Doctrine Of Pay And Recover

Source: The Hitavada      Date: 13 Aug 2018 12:50:18

 


 

 

 

 

 

 

 

 

 


The onus is always upon the insurance company to prove that the driver had no valid driving licence and that there was breach of policy conditions, hence “pay and recover” can be ordered in case of third party risks.

IN THE judgement of the case –Shamanna and Another v. The Divisional Manager, The Oriental Insurance Co. Ltd. and Others, delivered on August 8, 2018, Justice Ranjan Gogoi and Justice R. Banumathi, at the Supreme Court, have reiterated that the doctrine of “pay and recover” still continues to hold the field in cases relating to motor accident claims.


As per the decision in the case of National Insurance Co. Ltd. v. Swaran Singh and Others- (2004) 3 SCC 297, the insurer had to indemnify the compensation amount payable to the third party and the insurance company may recover the same from the insured. Doctrine of ‘pay and recover’ was considered by the Supreme Court in this judgement.


The Supreme Court also examