the claimants for compensation. Thus, insistence on proof of
negligence is said to cause great hardship to claimants. Compensation is awarded
only after the Tribunal is satisfied on the aspect of negligence.

The Supreme Court and several High Courts had repeatedly observed that social
justice and a sense of humanity require that the principle of ‘No Fault liability’
should be adopted in automobile accidents. Motor Vehicles Act, 1988, Chapter X
Section 140 to 144 deals with No-Fault liability. Now Chapter X, and Section 140
to 144 are deleted in Amended Act-2019 but the notification is still awaited.

(a) In case of fatal accidents a table of compensation is provided showing the

amounts payable depending on the age of the victim and the multiplier
applicable. The amount of compensation so arrived at in case of fatal
accident claims is reduced by one-third in consideration of the expenses
which the victim would have incurred towards maintaining himself, had
he been alive.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 189

 (b) Under the Schedule, the amount of such compensation shall not be less
than a specified amount (currently Rs. 50,000/-).

(c) Besides the amount of compensation outlined above for fatal cases, the
schedule also indicates:

i. General Damages of specified amounts payable in case of death for:

 Funeral expenses

 Loss of consortium, if beneficiary is the spouse

 Loss of estate

 Medical expenses, that is, actual expenses incurred before death,

supported by bills / vouchers, not exceeding a specified amount

ii. General Damages of specified amount are payable in case of injuries and
disabilities for:

 Pain and suffering for grievous and non-grievous injuries

 Medical expenses, that is, actual expenses incurred supported by

bills/vouchers not exceeding, as onetime payment, specified amount.

iii. Disability in non-fatal accidents: Compensation for loss of Income, if any,

for actual period of disablement not exceeding 52 weeks, PLUS either of
the following:

 In case of payment total disablement, the amount payable shall be

arrived at by multiplying the annual loss of income by the “multiplier”
applicable to the age on the date of determining the compensation,
or

 In case of permanent partial disablement, such percentage of

compensation which would have been payable in the case of
permanent total disablement as specified in the above item.
(d) The Schedule also specifies notional income of non-earning persons.

In any claim for compensation under this Section, the claimant shall NOT be
required to plead or establish that the death or permanent disablement in
respect of which the claim has been made was due to any wrongful act or
neglect or default of the owner(s) of the vehicle(s) concerned or of any other
person.

Thus, the compensation mentioned in the Schedule shall be payable on the

basis of “No Fault”. However, the scheme is optional, and if the claimant

S-06-MOTOR INSURANCE (FOR SURVEYORS) 190

 feels that the amount prescribed in the Schedule is not acceptable, a claim
can be filed under the existing provisions, that is, under Section 166 of the
Motor Vehicles Act.

The Government is empowered to revise the Schedule keeping in view the

changes in the level of cost of living. The Amendment Act, 1994 amended
Section 141 to make it clear that the right to claim compensation in terms of
new structured formula referred to in Section 163 (A) – shall not be an
additional benefit. Both the benefits are mutually exclusive.

13. Hit and Run Accident

The Motor Vehicles Act, 1988 is a piece of social legislation and its provisions are
designed to protect the rights of victims of road accidents. In spite of the wide
protection afforded by the provisions of the Act, there remain certain gaps in
which the road victims may not have any remedies.

Example

If the identity of the motor vehicle causing the accident cannot be established
and, as a result, the victim has no recourse to any legal remedies; he cannot
proceed against either the owner of the vehicle or the insurance company which
had insured the vehicle.

The Motor Vehicles Act, 1939 was amended, with effect from 1st October, 1982.
A new Chapter VII-A was added dealing with “liability without fault in certain
cases” and Hit and Run cases. In this new Chapter VII-A, Section 109-A to C dealt
with claims arising out of ‘hit and run’ accidents. In the Motor Vehicles Act,
1988, Sections 161, 162, and 163 of Chapter XI deal with ‘hit and run’ accidents.

The Law Commission in its 51st Report had recommended amendment of the
Motor Vehicles Act 1988 to provide for compensation in “hit and run” cases. The
recommended legislative provision was as follows:

a) Where an accident, involving the death or bodily injury to a person caused

by or arising out of the use of a motor vehicle occurs, and it is proved that
a claim for compensation in respect of such accident cannot be made
because the person liable to pay such accident cannot be ascertained
after reasonable efforts, the person entitled to such compensation shall
be entitled to receive it from the State.

b) Where in respect of any accident, any claim is made under sub-section (1)
and it is found that the claimant has received or is entitled to receive,
any sum as compensation or, indemnity from any person other than the
driver or owner of the motor vehicle which occasioned the death or bodily

S-06-MOTOR INSURANCE (FOR SURVEYORS) 191

 injury, the amount to be awarded to the claimant against the State under
sub-section (1) shall be reduced by that sum.”

This Section proposes to provide for payment of compensation (Solatium) as

follows:

c) In respect of the death of any person resulting from a hit and run motor
accident, now a fixed sum of Rs. 2,00,000/-.

d) In respect of grievous hurt to any person resulting from a hit and run
motor accident, now a fixed sum of Rs. 50,000/-.

Definition

Section 161 defines “hit and run motor accident” as accident arising out of the
use of a motor vehicle or motor vehicles the identity whereof cannot be
ascertained in spite of reasonable efforts for the purpose.

According to this Section, “grievous hurt” shall have the same meaning as in
the Indian Penal Code. Any hurt which endangers life or which causes the
sufferer to be during the space of twenty days in severe bodily pain or unable
to follow his ordinary pursuits. According to Section 320 of the Indian Penal
Code the following kinds of hurt are designated as ‘grievous:

i. Emasculation

ii. Permanent privation of the sight of eye.

iii. Permanent privation of the hearing of either ear.

iv. Privation of any member or joint.

v. Destruction or permanent impairing of the powers of any member or joint.

vi. Permanent disfiguration of the head or face.

vii. Fracture or dislocation of a bone or tooth.

The Solatium was payable out of a “Solatium Fund” established by the Central
Government with effect from 1st October, 1982. According to the earlier
Amended Act, the finances of the Solatium Fund consisted of contributions
from

i. Central and State Governments – 30%

ii. General Insurance Industry – 70%

S-06-MOTOR INSURANCE (FOR SURVEYORS) 192

 It is the Indian insurers who would now pay compensation as per the Scheme
framed by Central Government.

Section 162 allows refund of payment made under Section 161 where
compensation is awarded by MACT in such cases and paid by insurers
separately. The Section states that payment of compensation for death or
grievous hurt under Section 161 above shall be subject to the condition that
if any compensation or other amount is awarded or paid in respect of such
death or grievous hurt under any other provisions of this Act or any other law
or otherwise, so much of the other compensation or other amount aforesaid
as is equal to the compensation paid under Section 161, shall be refunded to
the insurer.

Before awarding compensation, the Claims Tribunal, Court or other authority

has to verify whether compensation has already been paid under Section 161
or an application for payment of compensation is pending. If the
compensation has already been paid under Section 161 then the Tribunal or
Court, as the case may be, should direct the person liable to pay
compensation awarded by it to refund to the insurer so much thereof as is
required to be refunded.

On the other hand, if an application for payment of compensation is pending

under Section 161, it should forward the particulars as to the compensation
awarded by it to the insurer.

14. Claim of Compensation

1. Who can prefer Claims?

The following persons can prefer claims for death or disability due to negligence
of the driver of a vehicle:

a) Pedestrians

Pedestrian has a right to use the footpath but also to use the road occasionally
and also to cross it.

b) Fare paying passengers

The passengers carried in a public service vehicle are called fare-paying

passenger. The owner of the vehicle is under a legal duty to provide road
worthy vehicles but also to appoint competent drivers having effective valid
driving licence. The owner’s responsibility commences from the time a
passenger enters the vehicle and continues until the passenger un-boards
from the vehicle safely.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 193

 c) Non-fare paying passengers

The duty of owner towards non-fare paying passengers is to exercise

reasonable skill and care and to provide reasonably safe mode of conveyance.

d) Persons travelling in other vehicles

These persons may be driver, passenger or owner of the other vehicles who
expect the other driver to drive safely.

e) Children

The driver is required to show extra care towards children present on the
road, as law does not expect a child to exercise the same degree of care as
an adult has to exercise.

15. Doctrine of Res Ipsa Loquitur

The fact that an accident has occurred is not considered in law as prima facie
evidence of negligence. The burden of establishing negligence in a motor vehicle
accident claim for compensation lies on the claimant. This burden is considerably
lessened by the application of the maxim res ipsa loquitur means that the
accident speaks for itself or tells its own story. The burden will then be on the
defendant to establish that the accident has happened due to some cause other
than their own negligence.

a) Prima facie negligence

If vehicle climbs on a pavement causing bodily injuries to pedestrians walking

on the footpath, then the circumstances indicate that there has been prima
facie negligence and the claimants need not prove negligence. In fact the
onus will shift to driver to prove that he was not negligent. Under the doctrine
of res ipsa loquitur, the plaintiff establishes a prima facie case of negligence
where:
It is not possible for him to prove precisely what was the relevant act or
omission which set in train the events leading to the accident; and

i. Failure to take proper care: On the evidence as it stands at the relevant

time it is more likely than not that the effective cause of the accident
was some act or omission of the defendant or of someone for whom the
defendant is responsible, which act or omission constitute a failure to
take proper care of the plaintiff’s safety. Effect of the application of the
maxim res ipsa loquitur

S-06-MOTOR INSURANCE (FOR SURVEYORS) 194

 ii. Indian Position: For the application of this maxim, there is no better
authority in India than the words of the Apex Court [(Pushpa Bai
Purushottam Udeshi and ors Vs. Ranjit Ginning And Pressing Co. and
another) 1977 ACJ 343 (SC)]. Vehicle capsizing has been held covered by
res ipsa loquitur [2008 (2) LW 1096].

iii. Though the doctrine is a rule of evidence and not a norm of substantive
law, it would suffice for a claimant to establish the primordial ingredient
of the initial presumption against a driver for establishing negligence. The
burden would then shift to the tort feasor to rebut this presumption to
escape liability, e.g., the sketch cannot be the basis to affix negligence
or apply the maxim res ipsa loquitur. Oral evidence is very important. The
burden of proof for negligence, on claimants, is very heavy; res Ipsa
loquitur can be invoked.

b) Non applicability of doctrine of res ipsa loquitur

Claimants failed to discharge the initial burden: Where the claimants failed
to discharge the initial burden of proving the rash and negligent driving [1982
ACJ (Suppl.) 56 All (DB)], there was no burden on the insurer on behalf of the
owner of truck which hit a cyclist while crossing a bridge, to prove careful
driving of the vehicle.

In other words the doctrine res ipsa loquitur will apply only when the claimant
was unable to prove the nature of occurrence of the accident. Res ipsa
loquitur is only a means of estimating logical probability from the
circumstances of the accident.

c) Cause of accident is known

The doctrine of res ipsa loquitur would not apply when the cause of accident
is known. Similarly where the injured and his witnesses were in full knowledge
of the facts and circumstances of the accident and had intentionally withheld
the truth from the court [1982 ACJ (Suppl.) 401 (HP)] the doctrine of res ipsa
loquitur wouldn’t be attracted.

It is clear that the doctrine of res ipsa loquitur will apply only when there was
no evidence to lead the court to the conclusion, with regard to the incident
for the purpose of fastening the liability and finding who the defaulting party
was [1986 ACJ 405 (Alld.)]

d) Due precaution

A driver attempted to cross a bridge overflowing with knee-deep water, as

the river was in spate due to adverse weather condition. [1994 ACJ 116
(Madras)] The bridge collapsed and the bus was washed away causing death

S-06-MOTOR INSURANCE (FOR SURVEYORS) 195

 of the passenger. It was held to be negligence of driver for not taking due
precaution while driving and it could not be accepted as an Act of God.

16. Defences’ against Negligence

An allegation of negligence may be rebutted by the following defences:

a) Volenti Non-fit injuria

This means that if a person voluntarily consents to run the risk, the question
of negligence does not arise. This defence may arise in passenger liability
claims. When a person has, of his own willingness and consent decided to
become a passenger in a public service vehicle, then he cannot complain of
matters ordinarily incidental to traffic to which the vehicle will be exposed.

b) Inevitable Accident

Inevitable accident is an accident which occurs despite ordinary care,

caution, and skill. The burden to prove inevitable accident rests upon the
driver of the vehicle. He must establish the cause of the accident and also
that the result of that cause was inevitable.

c) Act of God

An act of God is a direct, violent, sudden, and irresistible act of nature, which
cannot be foreseen with reasonable care e.g., storms, lightning, earthquake,
etc.

d) Emergency

If the injury is caused to a person who has placed himself in a situation of

imminent danger to himself, no negligence will be attributed. Sometimes a
pedestrian using a road may unexpectedly cause the driver of oncoming
vehicle, to take turn to save him, and thereby cause injury to another
pedestrian.

In such circumstances the driver would be able to raise the defense of

emergency. He will not be blamed, merely because he does not do the right
thing in the circumstances, which are referred to as an agony of the moment.

17. Vicarious Liability

What is the basis of doctrine of vicarious liability?

S-06-MOTOR INSURANCE (FOR SURVEYORS) 196

Definition

Vicarious means that takes or supplies the place of another.

(Shorter Oxford English Dictionary, 3rd Edition 1944, and Vol. 2nd)

Vicarious liability means that one person takes the place of another so far as
liability is concerned.
.

Certainly by the turn of this century it was clearly established that the liability
of a master was based not on the fiction that he had impliedly commended his
servant to do what he had done tortuously, but on the more safe and simple
ground, that it had been in the scope or during the course of his employment or
authority. Although this relationship of master and servant is by far the most
important in which vicarious liability is recognised by the law but it is not
confined merely to it. It follows that those for whose negligence a person may
be liable must be considered under the following headings:

 Servants,
 Agents,
 His children,
 Independent contractors

a) Owner and Driver Joint tort-feasor in Motor accident

Both the owner and driver are joint tort-feasors. In motor accident the
primary liability is that of the driver and once the driver is found negligent,
the owner is vicariously liable, and liability of insurance company is an
imputed liability contemplated statutorily. In other words, the liability of
owner and driver being joint tort feasor is joint and several and applicant is
entitled to recover the compensation from driver too. In a case where the
joint tort feasor were held to be at fault, it was held that apportionment
need not be made as liability was joint and several.

18. Contributory and Composite Negligence

Contributory negligence would arise where Z had contributed to the occurrence

of the accident. Where Z had no involvement in the accident, but the accident
was caused due to the combined negligence of A and B then it would be a case
of composite negligence. If due to the negligence of A and B, Z has been injured,
Z can sue both A and B for the whole damage.

There is a clear distinction between contributory negligence and composite

negligence. The composite negligence liability is joint and several. The term
contributory negligence applies solely to the conduct of the plaintiff. It means
that there has been an act or omission on his part, which has materially

S-06-MOTOR INSURANCE (FOR SURVEYORS) 197

contributed to the damage. But in case of composite negligence the plaintiff
himself has no hand in the occurrence of the accident.

The difference between the two is of great importance in motor accident claims.
If it is a case of composite negligence then no reduction in compensation payable
to a claimant would occur whereas, in contributory negligence the claimant’s
compensation would be reduced in proportion to his share in the negligent act.

19. Contributory Negligence

Where an accident is caused due to the negligence of both the parties,

substantially there would be contributory negligence and both would be blamed.
Where vehicles collide the apportionment at 50:50 would be fair. The crucial
question on which the liability depends in contributory negligence relates to
whether either party by exercise of reasonable care, has avoided the
consequence of others negligence that would be liable for the accident.

In order to hold that there was contributory negligence, there must be positive
and credible evidence adduced by the respondents.

20. Composite Negligence

Where a person is injured without any negligence on his part but as a result of
the combined effect of the negligence of two other persons, it is not a case of
contributory negligence but a case of injury by composite negligence. Negligence
is a careless conduct, although there may not be any duty to take care.
Negligence also refers to breach of legal duty to take care.

a) Apportionment on the type of vehicle

In case of composite negligence two vehicles are involved and the injury /
death is sustained by a third person. The negligence is apportioned on the
basis of the type of vehicle involved. The proportionate liability in case of
two similar vehicles may be 50% on each vehicle.

b) Liability joint and several

When two vehicles collide, and only one driver was prosecuted is not
material; the apportionment was made at 50:50.

Where two vehicles were involved in the accident and only one vehicle was
impleaded and both drivers were found to be at fault at 50:50, the claimants
were held entitled only for 50%; since they had failed to implead the other
vehicle. [(Kuldeep Singh vs. Indrajeet Singh Kohli) 2007 ACJ 2383 (Uttara)]

In a case of composite negligence, the choice to sue either or both was with
the claimant and as such the claimant was entitled to 100% from the

S-06-MOTOR INSURANCE (FOR SURVEYORS) 198

 impleaded truck and it was for this truck to seek reimbursement, if any, from
the other truck in separate proceedings. [(Mayaram vs. Mehboob) 2007 ACJ
918 (MP)]: [(Nani vs. Soma La) 2007 ACJ 1163 (Raj)].

21. Sovereign Immunity

The Courts in India have uniformly deprecated the tendency of the State to
raise plea of sovereign immunity. The crux of the reasoning is that the State
would be entitled to raise the defence successfully only where it can prove
that the function, in which the vehicle was involved, was an exclusive
sovereign function in which no private individual could have been engaged.

If the act, during which the accident ensued, could be accomplished by a

private individual, then the plea of the sovereign immunity falls flat. Even
where military trucks are involved, the plea is not allowed to be agitated as
it must not be

Test Yourself 2

Where a person is injured without any negligence on his part but as a result of
the combined effect of the negligence of two other persons, it is a case of injury
by ___________.

I. Contributory negligence
II. Composite negligence
III. Combine negligence
IV. None of the above

S-06-MOTOR INSURANCE (FOR SURVEYORS) 199

SUMMARY

In this chapter you learnt the basic principles of insurance applicable in claims
the necessity of TP insurance. We also learnt the requirements of the policy and
the rights of third parties and duty of the insurance company to pay the award.
We learnt in detail the types of negligence and its effect on compensation in TP
injury and death claims.

Answers to Test Yourself

Answer 1

The correct option is I.

As per the 'limits of liability' specified in the MV Act, in respect of damage to any
property of a third party out of one accident, the limit is Rs. 6,000.

Answer 2

The correct option is II.

Where a person is injured without any negligence on his part but as a result of
the combined effect of the negligence of two other persons, it is a case of injury
by composite negligence.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 200

Self-Examination Questions

Question 1

Claims for compensation for liability under the Motor vehicles Act arise out of
negligence and fall under the _________.

I. Law of negligence
II. Law of torts
III. Law of liability
IV. None of the above

Question 2

As per Section 161, in respect of the death of any person resulting from a hit and
run motor accident, the compensation payable is fixed at __________.

I. Rs. 12,500
II. Rs. 25,000
III. Rs. 37,500
IV. Rs. 50,000

Answer to Self-Examination Questions

Answer 1

The correct option is II.

Claims for compensation for liability under the Motor vehicles Act arise out of
negligence and fall under the law of torts.

Answer 2

The correct option is IV.

As per Section 161, in respect of the death of any person resulting from a hit and
run motor accident, the compensation payable is fixed at Rs. 50,000/-.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 201

 CHAPTER 8
MOTOR ACCIDENT CLAIMS TRIBUNAL

Chapter Introduction

In this chapter you will learn about the jurisdiction, functioning and powers of
MACT and its ways to compensate various types of Victims of road accidents. You
will also learn the rights of the Claimants and the rights and defences of the
Insurers.

Learning Outcomes

A. Knock for Knock Agreement and some Market Practices

B. Motor Accident Claims Tribunals
C. Alternate Methods of Settlement
D. Principles of Damages
E. Defences Available to Insurers
F. Quantum Fixation

S-06-MOTOR INSURANCE (FOR SURVEYORS) 202

A. Knock For Knock Agreement and some Market Practices

1. Knock for Knock Agreement

a) Claim under ‘Own Damage’ and ‘Third Party’ Section

If two vehicles are involved in collision and one of the vehicles is negligent,
the owner of the other vehicle can recover damages from the negligent owner
of the vehicle. If he chooses to claim from his own insurer under 'Own
damage' section of the policy, then his insurer would be subrogated to his
rights of recovery against the negligent owner. The latter would be having his
insurance policy and his insurers may have to pay the claim under Third Party
Section of the Policy.

This would mean that, in all cases, where insurance is involved, such claims
are settled as between the respective insurers. Since question of negligence
are involved these would have to be settled by litigation between insurers
which is an expensive and time consuming process. Eventually the costs of
litigation would be reflected in the premium rates.

b) Knock for Knock Agreement

Therefore, insurers have entered into an agreement (called Knock for Knock
Agreement) according to which, irrespective of who was negligent, provided
the damage is covered under the policy, the insurers covering the damage
will not exercise subrogation rights against the party involved in the accident.
Instead, they will indemnify their insured subject to the terms of policy.

Similarly, the other insurers will indemnify their insured provided the damage
is covered under the policy. In other words, each insurer will indemnify their
insured.

This agreement, however, does not apply to goods vehicles policies and Public
Service Vehicles (i.e. Taxies, Buses) used for hire or reward, and technically
the Insurers are free to enter into litigation to recover losses caused by such
vehicles.

The knock for knock agreement benefits:

i. the insurers as they avoid intercompany litigation and thereby save costs;

ii. it benefits the insured’s because they recover the claims straightaway
from their insurers;

iii. it also benefits the insuring public because the reduction in the cost
claims is eventually reflected in reduced premiums

S-06-MOTOR INSURANCE (FOR SURVEYORS) 203

 Third-party insurance policy is a mandatory cover for any vehicle plying in
the public place. The cover pays for the damages to a third person that is
caused due to insured vehicle. But when the accident involves damage to the
vehicles, the insurers pay for the damages through their own damage covers
and not by invoking the third-party cover on the insurer whose insured
customer is at fault. This is called the knock-for-knock agreement.

Definition

The dictionary defines the term ‘knock for knock’ as an agreement between
auto insurers that in the event of an accident each insurance company will pay
for the damage to the vehicle insured with it, without attempting to establish
blame for the accident.

c) Difference between Own Damage and Third-Party Covers

Own damage policy covers damages and theft of the vehicle.

i. The sum insured or the maximum liability of the insurer in an own damage
cover is determined by the insured’s declared value (IDV).

ii. The third-party cover, on the other hand, has a limited liability of Rs.
7.5 lakh in case of damage to the vehicle or property of the third person
and

iii. Unlimited liability in case of bodily injury or loss of life

Third-party cases are fought at the Motor Accident Claims Tribunals and the
amount of compensation to the third party is decided by the Court.

d) Why do Insurers have this Agreement?

Every year the insurers sign a knock-for-knock agreement with all other
insurers. The insurers do so to avoid getting into litigation and unnecessary
delays by dragging the matter to the court on account of third-party policies.
So instead of finding whose fault it is and making the insurer compensate the
victim, both the insurers of both the vehicles pay for the damages of their
insured vehicles respectively. This is an internal understanding among the
insurers and is not mandated by the regulator.

It’s quite a toss-up between a quick turnaround time in claims settlement and
no-claims bonus earned by the claimant. By invoking the own damage cover,
the insured will end up forgoing the no-claim bonus that he is entitled to for
every claim-free year. This bonus is a discount in the premium and can go up
to 50% of the premium. So insured will need to evaluate what would you
rather settle for:

S-06-MOTOR INSURANCE (FOR SURVEYORS) 204

 i. A quick turn around by allowing the insurer to cover damages under the
own damage policy or

ii. Protecting the no-claim bonus on the own damage cover by going to the
court considering you were not at fault.

2. Effect of Criminal Trial before MACT

As the degree of proof required for Criminal trial is higher, the decision of the
criminal case would not have direct bearing on the outcome of Claims Tribunal.
However, if the driver voluntarily pleads guilty, it would be prima facie proof of
negligence. Though a plea of guilt rendered before the Criminal Trial, on a similar
analogy cannot be of a great significance, it would be relevant while fixing the
liability for the accident before a Claims Tribunal. It is a settled law that the
proceedings before a Criminal Trial are not binding on the Claims Tribunal as held
in [1980 ACJ 435].

3. Legal Representatives

The third party liability claims for compensation are made in respect of accidents
involving the death of or bodily injury to persons arising out of the use of the
vehicles, or damage to property of third party, or both under Section 166 of 1988
Act. Application for such compensation may be made by the person who has
sustained injury or by the owner of property or where death has resulted from
the accident, by all or any of the legal representatives of the deceased, as the
case may be.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 205

B. Motor Accident Claims Tribunals

For the speedy disposal of third party claims and at a minimum cost, the Claims
Tribunals have been constituted by different State Governments, under Section
110 of Motor Vehicles Act, 1939. Such tribunals are presided over by a person of
the rank of a District Judge or High Court Judge. Only a nominal fee has to be
paid for instituting a case and court fee is not based on the value of the suit.
Thus it is very much less expensive and poor third party claimants are not
prevented from making proper claims. All third party claims for personal injury
and property damage have to be filed with claims tribunals.

1. Who is a Third Party?

The very nomenclature third party would pre-suppose the existence of two other
parties. The insured or owner of the vehicle would be The First Party and the
insurer would be Second Party. All others would appear to come within the ambit
of the expression Third Party.

Under Section 147 MV Act, 1988 there is stipulation of mandatory cover to be

provided to third parties. But in the context of the statute it is not every claimant
who would come within the scope of a third party. The driver, passengers in any
class of vehicle, though commonly known as third parties come outside the scope
of Third Party under the 1988 Act. They are required to be covered under Section
147 as driver, occupants or passengers separately.

Important

Third Party is confined to those persons who are victims and not travelling on the
vehicle but are outside the vehicle.

2. Beneficial Legislation

Chapters X to XII of 1988 Act was incorporated for the benefit of the innocent
motor accident victims. There has been a sea change in the purport and impact
of the march of law from the dispensation under MV Act 1939 to MV Act 1988 and
subsequent amendments down all these years. The Parliament in its wisdom has
gone about securing and protecting the interests of the affected victims. The
Courts are duty bound to keep in mind the beneficial intent behind this
legislation. The construction of the statutory provision is itself in consonance
with this intendment. (National Insurance Co. Ltd., Vs. Swaran Singh) 2004 ACJ
1: AIR 2004 SC 1531: 2004 (3) SCC 297: 2004 (1) Supreme 243: 2004 (1) ACC 1]

a) Quicker Justice

It was felt that the ordinary Civil Courts could not deal with Third Party Claims
and expeditiously grant relief to the victims. As it is, the judicial process is

S-06-MOTOR INSURANCE (FOR SURVEYORS) 206

 very slow and time-consuming in the Indian context. It would appear that
time had come to cry for Judgment, not Justice. Bearing this in mind,
Parliament had directed the constitution of Claims Tribunals as specialised
forums in the hope that they would handle and deliver justice in time, in
these cases.

The expectation, to be fair, has been belied. The exponential increase in the
motor accidents, the failure to increase the number of ‘Claims Tribunals’
and the procedural wrangles indulged in by the lawmen in their genius has
meant that lots of the victims have only been pitiable. The need then was
felt to introduce ‘No Fault Liability’ under Section 140 of the 1988 Act and
then came Section 163-A ‘structured Schedule Compensation’ for all cases
of death, based on proof of age and income. They thought that there could
be a Table of computation of compensation, to fix the compensation payable
instantly. Similarly, for injury claims too, there could be a Table of
Computation of compensation.

With regard to the vexed question of ‘assessment of disability’ which is now

within the whims and fancy of stock witnesses appearing before Tribunals,
there could be constitution of Medical Boards in all Districts, which shall have
the final say in the assessment based on the guidelines issued by the Ministry
of Social Justice Women Empowerment dated 1st June 2001. Then alone, it
may be possible to see quicker dispensation of justice. Even then, we should
not rule out the genius of the lawmen to quibble on legalese to keep the
victims at bay.

3. Jurisdiction of Claims Tribunal

Section 165 of the 1988 Act gives the Motor Accident Claims Tribunals (MACT)
exclusive jurisdiction to decide the claims with regard to death, personal injury
as well as property damage, irrespective of the amount involved in the property
damaged, whether on fault basis or “no-fault” basis. An explanation has been
added to Section 165 of 1988 Act

The State Government may, by notification in official Gazette, constitute one or

more Motor Accidents Claims Tribunals (MACT), for such area as may be specified
in the notification, for the purpose of adjudicating upon claims for compensation
in respect of accidents involving death of, or bodily injury to, persons arising out
of use of motor vehicles, or damages to any property of a third party so arising
or both.

Power of Civil Court: The Claims Tribunal no doubt had come into being. But the
Supreme Court had ruled that creation of the Claims Tribunal was only a forum
creation. The law relating to liability would still be in the realm of Torts and
Common Law [1977 ACJ 118 (SC)]. To sustain a claim based on Torts, the
claimants would have to establish fault on the part of the tort-feasor. The Claims
Tribunal was vested with exclusive jurisdiction to decide such claims.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 207

 a) Claims Tribunal is vested with power of Civil Court

Precisely speaking, Claims Tribunal is vested with the power of Civil Court,
for the purpose of taking evidence and compelling the discovery and
production of documents and material objects and for other purposes in
disposal of claim brought before it. The MACT Rules have not made applicable
in specific terms, all provisions of Civil Procedure Code e.g., Order 1, Rule 10
(2) of CPC refers to the owner to allow parties to be impleaded during the
conduct of proceedings. [1980 ACJ 298 (SC)] it was held that the powers under
CPC can be invoked as ancillary powers required for the valid and proper
adjudication of claim by a MACT.

4. Forum Shopping

In view of this clouded state of affairs and prejudice to the cause of victims,
Parliament deemed it appropriate to introduce a change by which the claimants
could institute the claims at their place of residence too, under Section 166 of
MV Act 1988. This welfare measure is within a beneficial legislation, akin to
Section 60 of Copyright Act.

5. Parties to the Claim Petition

It is to be noted that as per Section 2(30), owner means a person in whose name
a motor vehicle stands registered and where such person is a minor, the guardian
of such minor and in relation to a motor vehicle which is the subject matter of
hire purchase agreement or an agreement of lease or an agreement of
hypothecation, the person in possession of vehicle under agreement. The hire
purchaser/ lessee are the owner of the vehicle under Section 147 read with
Section 2(30) of MV Act 1988.

Under Section 166 the injured or in case of death of his heirs the legal
representatives can file a claim petition in Form II under Rule 4(1) and (2) where
respondents are owner of the vehicle, insurer and driver of the offending vehicle,
as there is no provision in the Act on this aspect. The financier of the motor
vehicle under Hire Purchase agreement is not a necessary party in proceedings,
as question of breach of terms of hire purchase is beyond the scope of
adjudication before the tribunal.

a) Appeal Provision under Motor Vehicle Act, 1988

Section 173 provides for provision of filing Appeal for a person aggrieved by
an award of MACT. However, there is a bar on filing appeal for an award of a
Claims Tribunal if the amount in dispute is less than One Lakh rupees.
However, there is no bar for an amount in excess of Rs. 1,00,000/- if awarded
by the Claims Tribunal.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 208

 Section 173 – Appeals: Any person aggrieved by an award of the Tribunal,
derives right to file an appeal under this Section, within a period of ninety
days from the date of award. Further an appeal cannot be admitted for
consideration or maintained without deposit of Rs. 25000/- or fifty percent
of the amount awarded, whichever is less, by the person required to pay the
award. Any subsequent deposit of half of the amount is not considered
compliance of the mandatory requirement and is liable to be rejected at the
admission stage.

However, the party who is awarded with the liability cannot file an appeal
unless he deposits 50% of the award or a sum of Rs.25,000/- whichever is less,
along with the appeal. No appeal can be filed against the order of the
Tribunal if the amount involved is less than Rs.1,00,000/- as per amended
act, 2019 (awaiting notification).

Under Order 41 Rule 22 of C.P.C read with Section 173 of the 1988 Act, cross
objection tantamount to appeal. Therefore, without mandatory deposit the
appeal provision under Section 173 is not maintainable.

The insurance company cannot question the compensation awarded by the

Claims Tribunal by filing a joint appeal, as it would result in a mockery of
Section 149 (2) where insurance company is not entitled to seek relief
directly, it cannot be allowed to seek relief indirectly allowing joint appeal.
The benign principle that justice shall not suffer because of hyper
technicalities is clearly understood and though a joint appeal is not
maintainable, the appeal by the owner deleting the insurer is maintainable
[Asha and ors vs. United India Insurance Company Ltd and Anors. 2004 ACJ
448 (SC)].

6. Duty to satisfy Judgments

Third party risk in the background of a vehicle which is the subject matter of
insurance is dealt in Chapter XI and XII of the Motor Vehicle Act 1988.

It has been held in in the case of a cheque having been dishonoured; the insurer
under Section 147 of 1988 Act, having issued the Motor Insurance Policy is
mandated to pay and recover, as the contractual liability has become void ab
initio for want of consideration, which failed due to dishonour of premium cheque
[2008 ACJ 1111].

It has been clarified that direction to insurer to pay and recover from the insured
cannot be carried so far as to issue such directions, where there was no contract
of insurance in force on the date of accident.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 209

 a) Insurer to pay and recover from owner

The Supreme Court observed that it would be equitable if the insurance

company pays the amount of compensation to the claimant and recovers it
from the insured. Where the driver did not hold a valid endorsement, the
insurer was directed to pay and seek recovery from the insured. [(Oriental
Insurance Co Ltd v Yudhishter Joshi) 2007 (3) TAC 440 (Uttara)]

The interest of justice will be sub-served if the appellant insurance company

herein is directed to satisfy the awarded amount in favour of the claimant, if
not already satisfied and recover the same from the owner of the vehicle.

b) No need to file a suit for recovery

For the purpose of such recovery, it would not be necessary for insurer to file
a separate suit but the Insurer may initiate a proceeding before the executing
court, as if the dispute between the insurer and the owner was the subject
matter of determination before the Claims Tribunal, and the issue was
decided against the owner and in favour of the insurer.

Before release of the amount to the claimant, owner of the vehicle shall be
issued a notice and he shall be required to furnish security for the entire
amount, which the insurer will pay to the claimants. The offending vehicle
shall be attached, as part of the security. If necessity arises the Executing
Court shall take assistance of the concerned Regional Transport Authority.
The Executing Court shall pass appropriate orders in accordance with law as
to the manner in which the insured, owner of the vehicle shall make payment
to the insurer. In case there is any default it shall be open to the Executing
Court to direct realisation by disposal of the securities to be furnished or from
any other property or properties of the owner of the vehicle, the insured.

c) Tribunals to hear claims for damage to property and revenue loss

Fundamentally, the creation of the claims tribunal was a creation of the

statute. Under MV Act, 1988, any limitation for a TPPD claim has been
removed. If so, even a claim under the head revenue loss has to be laid before
the Tribunal only, as there is total ouster of jurisdiction of the civil court
from entertaining any claim in relation to a motor accident claim. One
important development in this arena is the decision of the Apex Court that in
case of Motor accident on unmanned railway crossing involving trains, if the
claims were against the owners and drivers of Motor vehicles too, then such
claims would be tenable before the Tribunal. There was no necessity for the
victims to sue before a Civil Court or elsewhere.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 210

 d) Power of review

One important adjunct of the power of a Civil Court being available to the
MACT is the power in relation to review or recall of an award against the
insurer. Power of review is a specific power and the legal position is that
unless such power was vested with a Tribunal, it cannot invoke the right. In
fact, in criminal jurisprudence, there is a bar on Magistrates to invoke any
such power of review.

e) Limitations to file Appeal

Section 173 stipulates that any person aggrieved by an award of the Tribunal,
derives right to file an appeal under this Section, within a period of ninety
days from the date of award. However, the party who is fixed with the
liability cannot file an appeal unless he deposits 50% of the award or a sum
of Rs.25,000/- whichever is less, along with the appeal. No appeal can be
filed against the order of the Tribunal if the amount involved is less than
Rs.1,00,000/- as per amended act, 2019 (awaiting notification).

As the High Court is a constitutional Court. Hence, it has all the powers and
trappings of such court, without a glitch. Limitation to file appeals is of
course prescribed under the 1988 Act. In case of delay, an application has to
be moved before High Court for condonation of delay. It would make sense
to lodge appeals within the stipulated period of 90 days in case of MACT
claims and 60 days in case of EC claims.

For, if there is a delay in filing such appeal, then as per Or.41 R. 3 (3A) of
CPC, there shall be a bar on the High Court from granting interim relief,
pending disposal of the application for delay. Only after condonation of delay,
any stay can be sought for.

Insurers cannot seek any other alternate remedy of injunction against

execution, as law does not permit another remedy if the basic remedy is
barred and circumvention of the legal process is not permissible.

Coming to the powers of the High Court, it would be subject to the High Court
entertaining it. It is open to the High Court to dismiss the appeal at the stage
of admission itself, if it did not see merit in the case. But the legal position
is as yet not fully settled, in the absence of a verdict of the Supreme Court
and there is divergence of opinion.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 211

C. Alternate Methods of Settlement

Conciliatory or negotiated settlements of the legal claims are always beneficial

to the insurers. It is a means for fast disposal of cases which helps not only the
insurance company in expeditious determination of liability but also helps the
claimants to get reasonable amount of compensation without waiting endlessly
to obtain an award. The fast disposal also helps the MACT to reduce their
pendency of cases, to facilitate speedy justice by saving time wasted in unwanted
complex procedures of the courts.

The quicker disposal of cases through conciliation is appreciated as a positive

sign of the insurance companies’ willingness to help the victims of motor
accidents, which is the moving spirit behind the enactment of MV Act 1988 by
the legislatures. The fast disposal of claims also enhances the image of the
insurance company in the public eye.

The settlement so achieved, is highly economical to the insurance company. Fast

disposal eliminates the adverse impact of inflationary trends and depreciation in
value of money and the resultant increase in the amount of awards. In India
inflation rate is very high, and it varies from time to time, based on various
factors. If we take a long-term view, we can consider the average of inflation @
7.5% as a very conservative estimation of the inflation.

This inflation results in depreciation of money value in actual terms and we keep
adjusting to such inflationary pressure and depreciation in money value, as time
passes.

Similarly, any compensation amount that we think reasonable today will appear
to be a paltry sum after 10 years. This is due to the operation of invisible pressure
or attunement of our mind to the inflationary trends and may also be in response
to the constant changes in the economic condition of the citizens of our country.

Example

If we work out an example at the rate of an assumed inflation of 7.5% per annum
and 9-12% per annum interest, an amount of Rs. 1,00,000/- ten years ago will
push the total out go to Rs. 4,53,420/- if we allowed the case to be awarded by
the MACT.

However, Rs. 1,00,000/- paid as out of Court settlement ten years ago, invested
to earn interest / dividends the total income at 10% compound interest the totals
corpus (Principal + Interest) would work out to Rs. 2,59,370/-. There still would
be a net loss of Rs. 1,94,050/- (Rs. 4,53,420 – Rs. 2,59,370). Therefore, if claims
are settled through alternate methods of settlement, insurers tend to save by
way of reduced claims out go and ultimately make better contribution to society
at large.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 212

Diagram 1: Alternate methods of settlement

1. Conciliatory Committee

To dispose of Motor TP Claims and Claims under Jald Rahat Yojana (JRY) through
Compromise, the concept of Conciliatory Committee, as an alternative forum
have been introduced u/s 152 of the Motor Vehicle Act 1988, as amended in 1994.
The conciliatory committee is required to have a retired High Court Judge or
District Judge, an insurance executive (Manager / DGM / GM / CMD of GIPSA
Companies) and an Orthopedic Surgeon.

The Conciliatory Committee would process an application for compensation as

per legal advices of the panel Advocate and in terms of (as a guide line) the
provision of the Structured Compensation u/s 163A of MV Act 1988, as amended
in 1994, for settlement of TP claims between the insurer and the insured persons.

The JRY Scheme has been introduced by the General Insurance Corporation of
India for settlement of non-fatal claims involving non-minor injuries, at the pre-
litigation stage. The Conciliatory Committee is required to process applications
for claims under JRY as per legal advice of the panel advocate and on the basis
of the opinion of an Orthopaedic Surgeon advising the percentage of the disability
sustained by the victim / applicant to recommend to the competent authority
for the approval of the claim. Since the settlement is effected at the pre-
litigation stage and without involving the Court, no consent award is necessary.

But a disadvantage of JRY is that the claimants may again move Tribunals if they
feel that the amount passed by the Conciliatory Committees under JRY is
inadequate. Therefore, the very purpose of avoiding the legal procedure may be
S-06-MOTOR INSURANCE (FOR SURVEYORS) 213
frustrated and the company will not only have to pay the amount given by the
committee under JRY but also satisfy the award passed by the Tribunal.

However, in order to avoid this situation, we can take shelter u/s 22C (1) of the
Legal Services Authorities (Amendment) Act, 2002, which states any party to a
dispute may, before the dispute is brought before any Court, make an application
to the permanent Lok Adalat for the settlement of dispute. Therefore, if our
primary liability is established through investigation, the cases may be placed
before the permanent Lok Adalat for consent award, which shall be deemed to
be a decree of a Civil Court and shall be final and binding on all the parties to
the dispute.

2. Joint Compromise Petition

(DICC) / Regional in-house Conciliatory Committee (RICC): For speeding up the

process of litigation and speedy disposal of cases DICC / RICC had been set up in
1997 by General insurers in order to explore the possibility of settlement of Motor
TP claims exclusively.

The DICC consists of Officer in-charge of the Division, Officer in-charge of Motor
Claims and one other Officer from non-motor stream.

The RICC consists of Officer in charge of the Region, Officer in-charge of motor
portfolio and one other Officer not below the rank of Manager.

If cases are settled through DICC / RICC, a joint compromise petition, duly signed
by both the parties, with their advocates, is required to be filed before the
respective MACT, where the case is pending, in order to get the consent award.

3. Jald Rahat Yojna

It is a scheme where claimant is not required to file any claim in the Claims
Tribunal or Court or any other authority. The settlement is arrived with the
assistance of an independent panel comprising of:

i. Retired judges,
ii. Medical Practitioners and

iii. Retired Insurance Executives

4. Consensual Adjudication

This method is most suitable as it allows both parties to reach a consensus even
during the currency of the case files in Claims Tribunal. The contesting parties
are free to file the application for compromise so reached in the Tribunal, which
is accepted, by the Claims tribunal as consensus adjudication and order to this
effect is passed accordingly.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 214

5. Lok Adalat

Since April 1985, Lok Adalat have been exclusively organised for settlement of
motor third party claims. Although the concept of Lok Adalat was very much in
vogue since early years, this forum was made available for settlement of motor
third party claims under the initiative of former Chief Justice of India, Shri P.N.
Bhagwati. Since then number of Lok Adalats have been organised throughout the
country and number of claims have been settled through this forum to the
satisfaction of the claimants.
It is expected to gather further momentum for settlement of these claims through
this media as both claimants and the insurance companies get benefit out of it.

6. Permanent Lok Adalat for ‘Insurance Service’

By amendment no. 37 of 2002, called ‘Legal Services Authorities (Amendment)

Act’ which came into force with effect from 11-06-02, Permanent Lok Adalat
have to be established to cover ‘Public Utility Service’ and ‘Insurance Service’ in
terms of the definition of the public utility services u/s 22 A of the Legal Services
Authorities (Amendment) Act, 2002.

It is evident from the Act that Lok Adalat is an alternative forum where cases can
be compromised by both the parties, with the intervention of the member
Judges. Every Lok Adalat organised for an area shall consists of:

i. Servicing or retired judicial official,

ii. Member of the legal profession and

iii. Social worker or a person engaged in Para legal activities in the area

Lok Adalats have jurisdiction to determine and arrive at a compromise settlement

between the parties to a dispute, in respect of any case pending before or any
matter falling within the jurisdiction of and not brought before any Court, for
which the Lok Adalat is organised. However, award of the Lok Adalat is at par
with the decree of a Civil Court and is final and binding on all the parties to the
dispute and no appeal lies in any Court against the award.

a) Insurer Perspective of Lok Adalat

i. Shortening the process of litigation in order to save legal costs and

interest liability.

ii. Question of quantum to lighten the burden of unexpected high awards.

iii. Reduction in accumulated cases will reduced provisions. From the

social view point, it tends to mitigate the hardship of the claimants, by
offering of reasonable sum which suits both the parties.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 215

 iv. Reduction in Workload of Office thus reducing the expenses of
management.

7. Solatium Fund

Wherever the identity of the vehicle is not known and death or injury has resulted
out of accident, the claimants are entitled for the compensation, out of the
Solatium Fund under Section 163 for Hit and Run victims of accident. The manner
of disbursement of claims is left to the Government which is dealt with in the
rules. Section 161 provides for payment of compensation to hit and run accident
victims i.e. where the identity of the offending vehicle is not established. This is
paid out of Solatium Fund. The amount for death is Rs. 2,00,000 and for grievous
hurt is Rs. 50,000.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 216

D. Principles of Damages

1. Principles governing determination of Compensation

A man is not compensated for the physical injury. He is compensated for the loss,
which he suffers as a result of that injury. There is no compensation available for
sentimental agony, no damages for hearts anguish, and no financial assistance
for mental tribulations. The compensation amount should be commensurate with
the injuries sustained and the sufferings undergone by the injured claimant.
Bodily injury is to be treated as deprivation, which entitles a claimant to damages
and the amounts of damages vary according to the gravity of the injury and
degree and duration of deprivation.

Three basic principles governing determination of compensation in injury

disablement claims:

i. Principle of Assessability
ii. Principle of Uniformity
iii. Principle of Predictability

a) Principle of Assessability

In case of grave injury, where the body or the brain suffers massive
impairment, it is difficult to assess fair compensation in terms of money. The
principle of assessability envisages that the award must basically be a
‘conventional figure’ derived from experience and from awards pronounced
in similar cases, to ensure some measure of uniformity in awards.

b) Principle of Uniformity

The principle of uniformity is of utmost importance in administration of

justice so that similar cases are decided uniformly; otherwise, there will be
criticism and dissatisfaction in general community and a grievance for causing
discrimination. The uniformity in award requires each case to be weighed
upon its own individual merit.

Since no two cases are alike, awards in comparable cases do enable the Court
to seek guidance, not by referring to a particular case and treating it as a
precedent, but by looking at general level of damages in similar cases, which
would offer predictability by means of comparison of such cases by analogy.

c) Principle of predictability

The injured parties should be able to predict with some measure of accuracy,
the sum that is likely to be awarded in a particular case, as per the basic
principle of predictability in assessment of compensation. The amount of
compensation should neither be inadequate nor token.
S-06-MOTOR INSURANCE (FOR SURVEYORS) 217
 However, it may be noted that sympathy for the claimant should not be
allowed to affect the calculation of damages.

The ratio of judicial compensation hinges on the pivotal issues of:

i. Reasonable compensation
ii. Uniformity in approach
iii. Assessment with moderation

The award should neither be punitive or exemplary nor extravagant or

oppressive. While assessing damages, the Court excludes all considerations,
which rest in speculation or fancy, though conjecture to some extent is
inevitable.

2. Quantification of Compensation

The standard for quantification of compensation must be an objective standard.

The following items / heads in personal injury claims are awarded:

i. Shock, pain and suffering and loss of amenities of life.

ii. Injury itself, depending upon the disability, whether permanent,

temporary, partial or complete.

iii. Medical and incidental expenses

iv. Loss of income till the date of petition and from the date of petition till
the date of award and future loss.

v. Loss of earning capacity, having bearing on above.

vi. Shortened life expectancy.

vii. Loss of prospects of marriage, avocation, education, social, economic and

cultural opportunities.

viii. Loss of beauty due to disfiguration.

ix. Disability, physical, mental and social.

x. Medical treatment towards future treatment, if any.

xi. Any other depending upon the facts and circumstances of the case in case
of motor accident compensation claims, award is of two types, special
compensation and general compensation.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 218

1. Types of Damages

Diagram 1: Types of damages

Law contemplates two sorts of damages:

i. The one is the pecuniary ‘loss to the estate’ of the deceased resulting
from the accident. The damages for the loss caused to the estate are
claimed on behalf of the estate and when recovered, form part of the
assets of the estate.

ii. The other loss is the pecuniary ‘loss sustained by the members’ of the
family through the death of the victim. The action for this is brought by
the legal representatives not for the estate, but as trustees for the
relatives beneficially entitled.

3. Kinds of Damages

Definition

Pecuniary damages: These damages (also known as special damages) are

generally designed to make good the pecuniary loss, which is capable of being
calculated in terms of money.

Non-pecuniary damages: Those damages which are incapable of being assessed

by arithmetical calculation.

The High Court of Gujarat considered the principles laid down in (Davies and
Nance case) and explained the law to be applied for ascertaining the damages in
such cases

a) Pecuniary Damages (Special Damages)

Pecuniary damages are also called special damage or special compensation.

These relate to actual financial loss or expenses resulting from accident e.g.,
medical, surgical and hospital expenses. These damages are to be specifically
proved and have to be supported by bills and vouchers. The special damages
include the following:

S-06-MOTOR INSURANCE (FOR SURVEYORS) 219

 i. Expenses incurred by the claimant in respect of injury, which may include
medical expenses, special diet, and cost of nursing or attendant including
loss of earning or profit up to the date of trial.

ii. Loss of earning capacity may include incapacity to earn in future and also
incapacity in the labour market, loss on account of termination of service
or discontinuance of any trade, business or profession.

iii. Any other material loss, which may require any special treatment or aid
to the injured for the rest of his life.

b) Non-Pecuniary Damages (General Damages)

Non-pecuniary or general damages are those, which the law presumes to flow
from the negligence. These general damages are awarded as monetary
compensation for pain and suffering, mental and nervous shock, loss of
amenities of life, continued impairment of health, loss of prospective
earnings, loss of matrimonial prospects in case of disfigurement etc.:

i. Damages for mental and physical shock, pain and suffering either already
suffered by the claimant or likely to suffer in future. Damages are given
for both mental and physical pain and suffering.

ii. Damages to compensate for the loss of amenities of life. It results when
the injured is deprived of ordinary experiences and enjoyment of life.
e.g., claimant may not be able to sit, walk, run or loss of marriage
prospects, loss of conjugal happiness etc.

iii. Damages for loss of expectation of life: when the injury leads to
shortening of normal expectation of life e.g., longevity of the affected
person on account of injury.

iv. Other inconvenience, hardship, discomfiture and mental stress in life

There is a consensus on judicial precedents that when general damages are

quantified, the status of a claimant in his life acquires significance. But it is
the injury sustained by the claimant, which are material and not his status in
life. The injury will cause the same pain, suffering and agony to the sufferer
irrespective of the fact whether he is a pauper or prince, young or old.

There is neither a quantitative scale nor any mathematical formula, by which

damages for pain, sufferings, loss of amenities of life and injury to health can
be quantified in terms of money.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 220

4. Assessment of Compensation

Assessment of compensation depends on the following features:

i. Nature of injuries

ii. Status of person

iii. Effect of injuries on the person in future

iv. Mental and physical pain that the injured has suffered

v. The age of the injured

vi. Replacement of limb

vii. Nature of medical treatment

viii. The general effect on health and efficiency

ix. The effect on marriage prospects

x. Loss of earnings and other allied matters

a) Disability in Non-fatal Accidents

In disability cases, the compensation is awarded to the victim for personal as

well as economic loss suffered by him. The damages for personal loss will
include general damages for pain and suffering, as well as loss of amenities
of life.

Bodily injury is to be treated as a deprivation, which entitles a plaintiff to

damages and (that) the amount of damages varies according to the gravity of
injury. Deprivation may bring with it three consequences:

i. Personal suffering and loss of enjoyment of life;

ii. Actual pecuniary loss resulting into an expense reasonably incurred by the
plaintiff; and

iii. The probable future loss of income by reason of incapacity or diminished

capacity for work

It was further held that the principle of restitution in integrum i.e., placing
in original financial position was unattainable as a perfect compensation, but
the damages are to be assessed on a fair valuation standard on this head.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 221

 b) Basis for loss of earning capacity

In order to prove the nature of injuries sustained and the alleged loss of
earning capacity a Doctor indicates:

i. Percentage of permanent and temporary disablement,

ii. Functional disability and Loss of earning capacity

It is not a substitute for percentage of the physical disablement. It is one of

the factors taken into account. There is no set method for assessing
compensation in disability for actual assessment. In [Vinod Kumar vs. Ved
Mitra] MP High Court formulated certain rules in this regard to bring a
measure of predictability to the awards given by the Courts. The three factors
are to be looked into while determining award:

i. The amount of compensation awarded must be reasonable and must be

assessed with moderation;

ii. Regard must be had to awards made in comparable cases; and

iii. The sums awarded should to a considerable extent be conventional

c) Disability in non-fatal accidents for non- earning persons

Following compensation amounts are recommended under Motor Vehicle

(Amendment) Bill 2007 in case of disability to the victim arising out of non-
fatal accident. A Loss of income, if any, for actual period of disablement not
exceeding fifty-two weeks plus either of the following subject to maximum
of Rs. 10.00 lakhs for disability in non-fatal accidents in cases other than non-
earning persons.

i. In case of permanent total disablement the amount payable shall be

arrived at by multiplying the annual loss of income by the appropriate
Multiplier applicable to the age of the victim on the date of determining
the compensation.

ii. In case of Permanent Partial Disablement, the amount of compensation

payable shall be arrived at by multiplying the compensation payable in
case of permanent total disablement as specified under item (i) above by
the percentage of loss of earning capacity caused by that injury.

For injuries deemed to result in permanent total disablement / permanent

partial disablement as per Section 145 (h), the percentage of loss of earning
capacity shall be as per Schedule I of the Employee’s Compensation Act, 1923.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 222

 d) General damages in case of disability in non-fatal accidents as proposed
in Motor Vehicle (Amendment) Bill 2007

i. Pain and suffering Non-grievous injury up to Rs. 5,000

ii. Pain and suffering Grievous injury upto Rs. 20,000

iii. Medical expenses incurred before the death not exceeding duly supported
by bills / vouchers: Rs. 50,000

5. Assessment of Injury Claims

No two persons suffering even similar injuries can attract the same or similar
compensation. The heads under which compensation can be computed are truly
astounding. The scope for awarding general damages as opposed to special
damages is too wide to be fully spelt out. While it is true, that it is a settled law
that compensation in injury claims can attract a higher award than even in cases
of death, for the reason that the injured has to endure the disability for the rest
of his life. In practical terms it is found that the discretion vested in assessment
is abused and on top of it the evidence adduced in support of injuries is
fabricated.

a) Permanent Disability

It was from 1/10/82 that ‘No Fault liability’ under Section 92-A was
introduced in MV Act 1939. The expression permanent disablement was used
in the statute itself. Any impairment of the functioning of the limbs or parts
of body or disfiguration of the face would leave behind a permanent
disablement. But the language is couched in generic terms and it has,
therefore, led to varying interpretations.

What appears to have become the norm or accepted standard is that

irrespective of the nature of a fracture, it is treated as permanent
disablement attracting the minimum compensation under ‘No Fault Liability’.

It is time there was an institutional mechanism introduced in the statute itself

for the assessment of permanent disablement, even if the discretion to assess
compensation thereupon rested with the Tribunals.

b) Evidence of Permanent Disablement and Just compensation

The evidence of permanent disablement has become a vexed issue.

Ultimately, the Courts are seeking to award Just compensation.

For the sake of consistency and uniformity the notification issued by Ministry
of Social Justice and Empowerment dated 1/6/2001 must be applied in the
assessment of permanent disability suffered by victims.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 223

 Guidelines have been drawn under it which if applied would make sure that
evidence of disablement was genuine and true. The fabrication and
falsification or padding of evidence may be minimal. The person imposed with
the obligation to pay compensation would also be aware of it. Leaving it to
the whim and fancy of such stock witnesses has rendered this jurisdiction
liable to misuse and abuse.

6. Guidelines for Assessment of Permanent Disablement

Apart from incorporation of these guidelines as the standard or norm or yardstick

for assessment of permanent disablement, the introduction of a clause in the MV
Act, 1988 itself is called for. Such provision could be to the effect that assessment
of disability shall be as per the stated guidelines and such assessment shall be
only through a Medical Board constituted in each District

The injured ought to appear as a matter of rule before such Medical Boards and
produce the certificate of assessment of disability before the Tribunals, and the
assessment of disability shall be held binding on the Tribunals without need for
examination of the Medical Board so constituted.

This would save a lot of time and ensure speedier disposal of claims also. More
importantly, it would usher in an era of consistency and uniformity and also
introduce an element of bona fide in the assessment of disability, which is
thoroughly lacking as on date.

A provision for application of the guidelines mentioned above and reference to

Medical Board for assessment of permanent disability with the certificate to this
effect issued by the latter constituting binding proof of it, need be introduced.
Such statutory mandate will rid the system of all the pernicious practices now
prevalent due to the role play of stock witnesses/medical men.

a) Insurer’s Right to Examine the Injured

The Insurance Companies and Transport Corporations did not care to adduce
contra evidence on alleged disablement and therefore, the assessments of
stock witnesses of claimants were becoming a fait accompli. But then when
an insurer sought to refer the claimant for such examination for rebuttal
evidence through their expert, the plea was rejected by the Madras High
Court as unfounded. It was ruled that it would suffice for the insurer to cross
examine the medical expert of the claimant and there was no necessity for
the insurer to compel the injured to appear before their expert [(R. James
vs. National Insurance Company Limited) 2004 ACJ 918].

This view requires reconsideration by the court in the light of the

malpractices prevalent in this area. When a claimant seeks compensation
from a respondent then the respondent has every right to examine the injured

S-06-MOTOR INSURANCE (FOR SURVEYORS) 224

 to verify the truth and bona fides of the claim. Mere cross-examination of a
stock witness would get them nowhere. By examination through their
nominated expert or even through Medical Board the evidence of the stock
witness can be shown up for what it was. Further, as the person being forced
to pay compensation, the paymaster had a legal right to seek verification of
the nature of injuries and possible disablement. The insurer must exercise
such right and if refused should take it up to the Apex Court to test the
correctness of the denial of such relief.

b) Loss of Earning Capacity vis-a-vis Loss of Earning Power

This is another vexed question as a component in the assessment of

compensation in injury claims under the head of award under permanent
disablement. The injured, so disabled, may suffer a direct impact on earning
capacity. For such consequence of disablement, a separate and distinct sum
may be called for as loss of earning power. It is settled law that the two heads
are distinct and separate.

c) Padding up the Claims for Permanent Disability through Multiplier

method

The practice of assessment of compensation in proportion to the disability

assessed, has led to the regrettable practice of padding up the claims for
permanent disability. The multiplier method is being adopted
indiscriminately in assessing compensation under this head. The Courts fix
the earnings mechanically as per evidence and the multiplier as per age, and
loss of earning power is computed in proportion to the assessed physical
disability adopting the multiplier method. This has led to bloated awards
disproportionate to the actual facts.

d) General Damages for Death Cases

The compensation in fatal accident cases is assessed under:

i. Pecuniary loss of maintenance to the dependents

ii. Loss of savings to the estate of the deceased including

iii. damages for pain and suffering, loss of expectation of life to the
deceased

The Motor Vehicle Act, 1988 enlarges the scope of legal representatives who
can initiate action or suit. The fatal cases involve claims in respect of:

i. Special damages up to the date of death

ii. Funeral expenses

S-06-MOTOR INSURANCE (FOR SURVEYORS) 225

 iii. General damages for the pain and suffering up to the date of death

iv. Damages for loss of expectation of life

v. Damages under fatal accident act

General damages in case of death proposed in Motor Vehicle (Amendment)
Bill, 2007 are given below:

i. Pain and suffering up to Rs. 5,000

ii. Loss of consortium, if beneficiary is the spouse up to Rs. 10,000

iii. Loss of estate up to Rs. 5,000

iv. Medical expenses incurred before the death not exceeding Rs. 50,000 duly
supported by bills/ vouchers.

7. Quantum and the Concept of Justness

Section 168 of MV Act, 1988 envisages ‘Just Compensation’. The word quantum
is incapable of any precise definition. Justness would depend upon the facts and
circumstances of each case. The Supreme Court had ruled that assessment of
compensation should be liberal not niggardly [(Concord of India Insurance Co.
Ltd., Vs. Nirmala Devi) 1980 ACJ 55]. It was also ruled that Justness was not
related to the claim made, but in terms of the evidence adduced and assessment
made by Court. This meant that awards in excess of the claim could also he made
[(Nagappa vs. Gurudayal Singh) 2003 ACJ 12 (SC)].

While it was held that award should be liberal not niggardly, it has also been held
that it ought not to be a bonanza as well. A middle path must be struck in the
search for Justness. It is an admitted position of law that there is no one formula
for assessment. Inevitably therefore an element of guesswork or estimation
enters the arena [(Ashwani Kumar Mishra vs. Muniam Babu) AIR 1999 SC 2260].
But such guesswork or estimation should not be based on conjecture, speculation
or whim or fancy. It should be grounded in reality and relatable as a fact.

8. Selection of Multiplier

Admittedly, there is no one straitjacket formula for assessment. But the

introduction of the Second Schedule and multiplier factor meant that there was
scope for an element of uniformity or consistency at least with regard to the
multiplier to be adopted. However, the Second Schedule brought into force from
14/11/2004 was replete with arithmetical errors [(Uttar Pradesh State Transport
Corpn., vs. Trilok Chandra) 1996 ACJ 831 (SC)] notwithstanding such mistakes; it
is now settled law that reference to the Schedule to fix the multiplier is the rule.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 226

As for multiplier as a concept of application, it is now accepted that it is the
most scientific and refined system which has stood the test of time.

But in the choice of multipliers, there are again varying decisions. In Trilok
Chandra case supra while referring to the anomalies, it was pointed out that in
a case where the deceased was a bachelor, the multiplier cannot be related to
age of the victim but shall be related to the age of the dependents.

Important

The Court has the discretion to adopt a suitable multiplier, be it higher than the
schedule or lesser than it, for good and valid reasons, but shall, however, not
exceed 18 at the maximum.

The age of the victim or dependents and the earnings of the deceased would
be relevant factors for consideration. It will all be a matter of evaluating the
evidence adduced by the claimants. The multiplier shall be chosen in
conformity with the age of the victim, claimants and due regard to longevity
in the family. As for the multiplicand it would be in relation to the proven
earnings of the deceased.

a) Future Increase in Income

While fixing the dependency of the deceased, the Courts have to examine the
income of the deceased. But while fixing such income as on date of death,
there are a number of decisions suggesting that the income should not be as
on date of accident / death. The Courts have to bear in mind the nature of
vocation or employment, scope for increased earnings from proportion etc.
and also the inflationary impact on the Rupee and duly project the earnings
and fix the dependency thereafter. Such a ready and roughshod method may
not always be correct in application.

The Court should have before it the evidence regarding future prospects of
increase of income in the course of employment or business or profession, as
the case may be.

Hence, it would appear that things may stabilise to the effect that while
fixing the dependency, relevance could be had to future increases in income
but it shall however be based on concrete evidence adduced before the Court
and not on mere conjecture or speculation.

b) Property Damage Claims

The assessment of property damage claim is based on cost of repair or cost

of replacement of the property so that it is restored to its original position.
If the property is fully destroyed, the damages would be equal to the value

S-06-MOTOR INSURANCE (FOR SURVEYORS) 227

 of the property on the date of loss including reasonable consequential losses
too. If the property is damaged the value will be cost of repairs subject to
depreciation in its value and cost of hiring alternative property or loss of use
or loss of profit earned during the period of repairs.

9. Award of Rate of Interest

The Section 171 of 1988 Act empowers tribunal to grant interest from the date
of claim at simple interest at such rates as it deems reasonable. Grant of interest
under Section 171 of the Motor Vehicles Act, 1988 is discretionary. Compensation
is an amount paid in advance for any loss of life or loss of dependency or loss of
earnings. It is not a debt. Therefore, the interest to be awarded under Section
110 CC of Motor Vehicles Act could only be 6% per annum. For grant of higher
interest sufficient reasons are to be given by the Claims Tribunal.

Rate of interest offered by Nationalised Banks on FDs / annum

Test Yourself 1

Three basic principles govern the determination of compensation in injury

disablement claims. In case of grave injury, where the brain suffers massive
impairment, it is difficult to arrive at a fair compensation in terms of money. The
_________ envisages that the award must basically be a ‘conventional figure’
derived from experience.

I. Principle of Assessability
II. Principle of Uniformity
III. Principle of Predictability
IV. None of the above

S-06-MOTOR INSURANCE (FOR SURVEYORS) 228

E. Defenses available to Insurers

1. Limited Defenses available to Insurer

Parliament had consciously restricted the defences of the insurer. The insurer
may be prejudiced by such a restricted defence mechanism but cannot traverse
beyond the permitted defenses under Section 149 (2). Of course, the benefit of
Section 110-C (2A) then and now Section 170 is to contest on merits by obtaining
specific permission of the Court to do so. This rule of law has stood the test of
time [(Shankarayya vs. United India Insurance Co. Ltd. [AIR 1998 (SC) p 2968],
Nicolletta et al )]. Hence, what matters would be the defenses open under
Section 149 (2) and not the terms and conditions under the contract of insurance,
until the courts start appreciating the fact that the insurance companies are not
charitable institutions and are there to protect the contractual liability taken up
by them by virtue of payment of premium by the insured for the risk of insured.

2. Changing Approach of the Apex Court

A combined reading of the above said legal position, in succinct terms has meant
that insurer’s foundational defense on Section 64-VB of Insurance Act, 1938, has
also suffered a dent. Section 64-VB of Insurance Act, 1938 is an embargo placed
on the insurers not to issue covers without receiving premium in advance.
Payment of premium by cheque is permissible. If the insurer chooses to obtain
the cheque and issues a cover, and if the cheque is dishonoured, the
consequences thereof, cannot befall on the innocent Third Party victim of
accident, as the statutory protection afforded to him in law vide Section 146 MV
Act, 1988 would take away the right to claim compensation.

Insurer cannot rely upon Section 64-VB and contend that as consideration for the
contract, a basis required as per the Indian Contract Act, 1872, was not received;
hence there was no valid and enforceable contract against them.

The Supreme Court has negated such a defense and ruled in Sunitha Rathi, Rula
etc. that even if the cheque had been dishonoured, the insurer may still have to
meet the Third Party claim. They would however, be entitled to proceed against
their insured for recovery of the statutory liability met out by them on the insured
behalf.

In respect of Third Party claims the dishonour of the cheque for premium would
not be a valid defense. In respect of OD claims, it would be a valid defense and
the insured cannot enforce his claim (Laxmi Narain Dutts case). However, the
Supreme Court has suggested that if the cancellation of the cover had taken place
prior to occurrence of accident and the insured was put on notice of such
cancellation, then they might be entitled for avoidance of liability. It appears to
be a saving grace for the insurers.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 229

3. Defenses Available to Insurer

The insurer takes up statutory defenses available and pleads as well as submits
evidences to protect its insured’s legal liability as well as statutory liability to
pay and recover due to benevolent nature of legislation. Where there are no
defenses, filing of written statement is of secondary importance and the insurers
should give greater emphasis on settlement of liability through compromise.

a) Pleadings

But where defenses are available, pleadings assume significance, since Claims
Tribunals are inclined to treat the litigation as application for claimants and
as civil suit for opponents.

Each and every allegation made in the claims petition should be dealt with
specifically, either by admission or denial. It may be noted that simply writing
‘Not admitted’ in the written statement is no denial. Further mentioning ‘No
knowledge’ is worse than ‘Not admitted’. No Knowledge is not the denial by
implication. Bare denial does not serve any purpose where an allegation of
fact needs to be specifically denied. The averments in the claim petition,
which have not been specifically denied, have to be accepted as true in the
absence of any circumstances indicating collusion.

The Motor Accident Claims Tribunal has evolved as a separate and

independent branch, where applicability of ‘The Evidence Act’ to Claims
Tribunal has not been accepted as a right and the same trend still continues.
In order to defend Third Party cases effectively:

4. Ground to Contest

An insurer can contest the proceedings before the Claims Tribunal only on any of
the grounds prescribed under Section 149 (2) of the 1988 Act. The insurer cannot
contest the case on grounds other than those mentioned in Section 149 (2) of the
1988 Act and unless specific permission is granted by the Claims Tribunal under
Section 170 of the 1988 Act.

5. Notice through the Court to Insurer

Section 149 (2) stipulates that no sum shall be payable by an insurer under Section
149 (1) in respect of any judgment or award unless, before the commencement
of the proceedings in which the judgment or award is given, the insurer had
notice through the Court or, as the case may be, the Claims Tribunal of the
bringing of the proceedings, or in respect of such judgment or award so long as
execution is stayed thereon pending an appeal; and an insurer to whom notice of
the bringing of any such proceedings is so given shall be entitled to be made a
party thereto and to defend the action on any of the following grounds, namely:

S-06-MOTOR INSURANCE (FOR SURVEYORS) 230

(A) That there has been a breach of specified condition of the policy, it being
one of the following conditions, namely:

(a) A condition excluding the use of the vehicle

i. For hire or reward, where the vehicle is on the date of the contract of
insurance, a vehicle not covered by a permit to ply for hire or reward, or

ii. For organised racing and speed testing, or

iii. For a purpose not allowed by the permit under which the vehicle is used,
where the vehicle is a transport vehicle, or

iv. Without side-car being attached where the vehicle is a motor cycle; or

(b) A condition excluding driving by a named person or persons or by any

person who is not duly licensed, or by any person who has been
disqualified for holding or obtaining a driving licence during the period of
disqualification; or

(c) A condition excluding liability for injury caused or contributed to by

conditions of war, civil war, riot or civil commotion, or

(B) That the policy was obtained by the non-disclosure of a material fact or by a
representation of fact which was false in some material particular.

If a policy is cancelled and the Certificate of Insurance is returned to the insurer

before the occurrence of the accident, it was a valid ground of defence in the
old 1939 Act, but the same was deleted from the 1988 Act. The Apex courts in
[(Deddappa and Ors Appeal vs. National Insurance Co. Ltd.) (CA) 5829 of 2007
dt.12/12/2007)] has expressed the view that if all concerned have been
informed, mainly RTO and insured, by registered post A. D. and all the proof
made available at the time of the evidence, and if the contract of insurance has
been cancelled, the insurance company would not be liable to satisfy the claim
as held.

6. Conditions Precedent

Supreme Court in [(Shankarayya vs. United India Insurance Co. Ltd) AIR 1998 (SC)
p 2968)] decided on 16th Jan 1998 making it mandatory for insurance companies
to file an application under Section 170 in the Lower Court in case they wish to
file an appeal on quantum without the co-operation of the insured. An oral
submission will not do. An application has to be filed by panel advocate in the
MACT under Section 170.

The Court may accept or reject the application. However, this order of the Court
should be a written order. A certified copy of this order should also be obtained,

S-06-MOTOR INSURANCE (FOR SURVEYORS) 231

to be filed in High Court in case appeal is preferred. In case the application under
Section 170 is rejected by the MACT, an appeal should be filed in the High Court
immediately (not after the pronouncement of judgment) for consideration of the
appeal. Appeals filed with delay are not admitted at the High Court.

a) Recording of fact is sufficient under Section 170

In [(United India Insurance Co. Ltd. vs. Jyotsnaben Sudhirbhai Patel and Ors)]
the driver and the owner of the offending vehicle appeared before the Claims
Tribunal but did not file any written statement refuting the allegations made
in the petition. The Claims Tribunal stated that these respondents did not
step into the witness box, to explain the circumstances and the manner, in
which the actual mishap took place. It was further stated that in view of this,
the Claims Tribunal was compelled to draw an adverse inference against the
respondents. This case arising out of SLP[C] No. 13002 of 2002, appeal under
Section 170 before Gujarat High Court was found not maintainable, especially
in view of the observations made by the Supreme Court [(Shankarayya vs.
United India Insurance Co. Ltd.) AIR 1998 SC p 2968] and the appeal preferred
by the appellant was dismissed.

The Supreme Court in this case [in (United India Insurance Co. Ltd. vs.
Jyotsnaben Sudhirbhai Patel and Ors) {Appeal (civil) 6295 of 2003 (Arising out
of SLP[C] No. 13002 of 2002) Date of judgment 11/08/2003}] held that the
Claims Tribunal could have merely recorded that fact while allowing the
application. In a situation contemplated by Clause (b) of Section 170, nothing
more was required than recording that indisputable fact. For failure to do so,
the appellant shall not suffer prejudice.

Therefore, the Appellant (insurance company) was justified in contesting the

proceedings on the grounds other than those enumerated under Section 149 (2)
of the Act, pursuant to the permission granted by Court.

b) Appeal for rejection of permission u/s 170

The tribunal may accept or reject the application; however, the order of the
court must be a written order. A certified copy of the order must be obtained
for filing in the High Court, in case an appeal against Section 170 Order is
required to be preferred. The appeal should be filed in the High Court
immediately, not after the pronouncement of judgment for consideration of
appeal.

c) No fresh or additional evidence

It should be borne in mind that High Courts do not accept any fresh evidence
or any additional evidence later. In [(United India Insurance Company Ltd. vs.
Rajendra Singh and Ors) 2000 ACJ p1032)] claimants claimed compensation
for injuries alleged to have been sustained by them in accident of Motor Cycle

S-06-MOTOR INSURANCE (FOR SURVEYORS) 232

 they were riding and a Car. Claims Tribunal passed the award against the
insurance company. Subsequently insurance company came to know that the
claimants sustained injuries when their Tractor slipped into a pit and they
played a fraud against the insurance company. The following questions were
answered by the Apex Court.

i. Would the appeal by the insurance company against the award on the
fresh plea of fraud be maintainable?

Apex Court in [2000 ACJ p 1032 (Para 14)] held that the consideration of
appeal would be limited to issues formulated from the pleadings.

ii. Should the High Court have considered the grievances of the insurance
company?

Apex Court in [2000 ACJ p 1032 (Para 10 &11)] held that the writ
jurisdiction is almost plenary for which no statutory constrictions could
possibly be imposed. A party to an order of court later discovering that it
was obtained by fraud should have some legal remedy.

iii. Must the claim be allowed to be resisted on grounds of fraud now alleged
by the insurance company?

The Apex Court held that no Court or Tribunal can be regarded as

powerless to review its order if it is convinced that the order was wrangled
through fraud or misrepresentation of such a dimension as would affect
the very basis of the claim, as it would lead to serious miscarriage of
justice, so the claim is remitted to Tribunal for afresh consideration.

d) No right of appeal under Section 173

Very often the question has arisen as to whether an insurer is entitled to file
an appeal under Section 173 of 1988 Act on the grounds available to the
insured, when either there is a collusion between the claimants and the
insured or when the insured has not filed an appeal before the High Court
questioning the quantum of compensation.

The consistent view had been that the insurer has no right to file an appeal
to challenge the quantum of compensation or the finding of the Claims
Tribunal as regards the negligence or contributory negligence of offending
vehicle.

e) Right of appeal not an inherent right

In [(National Insurance Co. Ltd. vs. Nicolletta Rohtagi and Ors.) (2002) 7 SCC
456)], the Supreme Court held that the right of appeal is not an inherent right
and as the Insurance Company is permitted to contest only on the grounds

S-06-MOTOR INSURANCE (FOR SURVEYORS) 233

 stated in Section 149(2) of the Motor Vehicles Act 1988, the insurer cannot
file an appeal on any other ground, except in accordance with the procedure
prescribed under Section 170 of the 1988 Act. While recommending cases for
appeal the following aspects should be borne in mind:

i. Our liability is in question even though the award amount is less.

ii. Such defence has been taken in our written statement.

iii. If defence was taken, whether the same has been substantiated by any
documentary or oral evidence.

iv. If files are referred on quantum only, then insured’s Vakalathnama should
be sent along with the claim papers.

v. If insured remains ex-parte throughout the Lower Court proceedings, then

the Vakalathnama is not necessary for filing appeal on quantum. An
application u/s 170 can be filed.

The legal position is now contained in [(Nicolletta Rohtagi Vs. National

Insurance Co. Ltd.) AIR 2002 SC 3350: 2002 (7) SCC 456: 2002 (6) Supreme
362: 2002 ACJ 1950], that no insurer can contest a claim on merits except
after obtaining permission from the Court by a reasoned order to do so. There
is now a semblance of certainty on the pre-condition to obtain relief under
Section 170 for an insurer.

7. Insurer is to be made a Party

Fundamentally, it is the liability of the insured that is indemnified by the insurer.

No insurer can be held liable without the insured being liable in the first place
[(Oriental Insurance Co. Ltd., Vs. Sunitha Rani) - 1998 ACJ 121 (SC)]. The
relationship between the insured and insurer is contained in the contract of
insurance. Under Section 149 (1) of MV Act, 1988 …………, there is no need or
compulsion for the insurer to be made a party to the proceedings.

The insured alone can be made a party and contest it. The insured after such
contest and an award can seek to enforce his right to indemnity under the policy
of insurance. On production of vehicular records, the insurer if satisfied that no
defence under Section 149 (2) arose has to satisfy the award. Hence the starting
premise is that the insurer need not be a party to the claim petition in original
proceeding.

a) When Insurer is to be Impleaded

Under Section 170, the insurer is entitled to avail impleading, if he was not a
party earlier, and upon such impleading (which is the vital missing link remaining
unaddressed for its importance) be entitled to seek to contest the claim on all

S-06-MOTOR INSURANCE (FOR SURVEYORS) 234

grounds, that would be available to the insured. The crucial phrase is ‘upon such
impleading’. So it is only in such of those cases where insurers were not already
party and they got themselves impleaded, that they are required to seek
permission to contest on merits under Section 170 of the MV Act 1988. This,
however, gives rise to another question whether Section 170 relief need not be
invoked in cases where the insurers were already parties?

8. Breach of Policy Conditions

The breach of policy conditions which have no nexus to the loss or damage are
interpreted leniently permitting contract to be set right at the option of the
insurance company for liabilities arising in future, but the breach of material
policy condition leave the Policy contract void. Section 64 VB of Insurance Act,
1938 for advance payment of premium makes contract void ab initio.

Though the policy of insurance was issued to commence from 4/5/96, the Court
ruled that since the premium was received in cash on 2/5/96, the insurer would
be liable to the Third Party victim for the accident dated 2/5/96 at 6 P.M.
[(Oriental Insurance Co. Ltd. vs. Sheela Bai) 2007 ACJ 798 (MP)]. This judgment
is contrary to the verdict of the Supreme Court in 1997 ACJ 351 (SC). Therefore,
this section has been a matter of contest and differing judgments by the Apex
Court.

The availability of insurance policy and particulars has been held to be the burden
on insurer [2008 (1) TLNJ 225 (Civil)]. It was held that when the claimants failed
to furnish particulars of insurance policy, it would suffice for the insurer to deny
the factum of insurance. The burden would be on the claimants to furnish
particulars to impose an obligation on the insurer to adduce evidence that there
was no insurance cover granted [(The Oriental Insurance Co. Ltd. vs. Karthikesan)
2007 (2) TN MAC 188 (Mad)]. If no Insurance Policy, burden of Proof discussed [in
{2008 (2) TLNJ 57 (Civil)} relying on {2004 ACJ 727} (contra view)].

9. Liability of insurer for driver of vehicle

The driver of a vehicle is required to be covered under Section 147 of Act 1988.
But as per the provision it is not any and every driver of a vehicle, who is required
to be covered. It is only such of those drivers who are engaged to drive, who are
required to be covered.

In effect, employed drivers alone are required to be covered. When the owner
of the vehicle was driving the vehicle, he obviously cannot file a claim for
himself, though he is driver in the literal sense of the meaning [(Dhanraj vs. New
India Assurance Co. Ltd. - 2005 ACJ 1 (SC)]. The insurer has offered cover for the
liability of the owner to third parties does not entitle him.

Equally, if a friend of the owner of the vehicle was driving a private car, then he
too would not be covered under the policy of insurance. Such friend or any

S-06-MOTOR INSURANCE (FOR SURVEYORS) 235

person, other than a driver engaged to drive would be entitled to claim under
Section 140 MV Act, 1988. As for entitlement to claim under Section 163-A if such
driver was himself at fault, he would not be entitled to pursue the remedy. If the
driver was a workman, then notwithstanding the requirement to establish
negligence before a Claims Tribunal, the law has to accept a claim for such driver
/ workman under EC Act, 1923 before MACT itself.

It is not that drivers of all classes of vehicles irrespective of their status as drivers
are required to be covered. It is only persons engaged as paid drivers who are
required to be covered. Such drivers, unless workmen, when not insured, would
be entitled to no more than ‘no fault liability’ amount payable under Section 140
[(Oriental Insurance Co. Ltd., vs. Krishnan) - 2004 ACJ 1790 (Mad)].

One further aspect that needs to be highlighted is that the liability to such drivers
would be restricted as per EC Act, 1923 under Liability Only Policy [National
Insurance Co. Ltd. vs. Prembhai Patel 2005 (3) Supreme 587].

10. Dishonour of Cheque

a) Public Policy to prevail

The question of dishonour of cheque came up for consideration in United India

Insurance Co. Ltd Vs. Laxmamma and others reported in AIR 2012 SC 2817
wherein, it was stated that a policy of insurance, which is issued in public
interest would prevail over the interest of the insurance company. Having
regard to the underlying public policy behind the statutory scheme in respect
of insurance as evidenced by Sections 147 and Section 149 of the Motor
Vehicle Act 1988, and in particular having regard to the fact that policy of
insurance was issued to cover the vehicle without receiving the premium, the
Court held that the insurance company was liable to indemnify the insured.

The said decision proceeded on the basis that the insurance company was
responsible for placing itself in the said predicament as it had issued a policy
of insurance upon receipt of a Cheque towards the consideration, in
contravention of the provisions of Section 64-VB of the Insurance Act 1938.
Applying the principle of estoppel, the Court held that, the public interest in
a situation of that nature would prevail over the interest of the insurance
company.

11. Valid Driving Licence

To avoid liability of the insured, the insurer has to prove that the insured was
guilty of negligence and failed to exercise reasonable care in the matter of
fulfilling the condition of the policy regarding ‘use of vehicle’ by a duly licensed
driver or one who was not disqualified to drive at the relevant time. It was not
open to the insurer to dispute the validity of the driving licence in the execution

S-06-MOTOR INSURANCE (FOR SURVEYORS) 236

proceedings, when the issue had reached its finality in the trial proceedings
itself. [(United India Insurance Co. Ltd. vs. Gulzar Singh) 2007 ACJ 1265 (P&H)]

The driver was not holding a valid driving licence to drive an auto rickshaw /
transport vehicle. The owner was also contesting the claim. In a rare decision of
its kind, after adverting to a catena of decisions, the High Court ruled that the
insurer could avoid liability in toto. The question of directing the insurer to pay
and seek recovery would not arise.

The decision of the Supreme Court in [(Kusum Rai in 2006 (4) SCC 250:2006 (1)
TN MAC 9] elaborated further by pointing out that in the said decision discretion
under Article 136 was exercised, as the claimants were poor and the insured was
not found to be contesting [(Oriental Insurance Co. Ltd. vs. Sivammal) 2007 (2)
TN MAC 216 (Mad)] . However, at the instance of the insured, no right of recovery
can be claimed against the insurer. [2008 (1) TN MAC 15 (Jha)]

12. Limit of Liability

When there is limit of liability, the insurer cannot be asked to pay and seek
recovery. In a case where the victim was a Third Party to a goods vehicle, and no
additional premium was paid, it was held that the insurers liability was as per
1939 Act only. [(The Oriental Insurance Co. Ltd. vs. Jeevan Janga) 2007 AIHC
2483 (All)]. In respect of an accident occurring on 22/6/87 involving a goods
vehicle, it was held that the liability of the insurer was restricted to Rs.
1,50,000/- only under the insurance cover, but the insurer was directed to pay
and seek recovery of the excess from the insured.

The Act policy of insurance was brought on record, but no official was examined
to prove the same. Thereby, benefit of doubt was made available to the Third
Party and the insurer was directed to bear the entire liability and not the
contractual limit thereof. [(New India Assurance Co. Ltd. vs. [Link] Devi)
2007 (3) TAC 414 (Del)]: [(Rajesh Kumar vs. Gurnam Kaur) 2007 (3) TAC 501
(P&H)]. Therefore, it is a must to prove the insurance documents for limited
liabilities.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 237

Test Yourself 2

If the aggrieved party desires, it can file an appeal against the award. Which of
the below statement is correct with regards to an appeal filed against the award?

I. At the time of filing of appeal, 25% of the awarded amount or Rs. 25,000/-
whichever is less has to be deposited in the manner directed by the High
Court.
II. At the time of filing of appeal, 25% of the awarded amount or Rs. 25,000/-
whichever is more has to be deposited in the manner directed by the High
Court.
III. At the time of filing of appeal, 50% of the awarded amount or Rs. 25,000/-
whichever is more has to be deposited in the manner directed by the High
Court.
IV. At the time of filing of appeal, 50% of the awarded amount or Rs. 25,000/-
whichever is less has to be deposited in the manner directed by the High
Court.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 238

F. QUANTUM FIXATION

1. Loss to Third Party

a) In case of death

i. Loss of dependency: It is generally notional dependency of legal

representatives or the claimants and does not envisage actual proof of
dependency.

ii. Loss of expectancy a conventional sum is allowed

iii. Loss of consortium a conventional sum is allowed

iv. Funeral expenses a conventional sum is allowed

v. Medical expenses if deceased was given any treatment prior to fatality

b) In case of simple injury

In case of simple injuries the compensation awarded is global compensation

and no separate amount is awarded for medical expenses. However, if any X-
ray or scanning is done, actual expenses incurred have to be reimbursed in
addition to global compensation. Any incidental simple injuries sustained in
an accident alongwith grievous injuries, no separate compensation need be
granted in respect of simple injuries.

c) In case of grievous injury

The permissible heads for determination of compensation in case of grievous

injury are as given below:

Compensation for pain and suffering is to be granted by awarding for injuries

or fractures of different bones e.g.

 Cranial bones or skull,

 Cerebral concussion i.e., injury to the brain resulting in
unconsciousness,
 Cerebral contusion i.e., a direct blow to any part of the brain or
cerebral edema i.e., swelling resulting in collection of blood within
the brain membrane or capillary hemorrhage (bruises)
 Cerebral laceration leading to multiple neurological deficiencies
 Eye having damage to optic nerve resulting in loss of vision
 Facial bones consisting of lower jaw, upper jaw, cheek bone, orbit
bone i.e., socket for resting eye ball
 Nasal bones
 Loss of tooth
S-06-MOTOR INSURANCE (FOR SURVEYORS) 239
  pinal column otherwise called back bone
 Clavicle (collar) bone
 Scapular (shoulder girdle) bone
 Rib fractures (12 in number)
 Humerus (arm bone)
 Elbow joint
 Scaphoid bone (wrist joint and one out of 8 carpal bones)
 Meta carpal bones 5 in number
 Pelvic bone consisting of two hip bones situated at lower abdomen
 Acetabulam bone, Pubic bone fracture may result in rupture of
urethra requiring catheters permanently.
 Spleenectomy and removal of spleen does not affect longevity of
health of the suffering person
 Liver, Kidney, Femur (thigh) Bone
 Fracture of Patella (Knee cap bone)
 Ligaments (Lateral, Medial, Cruciate anterior/ posterior)
 Meniscus (medial and lateral cartilages in knee joint)
 Haemarthrosis (collection of blood into joint)
 Biceps or calf Muscles (tearing and loss)
 Tibia and Fibula bones in the leg between knee joint and ankle joint
 Ankle joint
 Foot
 Fracture of Fingers and Toes
 Avulsion injury resulting in fracture of bones with tendons
 Nerve Palsy: It is damage to nerves resulting in paralysis of the muscles
(Neuropraxia (reversible type of disability), Axontmesis (severe
injury), Neurotmesis (whole nerve cut)

While assessing compensation for pain and suffering for a person, who has
sustained more than one fracture and grievous injury in different parts of the
body, the fracture of grievous injury which calls for maximum amount of
compensation for pain and agony should be reckoned first and additional
fracture of grievous injury for different parts of the body and additional
amount for each such distinct injuries is to be added and aggregate of the
said amounts is awarded for pain and suffering for all injuries taking into
consideration Medical expenses including nursing, attendants and
nourishment

d) Loss of income during the period of treatment

i. Actual or notional wages or salary for the period of treatment is to be

granted. In case the victim had availing sick leave; proportionate salary
for the leave period should be allowed to compensate for loss of leave.

ii. Loss of future earning capacity on account of permanent disabilities is

computed when there is “functional disability”. If the disability does not
affect earning capacity or career, no amount need be awarded. The

S-06-MOTOR INSURANCE (FOR SURVEYORS) 240

 multiplier principle as applicable in case of death is to be adopted to
ascertain loss of future earnings.

iii. Future medical expenses: These are expenses incurred for corrective
surgeries or replacement of medical aids and provision of equipment
essential for having permanent handicaps.

iv. Future unhappiness and loss of amenities: It depends upon nature of

lasting disability or disfigurement. It could be amputation of limb, loss of
vision of one eye, total impairment of hearing capacity of one year, any
ugly visible scar, mal-union of fractures or limping.

v. Loss of marital prospects: It depends upon the gravity of the threat to

marital prospects.

vi. Loss of academic year in education: This can be compensated upon proof
of the actual expenses incurred for the academic year

vii. Shortening of life span as a consequence of injury: It may attract

compensation based on medical opinion regarding shortening of life span
on account of injury. In such cases the future earning capacity and future
medical expenses shall be computed based on shortened life span.

The total compensation payable will be the aggregate of the compensation

awarded towards each permissible head.

2. Damage to Third Party Property

The term property includes livestock, vehicle, building etc.

i. In case of damages to vehicles minimum ‘idling charges’ depending upon

reasonable time for repairs would be payable.

ii. In case of package policies, the insurer reimburse the damage to property
upon production of proof of actual damage assessed on the basis of bills
of repairs etc.

iii. In case of total loss, depreciation is taken into account while reimbursing
the full value of the property.

iv. A claim for loss of buffalo would come within the ambit of claim for
damage to property. In another claim it was held that an elephant would
not come within the ambit of property. [2008 ACJ 14 (Raj)].

v. The claim for damage to onion carried in the vehicle was not required to
be covered under the contract of insurance. [(Jahar Deb vs. National
Insurance Co. Ltd.) 2007 ACJ 2169 (Gau)].

S-06-MOTOR INSURANCE (FOR SURVEYORS) 241

 vi. The claim for damage to property based on ‘letter of subrogation’ would
be outside the purview of a Claims Tribunal and will lie only before a Civil
Court.

vii. The Own Damage claim for vehicles cannot be lodged before MACT. [2008
(1) TN MAC 112]. Also in [2007 (4) ACC 263 (Gau) (DB)].

viii. A civil suit for damage to a vehicle washed away in floods was opposed as
not tenable since Claims Tribunal had exclusive jurisdiction. It was held
that Section 175 was not a bar for such suit, as it was a contractual claim
by the owner against his insurer. [(Jahar Deb vs. National Insurance Co.
Ltd.) 2007 ACJ 2169 (Gau)].

ix. It was held that Own Damage claim of the owner of the vehicle against
his own insurer was not tenable before the Claims Tribunal. The proper
forum would be a civil court or a consumer forum. [(State Express
Transport Corporation vs. G. Kathamuthu) 2007 (2) TN MAC 432 (Mad)].
The claim by an owner of a motor vehicle for damages to his vehicle
against his own insurer was held not maintainable before the Claims
Tribunal since only a Third Party could file such a claim. [(Oriental
Insurance Co. Ltd. vs. Pooranlal) 2007 ACJ 1804 (Chati)]

In a case where the Own Damage claim was settled by the insurer, the claim by
the owner of vehicle for the disallowed portion against the negligent vehicle was
remitted for fresh consideration.

Test Yourself 3

Under the permissible heads for assessment, in case of death of a person, which
of the below will be payable?

I. Loss of dependency
II. Loss of expectancy
III. Funeral expenses
IV. All of the above

S-06-MOTOR INSURANCE (FOR SURVEYORS) 242

SUMMARY

In this chapter you learnt about the jurisdiction, functioning and powers of MACT
and how the parties to the claim present their say and how taking into
consideration various factors, the MACT awards compensation to various types of
victims of road accidents. You also learnt the rights of the Claimants to prove his
case and defences of the Insurers to avoid or reduce the liability.

Answers to Test Yourself

Answer 1

The correct option is I.

Three basic principles govern the determination of compensation in injury

disablement claims. In case of grave injury, where the brain suffers massive
impairment, it is difficult to arrive at a fair compensation in terms of money. The
principle of assessability envisages that the award must basically be a
‘conventional figure’ derived from experience.

Answer 2

The correct option is IV.

At the time of filing of appeal, 50% of the awarded amount or Rs. 25,000/-
whichever is less has to be deposited in the manner directed by the High Court.

Answer 3

The correct answer is IV.

Under the permissible heads for assessment, in case of death of a person,

payment is made for:

i. Loss of dependency
ii. Loss of expectancy
iii. Loss of consortium
iv. Funeral expenses
v. Medical expenses if deceased was given any treatment prior to fatality

S-06-MOTOR INSURANCE (FOR SURVEYORS) 243

Self-Examination Questions

Question 1

The third-party cover has a limited liability of _________ in case of damage to

the vehicle or property of the third person.

I. Rs. 2.5 lakh

II. Rs. 5 lakh
III. Rs. 7.5 lakh
IV. Rs. 10 lakh

Question 2

Under Section 169 (2) of the MV Act 1988, MACT shall have all the powers of a
____________ for the purpose of taking evidence, enforcing attendance of
witnesses, and compelling the discovery and production of documents etc.

I. District Court
II. Civil Court
III. High Court
IV. District Forum

Question 3

As per Section 173, no appeal can be filed against the award of the Claims
Tribunal if the amount in dispute is __________.

I. Less than Rs. 1,00,000

II. More than Rs. 10,000
III. Less than Rs. 25,000
IV. More than Rs.25,000

Question 4

Which of the below statement is correct?

I. Grant of interest under Section 171 of the Motor Vehicles Act, 1988 is
discretionary
II. Grant of interest under Section 171 of the Motor Vehicles Act, 1988 is not
discretionary
III. Grant of interest (above 5%) under Section 171 of the Motor Vehicles Act,
1988 is discretionary
IV. Grant of interest (above inflation rate) under Section 171 of the Motor
Vehicles Act, 1988 is discretionary

S-06-MOTOR INSURANCE (FOR SURVEYORS) 244

Question 5

As per the Multiplier Method, for deciding compensation, the maximum multiplier
is fixed at _______ (as per Second Schedule of the MV Act).

I. 16
II. 18
III. 21
IV. None of the above, as the Judge can decide any multiplier, without any
maximum limit, as per his / her own discretion

Question 6 –

Which of the below statement is correct?

I. Under Section 161(3), in cases in respect of the death of any person and in
case of grievous hurt resulting from a hit-and-run motor accident, a fixed sum
of Rs. 25,000/- is to be paid as compensation.
II. Under Section 161(3), in cases in respect of the death of any person and in
case of grievous hurt resulting from a hit-and-run motor accident, a fixed sum
of Rs. 12,500/- is to be paid as compensation.
III. Under Section 161(3), in cases in respect of the death of any person resulting
from a hit-and-run motor accident, a fixed sum of Rs. 12,500/- is to be paid
as compensation and in case of grievous hurt, the amount fixed is Rs.25,000/-
IV. Under Section 161(3), in cases in respect of the death of any person resulting
from a hit-and-run motor accident, a fixed sum of Rs. 25,000/- is to be paid
as compensation and in case of grievous hurt, the amount fixed is Rs.12,500/-

Question 7

Section 163A provides for fixed amount of general damage in case of death such
as _________ for funeral expenses.

I. Rs. 2,000/-
II. Rs. 4,000/-
III. Rs. 1,000/-
IV.
V.
VI.
Rs. 5,000/-

S-06-MOTOR INSURANCE (FOR SURVEYORS) 245

Answers to Self-Examination Questions

Answer 1

The correct option is III.

The third-party cover has a limited liability of Rs. 7.5 lakh in case of damage to
the vehicle or property of the third person.

Answer 2

The correct option is II.

Under Section 169 (2) of the MV Act 1988, MACT shall have all the powers of a
Civil Court for the purpose of taking evidence, enforcing attendance of witnesses,
and compelling the discovery and production of documents etc.

Answer 3

The correct option is I.

As per Section 173, no appeal can be filed against the award of the Claims
Tribunal if the amount in dispute is less than Rs.1,00,000/-

Answer 4

The correct option is I.

Grant of interest under Section 171 of the Motor Vehicles Act, 1988 is
discretionary.

Answer 5

The correct option is II.

As per the Multiplier Method, for deciding compensation, the maximum multiplier
is fixed at 18 (as per Second Schedule of the MV Act).

Answer 6 –Amount revised – delete this question

The correct option is IV.

Under Section 161(3), in cases in respect of the death of any person resulting
from a hit-and-run motor accident, a fixed sum of Rs. 25,000/- is to be paid as
compensation and in case of grievous hurt, the amount fixed is Rs.12,500/-.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 246

Answer 7

The correct option is I.

Section 163A provides for fixed amount of general damage in case of death such
as Rs. 2,000/- for funeral expenses.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 247

 CHAPTER 9
LEGAL ASPECTS

Chapter Introduction

In this chapter you will learn about Legal aspects of Motor Vehicles Act 1939 and
1988 and the various provisions of the act changed till the recently amended
Motor Vehicles Act – 2019 with respect to compensation of liability of Third party
claims

Learning Outcomes

A. Provisions for Third Party Claims under Motor Vehicle Act, 1939, 1988 plus
Ammended Motor Vehicles Act – 2019
B. Legal Aspects of Third Party Insurance

S-06-MOTOR INSURANCE (FOR SURVEYORS) 248

A. Provisions for Third Party Claims under Motor Vehicle Act, 1939,
1988 plus Ammended Motor Vehicles Act – 2019

The practice of motor insurance is influenced, to a large extent, by the erstwhile

Motor Vehicle Act, 1939 which came into force in July 1939. This Act made
provision for various matters relating to:

i. The use, maintenance and operation of motor vehicles,

ii. Registration of motor vehicles,
iii. Construction equipment and maintenance of motor vehicles,
iv. Control of traffic, etc.

The Motor Vehicles Act, 1939 (No. 4 of 1939) was amended several times to keep
it up to date. A need was; however, felt that this law should take into account
also the:

i. Changes in the Road Transport Technology,

ii. Pattern of passenger and Freight movements,
iii. Development of road network and particularly
iv. The improved techniques in Motor vehicles management

1. Act No. 59 of 1988 (The Motor Vehicles Act, 1988)

In 1985, General Insurance Corporation appointed a Committee of experts which

examined the provisions of the MV Act 1939 thoroughly and submitted to the
Central Government an exhaustive report suggesting constructive amendments
to the Act. It had recommended removal of certain disparities with regard to the
liability of the insurer to pay compensation depending upon the class or type of
vehicle involved in the accident. The Motor Vehicles Act, 1988 (Act No. 59 of
1988) is the outcome of all the recommendations proposed by various
Committees. It has replaced the earlier 1939 Act and it became effective from
1st July, 1989.

a) Important provisions of the 1988 Act

i. Rationalisation of certain definitions with additions of certain new

definitions of new types of vehicles.

ii. Stricter procedures for grant of driving licences and period of their
validity.

iii. Laying down of standards for the components and parts of motor vehicles

iv. Standards for anti-pollution control devices.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 249

 v. Provision for issuing fitness certificates of vehicles also by the authorised
testing stations.

vi. Enabling provision for updating the system of registration marks.

vii. Liberalised schemes for grant of All-India Tourist permits as also national
permits for goods carriages.

viii. Administration of Solatium Fund by General Insurance Corporation

ix. Maintenance of State registers for driving licenses and vehicle

registration.

x. Constitution of Road Safety Councils.

xi. Seeking to provide for more deterrent punishment in cases of certain

offences.

b) Amendment Act 54 of 1994

The Act of 1988 was amended vide Amendment Act 54 of 1994 which
consolidated and rationalised various laws regulating road transport.

i. Modification and amplification of certain definitions of new type of

vehicles;

ii. Simplification of procedure for grant of driving licences;

iii. Putting restrictions on the alteration of vehicles;

iv. Certain exemptions for vehicles running on non-polluting fuels;

Amendments were made for make special provisions under Sections 66
and 67 so as to provide that vehicles operating on eco–friendly fuels
shall be exempted from the requirements of permits and also the
owners of such vehicles shall have the discretion to fix fares and
freights for carriage of passengers and goods. The intention in
bringing the said amendments was to encourage the operation of
vehicles with such eco-friendly fuels.

v. Ceilings on individuals or company holdings removed to curb “benami”

holdings;

vi. States authorised to appoint one or more State Transport Appellate

Tribunals;

vii. Punitive checks on the use of such components that do not conform to
the prescribed standards by manufactures, and also stocking / sale by the
traders;

S-06-MOTOR INSURANCE (FOR SURVEYORS) 250

 viii. Increase in the amount of compensation of the victims of hit and run
cases;

ix. Removal of time limit for filling of application by road accident

victims for compensation;

x. Punishment in case of certain offences is made stringent;

xi. A new pre-determined formula for payment of compensation to road

accident victims on the basis of age / income, which is more liberal
and rational.

The Law Commission in its 119th Report had recommended that every
application for a claim be made:

i. To the Claims Tribunal having jurisdiction over the area in which the
accident occurred or
ii. To the Claims Tribunal within the local limits of whose jurisdiction
the claimant resides or carries on business or

iii. Within the local limits of whose jurisdiction the defendant resides,
at the option of the claimant.

c) Amendment Act 27 of 2000 set to reduce the vehicular pollution

and to ensure the safety of the road users. Therefore, Act prohibited
alteration of vehicles in any manner including change of tyres of
higher capacity. However, the alteration of vehicles with a view to
facilitating the use of eco-friendly fuel including Liquified Petroleum
Gas (LPG) is being permitted.

d) Amendment Act 39 of 2001 considered it essential to remove exemption

provided under Sections 66 and 67 of the said Act to CNG operated
vehicles so that vehicles which operate on eco-friendly fuels are also
covered by the terms and conditions applicable to all other vehicles.

Power of licensing authority to disqualify from holding a driving licence or

revoke such licence:

If a licensing authority is satisfied, after giving the holder of a driving licence

an opportunity of being heard, that the –

i. is a habitual criminal or a habitual drunkard; or

ii. is a habitual addict to any narcotic drug or psychotropic substance within

the meaning of the Narcotic Drugs and Psychotropic Substances Act, 1985;
or

S-06-MOTOR INSURANCE (FOR SURVEYORS) 251

 iii. is using or has used a motor vehicle in the commission of a cognizable
offence; or

iv. has by his previous conduct as driver of a motor vehicle shown that his
driving is likely to be attended with danger to the public; or

v. has obtained any driving licence or a licence to drive a particular class or

description of motor vehicle by fraud or misrepresentation; or

vi. has committed any such act which is likely to cause nuisance or danger to
the public, as may be prescribed by the Central Government, having
regard to the objects of this Act; or

vii. has failed to submit to, or has not passed, the tests referred to in the
proviso to sub-section (3) of Section 22; or

viii. being a person under the age of eighteen years who has been granted a
learner’s licence or a driving licence with the consent in writing of the
person having the care of the holder of the licence and has ceased to be
in such care, it may, for reasons to be recorded in writing, make an order

(a) Disqualifying that person for a specified period for holding or obtaining
any driving licence to drive all or any classes or descriptions of
vehicles specified in the licence ; or
(b) Revoke any such licence.

2. Chapters relating to Third Party and Own Damage Insurance

i. Chapter X Sections 140 to 144deleted by Ammended Act, 2019.

ii. Chapter XI Sections 145 to 164 of the MV ACT, 1988 deal with “Insurance
of Motor Vehicles against Third Party Risks.”

iii. Chapter XII Sections 165 to 176 of the MV Act, 1988 deal with “Claims
Tribunals”.

Whilst Chapters XI, and XII of Motor Vehicles Act, 1988 deal exclusively with
compulsory third party insurance of motor vehicles, the other chapters deal with
many other aspects of the road safety law. The act also provides the definitions
of the various words and phrases which frequently appear in the insurance
documents.

a) Definitions

i. “Adapted Vehicle” means a motor vehicle either specially designed and

constructed or to which alterations have been made under sub-section (2)

S-06-MOTOR INSURANCE (FOR SURVEYORS) 252

 of section 52 for the use of a person suffering from any physical defect or
disability, and used solely by or for such person.

ii. “Aggregator” means a digital intermediary or market place for a

passenger to connect with a driver for the purpose of transportation.

iii. “Community service” means an unpaid work which a person is required

to perform as a punishment for an offence committed under this Act.

iv. “Golden Hour” means the time period lasting one hour following a
traumatic injury during which there is highest likelihood of preventing
death by providing prompt medical care.

v. “Authorised Insurer” means an insurer for the time being carrying

ongeneral insurance business in India and granted a certificate of
registration by the Insurance Regulatory and Development Authority of
India established undersection 3 of the Insurance Regulatory and
Development Authority Act, 1999 and any Government insurance fund
authorised to do general insurance business under the General Insurance
Business (Nationalisation) Act, 1972;

vi. “Certificate Of Insurance” means a certificate issued by an authorized

insurer in pursuance of section 147 and includes a cover note complying
with such requirements as may be prescribed, and where more than one
certificatehas been issued in connection with a policy, or where a copy of
a certificate has been issued, all those certificates or that copy, as the
case may be;

vii. “Grievous Hurt” shall have the same meaning as assigned to it in section
320 of the Indian Penal Code

viii. “Hit And Run Motor Accident” means an accident arising out of the
useof a motor vehicle or motor vehicles the identity whereof cannot be
as curtained in spite of reasonable efforts for the purpose;

ix. “Award” means an award made by the Claims Tribunal under section 168

x. “Claims Tribunal” means a Claims Tribunal constituted under section 165

xi. “liability covered by the terms of the policy” means the liability which
is covered by the policy or which would be so covered but for the fact
that the insurer is entitled to avoid or cancel or has avoided or cancelled
the policy; and

xii. “Material fact” and “material particular” mean, respectively, a fact or

particular of such a nature as to influence the judgment of a prudent

S-06-MOTOR INSURANCE (FOR SURVEYORS) 253

 insurer in determining whether he shall take the risk and, if so, at what
premium and on what conditions.

xiii. “Insurance Regulatory and Development Authority” means the

Insurance Regulatory and Development Authority established under
section 3of the Insurance Regulatory and Development Authority Act,
1999;

xiv. “Policy Of Insurance” includes certificate of insurance;

xv. “Property” includes roads, bridges, culverts, causeways, trees, posts,

milestones and baggage of passengers and goods carried in any motor
vehicle;

xvi. “Reciprocating Country” means any such country as may on the basis
of reciprocity be notified by the Central Government in the Official
Gazette to bea reciprocating country for the purposes of this Act;

xvii.“Third Party” includes the Government, the driver and any other co-
worker on a transport vehicle.

xviii. “Articulated Vehicle” means a motor vehicle to which a semi-trailer

is attached.

xix. “Certificate of Registration” means the certificate issued by

Competent Authority to the effect that a motor vehicle has been duly
registered in accordance with the provisions of the Act.

xx. “Conductor”, in relation to a stage carriage, means a person engaged in

collecting fares from passengers, regulating their entrance into, or exit
from, the stage carriage and performing such other functions as may be
prescribed.

xxi. “Conductor’s License” means the license issued by a Competent

Authority authorising the person specified therein to act as a conductor

xxii. “Contract Carriage” means a motor vehicle which carries passenger(s)

for hire or reward and is engaged under a contract, whether expressed
or implied, for the use of such vehicle as a whole for the carriage of
passengers mentioned therein, and entered into by a person holding a
permit in relation to such vehicle or any person authorised by him in this
behalf on a fixed or agreed rate or sum on

a. a time basis, or - from one point to another,

b. and, in either case, without stopping to pick up or set down
passengers not included in the contract anywhere during the
journey, and includes

S-06-MOTOR INSURANCE (FOR SURVEYORS) 254

 c. a maxi cab and a motor cab

xxiii. “Stage Carriage” means a motor vehicle constructed or adapted to

carry more than six passengers excluding the driver for hire or reward at
separate fares paid by or for individual passengers either for the whole
journey or for stages of the journey.

Distinction between “Contract Carriage” and “Stage Carriage”:

a. The contract carriage is engaged for the whole of the journey

between two points for carriage of a person or persons hiring it,
but it has not the right to pick up other passengers enroute.

b. The stage carriage, on the other hand, runs between two points
irrespective of any prior contract, and it is boarded by passengers
en route who pay the fare for the distance they propose to travel.

xxiv. “Driver” includes, in relation to a motor vehicle which is drawn by

another motor vehicle, the person who acts as a steersman of the drawn
vehicle.

xxv. “Driving License” means the license issued by a Competent Authority

under Chapter II of the 1988 Act authorising person specified therein to
drive, otherwise than as a Learner, a motor vehicle or a motor vehicle of
any specified class or description.

Note: Period or currency of driving license

The amendment provides that in case of license to drive a transport

vehicle carrying goods of dangerous / hazardous nature, the license
shall be effective for a period of three years and renewal thereof shall
be subject to the condition as prescribed. Other transport licenses are
valid for Five years.

Other types of licences are discussed in chapter 10, in the recent

amendments of MVA.

xxvi. “Gross Vehicle Weight” means in respect of any vehicle, the total
weight of the vehicle and load certified and registered by the Registering
Authority as permissible for the vehicle.

xxvii. “Maxi cab” means any motor vehicle constructed or adapted to carry
more than six passengers, but not more than twelve passengers, excluding
the driver, for hire or reward.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 255

 xxviii. “Motor cab” means any motor vehicle constructed or adapted to
carry not more than six passengers, excluding the driver, for hire or
reward.

xxix. “Motor Car” other than a transport vehicle, omnibus, road roller,
tractor, motor-cycle or invalid carriage.

xxx. “Motor Vehicle” or “Vehicle” means any mechanically propelled

vehicle adapted for use upon road, whether the power of propulsion is
transmitted thereto from an external or internal source and includes a
chassis to which a body has not been attached and a trailer, but does not
include a vehicle running upon fixed rails or a vehicle of a special type
adapted for use only in a factory or in any other enclosed premises or
vehicles having less than four wheels fitted with engine capacity not
exceeding 25 cubic centimeters (25 cc).

xxxi. “Private Service Vehicle” means a motor vehicle constructed or

adapted to carry more than six persons, excluding the driver, and
ordinarily used for the purpose of carrying persons for, or in connection
with, his trade or business otherwise than for hire or reward, but does not
include a motor vehicle used for public purposes.

xxxii. “Public Service Vehicle” means any motor vehicle used or adapted to
be used for the carriage of passengers for hire or reward, and includes a
maxi cab, a motor cab, contract carriage and stage carriage.

xxxiii. “Public Place” means a road, street, way or other place whether
thoroughfare or not, to which the public have a right of access, and
includes any place or stand at which passengers are picked up or set down
by a stage carriage.

xxxiv.“Trailer” means any vehicle other than a semi-trailer and a side-car,

drawn or intended to be drawn by a motor vehicle.

xxxv. “Policy Insurance” includes a “Certificate of Insurance”.

xxxvi.“Goods Carriage” means only motor vehicle constructed or adapted

for use solely for the carriage of goods, or any motor vehicle not so
constructed or adapted when used for the carriage of goods.

xxxvii. “Light Motor Vehicle” (LMV) means a transport vehicle or

omnibus, the gross vehicle weight (GVW) of either of which or a motor car
or a tractor or road roller, the un-laden weight of any of which does not
exceed 7,500 Kg (earlier it was 6,000 Kg). Because of this, now the new
classification is as under:

S-06-MOTOR INSURANCE (FOR SURVEYORS) 256

 LMV Up to GVW 7,500 Kg
MVW GVW 7,500 Kg To 12,000 Kg
HGV GVW above 12,000 Kg

b) Registration of the vehicle

Section 39 states that no person shall drive any motor vehicle and no owner
of the motor vehicle shall cause or permit the vehicle to be driven in any
public place or in any other place unless the vehicle is registered in
accordance with the Motor Vehicle Act 1988.

c) Fitness of vehicle

Section 56 of the 1988 Act: if the fitness of the vehicle had expired before
the date of accident, the vehicle shall not be deemed to be registered under
Section 39 of 1988 Act (Central Motor Vehicle Rules 52 for renewal of
certificate of registration and Rule 62 for the validity of the Certificate of
Fitness).

d) Permit

Section 66 (1) of the Act 1988 Necessity for permits (see 3 a) below).

e) Certificate of Insurance

The 1988 Act requires issue of a Certificate of Insurance by the insurers as

proof of Third Party insurance to satisfy the requirements of Chapter XI of
the Act. The Certificate of Insurance (Form 51) must be in the form prescribed
under the Motor Vehicle Rules framed under the Act.

Certificate is to be issued by “Authorised Insurer and Authorised Government

Insurance Fund” who are authorised to be do general insurance business in
India.
Certificate of insurance includes Cover Note and Policy of Insurance includes
“Certificate of Insurance”. Certificate of Insurance is to be produced when
demanded by traffic police / Road Traffic Authority.

 Transfer of Certificate of Insurance

The motor Insurance Policy is a personal Contract and is underwritten on the

basis of purpose and manner of use of vehicle besides the physical features,
therefore, the Policy cannot be transferred without the consent of the insurer
insofar as it does not counter the provisions of the Motor Vehicle Act 1988.
Section 157 provides for the provisions for the transfer of certificate of
insurance as hereunder:

(1) The Certificate of Insurance automatically gets transferred to the

transferee once the ownership is changed.
S-06-MOTOR INSURANCE (FOR SURVEYORS) 257
 (2) The Transferee shall apply within 14 days to the insurer to insert his name
in the Certificate of insurance.

Section 157 (1) states that such deemed transfer, shall include transfer of
rights and liabilities of the said certificate of Insurance and Policy of
Insurance. Under Section 157 of the Act, on transfer of ownership of the
Vehicle, the Certificate of Insurance is automatically transferred in favour of
new owner from the date of transfer of ownership of the vehicle. However,
Supreme Court of India has held in 1996 that the automatic transfer is only
for Third Party risks and not the full policy where policy covers insurance of
Own damage i.e., damage to the vehicle cover.

The transfer of insurance under Own damage section takes place transferee
should apply within 14 days from the date of transfer in the prescribed form
to the insurer for making the necessary changes in the ‘Certificate of
Insurance’ and in the Policy, and the insurer is obliged to make such changes
in the said documents to give effect to the transfer of insurance.

Now, under changed IMT as of 1/7/2002 GR 17 has come into force, as per
this rule, 14 days period is stipulated for the transfer of contract of insurance.
Hence, as of 1/7/2002, unless the policy of insurance was transferred in the
name of purchaser, the insurer may not be liable for the OD claim.

f) Grace period for OD claims

Here also, TAC has clarified that during the 14 days period, it can be
construed as grace period and insurers can consider OD claims, even if the
contract of insurance was not transferred as on date of accident. In respect
of Third Party claims, insurers would be liable vide Sec.157 of MV Act, 1988.

Definition of Permit

Permit is an instrument issued by a State or Regional Transport

Authority authorising the use of a motor vehicle as a transport vehicle in specified
manner as per the relevant provisions of Motor Vehicle Act and rules framed their
under. Section 66 (1) of Motor Vehicle Act, 1988 mandates for necessity of permit
for transport vehicles.

a) Section 66 (1):Necessity for permits

No owner of a motor vehicle shall use or permit the use of the vehicle
as a transport vehicle in any public place whether or not such vehicle
is actually carrying any passengers or goods save in accordance with
the conditions of a permit granted or countersigned by a Regional or
State Transport Authority or any prescribed authority authorising him
the use of the vehicle in that place in the manner in which the

S-06-MOTOR INSURANCE (FOR SURVEYORS) 258

 vehicle is being used: Permit once issued remains valid for a period of 5
years for the area mentioned in the permit and can be renewed further.

Provided that a Stage Carriage permit shall, subject to any conditions

that may be specified in the permit, authorise the use of the vehicle
as a contract carriage:

Provided further that a stage carriage permit may, subject to any

conditions that may be specified in the permit, authorise the use of
the vehicle as a good carriage either when carrying passengers or not:

Provided also that a Goods Carriage permit shall, subject to any

conditions that may be specified in the permit, authorise the holder
to use the vehicle for the carriage of goods for or in connection with
a trade or business carried on by him.

In view of the provisions of Section 66 (1) of Act 1988 the claim for OD may
not be paid in the absence of a valid permit or a permit which has not been
removed or in case the vehicle meets with an accident in an area beyond that
allowed by the permit. The same is applicable to Motor Third Party claims.
The requirement of the permit cannot be waived as per the proviso of sub
section (1) of Section 66 of the Act 1988.

i. Exemption from the necessity of permit

However, transport vehicles belonging to Central or State Government,

Police, Local body, Fire brigade, Ambulance, Cranes and Goods vehicle
having gross vehicle weight not exceeding 3000 kilograms are exempted from
the necessity of permit.

The forms are prescribed under Central Motor Vehicles Rules, 1989 and Delhi
Motor Vehicles Rules, 1993 as under:

Form 45 Application for grant of tourist vehicle

Form 46 Application for grant of authorisation for tourist
permit or national permit
Form 48 Application for grant of national permit
Form PCA Application for a contract carriage permit
Form P.G.A. Application for a goods carrier permit
Form [Link].A Application for a temporary permit
Form P.S.A. Application for a private service vehicle permit
Form P.R.A. Application for renewal of permit / counter signature

S-06-MOTOR INSURANCE (FOR SURVEYORS) 259

 b) Types of Permit and its Condition

i. Goods Carrier Permits

Such permit is granted under Section 79 of the Motor Vehicles Act, 1988,
to a goods vehicle operating within the state. Permits granted to a
particular vehicle for carrying a particular load has to be plied for that
particular area only.

ii. Counter Signatures of Goods Carrier Permits

These are the permits which are initially issued by one state and later on
endorsed in another state by the concerned State or Regional Transport
Authority under Section 88 of Motor Vehicle Act, 1988.

iii. National Permits

National permits are issued to goods vehicles to enable them to go outside

the home state. National Permit is issued for a minimum of
four continuous states (including the home state) under Rule 86 and 87 of
Central Motor Vehicles Rules, 1989. For obtaining such permits the
maximum age of a particular vehicle should not exceed 12 years.
However, maximum age in case of a multi-axle vehicle should not exceed
15 years. For the issue of National Permit, applicant has to apply on Form
46 and 48 along with other formalities.

iv. Permits for Passenger Vehicles

(a) Auto Rickshaw and Taxi permits

Such permits are issued for carrying passengers to various places within a
city. Fare is charged as per the fare meter mounted on such vehicles.

(b) Maxicabs

Such permits are issued by STA to vehicles carrying passengers to various

parts of Delhi on a fixed route and as per the fare fixed. Total seating
capacity of such vehicles should not exceed more than 12 excluding the
driver.

(c) PhatPhat Sewa

The operators using the three wheeled Harley Davidson engine vehicles
were issued Phat Phat Sewa permits. These vehicles have since been
replaced with vehicles having maximum seating capacity of 9. They ply
on a fixed route and charge the fare as per approval.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 260

 (d) Eco Friendly Sewa

Transport Department has issued permits to battery operated 3 wheeled

vehicles having seating capacity up to 10.

v. Contract Carriage Buses Permits (Chartered Buses)

This is the most common type of permit used for hire and reward purpose.
The permit holder can operate under a contract with his client for a fixed
destination within Delhi or outside Delhi. For this an agreement should be
executed between the clients and the operators and the list of passengers
should also be available with the driver of bus. The permit holder cannot pick
passengers other than those mentioned in the list. Such types of buses are
also known as Chartered Buses. These permits are issued under Section 74 of
Motor Vehicles Act, 1988. The applicant has to apply on form PCA along with
other formalities.

vi. Stage Carriage Permits

These permits are issued under Section 72 of Motor Vehicles Act, 1988
depending upon the requirement of buses on different route of the city. The
permit holders can operate their bus under their allotted routes for picking
up passengers from one place to another. All Transport Corporation and
private stage carriage buses come under this category. The fares are fixed.

vii. Temporary Permits

A temporary permit is issued under Section 87 of Motor Vehicles Act, 1988 to

transport vehicle for a limited period, enabling the vehicle to go outside:

(a) For the conveyance of passengers on special occasions such as to and from
fairs and religious gatherings, or
(b) For the purposes of a seasonal business, or
(c) To meet a particular temporary need, or
(d) Pending decision on an application for the renewal of a permit

The applicant has to apply on form P. TEMP. [Link]/DLZ (ALL India Tourist
Permits cab): This permit is given for motor cabs having seating capacity of
five. The colours of the cabs are permitted as white only. The applicant for
this permit should have an office having telephone at suitable tourist
passengers booking place. The applicant should have authorised parking place
to park these vehicles and adequate financial resources to purchase the
vehicle. The road tax / passenger tax of vehicle is paid at state borders. DLZ
permits are given to luxury cars.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 261

 viii. Rent-a-Cab Permits

With the increase in the number of multinationals companies and tourists

requirements, Rent-A-Cab scheme was launched in India in 1989. Under this
scheme the passenger drives the vehicle himself and fare is charged on
number of days the cab is used. The applicant should have a 24 hours
accessible telephone, adequate parking space, experience of passenger
transport business. The applicant in addition should have a fleet of 50 cabs
of which 50% should be air-conditioned. The permit of these schemes is also
valid throughout India provided the passenger taxes were paid to the
corresponding states.

ix. Institution / School Buses

The vehicles of Educational Institution registered under the Societies Act,

1960 (21 of 1960) are issued contract carriage permit by STA. These vehicles
are also exempted from road tax. For identification these vehicles are
painted in golden yellow paint. Special provisions have been incorporated in
Delhi Motor Vehicles Rules, 1993 for additional safeguards in respect of the
safety of the children.

x. All India Tourist Permit

This permit is given to luxury buses which have white colour with a blue
ribbon of five centimeters width at the center of exterior of the body and the
word 'Tourist' shall be inserted on two sides of the vehicle within a circle of
sixty centimeters diameter.

A tourist permit shall be deemed to be invalid from the date on which

the motor vehicle covered by the permit completes 9 years in the case of
Motor Cab and 8 years where the motor vehicle is other than a motor cab,
unless the motor vehicle is replaced by another, the latter vehicle shall not
be more than 2 years old on the date of such replacement.

The seating layout shall be two and two or one and two or one and one on
either side, all seats facing forwards. The Vehicles should also have other
facilities like public address system, drinking water, push full back seats,
fans, curtains, a separate driver cabin etc. The applicant has to apply on Form
45 and 48 along with other formalities.

Every motor vehicle or motor cab under the Authorization Certificate issued
under these rules shall exhibit the words 'All India Tourist Permit' on the
back of the motor vehicle in contrasting colours, so as to be clearly visible.
(as per the notification issued by Department of Road Transport and Highways
on 26th June 2007).

S-06-MOTOR INSURANCE (FOR SURVEYORS) 262

3. Licencing of Drivers

a) Section 4: Age limit for driving of vehicles

Section 4 of MV Act 1988, envisages age limit in connection with driving of

motor vehicles.

i. Section 4 (1): No person under the age of eighteen years shall drive a
motor vehicle in any public place:

Provided that (a motor cycle with engine capacity not exceeding 50 cc)
may be driven in a public place by a person after attaining the age of
sixteen years

ii. Section 4 (2): No person under the age of twenty years shall drive a
transport vehicle in any public place subject to the provisions of Section
18.

iii. Section 4 (3): No learner’s licence or driving licence shall be issued to

any person to drive a vehicle of the class to which he has made an
application, unless he is eligible to drive that class of vehicle under this
section.

Age for driving licence entitlement: Not less than

16 years for non-geared Motorcycles

18 years for Geared Motorcycles and other vehicles
20 years for Transport Vehicles

b) Section 7:Restrictions on the granting of learner’s licences for certain

vehicles

i. Section 7 (1): No person shall be granted a learner’s licence to drive a

transport vehicle unless he has held a driving licence to drive a light motor
vehicle for at least one year.

ii. Section 7 (2): No person under the age of eighteen years shall be granted
a learner’s licence to drive motorcycle without gear except with the
consent in writing of the person having the care of the person desiring the
learner’s licences.

Effective driving licence shall include:

i. Issue by an appropriate authority

ii. Valid on the date of accident

S-06-MOTOR INSURANCE (FOR SURVEYORS) 263
 iii. Endorsement for the types of vehicle permitted to be driven

iv. Transport endorsement for goods carrying vehicle

v. Authorisation to drive the public service vehicle, in addition to transport

endorsement, for such vehicles

vi. For carrying goods dangerous or hazardous to human life, the licence
should have an endorsement for driving vehicles carrying goods of
dangerous or hazardous nature as provided under Rule-9 of Central Motor
Vehicles Amendment Rules 1993.

c) Section 10: Contents of Driving Licence

Specifies the form and contents of Driving Licence Sub-section (2)(e) to (2)(h)
have been removed and the expression [“Transport Vehicle”] introduced by
Amendment Act of 1994 w.e.f.14.11.94 to check whether Driver was holding
valid and effective licence.

d) Section 13: Extent of effectiveness of Licence

The Licence shall be effective throughout India

e) Section 14: Currency of Driving Licence

Learner’s Licence Six months

Transport Licence Five years
Other Licences As discussed in Chapter 10.
Licence for Three year.
hazardous goods

f) Section 15: Renewal of Driving Licence

g) Section 19: Disqualification for holding a Licence

i. Powers of state governments: The state government has the power to:

(a) Regulate the plying of carriages under directions from the central
government,
(b) Issue licenses as per rules prescribed by the central government,
(c) Set up licensing and registering authorities as per the framework
mandated by the central government

S-06-MOTOR INSURANCE (FOR SURVEYORS) 264

 Powers have been proposed to be enhanced to regulate the plying of stage
and contract carriages independently. Lay down quality of service rules
for operators. Enter into agreements for inter-state road transport
services without the approval of the central government. Allow the
Transport Authority to grant special permits for plying of stage carriages
outside the jurisdiction of that Transport Authority.

ii. Solatium Fund: A Solatium Scheme of 1989 existed under Section 163 of
the Act, to disburse compensation to victims of motor accident cases. The
amendment proposes to delete Section 163, and provisions for
establishing a Solatium Scheme have been introduced, under the
supervision of the Central Government and the Insurance Regulatory and
Development Authority.

“The chapter deals with the Scheme for Solatium Fund and procedure to
claim compensation for hit and run cases of accident caused by Motor
vehicles driven in public place.” The Central Government in exercise of
powers conferred by Section 163 (1) of the Motor Vehicles Act 1988 (59 of
1988) vide S.O. 440 (E) dated 12 June 1989 has made a scheme for
payment of compensation to the victims of hit and run motor accidents.
This scheme is called ‘The Solatium Scheme 1989’.

Section 161 of 1988 Act defines hit and run motor accidents to mean an
accident arising out of use of a motor vehicle whose identity cannot be
ascertained despite reasonable efforts for the purpose of establishing
legal liability.

The Solatium scheme specifies the manner in which the scheme shall be
administered by the General Insurance Corporation, the form, manner
and the time within which applications for compensation may be made,
the officers or authorities to whom such applications may be made, the
procedure to be followed by such officers or authorities for considering
and passing orders on such applications, and all other matters connected
with, or incidental to, administration of the scheme and the payment of
compensation. Motor Vehicle (Amendment) Bill 2007 has proposed
Insurance Regulatory and Development Authority to administer The
Solatium Scheme.

(2) Prescribes that a scheme made under sub-section (1) provides that
Section 163

(a) a contravention of any provision, thereof shall be punishable with

imprisonment for such term as may be specified but in no case
exceeding three months, or with fine which may extend to such amount
as may be specified but in no case exceeding five hundred rupees or
with both;

S-06-MOTOR INSURANCE (FOR SURVEYORS) 265

 (b) the powers, functions or duties conferred or imposed on any officer
or authority by such scheme may be delegated with the prior approval in
writing of the Central Government, by such officer or authority to any
other officer or authority;

(c) Any provision of such scheme may operate with retrospective effect
from a date not earlier than the date of establishment of the Solatium
Fund under the Motor Vehicles Act, 1939, (4 of 1939.) as it stood
immediately before the commencement of this Act: Provided that no such
retrospective effect shall be given so as to prejudicially affect the
interests of any person who may be governed by such provision.

Procedure for making the claims application: Rule 20 of Solatium

Scheme 1989 envisages an application to be filed in Form I [clause 20 (I)]
before ‘Claims Enquiry Officer’ of the Sub Division in which the accident
has taken place. Therefore, Claims Tribunal has no jurisdiction as held in
New India Assurance Company Ltd vs. Rajendra Prasad Bhati and ors.
[2002 ACJ 1762]. The application has to be made within 6 months from
the date of accident.

Procedure to be followed by the Claims Enquiry Officer: On receipt of

claims application, the Claims Enquiry Officer shall immediately obtain a
copy of the F.I.R. inquest report, post mortem report, or certificate of
injury and hold enquiry in respect of claims arising out of hit and run
motor accidents. Claims Enquiry Officer is required to decide the rightful
claimants and to submit a report to ‘Claims Settlement Commissioner’
in Form III [Clause 20 (1) (B) 2] within one month along with duly
discharged Form II [Clause 20 (1)] and an under taking in Form IV [Clause
22 (1)] along with his recommendation.

The Claims Settlement Commissioner is required to sanction the claim

within 15 days and communicate the sanction to insurance company’s
nominated officer. The Legal representatives of the deceased / injured
person are required to submit a certificate under Section 162 of Motor
Vehicles Act 1988 as per Form V {Clause 20 (1)].

iii. Insurance companies’ defenses: Insurance companies could not be

parties to claims in motor vehicle accidents but they can become parties
to motor accident claims, but only with the permission of the Tribunal /
Court.

i. Compensation for motor accidents

Compensation for Motor vehicle accidents: Without establishing the fault of

the driver fixed compensation is provided at of Rs. 5,00,000 (death), Rs.
2,50,000 (Grievous Injury).

S-06-MOTOR INSURANCE (FOR SURVEYORS) 266

 Establishing the fault of the driver is to be calculated according to the
guidelines of Second Schedule, based on victim’s age and income. The
schedule is proposed to be amended based on victim’s age and income.

Establishing the fault of the driver is to be awarded by the court or the Motor
Vehicles Tribunal by providing a simple interest of up to two percent per
annum from the date of the claim.

Currently, if the fault or negligence of the driver is established, the court or

Tribunal awards compensation by using the Second Schedule (based on
average annual income, age and life expectancy).

In cases where the driver’s fault is not established, the Principal Act specifies
the amount of compensation. The Bill changes this method, and proposes to
use a formula based on the income of the victim multiplied by a factor (which
is specified according to his age). This implies that there is no upper limit on
the quantum of compensation which may be awarded, even if the driver can
prove that he was not at fault.

ii. Consignor liability for exceeding weight limits

Presently, the driver or the owner of a vehicle exceeding the stipulated

weight limit is deemed to have committed an offence. The Bill seeks to
impose additional liability on the consignor of the goods in some cases. Many
countries impose liability only on the driver or the owner of the vehicle for
exceeding the prescribed weight limit.

Section 147 stipulates requirements of policy and limits of liability and

specifies the cover to be granted under the policy and the limits of liability.

A The liability towards Third Party Personal Unlimited.

Injury/death in respect of all vehicles
B Towards Third Party Property Damage Rs.6,000/-
C Towards Passengers in a Passenger Service Unlimited
Vehicle
D Towards Workmen as also the coolies Now as per MVA
connected with the operation or amended Act are
maintenance of the vehicle Third Parties.

The insured’s legal liability to the third party, out of the use of motor vehicle
in public place is based on law of negligence, and on the other hand the
insurance company’s liability to indemnify depends upon the terms and
conditions of the insurance policy contract besides the mandatory provisions
of Motor Vehicle Act 1988 as amended from time to time.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 267

 i. Burden of proof with claimant

The burden of proof on an action for damages for negligence rests primarily
on the plaintiff who, must show that he was injured by a negligent act or
omission for which the defendant is in law responsible. This involves the proof
of some duty owed by the defendant to the plaintiff; some breach of that
duty and an injury to the plaintiff, a casual connection must be established.

The general law applicable is only common law and law of torts. If under the
law a person becomes legally liable then the person suffering injuries is
entitled to be compensated and the Motor Accident Claims Tribunal is
authorized to determine the amount of compensation, which appears to be
just compensation. The Supreme Court in [1977 ACJ 118] questioned the
rights of Claims Tribunal awarding ‘just compensation’ on its satisfaction, on
proof of injury to a third party arising out of the use of a vehicle on a public
place without proof of negligence.

There is no doubt that it is for the claimant to prove negligence against the
person from whom compensation is claimed. The culpability must be inferred
from the circumstances where it is fairly reasonable. The Court should not
succumb to niceties, technicalities and mystic maybes. The transport
operators generally get away due to judicial laxity [1980 ACJ 435 SC], despite
the fact that they do not exercise disciplinary control over the drivers in the
matter of careful driving. Each motor accident claim is defined by a particular
set of circumstances and each case would govern the verdict on the question
of negligence.

b) Liability through negligence in use of motor vehicle

The liability for accidents through negligence in the use of motor vehicles
usually arises in the following circumstances:

i. Dangerous and reckless driving without proper regard to safety of the

pedestrians.

ii. Non-observance of traffic rules and regulations

iii. Drunken driving

iv. Leaving a motor vehicle unattended on the road or highway without taking
proper precaution for its safety

v. Using defective vehicle. However, latent defects of the vehicle of which

owner was not aware do not constitute negligence. The onus is on
defendant to prove that the vehicle was defective or unfit.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 268

The employer is liable for the negligence of his servant if the relationship of
master-servant exists and the servant was found acting within the scope of his
employment at the time of accident. In case of vehicles whether commercial or
private cars driven by the owners own employees, the driver alone or the
employer or both may be proceeded against.

Test Yourself 1

Identify which of the below form is used for making application for grant of
tourist vehicle.

I. Form PCA
II. Form 45
III. Form P.R.A.
IV. Form 48

S-06-MOTOR INSURANCE (FOR SURVEYORS) 269

B. Legal Aspects of Third Party Insurance

1. Liability when policy is not in existence

i. Section 64VB

Section 64-VB of the 1938 Act provides that no risk is to be assumed unless
premium is received in advance. No insurer shall assume any risk in India in
respect of any insurance business on which premium is not ordinarily payable
outside India unless and until the premium payable is received by him or is
guaranteed to be paid by such person in such manner and within such time as
may be prescribed or unless and until deposit of such amount as may be
prescribed, is made in advance in the prescribed manner.

For the purposes of this section, in the case of risks for which premium can
be ascertained in advance, the risk may be assumed not earlier than the date
on which the premium has been paid in cash or by cheque to the insurer.
Explanation: Where the premium is tendered by postal money order or
cheque sent by post, the risk may be assumed on the date on which the money
order is booked or the cheque is posted, as the case may be.

Where an insurance agent collects a premium on a policy of insurance on

behalf of an insurer, he shall deposit with, or dispatch by post to, the insurer,
the premium so collected in full without deduction of his commission within
twenty-four hours of the collection excluding bank and postal-holidays.

The said provision, as such in no unmistakable term provides for issuance of

a valid policy only on receipt of payment of the premium.

a) Payment by cheque subject to encashment

In today’s world payment made by cheque is ordinarily accepted as valid

tender. Payment by cheque, however, is subject to its encashment. On the
ground of default, it is not disputed that the defendants tendered the amount
in arrears by cheque within the prescribed time.

The question is whether this was a lawful tender. It is well established that a
cheque sent in payment of a debt on the request of the creditor, unless
dishonoured, operates as valid discharge of the debt and, if the cheque was
sent by post and was credited on presentation, the date of payment is the
date when the cheque was posted.

2. Need for Driving Licence

Section 10 of the Motor Vehicles Act 1988 enables the Central Government to
prescribe forms of driving licences for various categories of vehicles mentioned

S-06-MOTOR INSURANCE (FOR SURVEYORS) 270

in Sub-Section (2) of the said section. The various types of vehicles described for
which a driver may obtain a licence for one or more of them are:

a) Motorcycle without gear

b) Motorcycle with gear
c) Invalid carriage
d) Light motor vehicle
e) Transport vehicle
f) Road roller, and
g) Motor vehicle of other specified description

The definition clause in Section 2 of the 1988 Act defines various categories of
vehicles which are covered in broad types mentioned in sub-section (2) of Section
10. They are goods carriage, heavy goods vehicle, heavy passenger motor vehicle,
invalid carriage, light motor vehicle, maxi-cab, medium goods vehicle, medium
passenger motor vehicle, motor-cab, motorcycle, omnibus, private service
vehicle, semi-trailer, tourist vehicle, tractor, trailer and transport vehicle.

i. Obligation on driver to hold effective and valid Driving Licence

Section 3 of the Act casts an obligation on a driver to hold an effective driving

licence for the type of vehicle, which he intends to drive. It may be true that
a fake or forged licence is as good as no licence, but the question is whether
the insurer must prove that the owner was guilty of a willful breach of the
conditions of insurance policy or the contract of insurance.

There is a general agreement with the approach of the Bench in Lehru case,
but in the light of the requirements of the law, the insurer is required to
establish willful breach on the part of the insured and not for the purpose of
its disentitlement from raising any defence or for the owners to be absolved
from any liability whatsoever.

a) Car used in contravention of Limitation as to use

The deceased was carried for hire in a car. It was held that the insurer was
not liable for the claim of the death of the said occupant, since the car was
used in contravention of the policy condition prohibiting the carrying of
passenger for hire or reward. It was held that the use of the car for the
carriage of passengers for hire was an unauthorised use. Hence, the insurer
was entitled to avoid their liability. [(United India Fire and General Insurance
Corp. Madurai VM.S. Durairaj) 1982 ACJ 261 (MAD)]

3. Breach of Conditions

The Act, however, provides for the cases where the insurance Company can avoid
its liability. Avoidance of such liability would largely depend upon violation of
the conditions of contract of insurance.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 271

Where the breach of conditions of contract is ex-facie apparent from the records,
the Court will not fasten the liability on the Insurance Company. In certain
situations, however, the Court while fastening the liability on the owner of the
vehicle may direct the Insurance Company to pay to the claimants, Awarded
amount with liberty to it to recover the same from the owner.

4. Whether Compensation can be Assessed in MACT as per EC Act 1923

The cleaner of a Truck suffered injuries in course of employment and preferred

a claim in MACT [1992 ACJ p 65 (MP)]. It was held that liability would be
determined in accordance with the Law applicable to the forum opted and cannot
be restricted to the quantum payable under the EC Act 1923

5. Liability of the Insurer with regard to Passenger Carried in Goods Carrier

Transporting unauthorised persons causes more road accidents and loss of life
too. It creates a huge loss of revenue to Government because the owner of the
vehicle does not pay passenger tax etc. A bare reading of the provisions makes it
clear that the legislative intent was to prohibit goods vehicle from carrying any
passenger as per the definition of goods carriage in the 1988 Act as amended.
This is clear from the expression ‘in addition to passengers’ as contained in the
definition of goods vehicle in the Old Act.
The position becomes further clear because the expression used ‘goods carriage’
is solely for the carriage of goods. Carrying of passengers in a goods carriage is
not contemplated in the 1988 Act. [(Oriental Insurance Company Ltd. vs.
Devireddy Konda Reddy and Ors). AIR 2003 SC 1009].

Even Section 147 of the Act mandates compulsory coverage against death of or
bodily injury to any passenger of public service vehicle. The proviso makes it
further clear that compulsory coverage in respect of drivers and conductors of
public service vehicle and employees carried in goods vehicle would be limited
to liability under the Employee’s Compensation Act, 1923. There is no reference
to any passenger in goods carriage. The inevitable conclusion, therefore, is that
provisions of the 1988 Act do not enjoin any statutory liability on the owner of a
vehicle to get his vehicle insured for any passenger travelling in a goods carriage
and the insurer would have no liability therefore to cover any contractual
liability.

i) Liability in regard to Goods Carrier

The insurer submitted that on the basis of the position in law no direction to pay
and recover the amount from the insured can be given by the Claims Tribunal for
the passenger carried in goods carrying vehicle. The question of liability of the
insurer with regard to the goods carrier has been with dealt in [(Oriental
Insurance Company Ltd. vs. Devireddy Konda Reddy and Ors.) AIR 2003 SC 1009]

S-06-MOTOR INSURANCE (FOR SURVEYORS) 272

and [(National Insurance Company Ltd. VS. Ajit Kumar and Ors.) AIR 2003 SC
3093].

Definition of Goods Carriage as per new Act

The legislative intent in the new Motor Vehicles Act 1988 was to prohibit goods
vehicle from carrying any passenger. The position becomes further clear because
the expression used is goods carriage is solely for the carriage of goods. Carrying
of passengers in a goods carriage is not contemplated in the Act of 1988. Section
147 of the Motor Vehicles Act 1988 mandates compulsory coverage against death
of or bodily injury to any passenger of public service vehicle.

The proviso under section 147 makes it further clear that compulsory coverage
in respect of drivers and conductors of public service vehicle and employees
carried in goods vehicle would be limited to liability under the Employee’s
Compensation Act, 1923. There is no reference to any passenger in goods
carriage.

The inevitable conclusion, therefore, is that provisions of the 1988 Act do not
enjoin any statutory liability on the owner of a vehicle to get his vehicle insured
for any passenger travelling in a goods carriage and the insurer would have no
liability thereof. The above position was highlighted in Oriental Insurance
Company Ltd. vs. Devireddy Konda Reddy and Ors. [AIR 2003 SC 1009] and
National Insurance Company Ltd. vs. Ajit Kumar and Ors. [AIR 2003 SC 3093].

Test Yourself 2

The provision for “Constitution of Road Safety Councils” was made in which of
the below?

I. Act No.59 of 1988

II. Amendment Act 54 of 1994
III. Amendment Act 27 of 2000
IV. Amendment Act 39 of 2001

S-06-MOTOR INSURANCE (FOR SURVEYORS) 273

SUMMARY

In this chapter you learnt the gradual changes in the Motor Vehicle Actto keep
pace with the changing times. You also learnt the various definitions used in
motor insurance industry and how the liability of the insurers is calculated in
third party compensation claims of various nature.

Answer to Test Yourself

Answer 1

The correct option is I.

The provision for “Constitution of Road Safety Councils” was made in Act No. 59
of 1988.

Answer 2

The correct option is II.

Form 45 is used for making application for grant of tourist vehicle.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 274

Self-Examination Questions

Question 1

“Award” is defined under which section of the Motor Vehicle Act?

I. Sec 141
II. Sec 163
III. Sec 165
IV. Sec 166 (A)

Question 2

____________ is a motor vehicle to which a semi trailer is attached.

I. Articulated vehicle
II. Trailer linked vehicle
III. Multi axle vehicle
IV. Container vehicle

Question 3

Which carriage has the right to pick up passengers enroute ?

I. Contract carriage
II. Tourist carriage
III. School carriage
IV. Stage carriage

Question 4

Which vehicle are exempted from road tax ?

I. Contract carriage buses

II. Institutional buses
III. Chartered buses
IV. Travel buses

Question 5

A vehicle so altered for the use of a person suffering from any physical defect or
disability is called as ______________.

I. Hazardous vehicle
II. Articulated vehicle
III. Adapted vehicle

S-06-MOTOR INSURANCE (FOR SURVEYORS) 275

IV. Automatic vehicle

Question 6

Which section of Insurance Act, 1938 states that “no risk is to be assumed unless
premium is received in advance” ?

I. 64 VB
II. 38
III. 64 UM
IV. 60

Answers to Self-Examination Questions

Answer 1

The correct option is III.

“Award” is defined under section 165 of the Motor Vehicle Act.

Answer 2

The correct option is I.

An Articulated vehicle is a motor vehicle to which a semi trailer is attached

Answer 3

The correct option is IV.

Stage Carriage has the right to pick up passengers enroute.

Answer 4

The correct option is II.

Institutional/Educational Buses are exempted from road tax.

Answer 5

The correct option is III.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 276

A vehicle so altered for the use of a person suffering from any physical defect or
disability is called as apdated vehicle.

Answer 6

The correct option is I.

Section 64 VB of Insurance Act, 1938 states that “no risk is to be assumed unless
premium is received in advance”.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 277

 CHAPTER 10
IMPORTANCE OF MOTOR VEHICLE ACT

Chapter Introduction

In this chapter you will learn about some important decisions on Motor Vehicle
Act and in the later part of the chapter we discuss the current amendments of
the Act which are applicable to Motor Insurance Industry.

Learning Outcomes

A. Important decisions on Motor Vehicles Act

B. Importance of Amended Motor Vehicles Act, 2019

S-06-MOTOR INSURANCE (FOR SURVEYORS) 278

A. Important decisions on Motor Vehicle Act

1. Transfer of vehicle
2. Driving licence
3. Insured declared value
4. Use of vehicle
5. Public place
6. Determining annual income
7. Computation of compensation
8. Demand to supply insurance particulars
9. Liability to employees and others
10. Collision between two vehicles
11. Preliminary objection
12. Computation of compensation and mode of payment
13. Condonation of delay
14. No fault liability
15. Passengers of goods vehicle
16. Driver's injury/death due to his own negligence.
17. Law prevailing at the time of accident
18. Quantum and liability
19. Interest
20. Duty of police officer and tribunal (Sec. 158 and 166)
21. Tribunal's power of review
22. Binding precedent
23. Pay and Recover

1. Transfer of vehicle

a) Automatic transfer of third party insurance

On sale of vehicle Certificate of Insurance gets transferred to the new owner

automatically, however, such transfer of insurance is only for Third Party
insurance and not for Motor OD insurance. (SC 1996). The owner of a car, who
voluntarily and freely transferred possession of it against a cheque has no
claim under motor policy, if the cheque is turned out to be worthless. It is
loss of money and not the car. (Eisinger vs. General Accident UK 1955).

b) No presumption of transfer

There is no presumption of transfer by Sec 146 vis-à-vis Sec 157. The Insurer
cannot be held liable, if no intimation of transfer was given as per Sec 157 of
Act. [(Ram Chander vs. Naresh Kumar) 2000 ACJ 727]. This judgement makes
it abundantly clear that though insurer may be required to pay to third party
as judgement debtor, but they will be able to recover, if the transferee has
not informed the insurer requesting for endorsement within 14 days subject
to other provisions of NCB recovery, min premium stipulation etc.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 279

 Sec 146 debars a vehicle owner from using Motor Vehicle in public place
without a valid insurance Policy, therefore, it cannot be brought to justify for
subsistence of cover. It cannot be presumed that liability to indemnify owner
stood transferred from transferor to transferee on transfer of vehicle.

Sec 157 (2) of 1988 Act stipulates that the transferee shall apply within
fourteen days from the date of such transfer, in the prescribed form to the
insurer, for making necessary changes in regard to fact of transfer in
Certificate of Insurance and the Policy described in his favour. And the insurer
shall make necessary changes in the certificate of Insurance and Policy in
regard to transfer of insurance.

Transfer of ownership Liability Only cover in reference to General Regulation

17 of India Motor Tariff Part 2 makes it clear that OD Section of the policy
will be transferred on receipt of specific request.

c) Transferee is not third party for damage risk [1996 ACJ 65 Supreme
Court]

Transferee intimated the transfer of vehicle and requested insurance

company to transfer the insurance policy. Policy was not transferred and the
vehicle got damaged in an accident. The transferee is not entitled to be
indemnified by the insurer for the damage to vehicle. Section 157 is limited
to third party risks and transferee is not a third party.

2. Driving Licence

a) Unlicensed driver

(i) [1997 ACJ 1065 Supreme Court] Exclusion clause in the policy did not
permit the insured to hand-over the vehicle for purpose of driving to
an unlicensed driver. Car at the time of accident was being driven by
a person who had no driving licence. The insurance company is not
liable.

(ii) In [1989 ACJ 1078 Supreme Court] the insured with the knowledge
entrusted the tractor to a person who does not hold a licence and he
caused an accident. Insurance Company took the specific plea that
there is breach of condition of policy and the Insurance Company was
exempted from liability.

(iii) In [1988 ACJ 721 Punjab and Haryana] Son of the insured who was
driving the offending vehicle had no driving licence at the time of
accident. Tribunal absolved the Insurance Company from the liability
in terms of conditions contained in the policy. Insurance Company had
not taken any specific plea that the insured was at fault in allowing

S-06-MOTOR INSURANCE (FOR SURVEYORS) 280

 his son to drive the vehicle against the terms of the policy. In the
absence of such a plea Insurance Company was held liable.

b) Expired learner’s licence

A person having a learner’s licence enables him to learn driving but if it is not
renewed, the holder of cannot be regarded as duly licenced. In the event of
an accident by such person the insurance company would not be liable to pay
compensation. (New India vs. M Tambe Supreme Court)

c) Appropriate licence

(i) The owner would be liable for payment of compensation when the
driver was not having a valid licence. It was obligatory on the part of
the owner to take adequate care to see that the driver held an
appropriate licence to drive the vehicle [(National Ins co Ltd. Vs
Kusum Rai) 2006 SC)

(ii) Accident by a Tempo, a three wheeler goods vehicle, driven by a

driver who was holding licence to drive L.M.V. Driver's licence was
endorsed after the date of accident, authorising him to drive a
transport vehicle as paid employee. The driver did not have a valid
licence on the date of accident to drive the tempo and the Insurance
Company was not held liable [1991 ACJ 625 MADRAS].

(iii) Driver holding licence to drive a light motor vehicle was driving a
heavy motor vehicle and the vehicle met with accident. Whether the
driver had a valid licence and the insurance company liable? It was
held in Negative. It was held that the validity of licence has to be
considered with reference to the vehicle involved [1992 ACJ 375
(A.P.)].

d) Liability of repairers

When vehicle is entrusted to repairers who cause damage to vehicle in an

accident and injuries to third Parties, compensation is payable by insurers of
vehicle. (Guru vs. Filomena 1988) but it was held in [(New India vs. Lakhi
Ram) 1988] that where the mechanic who caused an accident but did not
have a valid Driving Licence, insurers were not liable.

e) Validity of licence

A driver was not having valid licence for the vehicle on the date of accident
as his driving Licence had expired 8 months before the date of accident. It
was held that the renewal application not having been filed till the date of
accident, the driver cannot be said to have been holding valid licence. Hence

S-06-MOTOR INSURANCE (FOR SURVEYORS) 281

 insured was liable to pay the compensation and not the insurance Company
[(Isharwar Das vs Oriental Insurance Co. Ltd). 2000 SC)]

f) Valid and effective Driving Licence

Driver having licenced to drive Light Motor Vehicle was driving a goods vehicle
at the time of accident. It was held that it is not a valid and effective Driving
Licence [(- Oriental Ins. Co. Ltd. Vs Aagad Kol) 2008 SC)]

3. Insured declared value

Tata Sumo was insured for Rs 3,54,000/-. Within 7 months it met with a major
accident and became a Total Loss. On surveyors assessment insurance
company offered Rs. 180000/-. Held insurer liable to pay Rs. 3,54,000/-.
[(Dharmendra Goel vs. Oriental Ins. Co. ltd.) 2008 SC]

4. Use of vehicle

a) Absolute liability of owner of vehicle

By reasons of sub-section (1) of section 92-A, an absolute liability is cast upon

the owner of a vehicle to pay compensation in respect of death or permanent
disability resulting from an accident [1996 ACJ 555 Supreme Court] (Para- 4).

b) Breach of condition for limitation as to use

A vehicle was insured as a private carbut used as a taxi, was stolen. The
Insurers rejected the claim on the ground of breach of policy condition. In
the case of theft of vehicle breach of condition is not relevant, as it is not a
material fact. [( National Ins Co Ltd vs Nitin Khandelwal) 2009 SC]

c) Damages payable by stationery vehicle

Damages should be awarded to a pedestrian injured in an accident,

originating in a vehicle even if it is not in a state of locomotion. (Bombay HC)

d) Vehicle plying without permit (New India Vs Roshan Bibi Court dated July
22, 2013)

Gujarat High Court allowed the appeal of insurance company. On the date of
accident insured vehicle had no valid and legal permit; therefore, insurance
company is not liable to pay compensation. Since the amount has been
disbursed to the claimants, High Court has given recovery rights to the
insurer, to recover the compensation from the owner of the Insured Vehicle.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 282

 e) Compensation for exceeding seating capacity
In UIIC vs Shri Ram Chandrappa [[Link].10633/2011 C/W [Link].10637
TO 10639/2011(MV) [Link].10633/201] Karnataka High Court dated Apr 1,
2013 where appellant insurer has filed an appeal contending that insurer is
not liable to pay compensation for exceeding seating capacity. In the instant
case the seating capacity of the rickshaw was 3 and Court appreciating the
contentions of Insurance Company, exonerated for the fourth claim and
directed insured to pay the compensation for the fourth claim.

5. Public Place

A private road in the compound of an industrial establishment where hundreds

of visitors, besides employees visit on various modes of conveyance is also a
public place within the meaning of the MV Act [(Pandurang vs New India) 1988]

6. Determining annual income

a) No income prior to accident: Notional income is laid down by Apex Court

in the case of [(Maju Devi V. Musafir Paswan reported in) 2005 ACJ 99]
regardless of the age of the victim at Rs.15000 per annum.

b) Where the injured or the victim had no stable income prior to accident:
If the victim is skilled labourer, carpenter, mason, rickshaw-puller, and
occupations of similar nature including the professionals or businessmen
who are not income tax assesses then it would be Rs.24000 per annum

c) Necessary to take in to account the state wise minimum wages as per

the Minimum Wages Act. The wages prescribed in the Minimum Wages Act
is also to be kept in mind. In the case of a driver, conductor, and khalasi
of taxi, truck, autos then the income is taken at Rs.30000/- per annum

d) Professionals who are income tax assesses: their average income of last
three financial years that precedes the date of accident is taken as per
the income tax returns submitted and duly verified the insurance
company.

e) Victim has stable income arising out of employment of regular nature

immediately preceding the accident, then his actual income is to be
considered. The dependency factor is taken as 2/3rd where the deceased
is married but the same is taken as ½ or 1/3rd where he is unmarried.

7. Computation of compensation

a) Present income

Over the years the judges’ have calculated compensation on the basis of
present income to arrive at loss of future income. In the case of Susamma
Thomas case the concept of future prospects was taken into account to arrive
S-06-MOTOR INSURANCE (FOR SURVEYORS) 283
 at future loss of income. Here the present compensation was increased by
100% to calculate future loss of income. However, the percentile to be
adopted for future prospects has been inconsistently applied in subsequent
judgments’. This issue was revisited by the Supreme Court and some
uniformity and consistency can now be applied for the future prospects
through the landmark case related to “[(Sarla Verma vs Delhi Transport
Corporation) April 2009].

Salary certificate a proof of income: The income for the purpose of

computation should be salary less income tax. The multiplicand would,
however, not be applied if the person was self-employed or if salary did not
provide for increments.

(National Insurance Company Ltd vs. Talib Hussain) CIMA No. 139 OF 2008];
The owner of the vehicle had filed the salary certificate of the deceased
conductor before the Assistant Labour Commissioner in which the income of
the deceased was Rs. 3100/- Whereas the Commissioner had ordered the
compensation by taking income as 4000/- [Jammu High Court judgment dated
April 23, 2013] modified the compensation by taking income as 3200/- and
ordered that the balance amount be returned back to Insurance company with
interest, if the same has been deposited in the bank.

Second schedule u/s. 163-A MV Act suffers from several defects. Courts and
Tribunals cannot go by the ready reckoner. It can only be used as a guide.
Selection of multiplier cannot be solely dependent on the age of the
deceased. [(U.P. State RTC and Ors. vs. Trilok Chandraand Ors.) 1996 (2) TAC
286]

No compensation towards loss of love and affection u/s 163-A: An Appeal

has been filed on sole issue that no compensation could be awarded towards
loss of love and affection u/s 163-A in [(ICICI Lombard Vs Radhey Shyam MAC.)
APP.1045/2012]. Hon'ble High Court of Delhi held that in a petition u/s 163-
A of the Act, there is a cap of Rs 40,000 on the annual income and the
compensation including non-pecuniary damages have to be strictly awarded
as per the Second Schedule.

8. Demand to supply insurance particulars

a) Claimant to furnish particulars of insurance

A Claimant failed to mention policy particulars and in absence the insurance

company could neither deny nor confirm having insured the vehicle. [1993
ACJ 668 Orissa] The Tribunal fastened liability to the Insurance Company in
the absence of specific denial of insurance. The insurance company was held
liable. The case was remanded to the Tribunal for affording opportunity to
the claimant to furnish particulars of insurance.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 284

 A Specific plea should be taken in written statement regarding insurer’s
liability, driving Licence etc. True attested copy of Policy with Conditions and
Endorsement should be filed in the MACT to prove insurers limited liability,
if any, and it should be marked ‘exhibit’.

b) Company to file policy copy to take a defence

In case insurance Company wishes to take defence in a claim petition that its
liability is not in excess of the statutory liability, it should file a copy of the
insurance policy along with its specific defence [1988 ACJ 270 Supreme Court]

9. Liability to employees and others

If a person is covered under Employee State Insurance Scheme and injured while
on duty in a motor vehicle accident, he cannotseek compensation from both ESIS
and EC Act but only under one forum because of provision of Sec 53 of MV Act.
[(National Insurance Co. ltd. Vs Hamida Khatom) SC 2009]

10. Collision between two vehicles

Where there is collision between two vehicles, a specific plea of contributory

negligence against the other vehicle must be taken in the Written Statement.

a) Composite negligence

i. Parking in a dangerous position:

A pipe which was protruding out from the tractor trolley parked on the road
entered the bus and struck the head of a passenger, causing his death on the
spot. The Tractor trolley was parked on the road in an angular position and
no precaution was taken by the owner of the tractor to warn the incoming
traffic. The door of the bus was badly damaged indicating that the pipe hit
the door with great force provided by the speed of the bus as the tractor was
stationary [1993 ACJ 652 Rajasthan] - Held - accident occurred due to
composite negligence of the driver of the bus by rashly and negligently driving
it and the owner of the tractor trolley parking it in a dangerous position.

ii. Apportion the inter se liability

A collision between a bus and scooter was caused due to equal negligence of
both the bus driver and scooterist resulting in death of pillion rider. The
claimants filed claim against the driver, owner and insurer of the bus. The
driver and insurer of the scooter were not made party. [1995 A.C.J. 53 M.P.
(D.B.)] It was held just and proper to apportion the inter se liability and
specify the amount payable by the two tort feasor, owner, insurer and driver
of the bus as liable to pay 50% of the amount of compensation.
S-06-MOTOR INSURANCE (FOR SURVEYORS) 285
 b) Contributory negligence

i. Negligence of both the driver and the deceased

A Bus ran over a cyclist boy when he came out of the school resulting in his
instantaneous death. [1993 ACJ 641 Punjab and Haryana] The Appellate Court
found that the driver was expected to be cautious while crossing the
pavement in the vicinity of an educational

Institution and the students were coming out at the closing time. The tribunal
held that accident was caused due to the negligence of both the driver and
the deceased and their blameworthiness being 60: 40 respectively.

ii. Both the drivers’ negligence

A collision took place between a Corporation bus and Truck trailer coming
from opposite directions, resulting in the death of four bus passengers’
including driver and two other’s sustained injuries. The Bus was moving at a
fast speed and it travelled 150 ft. after the collision and collided with a tree
on the left side of the road and turned turtle. The Truck trailer was loaded
with dumper weighing 25 tonnes and Truck was moving slowly on the left side
of the road which was 24 ft. while Trailer was 12 ft. wide and dumper upon
it was 15 ft. wide, and it protruded beyond the width of the trailer by 1.5 ft.
On either side or protrusion was not marked out by red lights or reflectors.
The Dumper was being transported in clear contravention of Rule 331 of
Karnataka Motor Vehicle Rules, 1963; but for the protrusion of dumper from
the bed of the trailer, the bus and the truck would have safely crossed each
other. Had the bus driver not been speeding, he would have noticed the bulk
upon the trailer and kept his bus away. Apex Court in [1992 ACJ 375 (A.P.)]
held that both the drivers were negligent in causing the accident and their
proportion of negligence being 60 percent for the bus driver and 40 percent
for truck driver. [1996 ACJ 1125 Supreme Court]

11. Preliminary objection

Preliminary objection should be raised to follow the procedure laid down in

Rule 226, 227 and 245, 246 under Bihar Motor Vehicles Rules 1992.

(ii) For calculating reasonable compensation and mode of payment, the

case law [1994 ACJ 1 Supreme Court] should be cited and filed in the
MACT.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 286

 (iii) Condonation of delay

Accident occurred prior to 14-11-94

Accident took place before the 1988Act came into force, but the claim
application was filed after the 1988 Act became operative. Limitation of 6
months for filing claim application is the same in 1988 Act and in 1939 Act,
but in 1988 Act the claim application couldn’t be entertained after the expiry
of 12 months from the date of accident, whereas there was no such restriction
in 1939 Act. Claim application filed after a period of 12 months from the date
of accident. Claimant contended that since the accident took place when the
1939 Act was in force, the proceeding must be governed by the 1939 Act and
not by the 1988 Act. The right or privilege to claim benefit of a provision for
Condonation of delay can be governed only by the law in force at the time of
delay. “Sufficient Cause" as a ground of Condonation of delay in filing the
claim is distinct from “Cause of action" for the claim.

a) If claim is filed after one year from the date of accident then a specific
plea of claim barred by limitation must be taken in written statement.
This issue should be moved in the MACT with a separate petition for
deciding as preliminary issue. [1991 ACJ 1060 S.C.](Applicable--Accident
occurred prior to 14-11-94)

b) Effect of omission of sub-section (3) of Section 166

A delay of 4 days beyond the period of 12 months condoned by the Tribunal

when Section 166 (3) was operative. The High Court [1996 ACJ 1013 Supreme
Court]held that any application filed beyond the period of 12 months from
the date of accident cannot be entertained, as no discretion has been left
with the Tribunal and set aside the Tribunal's order. The Claimant is entitled
to the benefit of amendment of sub section (3) of Section 166. However, the
amending act will not apply to a case where the petition was filed beyond
the limitation period, has been rejected and the claimant has allowed the
same to become final.

(iv) No fault liability

a) Whether policy covers the risk giving rise to the claim?

i. No fault liability several persons travelling in a truck died when it turned

turtle. These persons were going to a place for earning their livelihood.
Insurance Company contended that policy did not cover the risk relating
to the death or injuries to passengers carried in the truck and it is not
permissible to fasten the liability under Section 92 A on the Insurance
Company unless a finding is recorded that the risk was covered by the
insurance policy.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 287

 Claimants contended that the only question that arises while imposing no
fault liability on the Insurance Company was to find out whether the
vehicle was covered by an insurance policy and all other questions have
to be decided at the trial and if ultimately it is found that the risk was
not covered, a direction should be issued to the owner to reimburse the
insurance company the amount paid under no fault liability.
Whether award directing payment of compensation under section 92-A
could be made against the insurance company without a summary enquiry
and a finding that, prima facie, the risk giving rise to the claim is covered
by the policy; - [1990 ACJ 757 (Karnataka) Full Bench]:Held - - No.

ii. NFL for person travelling under goods vehicle: A person while travelling
on a goods carrier met with an accident and died, deceased was a
gratuitous passenger and the vehicle was being plied in violation of the
terms and conditions of the Insurance Policy.

Insurance Company is not liable to pay compensation in respect of death

or bodily injury of any person travelling in a goods carrier as passenger,
whether as a hirer or otherwise, unless it is proved that there was any
extra coverage in the Insurance policy in question. [1999 (i) PLJR 870]:
The insurance company was under no fault liability, has not been held
liable to pay any interim compensation.

iii. Court satisfaction to award NFL: Awarding compensation under no fault

the claim tribunal is required to satisfy itself on the following matter
[1991 ACJ 777 (S.C.) Para 44 and 45]

(a) An accident has arisen out of the use of a motor vehicle.

(b) The said accident has resulted in permanent disablement of the person
who is making the claim or death of the person whose legal representative
is making the claim.

(c) The claim is made against the owner and the insurer of the motor vehicle
involved in the accident.

b) Collision between two vehicles

i. No fault award should be apportioned between both vehicles. Collision

between two tractors resulting in the death of a person. Tribunal
apportioned the tentative No fault liability under section 92-A between
the two offending vehicles. The Tribunal [1992 ACJ 385 (M.P.)]had rightly
apportioned the liability.

ii. Ad interim Compensation of Vehicles insured with different insurers

[1997 PLJR 987]: - Both vehicles were insured with two different insurance

S-06-MOTOR INSURANCE (FOR SURVEYORS) 288

 companies. It was held that the Ad interim compensation is to be shared
by both insurance companies.

(v) Passenger on goods vehicle

a) Paid passenger

i. Death of or bodily injury to persons travelling in a goods vehicle

The Insurance Company is not liable to pay compensation in respect of death

of or bodily injury to any person travelling in a goods vehicle, which is not
adapted and meant in Law to carry passengers for hire or reward in the
absence of any extra coverage [1992 ACJ 1 Karnataka (Full Bench)].

ii. Fare paying passenger in Goods vehicle [1993 ACJ 65 Orissa]:

Persons travelling in a truck on payment of fare, sustained injuries and some

of them succumbed to their injuries when the truck toppled. There is no
permit authorising carrying of passengers on hire in the goods vehicle. It was
held that Insurance Company was not liable. There was violation of the rules
and the owner of the vehicle is liable [1994 A.C.J. 1252 (P and H)]. In case of
death of a person travelling by paying fare in a vehicle meant for transporting
goods. It was held that Insurance Company was not liable. The offending
vehicle was not meant to carry passengers.

b) Gratuitous passenger

i. No Policy for passenger for hire and reward

A policy of insurance is not required under MV Act to cover risk to passengers

who are not carried for hire or reward [Pushpabai P Udeshi vs. Ranjit Ginning
and Pressing Co. SC (1977)]. As a result of this TAC had amended the wording
of the Third Party Section II of the Motor Comprehensive/Package policy for
Private car and Two-wheelers. Now the package policy is to include
“occupants traveling the motor vehicle provided that such occupants are
not carried for hire or reward.” This stand was recently reiterated by IRDAI
issuing directions to insurers not to make any changes in this cover.

Under MV Act 1988 insurance policy covering Third Party risk is required to
exclude gratuitous passengers no matter the vehicle is of any type or
class[(New India Ass. Co. Ltd. vs. Satpal Singh (SC 2000)]. A sequel to this
case was [(New India vs. Asha Rani &others) (SC) 2002].

The definition of “goods vehicle” in old MV Act 1939 included carriage of

passengers in addition to goods, whereas under the M.V. Act 1988 definition
of “goods carriage” specifies only “carriage of goods” in the vehicle. Hence
after 1988 Act insurers have no liability towards passengers in goods carrying

S-06-MOTOR INSURANCE (FOR SURVEYORS) 289

 vehicles. The driver of a truck gave lift to a person and he died when the
truck went off the road and fell in a khud [1993 ACJ 770 Himachal]. The
Insurance Company was not held liable.

Employees of Owner of Motor vehicle like driver, conductor, ticket checker

etc. are covered as per Employee’s Compensation Act 1923. Whether the
insurer is obliged under law to indemnify the owner of a goods vehicle, when
the employees engaged by the hirer of the vehicle travel with the owner of
the goods on the foundation that they should be treated as an employee
covered under the policy, issued in accordance with the provision contained
under Section 147 of the Motor Vehicles Act, 1988.

An appeal was filed in the High Court by the insurer that the employee of
hirer is not covered under the act and the insurer is not liable to indemnify.
[(Sanjeev Kr Samrat vs. National insurance company) [Civil appeal no 8925 of
2012] arising out of [SLP 17272of 2006] On appeal, Supreme Court upheld the
decision of the High Court and held owner of the vehicle liable.

ii. Occupants of the Private car

Although occupants of a car are not required to be covered as Third Party

under compulsory insurance provisions of the 1988 Act, but the wording under
Motor Package policy are wider than that required under the MV Act to cover
“occupants of the vehicle”, Insurance Company was held liable to pay
compensation. [(Bhagyalakshmi vs United India Ins. Co. Ltd.) (SC) 2009)]

c) Owner of the goods

i. Accident occurred prior to 14-11-94

Liability of Insurance Company for persons travelling in a goods vehicle the

Insurance Company is not liable for death or injuries suffered by persons
carried for hire or reward in a goods vehicle. Proviso (ii) to section 95 (i)(b)
did not apply to person carried in a goods vehicle for hire or reward [1994
ACJ 138 Orisa (Full Bench)]. It is restricted to passengers carried in a public
service vehicle.

The Owner of goods, who has hired a goods vehicle does not become a person
travelling on the vehicle in pursuance of a contract of employment and even
if he is carrying his own goods after hiring the vehicle, the vehicle does not
become a vehicle meant for carrying passengers for hire or reward and
consequently would not come within the proviso (ii) to section 95 (i)(b).

ii. Accident occurred after to 14-11-94

In the case of [(National Insurance Co. Ltd. v. Cholleti Bharatamma), (2008)

1 SCC 423], the Supreme Court held that the risk of the Owner of the goods

S-06-MOTOR INSURANCE (FOR SURVEYORS) 290

 or his representative would be covered only, if he travels in the cabin with
the driver.

(vi) Driver's injury/death due to his own negligence

i. Claim in respect of injuries sustained by driver in an accident due to his

own negligence as the vehicle he was driving slipped down the road and
turned turtle [1986 ACJ 951 (Gujrat)]: -- The driver was not found entitled
to compensation.

ii. Claim tribunal did not have the jurisdiction to entertain the claim for the
deceased, who was himself responsible for the accident [1984 ACJ 582
(Karnataka)].

iii. The driver himself was negligent and responsible for causing the accident
did not have a cause of action. [[1986 ACJ 144 (Rajasthan)]: Relied on
1976 ACJ 128 Supreme Court]

iv. Collision between two trucks due to negligence of driver of truck "A”. The
claim by the driver of truck "A" was not maintainable [1991 ACJ 36 (Punjab
and Haryana)].

v. Similarly, in [1991 ACJ 699 Karnataka (Division Bench)]: the driver who
sustained injury due to his own driving cannot maintain claim application
under section 110-A against his owner and insurer. The remedy available
is before the commissioner under E.C. Act 1923.

vi. In another case driver of car died when the car met with accident due to
his own negligence. No plea of master servant relationship between the
owner and deceased was taken. No wrong or tort committed by owner,
has been pleaded and proved by the claimants. Neither the owner is
vicariously liable nor can the insurance company be made liable in the
absence of any liability being imposed on the owner [1993 A.C.J. 522
Madras (Division Bench)].

vii. A driver of the vehicle met with an accident while driving the vehicle.
Dependents filed a claim application against the owner and insurer of the
vehicle under Section 166 and 167 read with section 2, 4 (1) (c) and
schedule (iv) of Employee’s Compensation Act, 1923. When accident was
caused due to driver’s own negligence the claimants of the deceased
driver were not entitled to claim compensation under M.V. Act rather they
were entitled to receive the claim under E.C. Act only. Amount awarded
by claims tribunal is not justified and insurance company is not liable to
pay compensation [1997 (1) PLJR 827 Patna]. The Award was set aside by
Patna High Court.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 291

 (vii) Law prevailing at the time of accident will be applicable

i. [AIR 1982 S.C. 836]: Full Bench Held that the liability of Insurer would be
extended to legal provisions as it stood on date of accident.

ii. The rights and liabilities under the Act arises on happening of the accident
and not on any subsequent date [(1991 ACJ 960 M.P. (Full Bench) Followed
1990 ACJ 280 Supreme Court]. It seems apparently unjust to impose fresh
liabilities on owner and insurer for part events on the basis of subsequent
change in law, which was not in contemplation of parties either at the
time of insurance or accident. [Whether provisions relating to unlimited
liability of insurance company specified in section 147 (2) (a) which came
into force on 1-7-89 are retrospective and apply to pending cases, where
accident has occurred prior to 1-7-89. It was held in Negative1993 ACJ
343 Kerala (Full Bench)]. Nothing in 1988 Act seeks to alter the liability
of the insurance company as it stood on the date of accident.

iii. However in [1993 ACJ 188 Kerala (Full Bench)] reiterated that the
provisions of Sec. 92-A are not retrospective. Section 92-A is part of
substantive law. It does not lay down a rule of procedure or refer to a rule
of evidence within the tort system. When the amending act proposes to
give different dates of commencement to different section, there is
presumption against retrospectively. If a provision is capable of two
interpretations namely prospective or retrospective, the former is to be
preferred.

(viii) Quantum and Liability

a) Liability

If owner of the vehicle does not contest the claim then a petition under
Section 170 of M. V. Act 1988 should be filed to allow the Insurance Company
to take all defenses available to the owner of the vehicle and get an order
passed by the Tribunal in this regard.

i. Defence available to insurance company [1993 ACJ 828 Guwahati (Full

Bench)]: The contention that the restriction on the right of the insurance
company to raise defences which are available under section 149 (2) is
applicable only to the proceeding in the Tribunal and it is not applicable
in appeal. The insurance company cannot raise in appeal, defences which
are not contemplated under section 149 (2). Unless, of course, the
Tribunal has passed an order under section 170 or the Insurance Company
and has reserved in the policy the right to contest the claim on behalf of
the insured.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 292

 ii. Owner and Driver appeared but didn’t file written statement. No
permission of the Tribunal was sought by the Insurance Company Under
Sec.170 for contesting the proceeding on merit, the Insurance Company
was not found to challenge the quantum of compensation[1998 (1) ACJ
513 S.C].

iii. Owner and driver of offending vehicle remained ex-parte. [1995 ACJ
847 (M.P.)]: Insurance company in its written statement alleged collusion
between the claimants, driver and owner of the vehicle. Tribunal
permitted the insurance company to cross examine the witnesses on all
aspects. The appeal was held maintainable against the finding of
quantum, rash and negligent driving and rate of interest, filed by the
insurance company under Section 149 (2) and 173 of M.V. Act.

iv. Owner of the vehicle remained ex-parte. [1992 ACJ 721 (Patna)]:
Tribunal permitted the insurance company to cross examine the witnesses
on all aspects without recording reasons under Section 170. The Insurance
Company was held entitled to question in appeal the quantum of
compensation awarded.

v. Aggrieved insured filing appeal [1993 ACJ 828 Guwahati (Full Bench)]:
The full bench of the Guwahati High Court held that an insured who is
indemnified by the Insurance Company is a person aggrieved and can file
appeal challenging the findings regarding negligence or quantum of
compensation. The fact that the owner will be indemnified by the
insurance company does not obliterate the adverse decision rendered by
the Tribunal against him.

b) Method of calculation of compensation

i. Interest Theory

ii. Multiplicand or Loss of dependency. [1994 (1) ACJ 1 S.C]: - The

multiplier method involves the ascertainment of the ‘loss of dependency’
or the multiplicand, multiply by appropriate multiplier. The choice of
multiplier is determined by the calculation as to what capital sum, if
invested at a rate of interest would yield the multiplicand by way of
annual interest. [1996 (1) BLJR 473 (confirmed by division bench in 1996
(2) BLJR 1242.)]: The multiplier should be applied in such a way that the
dependency calculated in money value should fetch the same amount of
dependency to the applicants by way of annual interest if the award
amount is deposited in a Nationalised Bank or other financial institution
in fixed deposit.

iii. Application of Multiplier. The Multiplier method should be applied in

such a manner that dependency calculated in money value should fetch
the same amount of dependency to the claimants, if the award amount is

S-06-MOTOR INSURANCE (FOR SURVEYORS) 293

 deposited in Bank or other financial institution in fixed deposit [1999 (1)
PLJR 873]. The annual dependency should be multiplied by such figure
which would ensure a monthly income to the similar amount ,if the whole
amount is kept in the fixed deposit in a Bank would yield by way of annual
income[1999 (1) PLJR 287 and 400].

(ix) Interest

a) Applicability of interest Petition remained pending for a longtime due to

certain acts of omission and commission on the part of the claimant. The
claimant was held not entitled to interest from the date of filing of
petition [1992 ACJ 35 (Delhi)].

b) Interest from the date of impleading Insurer The Insurance Company was
impleaded after more than 4 years of filing the claim petition. Insurance
Company was held liable to pay interest from the date it was impleaded
[1994 ACJ 198 Orissa] till the date of payment. Interest prior to the date
of making claim [1995 ACJ 232 Supreme Court] The interest cannot be
allowed from a date earlier than the date of claim.

c) Higher interest in case of default Tribunal allowed interest at the rate

of 6 percent from the date of claim and ordered that if the amount is not
paid within a specified period then the rate of interest would be 12
percent per annum. The Tribunal cannot allow higher rate of interest in
case of default, [1993 ACJ 1119 Orissa] such a direction virtually amounts
to imposition of penalty which is not prescribed in the 1988 Act.

d) Non admissibility of interest on future expenses Claimant who was

injured in a motor accident was awarded compensation for past and
future expenses under different heads. Tribunal allowed interest @ 12 %
p.a. on the entire amount awarded from the date of application till
realisation. High Court has reduced the interest to 6 % in appeal. The
interest on amount allowed for future expenses is not admissible [1995
ACJ 366 Supreme Court].

e) Rate of interest payable: The rate of interest payable is according to the

current Bank interest rates.

(x) Duty of Police officer and Tribunal (Sec. 158 and 166)

a) Duty of police officer - It is obligatory for officer-in-charge of police

station to forward within 30 days information recorded by a police officer
regarding any accident involving death of or bodily injury to any person
or report prepared under Section 158 (6) of M.V. Act 1988 to the Claims
Tribunal having jurisdiction over the area in which the accident had
occurred with a copy to the owner and concerned insurer [1995 ACJ 714

S-06-MOTOR INSURANCE (FOR SURVEYORS) 294

 GUJRAT (D.B.)]. Directions issued to the concerned authority for better
implementation of the provisions of section 158 (6).

b) Duty of Tribunal Section 166 (1) and 166 (4) of M.V. Act :- Report of any
accident forwarded to the Claims Tribunal by the police officer under
section 158 (6) is to be treated by the Tribunal as an Application for
compensation, irrespective of the fact whether claim petition is instituted
by the concerned claimant or not.

c) Owner is not a third party: [1991 ACJ 177 ALLAHABAD (D.B.)]: The
insurance company is not liable for claim in respect of death of the owner
insured who himself was driving the vehicle, when it met with an
accident. Liability of insurer arises only when the insured incurs liability.
By his death, from his own insured vehicle, the insured has not incurred
any liability to pay any damages or compensation to any person. The
Policy indicates that the insurance was in respect of damages to third
party and not to the owner insured of vehicle.

(xi) Tribunal's power of review

i. Section 95(2)(b)(i) - Claim's Tribunal failed to take into notice the

provisions of the section by which the liability of insurance company is
fixed a maximum of Rs.50000/- only - Though the M.V. Act does not lay
down any power of review, since tribunal is supposed to work as court,
therefore, in absence of any specific procedure, provisions of code of civil
procedure applies - Correction of mistakes of court may be made by
exercise of inherent jurisdiction under section 151 of code - Since
statutory provisions of law was ignored by claims tribunal while passing
order, it's review cannot be said to be illegal and without jurisdiction1997
(2) PLJR 30 PATNA: [Link],1939.

ii. Claim's Tribunal in their order made deduction on account of lump sum
payment. Supreme Court had taken the view that deduction is not
permissible [1995 ACJ 572 ALLAHABAD]. Claimants filed review
application and the Tribunal disallowed giving objection that claims
Tribunal is not being a Civil Court, is divested of any inherent power to
review its order under order 47 or section 151 CPC. The claims tribunal
has jurisdiction to review or recall its order, but on the limited grounds
that the order is apparently illegal having been passed in ignorance of any
statutory provision or of any law declared by the superior court or of any
fact well established on record.

iii. Review in E.C. Cases is also applicable1993 ACJ 75 M.P. and 1982 ACJ 137
ALLAHABAD (D.B.).

S-06-MOTOR INSURANCE (FOR SURVEYORS) 295

 (xii) Binding Precedent :

Doctrine of binding precedent: India is governed by a judicial system

identified by a hierarchy of Courts, where the doctrine of binding precedent
is a cardinal feature of its jurisprudence. It used to be disputed that Judges
make law. Today, it is no longer a matter of doubt that a substantial volume
of the law governing the lives of citizens and regulating the functions of the
State flows from the decisions of the superior Courts.
With this impressive expanse of judicial power, it is only right that the
superior Courts in India should be conscious of the enormous responsibility
which rests on them. This is especially true of the Supreme Court, for as the
highest Court in the entire judicial system, the law declared by it is by Article
141 of the Constitution, binding on all Courts within the territory of India.

Taking note of the hierarchical character of the judicial system in India, it is

of paramount importance that the law declared by this Court should be
certain, clear and consistent. It is commonly known that most decisions of
the Courts are of significance not merely because they constitute
adjudication on the rights of the parties and resolve the dispute between
them, but also because in doing so they embody a declaration of law
operating as a binding principle in future cases. In this latter aspect lies their
particular value in developing the jurisprudence of the law.
“Binding precedent" is a doctrine in the law that requires a lower court to
apply the same law when presented with the same or substantially similar set
of facts as in prior cases where that law was applied. The doctrine of binding
precedent has the merit of promoting a certainty and consistency in judicial
decisions, and enables an organic development of the law, besides providing
assurance to the individual as to the consequence of transactions forming part
of his daily affairs. The concept is to provide consistently in handling cases
where the facts are the same or very similar. The doctrine of binding
precedent is based on principle of stare decisis which has two components.
They are:

a) The first rule is that a decision made by a superior court, or by the same
court in an earlier decision, is binding precedent to the court itself and
all its inferior courts are obligated to follow.

b) The second is the principle that a court should not overturn its own
precedent unless there is a strong reason to do so and should be guided
by principles from lateral and inferior courts.

Apex Court on “Doctrine of Binding Precedent”: In the present case the Bench
of two learned judges [(Pradip Chandra Parija and [Link]. Pramod Chandra
Patnaik and Ors.) (04.12.2001 - SC) MANU/SC/0304/2002 / AIR89 2002
Supreme Court 296 (5 Judges)] has in terms doubted the correctness of a
decision of a Bench of three learned judges. They have, therefore, referred

S-06-MOTOR INSURANCE (FOR SURVEYORS) 296

 the matter directly to a Bench of five judges. In our view, judicial discipline
and propriety demands that a Bench of two learned judges should follow a
decision of a Bench of three learned judges.

But if a Bench of two learned judges concludes that an earlier judgment of

three learned judges is so very incorrect that in no circumstances can it be
followed, the proper course for it to adopt is to refer the matter before it to
a Bench of three learned judges setting out as has been done here, the
reasons why it could not agree with the earlier judgment.

If, then the Bench of three learned judges also comes to the conclusion that
the earlier judgment of a Bench of three learned judges is incorrect,
reference to a Bench of five learned judges is justified.

In [(Chandra Prakash and Others vs. State of UP and Another’s) (04.04.2002 -

SC) (2003) SCC(LS)827 (5 Judges)] The doctrine of binding precedent is of
utmost importance in the administration of our judicial system. It promotes
certainty and consistency in judicial decisions. Judicial consistency promotes
confidence in the system; therefore, there is this need for consistency in the
enunciation of legal principles in the decisions of the Supreme Court. A
pronouncement of law by a division bench of the Supreme Court is binding on
a division bench of the same or similar number of Judges.

But if a bench of two learned Judges concludes that an earlier judgment of

three learned Judges is so very incorrect that in no circumstances can it be
followed, the proper course for it to adopt is to refer the matter before it to
a bench of three learned Judges setting out the reasons why it could not agree
with the earlier judgment. If, then, the bench of three learned Judges also
comes to the conclusion that the earlier judgment of a bench of three learned
Judges is incorrect, reference to a bench of five learned Judges is justified.

The law laid down by this Court in a decision delivered by a Bench of larger
strength is binding on any subsequent Bench of lesser or co-equal
strength[(Central Board of Dawoodi Bohra Community and Anr. Vs. State
of Maharashtra) (17.12.2004- SC) (5 Judges)]. A Bench of lesser quorum
cannot doubt the correctness of the view of the law taken by a Bench of
larger quorum. In case of doubt all that the Bench of lesser quorum can do is
to invite the attention of the Chief Justice and request for the matter being
placed for hearing before a Bench of larger quorum than the Bench whose
decision has come up for consideration. It will be open only for a Bench of
co- equal strength to express an opinion doubting the correctness of the view
taken by the earlier Bench of co- equal strength, whereupon the matter may
be placed for hearing before a Bench consisting of a quorum larger than the
one which pronounced the decision laying down the law the correctness of
which is doubted.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 297

 In Rajesh Vs. Rajbir Singh, civil appeal No.3860/2013 [Arising out of
S.L.P.(Civil) No. 24825/2010] the three judge bench decision dated 12-04-
2013 in [(Reshma Kumari V. Madan Mohan)] was not brought to the notice of
their Lordships. Three judges bench of Supreme Court on 12.04.2013 has
prescribed in [(Rajesh Vs Rajbir)- Civil Appeal No 3860/2013] about future
prospects as hereunder:

i. 50% of future prospects in all cases wherein deceased aged below 40

Yrs.
ii. 30% of future prospects in all cases wherein deceased aged between
40-50 Yrs
iii. 15% of future prospects in all cases wherein deceased aged between
50-60 yrs.
iv. Loss of consortium - One Lakh and
v. Future Expense at least Rs. 25,000.

[(Delhi High Court in New India Assurance Co Ltd. V Harpal Singh and Ors). on
Sept 6, 2013] relying on [(Reshma Kumari Vs. Madan Mohan)] explicitly stated
that addition towards future prospects be made only when the deceased has
permanent job and so no addition towards future prospects shall be made
where the deceased was self-employed or was getting a fixed salary without
provision of annual increment.

Hon'ble High Court of Delhi in view of [(Union of India and Ors. v. S.K.
Kapoor)] held that the previous decision of three Judge Bench in [(Reshma
Kumari Vs. Madan Mohan)] shall be taken as binding precedent. “It is well
settled that if a subsequent co- ordinate bench of equal strength wants to
take a different view, it can only refer the matter to a larger bench,
otherwise the prior decision of a co-ordinate bench is binding on the
subsequent bench of equal strength”.

As per order in SLP (National Insurance Company Vs Santosh Khandelwal dated

May 07,2013 of Supreme Court) has granted interim stay in favour of National
Insurance company on the ground of conflicting judgment in [(Reshama
Kumari and Ors Vs Madan Mohan and Anr) dated April 02,2013] and [(Rajesh
Vs Rajbir)dated April 12,2013] wherein one bench has held that in a case
where the deceased was a self-employed person, the actual income at the
time of death without any addition to income for future prospects will be
appropriate while the other bench has held that for a self-employed person,
an increase need not be merely 30%, it can be, in appropriate cases, to the
extent of 50% where the deceased victim was below 40 years of age.

The matter is still prejudiced until then [(Reshma Kumari V. Madan Mohan)]
will hold good as declared by [(Central Board of Dawoodi Bohra Community
and Anr. Vs. State of Maharashtra) (17.12.2004- SC) (5 Judges)] supra.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 298

 (xiii) Pay and recover by insurer

For the purpose of recovery from the owner, the insurer shall not be required to
file a suit, it may initiate a proceeding before the concerned Executing Court as
if the dispute between the insurer and the owner was the subject-matter of
determination before the Tribunal and the issue is decided against the owner and
in favour of the insurer. Before release of the amount to the claimants, owner of
the vehicle i.e. appellant No. 1 shall furnish security for the entire amount which
the insurer will pay to the claimants. The offending vehicle shall be attached, as
a part of the security.

If necessity arises the Executing Court shall take assistance of the concerned
Regional Transport Authority. The Executing Court shall pass appropriate orders
in accordance with law as to the manner in which the owner of the vehicle shall
make payment to the insurer. In case there is any default it shall be open to the
Executing Court to direct realization by disposal of the securities to be furnished
or from any other property or properties of the owner of the vehicle.[(Pramod
Kumar Agarwal v. Mushtari Begum)AIR 2004 SC 4360] and [(Oriental Insurance
Company Ltd vs. Nanjappan and Others) AIR 2004 SC 1630]

S-06-MOTOR INSURANCE (FOR SURVEYORS) 299

B. Importance of Amended Motor Vehicles Act, 2019

We will learn the sections and some sub sections relevant to Motor Insurance
amended under the Act. These are the amendments under the Act, 2019. All the
sections amended are not yet notified and implemented. Government from time
to time through notifications will implement the sections. Till now Government
has issued notifications for enforcing sections 45, 74, 88, 90 and 90(i)(b)

1. Section 14 will now be read as under:

Currency of licences to drive motor vehicles—

(1) A learner’s licence issued under this Act shall, subject to the other provisions
of this Act, be effective for a period of six months from the date of issue of the
licence.

(2) A driving licence issued or renewed under this Act shall,—

(a) in the case of a licence to drive a transport vehicle, be effective for a period
of Five years.

[Provided that in the case of licence to drive a transport vehicle carrying goods
of dangerous or hazardous nature be effective for a period of three years and
renewal thereof shall be subject to the conditions as the Central Government
may prescribe; and;]

(b) in the case of any other licence, subject to such conditions as the Central
Government may prescribe, if the person obtaining the licence, either originally
or on renewal thereof,—

(i) has not attained the age of thirty years on the date of issue or, renewal
thereof, be effective until the date on which such person attains the age of forty
years; or

(ii) has attained the age of thirty years but has not attained the age of fifty years
on the date of issue or, renewal thereof, be effective for a period of ten years
from the date of such issue or renewal; or

(iii) has attained the age of fifty years but has not attained the age of fifty-five
years on the date of issue or, renewal thereof, be effective until the date on
which such person attains the age of sixty years; or

(iv) has attained the age of fifty-five years on the date of issue or as the case
may be, renewal thereof, be effective for a period of five years from the date of
such issue or renewal.”;

S-06-MOTOR INSURANCE (FOR SURVEYORS) 300

2. Section 15 will now be read as under:

Renewal of driving licences—

(1) Any licensing authority may, on application made to it, renew a driving
licence issued under the provisions of this Act with effect from the date of its
expiry:

Provided that in any case where the application for the renewal of a licence is
made more than either one year prior to date of its expiry or within one year
after the date of its expiry, the driving licence shall be renewed with effect from
the date of its renewal:

Provided further that where the application is for the renewal of a licence to
drive a transport vehicle or where in any other case the applicant has attained
the age of forty years, the same shall be accompanied by a medical certificate
in the same form and in the same manner as is referred to in sub-section (3) of
section 8, and the provisions of sub-section (4) of section 8 shall, so far as may
be, apply in relation to every such case as they apply in relation to a learner’s
licence.

(2) An application for the renewal of a driving licence shall be made in such form
and accompanied by such documents as may be prescribed by the Central
Government.

(3) Where an application for the renewal of a driving licence is made previous to,
or not more than one year after the date of its expiry, the fee payable for such
renewal shall be such as may be prescribed by the Central Government in this
behalf.

(4) Where an application for the renewal of a driving licence is made more than
one year days after the date of its expiry, the fee payable for such renewal shall
be such amount as may be prescribed by the Central Government:
Provided that the fee referred to in sub-section (3) may be accepted by the
licensing authority in respect of an application for the renewal of a driving
licence made under this sub-section if it is satisfied that the applicant was
prevented by good and sufficient cause from applying within the time specified
in sub-section (3):

Provided further that if the application is made more than one year after the
driving licence has ceased to be effective, the licensing authority shall refuse to
renew the driving licence, unless the applicant undergoes and passes to its
satisfaction the test of competence to drive referred to in sub-section (3) of
section 9.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 301

(5) Where the application for renewal has been rejected, the fee paid shall be
refunded to such extent and in such manner as may be prescribed by the Central
Government.

(6) Where the authority renewing the driving licence is not the authority which
issued the driving licence it shall intimate the fact of renewal to the authority
which issued the driving licence.

3. New Section Added 134A

(1) A Good Samaritan shall not be liable for any civil or criminal action for any
injury to or death of the victim of an accident involving a motor vehicle, where
such injury or death resulted from the Good Samaritan’s negligence in acting or
failing to act while rendering emergency medical or non-medical care or
assistance.

(2) The Central Government may by rules provide for the procedure for
questioning or examination of the Good Samaritan, disclosure of personal
information of the Good Samaritan and such other related matters.

Explanation.—For the purposes of this section, “Good Samaritan” means a

person, who in good faith, voluntarily and without expectation of any reward or
compensation renders emergency medical or non-medical care or assistance at
the scene of an accident to the victim or transports such victim to the hospital.".

4. CHAPTER X -LIABILITY WITHOUT FAULT IN CERTAIN CASES

140. Liability to pay compensation in certain cases on the principle of no fault

141. Provisions as to other right to claim compensation for death or permanent
disablement
142. Permanent disablement
143. Applicability of Chapter to certain claims under Act 8 of 1923
144. Overriding effect
Chapter X -Liability without fault in certain cases - including its 5 sections are
deleted in the Amended Act, 2019.

5. Section 147 will now read as under :

(1) In order to comply with the requirements of this Chapter, a policy of insurance
must be a policy which—

(a) is issued by a person who is an authorised insurer; and

(b) insures the person or classes of persons specified in the policy to the
extent specified in sub-section (2)—

i. against any liability which may be incurred by him in respect of

the death of or bodily injury to any person including owner of the
S-06-MOTOR INSURANCE (FOR SURVEYORS) 302
 goods or his authorised representative carried in the motor vehicle
or damage to any property of a third party caused by or arising out
of the use of the motor vehicle in a public place;

ii. against the death of or bodily injury to any passenger of a

transport vehicle, except gratuitous passengers of a goods vehicle,
caused by or arising out of the use of the motor vehicle in a public
place.
Explanation.—For the removal of doubts, it is hereby clarified that the death of
or bodily injury to any person or damage to any property of a third party shall be
deemed to have been caused by or to have arisen out of, the use of a vehicle in
a public place, notwithstanding that the person who is dead or injured or the
property which is damaged was not in a public place at the time of the accident,
if the act or omission which led to the accident occurred in a public place.

(2) Notwithstanding anything contained under any other law for the time being
in force, for the purposes of third party insurance related to either death of a
person or grievous hurt to a person, the Central Government shall prescribe a
base premium and the liability of an insurer in relation to such premium for an
insurance policy under sub-section (1) in consultation with the Insurance
Regulatory and Development Authority.

6. Section 149 will now read as under:

(1) The insurance company shall, upon receiving information of the accident,
either from claimant or through accident information report or otherwise,
designate an officer to settle the claims relating to such accident.

(2) An officer designated by the insurance company for processing the settlement
of claim of compensation may make an offer to the claimant for settlement
before the Claims Tribunal giving such details, within thirty days and after
following such procedure as may be prescribed by the Central Government.

(3) If, the claimant to whom the offer is made under sub-section (2),—
(a) accepts such offer,—

(i) the Claims Tribunal shall make a record of such settlement, and
such claim shall be deemed to be settled by consent; and

(ii) the payment shall be made by the insurance company within a

maximum period of thirty days from the date of receipt of such
record of settlement;

(b) rejects such offer, a date of hearing shall be fixed by the Claims
Tribunal to adjudicate such claim on merits.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 303

7. Section 150 will now read as under:

Sec, 150(2) –

No sum shall be payable by an insurer under sub-section (1) in respect of

any judgment or award unless, before the commencement of the
proceedings in which the judgment or award is given the insurer had
notice through the court or, as the case maybe, the Claims Tribunal of
the bringing of the proceedings, or in respect of such judgment or award
so long as its execution is stayed pending an appeal; and an insurer to
whom notice of the bringing of any such proceedings is so given shall be
entitled tobe made a party thereto, and to defend the action on any of
the following grounds, namely:—

(a) that there has been a breach of a specified condition of the policy
being one of the following conditions, namely:––

(i) a condition excluding the use of the vehicle—

(A) for hire or reward, where the vehicle is on the date of the contract
of insurance a vehicle not covered by a permit to ply for hire or reward;
or
(B) for organised racing and speed testing; or
(C) for a purpose not allowed by the permit under which the vehicle
is used, where the vehicle is a transport vehicle; or
(D) without side-car being attached where the vehicle is a two-
wheeled vehicle; or

(ii) a condition excluding driving by a named person or by any person who

is not duly licenced or by any person who has been disqualified or holding
or obtaining a driving licence during the period of disqualification or
driving under the influence of alcohol or drugs as laid down in section 185;
or

(iii) a condition excluding liability for injury caused or contributed to

by conditions of war, civil war, riot or civil commotion; or

(b) that the policy is void on the ground that it was obtained by
nondisclosure of any material fact or by representation of any fact
which was false in some material particular; or

(c) that there is non-receipt of premium as required under section

64VB of the Insurance Act, 1938.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 304

8. Section 159 will now read as under:

The police officer shall, during the investigation, prepare an accident

information report to facilitate the settlement of claim in such form and manner,
within three months and containing such particulars and submit the same to the
Claims Tribunal and such other agency as may be prescribed.

9. Section 161 will now read as under:

(1) Not with standing anything contained in any other law for the time being in
force or any instrument having the force of law, the Central Government shall
provide for paying in accordance with the provisions of this Act and the scheme
made under sub-section (3), compensation in respect of the death of, or grievous
hurt to, persons resulting from hit and run motor accidents.

(2) Subject to the provisions of this Act and the scheme made under sub-section
(3), there shall be paid as compensation,—

(a) in respect of the death of any person resulting from a hit and run motor
accident, a fixed sum of two lakh rupees or such higher amount as may be
prescribed by the Central Government;

(b) in respect of grievous hurt to any person resulting from a hit and run
motor accident, a fixed sum of fifty thousand rupees or such higher amount
as may be prescribed by the Central Government.

10. Section 162 will now read as under :

(1)Not with standing anything contained in the General Insurance

Companies (Nationalisation) Act, 1972 or any other law for the time being
in force or any instrument having the force of law, the insurance
companies for the time being carrying on general insurance business in
India shall provide in accordance with the provisions of this Act and the
schemes made under this Act for treatment of road accident victims,
including during the golden hour.

(2)The Central Government shall make a scheme for the cashless

treatment of victims of the accident during the golden hour and such
scheme may contain provisions for creation of a fund for such treatment.
The fund thus created to be called the Motor Vehicle Accident Fund.

11. Section 164 will now read as under :

(1) Not with standing anything contained in this Act or in any other law
for the time being in force or instrument having the force of law, the
owner of the motor vehicle or the authorised insurer shall be liable to pay
in the case of death or grievous hurt due to any accident arising out of

S-06-MOTOR INSURANCE (FOR SURVEYORS) 305

 the use of motor vehicle, a compensation, of a sum of five lakh rupees in
case of death or of two and a half lakh rupees in case of grievous hurt to
the legal heirs or the victim, as the case may be.

(2) In any claim for compensation under sub-section (1), the claimant shall
not be required to plead or establish that the death or grievous hurt in
respect of which the claim has been made was due to any wrongful act or
neglect or default of the owner of the vehicle or of the vehicle concerned
or of any other person.

(3) Where, in respect of death or grievous hurt due to an accident arising

out of the use of motor vehicle, compensation has been paid under any
other law for the time being in force, such amount of compensation shall
be reduced from the amount of compensation payable under this section.

12. Section 166 will now read as under :

(i) in sub-section (1), after the proviso, the following proviso shall be
inserted, namely:—

(1)Provided further that where a person accepts compensation

undersection 164 in accordance with the procedure provided under
section 149, his claims petition before the Claims Tribunal shall lapse.”
(2) No application for compensation shall be entertained unless it is made
within six months of the occurrence of the accident.”

13. Section 199(A) will now read as under :

(1) Where an offence under this Act has been committed by a juvenile,
the guardian of such juvenile or the owner of the motor vehicle shall be
deemed to be guilty of the contravention and shall be liable to be
proceeded against and punished accordingly:

Provided that nothing in this sub-section shall render such guardian or owner
liable to any punishment provided in this Act, if he proves that the offence was
committed without his knowledge or that he exercised all due diligence to
prevent the commission of such offence.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 306

Test Yourself 1

As per Section 14 that deals with the currency of driving licences, a Learners
Licence is effective for ____________.

I. Three months from the date of application

II. Three months from the date of issue
III. Six months from the date of application
IV. Six months from the date of issue

Test Yourself 2

In case of private cars, driving license of persons above the age of 50 years would
be _________.

I. Renewed for lifetime on payment of prescribed fees

II. Renewed for a year at a time on payment of prescribed fees
III. Renewed for a period of three years at a time on payment of prescribed fees
IV. Renewed for a period of five years at a time on payment of prescribed fees

S-06-MOTOR INSURANCE (FOR SURVEYORS) 307

SUMMARY

In this chapter you learnt some important decisions of MVA pertaining to transfer
of vehicle, driving licence, IDV, computation of compensation and mode of
payment, duty of police officer and powers of tribunal etc. You have also learnt
the amended sections and sub-section of the MVA which have brought a
considerable change focusing on road safety and reducing fatality rate in road
accidents. The act has enhanced the compensation amounts under various
sections and also given directions to police and insurance companies to act fast
and deliver speedy justice to victims of road accidents.

Answer to Test Yourself

Answer 1

The correct option is IV.

As per Section 14 that deals with the currency of driving licences, a Learners
Licence is effective for six months from the date of issue.

Answer 2

The correct option is IV.

In case of private cars, driving license of persons above the age of 50 years would
be renewed for a period of five years at a time on payment of prescribed fees.

Self-Examination Questions

Question 1

Which insurance is automatically transferred on sale of a vehicle ?

I. Motor Own Damage

II. Motor Third Party
III. Motor Package Policy
IV. Motor Bundled Policy

S-06-MOTOR INSURANCE (FOR SURVEYORS) 308

Question 2

What is the dependency factor considered for calculation of compensation,

where the deceased is married?

I. 1/3
II. 1/2
III. 1/4
IV. 2/3

Question 3

Which of the following can claim compensation from a goods carrying vehicle?

I. Owner of the Goods

II. Gratuitous Passengers
III. Paid Passengers
IV. Fare Paying Passengers

Question 4

Which section under Motor Vehicle Amendment Act, 2019 states the protection
for Good Samaritan?

I. 133
II. 134 (A)
III. 132
IV. 133 (A)

Question 5

Which section under Motor Vehicle Amendment Act, 2019 makes provisions for
funds for treatment during Golden hour?

I. 161
II. 160
III. 161 (A)
IV. 162

S-06-MOTOR INSURANCE (FOR SURVEYORS) 309

Answers to Self-Examination Questions

Answer 1

The correct option is II.

In case of sale of a motor vehicle, the Motor Third Party insurance policy is
deemed to be automatically transferred in the name of the new owner. But for
transferring the Own Damage Section of the Policy, the new owner is required to
pay the requisite fee to the Insurers and get the insurance policy transferred in
his name.

Answer 2

The correct option is IV.

The dependency factor considered for calculation of compensation, where the

deceased is married is 2/3rd of the income.

Answer 3

The correct option is I.

Only the owner of goods is eligible to claim compensation from the goods carrying
vehicle. All others such as gratuitous, paid and fare paying passengers are no
legally entitled to travel in the vehicle and hence not eligible for any
compensation.

Answer 4

The correct option is II.

The section 134 (A) of the Motor Vehicle Amendment Act, 2019 provides with
rules for protection of the Good Samaritan.

Answer 5

The correct option is IV.

The section 166 of the Motor Vehicle Amendment Act, 2019 makes provisions for
funds for treatment during Golden hour.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 310

 CHAPTER 11
GRIEVANCE REDRESSAL MECHANISM

Chapter Introduction

In this chapter you will learn about the various forums available to the consumer
for grievance redressal including Courts, company’s internal mechanisms, IRDAI,
Ombudsman, etc. It also gives details about evolution of the quality service
concept and the basic elements of customer service. The chapter also discusses
the regulatory, statutory, self and internal commitments. In the end the chapter
explores the service gaps in motor claims and related customer experience
management.

Learning Outcomes

A. Redressal Mechanisms
B. Quality Service Concept
C. Service Gaps in Claims and Customer Experience Management

S-06-MOTOR INSURANCE (FOR SURVEYORS) 311

A. Redressal Mechanisms

1. Current Grievance Redressal Mechanism

The grievance redressal mechanism must be both cost effective and consumer
friendly and within a time schedule to be laid down for handling grievances.

a) Motor Accident Claims Tribunal / Lok Nyayalay / Adalat / Jal rahat

Yojana / Conciliation Claims Settlement

As learnt in detail in Chapter 8.

b) Internal grievance redressal mechanism of the insurer

Keeping the above tenet, any grievance of a policyholder on any matter

relating to the functioning of an insurer have to be submitted first to internal
grievance redressal mechanism of the insurer.

c) Insurance Ombudsman or Consumer Affairs Department of IRDA

If the complainant is not satisfied with the decision of the grievance redressal
mechanism of the insurer, it can be taken up with the Insurance Ombudsman
or Consumer Affairs Department.

 Need for Insurance Ombudsman

The Consumer Protection Act, 1986 though enacted to settle cases within
90 days is no more a speedy mechanism. Due to lack of adequate
infrastructure huge backlog has arisen. Cases are being adjudicated causing
4-5 years impasse. This led the Central Government to propose concept of
Ombudsman in Insurance Industry.

a) Insurance Ombudsman Scheme

According to the introduction of Insurance Ombudsman Rules-2017,

Governing Body of Insurance Council, vested with powers to appoint
Ombudsman for three years duration to act as Counselor and Mediator. RPG
Rules 1998 created for quick disposal of the grievances of the customers, to
mitigate their problems involved in redressal of those grievances for
Protection of interests of policyholders under Redressal of Public Grievance
Rules, 1998 and also in building their confidence in the system, helped to
generate and sustain the faith and confidence amongst the consumers and
insurers.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 312

 b) Functions of Insurance Ombudsman

The Insurance Ombudsman has limited role though specialised machinery for
tackling personal grievances. Insurance Ombudsman is available at 17 centers
in India. Insurance ombudsman has been mandated to perform two functions,
one is conciliation of disputes and the other is award making up to Rs. 30
lakhs in respect of personal lines of insurance from any person for:

i. Repudiation of claims both partial and total;

ii. Dispute of premium paid or payable;
iii. Dispute of legal construction of policy wordings in case of claims;
iv. Delay in settlement of claims,
v. Non-issuance of any insurance documents after receipt of premium,
Claims

d) Courts and Consumer Forum

Grievances can be taken up for legal adjudication in Civil Courts and with
Consumer Dispute Redressal Agencies. The Consumer Court at District Level
is known as District Forum, Court at State Level is known as the State
Commission followed by the National Commision. If further appeal is to be
made it is done finally with the Supreme Court (the Apex Court).

e) IGMS

The IRDA has also made available an on-line, Integrated Grievance

Management Scheme (IGMS) with customer interface besides access to all
licensed insurers independently and IRDA in a consolidated manner with
facility to monitor, supervise and analyse complaints on pan India basis.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 313

B. Quality Service Concept

1. Basic Elements of Customer Service

Diagram 1: Basic elements of customer service

The basic elements of customer service include tangibility, problem solving,

reliability, responsiveness, reasonableness, assurance, and empathy. Let us
discuss each of these in detail.

a) Tangibility

The tangibilisation of services directly relates to

i. Promptness in policy issue;

ii. Credibility of the company;
iii. On-time delivery of policy;
iv. Simple procedures for policy issue;
v. Knowledge of the agents regarding different products;
vi. Effective customer service support facilities;
vii. Cheque pick-up;
viii. Enhanced quality of customer service;
ix. Promptness in settlement of claim

S-06-MOTOR INSURANCE (FOR SURVEYORS) 314

 b) Issues in Problem Solving

The issues in problem solving relate to

i. Knowledge of the customer service representative;

ii. Waiting time to get connected to customer service representative;
iii. Politeness of customer service representative;
iv. Persuasiveness of customer service,
v. Representative to address the problem
vi. Perceived financial strength of the company;
vii. Network of the company (convenient location of the branches);
viii. Promised service levels provided;
ix. Possibility of long term association with company;
x. Transparent and clear rules and regulations of the policy;
xi. Promptness in payment procedure;
xii. Promptness in claim redress;
xiii. Relaxed documentation norms;
xiv. Services provided within time frame of long-term reliability i.e., stability
of company;
xv. Level of satisfaction with policy cover;
xvi. Customisation of policy cover as per requirements;
xvii. Company’s initiative to make customer aware of various policy products
and support facilities and covers;
xviii. Regular updates provided by company;
xix. Value for money, both in terms of cover and return;
xx. Appropriateness of returns;
xxi. Regular update and accounts sharing;
xxii. Grace period for premium payment;
[Link] on overall investment

With regards to issues in problem solving, in motor insurance, one needs to

appreciate

i. Quality and infrastructure of dealers and garages;

ii. Numbers of tie-ups with different dealers’ network;
iii. Types of the dealer centre in terms of its infrastructural facilities;
iv. Types of the workshops in terms of services they offer;
v. Politeness and behavior of the customer service representative

c) Reliability

Reliability of insurance company is shown if the insurance policy meets

i. The customer’s needs which are acceptable to him;

ii. Financial strength of the company in the long term;
iii. Interconnectivity of the operating branches;
iv. Providing promised service levels;

S-06-MOTOR INSURANCE (FOR SURVEYORS) 315

 v. Appropriateness of bills verification;
vi. Promptness in claims dispute redressal;
vii. Relaxed documentation norms and regulations;
viii. Adherence to TAT turnaround time of each service i.e., services provided
within time frame.

Reliability for the customer is

i. His sense of security to the policyholder,

ii. Solidity of the insurance enterprise by ensuring their solvency margins
within norms prescribed by the regulator,
iii. Guarantee against claims pay ability by investing in government approved
securities and adhering to legislative norms for a guarantee fund for all
insurance activity

d) Reasonableness

The policyholder expects to be treated reasonably and be not charged

excessively and receive fair treatment as between policyholders and principle
of discrimination in rating i.e., equity among policyholders.

The acceptable manner of functioning for customer satisfaction is for insurers

to:

i. Conform to public policy,

ii. Make available retail covers i.e., social / micro sectors, including family
units,
iii. Cover to those who need and want insurance protection e.g., for below
poverty line (BPL) / economically poor people, the cover has to be
affordable,
iv. Conveniently available i.e., direct mail / tele insurance /on net / 24*7 /
at home / at door step
v. Cover to be reasonably priced
vi. Cover to meet the requirements of the policyholder

In other words, insurance should be readily available, reasonably priced and

company should be financially strong to meet its liability.

e) Responsiveness

Responsiveness for customer to be satisfied refers to sensitivity of insurer

towards

i. Quality of repairs made available;

ii. Promptness in claim settlement;
iii. Acceptance and effectiveness of the cashless transaction facilities;
iv. Degree of clarification on insured amount;

S-06-MOTOR INSURANCE (FOR SURVEYORS) 316

 v. Promptness to react towards claim settlement problems;
vi. Hassle free repairs;
vii. Effective renewal reminder mechanism;
viii. Proper flow of information,
ix. Hassle-free reissue of policy documents;
x. Prompt reissue of policy document;
xi. Suggestions in terms of precautionary measures for avoiding perils

f) Assurance

Customer needs assurance repeatedly through

i. Applicability of the product / policy cover on customer;

ii. Company’s initiative to provide awareness of the product facilities and
covers;
iii. Regular updates on timely basis;
iv. Ensuring adequacy and scope of the insurance policy; and
v. Appropriate steps employed for the claim settlements

g) Empathy

Empathy means to put one self into the position of others. This is possible by

i. Providing for treatment during break in period;

ii. Personalised consulting / advisory provisions;
iii. Effective customer loyalty programmes;
iv. Providing value-added services and feedback maintenance;
v. Personal consulting for customised policy and claims solutions;
vi. Assessment of claim benefits as per rules specified at time of issue of
policy;
vii. Appropriateness in calculating claims settlement;
viii. Overall satisfaction levels reached with the company (experience of being
associated with the company).

2. Regulatory, Statutory, Self and Internal Commitments

In India’s regulatory regime,

i. The IRDAI’s main objective is to protect policyholder’s interest and

ii. IRDAI’s development objective is development of retail business, along

with spread of insurance in India.

While customer’s entitlements are IRDA’s, aims as envisaged under IRDA Act 1999
and insurers commitment is internal commitment given in Citizens Charter and
the rights of customer available is industry mechanism at customers door step.
Do we have progress in these areas? The regulatory commitment and need for

S-06-MOTOR INSURANCE (FOR SURVEYORS) 317

Insurance Ombudsman at self-regulatory level has given the needed fillip towards
providing greater consumer satisfaction.

Deficiency in service, Restrictive Trade Practice, Unfair Trade Practice under

Consumer Protection Act 1986 the Statutory commitment, Protection of Policy
Holders Interest Do’s and Don’ts. IRDAI aims at

i. Insurance customer receiving precise, clear and correct information,

about the services, products and risks;

ii. Recognises Insurance Customers’ responsibility for their own decisions,

while aiming to ensure that they are not exposed to risks that they should
not reasonably be expected to assume.

IRDAI further aims to protect customers of insurance companies and is required

to set, promote, monitor and enforce high standards of integrity, financial
soundness, fair dealing and competence of those it regulates, in order to protect
and to secure fair treatment for insurance policyholders.

Test Yourself 1

Insurance ombudsman has been mandated to perform the function of Award

making up to _______ in respect of personal lines of insurance from any person.

I. Rs. 5 lakhs
II. Rs. 10 lakhs
III. Rs. 30 lakhs
IV. Rs. 40 lakhs

S-06-MOTOR INSURANCE (FOR SURVEYORS) 318

C. Service Gaps in Claims and Customer Experience Management

1. Service Gaps in Claims

Service gaps in claims relate to:

i. Proportionately large number of claims in motor insurance,

ii. Requirement of quick registration,
iii. Requirement of immediate payments,
iv. Need to explain deductions in claims,
v. Manage local administration and local politicians interference,
vi. Completion of claim related forms,
vii. Implications for controlling offices,
viii. Lack of care in designing products in regard to premium, additional covers

There is need for redesigning of proposal form, filling the form in duplicate to
provide copy to insured and making it compact to facilitate understanding,
provide prospectus of every product containing details regarding scope of
benefits, extent of insurance cover, warrantees, exceptions, conditions.

a) Implications for Controlling Office

The controlling office is required to review working processes to:

i. Reduce time lag, in issuance of policy, in settlement of claim,

ii. Explore alternative methods of policy stamping,
iii. Review penal interest rate in terms of accountability,
iv. IT support at operating offices,
v. Develop MIS with IT support to monitor bench marks in respect to time
stipulations

b) Implications for Operating Office

The office is required to

i. Record date of receipt of proposal,

ii. Expedite process of underwriting where higher office approval is required,
iii. Communicate underwriting decision within 15 days,
iv. Communication for requirements to proposer immediately,
v. Proposal form to reach policy holder within 30 days as per Protection of
Policyholders Regulations.

Claim Settlement Implications

Claims settlement is required within 15 days of loss intimation and to respond

within 10 days of communication from policyholder. The IRDA PPI regulation
require claims settlement within 30 days on receipt of all papers, payment of
S-06-MOTOR INSURANCE (FOR SURVEYORS) 319
penal interest for delayed processing 2% above bank rate on the first day of every
financial year.

c) Implications for Intermediaries

Agents are required to adhere to code of conduct as regard to transparency

in operations, providing objective information without bias or favour. Agents
/ intermediaries should be well versed in relevant selling points and needs of
customer and provide full details to proponent to decide for best cover.

The agent is supposed to provide accurate information about customer’s

moral hazard and morale hazard and risk involved (past losses). The agent
must possess knowledge of policy servicing and claims procedure to
customers. Agents should submit the proposal form and premium
immediately. Prospectus / Brochure / Leaflet of features of policy must be
available with the agent. How to increase retention and cross-sell additional
services?

2. Creating Value Added Services

Insurance companies can create value for customers on the basis of five
interlocking ways as per Harvard study:

i. Solutions: to solve customers’ problems

ii. Respect: treat customer with respect
iii. Emotions: contact with your customers emotions
iv. Pricing: set the fairest prices
v. Convenience: save your customers time

3. Customer Experience Management

Competition has become more intense, become more retail customer sensitive.
Insurers must:

i. Have more responsive employees,

ii. Develop customer specific internal systems of distribution and redressal,
iii. Attract customers by professional selling, and
iv. Evolve customer sensitisation through customer directed efforts

Customer Experience Management (CEM) is one of the most important customer

strategies for today's business:

i. It creates direct impact on insurers brand;

ii. It works as a guiding principle for designing a customer-centric business
process;
iii. It influences every staff that acts as customer touch-points during the
total customer experience process

S-06-MOTOR INSURANCE (FOR SURVEYORS) 320

 a) Be a Friend of Your Customer

All too often we come across some case, usually in a consumer court, being
decided against an insurer and in favour of a client. In one such case the
client, a resident of Navi Mumbai, reported the theft of his car. Police reports
were submitted, the insurer appointed an investigator, the claim note was
also approved. A day before the cheque was to be issued; the stolen vehicle
was recovered by the police. The vehicle was suspected to have been stolen
by alleged terrorists in connection with the blasts at Akshardham temple.
Since the vehicle was recovered prior to the insurer issuing the cheque, the
insurer denied liability. More than 10 years later, the car is still in police
custody as "material evidence".... and the client is still running from pillar to
post. There are two aspects under motor theft claims:

i. If the vehicle was recovered prior to settlement of the claim including

issue of the settled amount, the insured should accept the recovered
vehicle immediately.

ii. If there are damages or change in color / theft of spares, under the said
claim, such spares is / is payable including the prescribed towing charges
against same claim intimation.

The policy only requires the matter to be reported to the police. Even an FIR
is not mandatory. In view of various judgments cited on the issue any delay
in settlement beyond 90 days has little justification as stipulated by the
regulations of the IRDA also. The fact that an insured peril has operated
causing a loss, must be taken as sufficient trigger to accept liability and pay
the claim. The insurer should settle immediately if we talk of consumer
delight.

b) Insurer’s Primary Service

What is insurer’s primary service? Is it issuing cover note or policy or settling

claims? When consumer is said to be satisfied? Whose satisfaction is
important, insurers or insured’s?

These are some questions which need to be addressed when talking of

consumer delight. Consumer is delighted only when his genuine claim is
settled without any hassles. Are insurance companies taking any efforts to
settle claims and settle them expeditiously? Paradoxically all actions taken
by insurers are in terms of claims settlement ratio, which ironically does not
account for number of claims closed as no claim and number of claims where
the insured disputed quantum of claim.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 321

 Insurers do not adhere to turnaround time for settlement of claim, assistance
given to client in speedy settlement of claim. Should insurers’ not provide
Claims Councilors’ to help the client to take his claim?

i. Claims Counselor

Insurers should have Relationship Managers as claims counselors who will

reach the client and help him in obtaining all documents and shifting of
vehicle for repairs, procuring estimates and in consultation with surveyor
make him reach to an amicable settlement. Ensure that scrap (sic salvage)
items are duly verified and disposed off expeditiously and economically. Help
client in verification of the vehicular documents and arrange for transfer of
Registration papers in case of Total loss or theft claims.

ii. Third Party counselors’

In case of third party injury claims, the beneficiary is left to fend for
themselves where the black coat provides all help according to his
professional understanding.

Whose client is beneficiary in any case?

Should insurers not help them in reaching to amicable compromise

settlement?

The need of the hour is ‘TP counselors’ who will help the injured or legal
representatives of deceased by extending services of their tie up hospitals
where the accident victims are taken for treatment / convulsing.

4. Customer Grievance Cells

The mechanism envisages Officer-in-charge at all operational centers to be

mobile at doorstep. Operating offices must keep record of all complaints and
action taken until final disposal. A record is maintained of complaints received
and disposed-off every month. Reports are to be monitored by corporate office.

Dispute resolution at door step for retail customers is managed through

Panchayat in rural segment with Banker / Post Master as independent nominees,
holding claims Courts; urban segment, claims clearance weeks, customer
education through participation in fairs / road shows / dealers shows / media.

At Head Office a retired judge of High Court, the Chief Operating Officer or
Executive Director in charge of insurer’s customer service and the Managing
Director or Chief Executive himself.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 322

 c) Culture of Helping Attitude

The client must feel that insurance company is willing, even to the extent of
going out of way, to settle the claim. The culture of helping attitude and
standing behind the client for his financial safety must be the motto of each
employee. This requires the insurers to change their attitude of finding faults
to reduce payments or repudiate the claims or hoodwinking the client to
submit him to accept lower amounts as full and final settlements.

d) Bond of Trust and Confidence

Consumer delight is possible when a bond of trust is created by insurer with

the client so that client is not left to fend for themselves. The maximum
number of claims are disputed by insurers in the courts on the ground that
the client has accepted the claim in full and final settlement while the client
remains dissatisfied and accepts partial payment to recompense his losses to
some extent if not fully.

Similarly in TP claims, if all other policy requirements are met, insurers must
not only offer compromise amount on the basis of just compensation arrived
but also deposit in the court with the consent to release the amount and let
the case be then contested on the principle of fault liability. This will enthuse
confidence in the beneficiaries and build a degree of trust about insurance
company’s best intentions to settle the claim.

What needs to be done is to affirm this trust and confidences that the
insurance company is solidly behind the genuine claimants always to provide
consumer delight. When a client prefers his insurance claim, the whole
insurance team must be extremely supportive and be seen as taking the claim
in all possible and correct manner for the damages and be ready to help in
getting the vehicle back with a smiling face for me. Neither the dealer should
have any complaints for the services of insurer nor should the client hold any
odd.

Test Yourself 2

The _____________ of insurance services directly relates to things like

promptness in policy issue; credibility of the company; promptness in claim
settlement etc.

I. Reasonableness
II. Responsiveness
III. Empathy
IV. Tangibility

S-06-MOTOR INSURANCE (FOR SURVEYORS) 323

Summary

This chapter offers a wide range of redressal mechanisms available to the

customer beginning right from the Company’s Internal Grievance Cells, Courts
and also Ombudsman. It gives the alternate methods of settlement existing in
the system including Lok adalats and Jald Rahat Yojana which is time and cost
efficient to both consumer as well as insurers. This chapter also provides you
with the basic 7 elements which form the basis of customer service. Further it
discusses the problems in the services renderered to the customers during the
claim process and provides insights on creating value added services to the
consumers. Finally it suggests various ways to improve customer satisfaction,
thereby managing customer experience in a balanced and efficient manner.

Answers to Test Yourself

Answer 1

The correct answer is IV.

The tangibility of insurance services directly relates to things like promptness in

policy issue; credibility of the company; promptness in claim settlement etc.

Answer 2

The correct option is III.

Insurance ombudsman has been mandated to perform the function of Award
making up to Rs. 30 lakhs in respect of personal lines of insurance from any
person.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 324

Self-Examination Questions

Question 1

_____________ for customer to be satisfied refers to sensitivity of insurer

towards quality of repairs made available; degree of clarification on insured
amount; hassle free repairs etc.

I. Reliability
II. Reasonableness
III. Responsiveness
IV. Empathy

Question 2

___________ of insurance company is shown if the insurance policy meets the

customer’s needs which are acceptable to him; financial strength of the company
in the long term; interconnectivity of the operating branches etc.

I. Reasonableness
II. Reliability
III. Responsiveness
IV. Empathy

Answers to Self-Examination Questions

Answer 1

The correct option is III.

Responsiveness for customer to be satisfied refers to sensitivity of insurer

towards quality of repairs made available; degree of clarification on insured
amount; hassle free repairs etc.

Answer 2

The correct option is II.

Reliability of insurance company is shown if the insurance policy meets the

customer’s needs which are acceptable to him; financial strength of the company
in the long term; interconnectivity of the operating branches etc.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 325

 CHAPTER 12
FRAUD MANAGEMENT AND INTERNAL AUDIT

Chapter Introduction

In this chapter you will learn about frauds in OD &TP claims in Motor Insurance.
You will also know about the types of fraud right from underwriting stage to
claims and the issues to be audited.

Learning Outcomes

A. Frauds in Motor Insurance

B. Underwriting Frauds and Issues to be Audited
C. Fraud in Motor TP Claims
D. Fraud in Motor OD Claims
E. Ways to Mitigate Fraud

S-06-MOTOR INSURANCE (FOR SURVEYORS) 326

A. Frauds in Motor Insurance

Meaning of Fraud and Legal Provisions

The Webster dictionary provides meaning of fraud as, intentional perversion

of truth in order to induce another person to part with something of value or
to surrender a legal right. In essence fraud is an act of deceiving or
misrepresenting another person dishonestly and/or fraudulently, for
achieving a wrongful gain or causing a wrongful loss.

a) Provisions of Indian Penal Code

Section 2 (23-25) of IPC provide definition of wrongful gain; wrongful loss

along with acts committed dishonestly and fraudulently as hereunder:

Wrongful gain is the gain by unlawful means, of property, to which the person
so gaining is not legally entitled.
Wrongful loss is the loss by unlawful means, of property, to which the person
losing it is legally entitled.

i. Dishonesty

Whoever does anything with the intention of causing wrongful gain to one
person or wrongful loss to another person is said to do that thing dishonestly.

ii. Fraudulently

A person is said to do anything fraudulently, if he does that thing with intent

to defraud but not otherwise.

iii. Fraud

Fraud under Section 463 of IPC provides an intention to deceive, whether it

is from any expectation of advantage to the party himself or from ill will
towards the other, is immaterial.

iv. Forgery

Forgery under Section 463 of IPC provides that whoever makes any false
document or part of a document, with intent to cause damage or injury to
the public or to any person or to support any claim or title or to cause any
person to part with property or to enter into any express or implied contract
or with intent to commit fraud or that fraud may be committed, commits
forgery.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 327

 b) Making a False Document

Section 464 of IPC provides that a person is said to make a false document,
who dishonestly or fraudulently makes, signs, seals or executes a document
or part of document or who, without lawful authority, dishonestly,
fraudulently, by cancellation of otherwise, alters a document in any material
part thereof or who makes a false document, which dishonestly or
fraudulently causes any person to sign, seal, execute or alter.

c) Fabricating False Evidence

Section 191 of IPC provides provision for giving false evidence as whoever,
being legally bound by oath and express provision of law to state the truth or
being bound by law to make a declaration upon any subject, makes any
statement which is false, and which he either knows or believes to be false
or does not believe to be true is said to give false evidence. The statement is
false whether it was made verbally or otherwise.

Section 192 of IPC provides provision for fabricating false evidence as

whoever, causes any circumstances to exist or makes any false entry, or
makes any document containing a false statement may appear in evidence in
a judicial proceeding to form an opinion upon the evidence to entertain an
erroneous opinion touching any point material to the result of such
proceeding is said to fabricate false evidence.

d) Provisions of Civil Procedure Code

Sub-section 2 of Section 48 of Civil Procedure Code (CPC) provides certain

circumstances of fraud.

e) Criminal Procedure Code (Cr. PC)

Section 156 of Cr. PC provides that an officer in-charge of a police station

may, without the order of Magistrate investigate any cognizable case, which
a Court having jurisdiction over the local area within the limits of such station
would have power to enquire into or try under the provisions of Ch XIII.

Section 102 provides power to Police Officer, to seize certain property when
any offence is committed and provide a seizure memo to be produced before
the competent Court.

After Final Report is filed by the Investigating Agency in criminal cases, only
Magistrate has the power and the aggrieved can file appeal or seek judicial
review. [2007 (7) Supreme 495]

S-06-MOTOR INSURANCE (FOR SURVEYORS) 328

 f) Motor Vehicle Act, 1988

Section 158(6) of Motor Vehicle Act, 1988 provides that as soon as any
information regarding any evidence involving death or bodily injury to any
person is recorded or report under the section is completed by a Police
Station, the Officer in-charge of the Police Station shall forward a copy of the
same within 30 days from the date of recording of information or as the case
may be, on completion of such report to the Claims Tribunal and Insurer.

1. Types of Fraud

Diagram 1: Types of fraud

a) Conversion of Non-Road Traffic Accidents

Fraud is perpetrated by conversion of non-road traffic accidents into road

traffic accidents for example:

i. A person falling from tree / slipped in staircase or bathroom or receiving

injury in likewise manner.

ii. Natural death / suicide / murder converted into road traffic accident by
way of staging false accident.

b) Conversion of Medical Cases for Wrongful Gain

Medical expenses incurred for some disease are met out by way of filing MACT
cases by falsely associating it with some false injury.

i. Permanent disability either on medical ground or congenital (since birth)

is converted into disability arising out of road accident.

ii. Inflated or bogus medical bills and certificates

S-06-MOTOR INSURANCE (FOR SURVEYORS) 329

 c) Frauds in Road Accidents

i. Substitution of uninsured vehicle by an insured vehicle.

ii. Late implication of insured vehicle in case of hit and run.

iii. Substitution of name of the driver having no driving licence by the name
of a driver having a valid driving licence.

iv. Addition of names of the persons not affected by accident, either at the
time of finalising charge sheet or writing general report.

v. Impersonation either for the driver or victims of the accident or

claimants.

vi. False FIR’s, fraudulent medical documents / employment records /

vehicle documents

d) Multiple Cases (Forum Shopping)

Multiple cases for the same accident at different Tribunals or places or time:
Filing of more than one application in different MACT(s) due to the provision
permitting filing of claims at the place of accident, at the place where the
claimant resides, at the place of business of claimant, or where the branch
office of the respondent company is situated.

It may be done simultaneously at one time or at different times. It may be

during the pendency of first case or when the first case had already been
decided, due to the omission by the legislature in respect of limitation period
for filing road accident claims.

Test Yourself 1

Whoever does anything with the intention of causing wrongful gain to one person
or wrongful loss to another person is said to do that thing _________.

I. Fraudulently
II. Forcefully
III. Dishonestly
IV. None of the above

S-06-MOTOR INSURANCE (FOR SURVEYORS) 330

B. Underwriting Frauds and Issues to be Audited

1. Underwriting Frauds

i. Insurance is arranged after loss with connivance of insurers employees

ii. Using fabricated and bogus cover note, policy document or Certificate of
Insurance.

iii. Forging a cover note or photocopy of existing cover note, by way of

interpolation of dates, name of insured and vehicle number.

iv. Issuance of ante-dated cover note / deposit challan / receipt / by

authorised person of the company.

v. Issuance of original cover note to insured, without filing the time of

commencement of the cover in cover note, with the intention to give
wrongful gain to insured, and submitting copies thereof, in the office after
filling the time of commencement of cover.

vi. Misuse of signed, blank cover notes handed over to Agents/ Dealers /RTA
agents by the Development officer/ Branch Manager.

vii. Acceptance of cover by authorised officer either in collusion with the

issuer of the cover note or due to gross negligence.

viii. Acceptance of premium in cash, for ante dating by way of adjusting the
premium on back date while the IT operating system is operative on the
date. (It can be operative up to next 6 days) or by way of showing as late
collection scroll, particularly of Friday evening.

ix. Acceptance of premium by back dated Cheque/ Third Party cheque to

adjust the premium of bogus cover.

x. Cheque of the date, knowingly that it will not be honoured by the bank.

a) Various Stages of Commission of Frauds

i. At the time of underwriting, when cover is given knowingly about the

occurrence. If cover is not available, then by arranging forged cover.

ii. By way of furnishing wrong information to Police Authority or by way of

arranging False FIR through Police Authority.

iii. By way of arranging false medical records / forged hospitalization records

and also Medical Leave Certificates.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 331

 iv. By way of arranging certificates of Competent Medical Practitioner for
creating nonexistent Permanent Total or Partial Disablement or to
exaggerate percentage of Permanent Partial Disablement.

v. By way of arranging vehicles for non-traffic or traffic accidents in collision

with some vehicle owners.

vi. By way of arranging for bogus Employment Certificate, Tax Receipts, RC

Books, Post arranged driving licenses, age certificates, etc.

vii. By way of furnishing wrong information in the application for

compensation filed in the MACT and / or criminal court, in respect of
dependency, occupation, income, age, injury, accident itself,
impersonation, etc.

viii. By way of staging examination-in-chief through stock witness in relation

to the information laid down above.

ix. By way of collusion with the insured and sometimes in connivance with
advocates of the Company.

x. Satisfaction of award where grounds of successful appeal are available.

Identification of Fraud: Thorough knowledge of MACT cases, MV Act,

Criminal Procedure Acts, IPC and document related in connection thereof
should be there to detect the fraud. Some examples are:

i. FIR provides information about the cause and nature of accident,

negligence, vehicle no., name of the driver, place of the accident, name
of the victims of accident, names of the hospital where the victims were
first admitted, name of eye witnesses.

ii. Accidents register gives information about the above facts.

iii. Seizure memo gives first information about the existence of policy, name
of the driver and also the driving licence seized along with vehicle
records.

iv. Panchnama / site sketch plan at the place of accident gives information
about cause of accident, and negligence part.

v. Inquest report gives information about the deceased person, time of

accident, time of identification of dead body, and outer marks of injury,
hurt, etc.

vi. Post Mortem Report gives information about time of death, age of
deceased and cause of accidental death.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 332

 vii. Statement of witness given before the Police Authority in accordance with
section 161(3) of Cr. PC gives information on the persons involved in
criminal cases where as, stock witnesses are examined in MACT trials.

viii. Report of Motor Vehicle Inspector informs about the damages to the
vehicle, with date of accident and inspection. It can also be inferred from
there, if vehicle had some mechanical fault. It gives information about
the name of the owner and the driver.

ix. Charge sheet informs about the negligence of the driver, in addition to
giving other information like vehicle involved persons dead or injured,
etc.

x. Findings in a criminal case such as non-involvement of vehicle or non-

accident cases.

Effective investigation: The perusal of above-mentioned documents and

probing mind of MACT officer will be able to detect if any fraud is involved.
Apart from these, effective investigation should be arranged for the
corroboration of the vital facts and to dig out additional information to
ascertain the truth. For effective investigation following norm should be
followed:

i. The investigator must visit the place of occurrence of accident to

ascertain the place of accident / details of accident / victims etc. It is
preferable that this part of investigation is conducted immediately after
the information of accident is made available through any source such as
newspaper etc.

ii. Details of information in relation to victims and claimants should be

ascertained by the investigator from the residence/ dwellings of the
victim/ claimants and from the neighbours of this person. As proof of it,
the investigator should bring recent photographs of these persons, as well
as the persons whose statements he obtains in support of the facts.
Weightage should be given to the documentary evidence.

iii. Investigator should specifically collect the details of the offending

vehicle, the driver at the time of accident, owner, RC particulars,
insurance details, so that any fraud in connection with aforesaid should
be detected at an early stage.

iv. The investigator must bring a copy of Medical Leave Certificate, Hospital
record where the victim allegedly had been reported/admitted. In
addition to it he must bring information if any other hospital or clinic was
situated near the place of accident. If yes, then the reason for admitting

S-06-MOTOR INSURANCE (FOR SURVEYORS) 333

 victims to a distant hospital. Copy of prescription, discharge certificate,
bills of purchase, etc. must be collected.

v. Identification of fraud is also possible if investigation is arranged by

introducing modern technology like videography, audiography, etc., so
that fraud is proved conclusively.

vi. Own damage claim file should be connected with MACT claim file for
verification of facts and detection of frauds.

Methods of Detection of underwriting fraud in early stage

i. The investigation report

ii. The seizure memo

iii. 64 VB Compliance Certificate

iv. The copy of cover produced by the applicant in MACT in support of the
claim

v. Any complaint received in the office

b) Frauds Committed with Internal Support

The cases falling under close proximity must be reported to the controlling
office immediately with all documents as prescribed by the guidelines.
Investigation must be made into the close proximity cases to exclude the
possibility of antedating or old losses being camouflaged. If antedating is
found, immediate departmental action through vigilance should be initiated
so that a stand on fraud in collusion with the employees / agents could be
taken in defence in MACT. In such cases the cover note issuance authority of
the suspected employee should be withdrawn simultaneously while the
matter is being reported to vigilance department for initiating action.

It would be necessary to establish fraud at trial level by deposing through the

authorised officer of the company, establishing policy / cover note / other
documents and initiating departmental action.

c) Frauds Committed by Outsiders

i. FIR should be lodged before the competent police authority. In case police
authority does not take cognizance of it, the complaint should be made
to the judicial authority.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 334

 ii. Specific pleas on the issue should be raised in written statement itself. If
detected at a later stage, it should be raised through additional petitions
before MACT.

iii. Available evidences must be produced in the MACT either through the
documents / investigator / officer of the company or voluntary witnesses.
In case any document is adduced, it should be deposed through the person
who issued the document e.g., RTA record, Hospital record.

iv. False disability certificates must be challenged through our panel

orthopaedic medical practitioner.

v. If the fraud is detected after the award, the matter must be brought to
the same court, which passed the award under Section 151 of CPC in the
light of recent Supreme Court judgement which says that no Court is
powerless to review its own judgement, if judgement is obtained by way
of fraud or false information, whatsoever.

vi. If the fraud is detected after the appeal is filed it must be submitted with
proper prayer by way of specific petition for consideration as additional
evidence, in the light of judgement of Supreme Court.

vii. Frauds by Facilitating Agencies

viii. Advocate

ix. Police

S-06-MOTOR INSURANCE (FOR SURVEYORS) 335

C. Frauds in Motor TP Claims

1. Frauds in TP Claims

Third Party claims settlements are a drag on an insurer’s profitability. They form
the highest amount of claims among all departments. Whilst it is not denied that
these settlements are a social obligation, it must also be ensured that individuals
/ claimants do not take undue advantage of the provisions of the law to enhance
personal wealth. The very nature of these claims leaves them open to fraudulent
practices.

a) Reason for Claims Occurrence

The time span between the date of accident and the filing of the case or
receipt of summons from the Court by the insurers renders the information
open to manipulation. Section 158(6) of the MV Act 1988 requires the Officer-
in-charge of the Police Station to forward the FIR to the insurers and Claims
Tribunal having jurisdiction within thirty days. Claimant’s lack of knowledge
on their entitlement leaves them at the mercy of Advocates and other
Agencies. Advocates take up such matters with a “No gain no fee” concept
and may therefore, be tempted to manipulation.

b) Fraud Management

Fraud management is essential to ensure that only genuine claims are settled.
Some of the measures that can be adopted are documentary proofs of
accident details:

 Photographs,
 Witness statements,
 Identities of claimants and witnesses,
 Examination of the authorities concerned with the case e.g. doctor
treating the accident victim to depose on the nature or extent of
injury,
 RTA authority to depose on the vehicle and driver’s documents,
 Identification of claimants by concerned police official

i. Appointment of investigator: It is essential to appoint an investigator to

collect facts, probe the documents and details issued by the Hospital in
Medico Legal Cases (MLC) where the victim was first admitted / treated.

ii. Photograph of victim: Preferably, photograph of victim may also be

obtained duly certified by the attending doctor.

iii. Panchnama and Seizure report detailing accident site and cause of
accident and the documents taken in the custody by the police viz. Policy
copy, Driving Licence, Registration Certificate etc.
S-06-MOTOR INSURANCE (FOR SURVEYORS) 336
 iv. Identity of witnesses to accident, PM / Inquest report for date time of
accident, age of victim and cause of death.

v. The Motor Vehicle Inspectors (MVI) report on the damages to the

vehicle; owner, driver, cause of accident and the charge sheet of
involvement should be obtained and studied.

If documents infer fraud they should be provided as evidence and Written

Statement (WS) should vigorously pursue the matter. A police complaint of
fraud should also be filed to support the contention.

The insurers representing Advocate should be advised to incorporate all

defenses to deal with the case and to emphasis these fraudulent aspects.
Here it must be emphasised that the insurers must follow-up with the
advocate to ensure that the WS is filed as per their instructions and defended
by the advocate appropriately.

2. Vigilance by Insurers - Key to protect Fraudulent Claims

In the context of this aspect of period of limitation and territorial jurisdiction,

insurers have a lot to worry. The key is to centralise the claim module so that
any claim generated anywhere in India is notified by the policy issuing office to
the office handling the claim, lest there was duplication of claims. It is possible
also that in case of involvement of two vehicles, the same claimant may cleverly
lodge a EC claim against his employer / insured / insurer in a given court and
then go ahead and lodge a Motor accident claim against the colliding vehicle /
other insurer in another place in MACT.

Insurers verify such aspects. The two claims may be against two different insurers
and unless investigated and verified, may escape the eye of both insurers.
Further, there may be claims lodged by rival claimants in two different States,
and unless collated and correlated, may be independently contested as well.
Further, in the absence of any period of limitation, vigilance is the key.

If the insurer was liable to a limited number of claims, they must take this
defence and ensure that future claims are suitably avoided.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 337

D. Frauds in Motor OD Claims

1. Seamless Claims Management

There is a saying “Insurance fraud is a bigger industry than insurance

business”. A major problem in the non-life insurance space is the endemic nature
of fraud, waste and revenue leakage. Internationally motor fraud range is in
between 10% to 15% of the insurance claim payout.

Example

In the United Kingdom, for instance, undetected general insurance claims total
£2.1 billion a year, adding an average £50 to the annual costs individual
policyholders face each year.

It is therefore likely that in India too this may be substantial. Motor insurance is
the largest single portfolio that impacts the lives of all sectors of society in India.
A study carried out by India forensic stated that insurance companies have
collectively lost a whopping Rs. 304.01 billion, or about 9 percent of the total
estimated size of the industry into Motor Claims, due to various frauds in 2011.

2. Frauds in motor insurance

a) Frauds from external and internal sources

Fraud can be from:

i. External sources i.e. the insuring public or

ii. Internal i.e. insurers, agents and intermediaries

More often it is a nexus between both groups that perpetrate fraud. The fraud
can range from misrepresentation at the time of taking insurance, e.g.,
renewal of a policy much after its expiry date. It has often been observed
that the vehicle is already damaged or stolen when the proposer seeks
insurance. Insurers have tried to counteract such cases treating ‘break–in–
insurance’ as a rigorous methodology insisting on physical inspection of the
vehicle, tracing its chassis number, before acceptance for insurance.

b) Multiple insurance cover on same Vehicle

Another type of fraud results after the insurance has been taken. The same
vehicle may be insured with two or more insurers and claims are reported
with all. This is due to a nexus between repairers and claimants. This type of
fraud is much more difficult to detect, in the absence of a Central Repository
for reporting all accidents.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 338

 The recent trend to earmark authorised repairers by insurers has helped in
some small way. However, the commercial vehicle field is still open to such
frauds. The black-listing of such repairers is one of the ways of reducing such
attempts. Regular visit and appraisal of such shoddy repairers and
disseminating such information to other insurers, may help in preventing such
frauds.

c) Inflated Bills of Repairs

Frauds may also occur when inflated bills of repairs are produced. The
insured takes recourse to claiming in excess of the damages sustained or
including earlier minor damage repairs in the claimed amount. There may
also be forged bills to explain some major damage cost.

d) Faked Accidents or Burglaries

These are other types of fraud that can occur. Rotation of insurance personnel
and intermediaries, regular visits to repairers and if necessary investigations
of frequent claims or from specific regions or intermediaries could be
followed to keep a check on such frauds.

In accident-related claims, frauds are difficult to identify and / or locate

because the validation mechanism to detect fraudulent claims depends on
verification by a Surveyor. Insurers have limited ability to detect if the
Surveyor is complicit in making a fraudulent claim or has been duped by the
claimant.

e) Staged Collisions

A new phenomenon is emerging in stage collisions which are mainly managed

in the manner of a scripted film where vehicles, drivers are rented and asked
to drive on a specific road at specific time in the garb of making a film and
later the claims are put in.

Example

An actual film maker first arranged a collision and later preferred a claim.
However, forensic help and telecommunication satellite came to rescue of
insurer in bursting the fraud.

f) Preventive Management of Fraud Cases

i. In extreme cases the practice of issuance of cover note should be

abolished. It would be appropriate to consider functioning of non-TP
offices. Also where there are rampant cases of fraud related to the

S-06-MOTOR INSURANCE (FOR SURVEYORS) 339

 underwriting, the office should be closed / staff should be rotated and all
facilitating personnel must be reviewed / changed.

ii. Care must be taken when fraud is detected the first time to appoint
specific investigators and the advocates who have enough skills and
standing to deal with such cases. There should be interactive sessions with
advocates, investigators, underwriters and other connected persons with
MACT offices.

iii. In cases of frauds connected with major accidents, necessary assistance

may be invited from the media whose first time reporting might be used
as evidence.

iv. The time has come when the leading investigators should be appointed in
each District nationwide, who will work directly under the supervision of
controlling offices. They should also be instructed that they will
personally visible all accidents in Districts. If any case is related to the
company they will immediately commence their investigation in the
matter and shall collect all particulars / documents / information from
various statutory authorities, hospitals, independent witnesses, etc.
Emphasis should be on their creating their own data bank relating to all
the accidents in the vicinity. Strict legal action is to be initiated against
the hospitals stock witnesses / doctors and others if they are found
involved in the fraudulent activities against the company.

v. Advocates should be instructed to arrange for summons / bail able

warrants, etc. for the non-cooperative witnesses and persons
representing statutory authorities.

vi. Such cases should not only be defended properly but after establishing
the fraud, they should also be published in newspapers, electronic media
and on other available platforms.

vii. Initiation of criminal action is also suggested against the persons involved
in fraud.

viii. Some of the judgements like (M. Jayanna vs. K. Radhakrishna Reddy) of
Hyderabad should be distributed among all the officers and dealing
advocates from the nodal offices.

ix. When the role of advocate appears to be doubtful, this misconduct must
be dealt with in accordance with the laid down guidelines in Advocates
Act.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 340

 x. No cover note must be issued by the development officer/ agent for TP
cases to save the company from the liability of pay-and-recover in cases
where the premium cheques are dishonoured.

xi. No third party cover should be issued without proper identification and
inspection of the vehicle.

Test Yourself 2

An insurance fraud happening due to the involvement of an insurance agent will

be classified as a fraud due to __________.

I. External source
II. Internal source
III. Both of the above
IV.
V.
None of the above

S-06-MOTOR INSURANCE (FOR SURVEYORS) 341

E. Way to Mitigate Frauds

a) Context-Specific Data

A way to mitigate fraud risk is to ensure that the insurer gets highly context-
specific data regarding the claim. This can include having the claimant or the
agent identify the exact location immediately after the accident and capturing
images related to damages to property or injuries to people. Having this context-
rich data availability enables insurers to process the claim rapidly while also
building an evidence repository, should the claim need to be investigated later.
A mobile-based digital assessor that guides an agent or a customer through the
process of gathering claims related data can speed up the claims process and
insurer’s response time to customers, which are the primary complaints by Indian
customers regarding customer service from insurers.

b) Digital Claims Assessor

Digital Claims Assessor enables Surveyors and customers to gather all pertinent
data relevant to filing a claim after an accident and also provides additional
information such as location of nearby hospitals and repair centers for their make
of the vehicle. The data collected is customised based on the make and model
of the vehicle, the location of the damaged and the geo-location information of
the accident.

c) Leverage Technology Solutions

The insurance industry in India is unable to fully exploit newer technologies to

lower costs and reach out to more technology-friendly and connected customers.
Agents and intermediaries still remain key to the sales and education process but
are becoming less effective.

The discontent with intermediaries and insurers, being very high among
customers, insurers need to leverage technology solutions such as ‘mobile
business intelligence’ to make agents more effective by adopting a more
personalised approach to customers.

At the same time, channels such as social media and the Web need to be
exploited as much as possible to engage customers. The contacts initiated
through these channels can be further exploited effectively by a customer
support desk, which uses ‘business intelligence solutions’, to personalise
interactions with customers. This multi-channel approach that leverages business
intelligence and mobile technology offers insurers an effective way to succeed in
a highly competitive and fast-changing Indian insurance market.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 342

Summary

This chapter has given you the knowledge about how a motor policy can be used
to defraud the Insurers and how some of the people are getting advantage out of
motor policy by submitting fake claims. You have learnt the various methods by
which a fraud can be committed right from the underwriting stage till OD and TP
claims are lodged. The insurers have formed various teams to tackle the issue of
fraud and prevent re-occurrence of frauds in the industry. They have developed
their own Fraud Mitigation Units which work in close coordination with respective
departments and find out new ways to mitigate frauds and save public money
from going in the hands of fraudsters.

Answers to Test Yourself

Answer 1

The correct answer is III.

Whoever does anything with the intention of causing wrongful gain to one person
or wrongful loss to another person is said to do that thing dishonestly.

Answer 2

The correct option is II.

An insurance fraud happening due to the involvement of an insurance agent will

be classified as a fraud due to internal source.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 343

Self-Examination Questions

Question 1

For identification of Motor Insurance related frauds, one should have thorough
knowledge of ___________.

I. MACT cases
II. Motor Vehicle Act
III. Criminal Procedure Acts and CPC
IV. All of the above

Question 2

Section 158(6) of the MV Act requires the Officer-in-charge of the Police Station
to forward the FIR to the insurers and Claims Tribunal having jurisdiction within
________.

I. Seven days
II. Fifteen days
III. Thirty days
IV. Forty five days

Question 3

Fraud management is essential to ensure only genuine claims are settled. Some
of the measures that can be adopted are documentary proofs of accident details
which include ______________.

I. Photographs
II. Witness statements
III. Identification of claimants by concerned police official
IV. All of the above

Question 4

An insurance fraud happening due to the involvement of the insured person will
be classified as a fraud due to __________.

I. External source
II. Internal source
III. Both of the above
IV. None of the above

S-06-MOTOR INSURANCE (FOR SURVEYORS) 344

Answers to Self-Examination Questions

Answer 1

The correct option is IV.

For identification of Motor Insurance related frauds, one should have thorough
knowledge of MACT cases, Motor Vehicle Act, Criminal Procedure Acts and CPC
etc.

Answer 2

The correct option is III.

Section 158(6) of the MV Act requires the Officer-in-charge of the Police Station
to forward the FIR to the insurers and Claims Tribunal having jurisdiction within
thirty days.

Answer 3

The correct option is IV.

Fraud management is essential to ensure only genuine claims are settled. Some
of the measures that can be adopted are documentary proofs of accident details
which include photographs, witness statements, identities of claimants and
witnesses, identification of claimants by concerned police official etc.

Answer 4

The correct option is I.

An insurance fraud happening due to the involvement of the insured person will
be classified as a fraud due to external source.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 345

 CHAPTER 13

USE OF TECHNOLOGY IN MOTOR INSURANCE

Chapter Introduction

In this chapter you will learn about Use of Technology in policy issuance,
renewals, surveys and reporting, etc.

Learning Outcomes

A. Policy Issuance and Renewal of Policies

B. App-Based Survey and Reporting
C. Process with Merits and Demerits

S-06-MOTOR INSURANCE (FOR SURVEYORS) 346

A. Policy Issuance and Renewal of Policies

Market Practices

The opening up of the insurance sector has brought innovation in products and
practices in insurance industry. New intermediary channels like Corporate
Agents, Bancassurance, Insurance Broking and new products are surfacing with
new market practices to stay in competition.

Diagram 1: Some Market Practices

a) Motor Insurance Online

When an insured buys Motor Insurance online, he gets an instant policy, as

there is no documentation or paperwork involved. In addition, he has the
advantage of choosing from multiple payment options e.g. Credit card (Visa,
Master, Amex card), Net banking, Debit card etc. Currently only private cars
and two-wheelers can be insured online.

b) Motor Insurance Renewal Online

The insured can renew his policy online, starting 60 days before expiry of
existing policy. In case the vehicle insurance policy has already expired,
authorised surveyor would require an inspection of the vehicle before policy
issuance. The policy would only be issued subject to a satisfactory inspection
and submission or required documents.

c) Role of Manufacturers

The auto manufacturers have always had an important role to play in

marketing of motor insurance. From the time it provided ‘any colour of car
S-06-MOTOR INSURANCE (FOR SURVEYORS) 347
 as long as it was black’, graduating to ‘design your own car with all luxury
and comforts’ and the legal requirement of safer, accident free vehicles has
always been the obligation to be met by the manufacturer. In the process
various statutory and mandatory approvals for containing pollution, crash
test, CNG / LPG use, seat belt, helmet etc.

In USA it is not the banker but insurer who drives the sale of car depending
on the premium to be borne based on technology used and reparability of
vehicle. The manufacturers must disclose crash test results, duration and
availability of spares, for a specific make of the vehicle, reparability of parts,
man hours required for repair, workshop facility at dealer’s end, emergency
services etc. to decide claims out go, thereby, determining adequate
premium.

d) Dealers in Auto Insurance

Auto dealers not only sell new vehicles but also provide servicing and
maintenance of cars as authorised dealers. Dealers also sell used cars, either
used by them for demo purpose as brand new vehicles and hand over vehicles
without full payment and transfer of ownership to prospective buyers while
accidental cars are sold as new cars with warranties.

Manufacturers provide standardised labour schedules to authorised dealers,

based upon high overhead costs and wage factor. Insurers should discuss with
manufacturers to keep a check on prohibitive cost of insurance.
Manufacturers in USA approach insurers unlike India to keep cost of spares
replacement and labour charge low.

The dealer is required to arrange for mandatory registration of the vehicle as

per law; this has opened up the requirement of arranging compulsory
insurance. Most of the auto dealers in India have tied up with a particular
insurance company that provides car insurance. It is not mandatory to take
up insurance from your car dealer. You can always buy car insurance from
your choice of insurance provider.

The insurers tie up with dealers to provide remote access of their motor
insurance platform allowing dealer to issue insurance policy with built-in
validations. Some of the insurers authorise dealers to issue even renewals
subject to adherence to break-in insurance rules, past loss experience etc.
These dealers at times become Corporate Agents distributing insurance
products while providing repair facilities in their manufacturer’s authorised
workshops.

Dealers giving bulk business as Corporate Agents have off late been found
exaggerating charges for painting and labour and favouring replacement of
parts on one hand while try to keep low salvage (value for scrap) and avoid
repairs at the pretext of compromising the performance of the vehicle.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 348

 e) Preferred Garages

The insurers also tie up with preferred garages to extend cashless facility if
the vehicle is brought to them. Some insurers have developed their own
garage and research facilities which arrange repairs and provide alternate
vehicle of same make to its insured claimant.

i. Garages

Garages are service centers which provide repair services to new or old
vehicles alike. They sometimes sub-contract some specialised job work.
These garages are graded and some of them are government approved.
Sometimes even insurers also approve the garages and expect certain
minimum service level to be adhered to by way of providing free towage and
delivery of vehicles and free servicing etc.

The garages at time provide comprehensive services at cheaper rates

compared to authorised dealers. These composite garagesare labour oriented
and use local make items, parts or disposal items. 75% of the accidental
vehicles go to such composite garages for repairs. The overheads of these
garages are low and repair work is distributed to sub-contractors according
to their specialisation.

ii. Whether we need cheaper repairs or proper repairs?

The cheaper repairs through replacement by sub-standard parts and such

cooked (jugad) repairs lead to compromised performance of repaired vehicles
and results in higher outgo later due to being prone to aggravation in accident
cost in future.

Concept of standardisation of labour is based on man hours and man hour

rate. Man hours are the normal time taken by the normal work force to
complete the job. Man hour rate primarily depends upon wages,
infrastructure overheads of the garage. Standardised Labour Schedules are
prepared by manufacturers and implemented by their authorised dealers.
50% or in some case 100% more than the labour rates prevalent in local /
composite garages. Labour charges of the dealers are cumulative whereas
they should be overall and inclusive. This makes a difference of about 25% to
30%.

iii. Dealers Garages

Dealer garages are replacement oriented. Replacements are costly as the

parts are billed as per list price. Labour is charged on the basis of inflated
overheads and wages resulting in a higher man-hour rate and need
standardisation in labour cost.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 349

 f) Test Drive Vehicle

The vehicles are marketed in streets and by lanes in our country to reach to
customer at his door. Test drives are being advertised as a comfort zone
provided by dealer to satisfy the consumer about new features of the vehicle.
A new concept of selling on road side make shift arrangements is also coming
in vogue.

g) Pay As You Drive (PAYD)

Pay As You Drive (PAYD) motor policies are a new concept of insurance
contracts ... also called Usage Based Insurance (UBI) because, instead of an
annual premium be established, the premium is fixed according to the
number of kilometers done by the car, besides other characteristics of the
risk traditionally used in pricing. Therefore, those who use the car more are
going to pay a higher premium because they are more exposed to the risk of
accident.

In the face of high auto insurance premiums, insurance companies have been
responding with potentially cheaper, pay-as-you-drive plans that, for billing
purposes, undertake GPS tracking when, how, how much and where drivers
use their vehicles instead of basing rates on statistics and past trends.

Example

While cars with General Motors' On Star service and Ford's Sync can use those
systems to transmit driving data to insurance companies, vehicles that don't have
GPS-based computer standard, need to have GPS-based tracking devices
retrofitted to their vehicles. Not only are some people worried about insurance
companies watching their every move while driving - depending on the plan,
providers can penalise drivers for when and where they drive their car - but the
black box-like devices are somewhat expensive. Customers also have to pay every
month to have data transmitted to their insurance providers.

It’s almost inevitable that new cars will come equipped with GPS-based tracking
devices in the foreseeable future, so some of the issues with pay-as-you-drive
insurance plans could go away.

One can distinctly find three types of policies, based on how privacy-invasive
they are.

i. Some of them do not imply any breach of privacy since the data about the
amount of kilometers traveled (no location information) needed to
compute the premium, is provided only once a year from a fixed location.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 350

 ii. The second type, despite not recording location information, collects data
in geographically distributed points, which allow the insurance to
estimate the movements of the user.
iii. Finally, the last model collects GPS data to track all the car’s movements.

In the rest of the section, we present real-world systems that fit in these
three categories.

h) Drive Less Pay Less

Drive Less Pay Less are some of the concepts which are gaining ground due to
rising fuel costs and increasing traffic congestions. The concept of
underwriting on the basis of make model and carrying capacity do not provide
equal ground. The Supreme Court of India has recommended the Government
to provide identical ground to all users of vehicle on the basis of its use by
mulling on petrol cess or kilometer traversed by a vehicle.

i) Rent A Car

The vehicles of various categories are available on rent from Motor Cycles /
Scooters to Buses on Hire / Charter basis for the convenience of consumers.
The consumer is required to possess valid and effective driving licence and
pay a nominal amount as deposit to hire a vehicle duly insured for damage to
the vehicle or liability to third party property damage or bodily injury.

Test Yourself 1

The insured can renew his policy online, starting _________ before expiry of your
existing policy.

I. 60 days
II. 45 days
III. 30 days
IV. 15 days

S-06-MOTOR INSURANCE (FOR SURVEYORS) 351

B. App-Based Survey and Reporting

The advent of technology and continuous innovations has led to satisfy the
customer needs in times of claims by conducting App-Based Surveys. Many
Insurers have started App-Based Surveys, the App which can be downloaded by
the Customer and in case of any accident claim it can be used to notify the
insurers and lodge a claim. This has extremely saved time of both customer’s and
surveyors as when the claim is lodged by the customer on the App, automatic
allocation of surveyor is done through the App, whereas the customer is allowed
to upload the requisite claim documents and the damage photo of the vehicle on
the App. As the loss assessment is done through the app, it sets a quick provisional
amount for the claim with the Insurers making the loss assessment practical and
easy. This mode of survey and loss assessment will help reduce the TAT of the
Insurers and the customer in turn will be satisfied due to quick claim settlement.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 352

C. Process with Merits and Demerits

PROCESS

1. Intimation of the accident by the customer to the Insurers.

2. Uploading documents such as claim form, RC, MDL, policy, KYC, estimate, and
in case of commercial vehicles permit, fitness, authorization.
3. Taking damage vehicle photographs/video on the App and thereby uploading
it.
4. Verification of documents, survey of damages and loss assessment done by the
Allocated Surveyor.
5. Repairs to start immediately and after completion issuance of bill to insurers.
6. Calculation of final liability and release of vehicle on cashless basis.

MERITS OF APP-BASED PROCESS

i. Direct customer contact and no scope for any interference by intermediary.

ii. Quick response to the customers in case of claim.
iii. Survey and assessment can be remotely administered.
iv. Cutting down the time and cost of survey.
v. More convenient to the customers as it is available 24X7.
vi. Insurers without delay settle the claim, thereby reducing the TAT.
vii. Immediate data available with the Insurers for study and analysis.

DEMERITS OF APP-BASED PROCESS

i. It is not always that each customer is technology friendly and may not have
internet access to answer online questionnaires/upload photo/video
regarding the claim.
ii. The damage verification and loss assessment based on app photo sometimes
becomes difficult because of no physical check by the Surveyor.
iii. Increase in chances of dispute between the Repairer and Surveyor for
damages seen and actual damages occurred.
iv. A lot of fake claims may increase thus giving rise to frauds in motor claims.
v. Unnecessary questions may make the customer uncomfortable thereby his
providing inaccurate and wrong information.
vi. App developed should be user friendly and suitable for variety of mobile
configurations.
vii. Data collected may not give accurate outcomes for statistical analysis.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 353

Summary

This chapter has given detailed information regarding the Use of Technology in
buying and renewing motor insurance online. It provides with various platforms
through which insurance can be renewed. It also gives an insight about the App-
based claim process generated by insurers for streamlined documents
uploadation by the customers and quick loss assessment by motor surveyors.
Though this technology has its own merits and demerits, in the coming years App-
based claim survey will gather momentum and will be one of the best tool
towards customer satisfaction and data analytics.

Answer to Test Yourself

Answer 1

The correct option is I.

The insured can renew his policy online, starting 60 days before expiry of your
existing policy.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 354

 Self-Examination Questions
Question 1
How many days prior to expiry, can an insurance policy be renewed online ?
I. 90 days
II. 60 days
III. 30 days
IV. 14 days

Question 2
It is _____________ to buy insurance from your car dealer.
I. Compulsory
II. Mandatory
III. Not mandatory
IV. Obligatory

Question 3
The Insurers have a tie-up with preferred garages to extend ____________ facility
to the customers.
I. Cashless
II. Salvage disposal
III. Cashloss
IV. Repair

Answers to Self-Examination Questions

Answer 1
The correct option is II.

An insurance policy be renewed online 60 days prior to its expiry.

Answer 2
The correct option is III.

It is not mandatory to take up insurance from your car dealer

Answer 3
The correct option is I.

The Insurers tie-up with preferred garages to extend cashless facility.

S-06-MOTOR INSURANCE (FOR SURVEYORS) 355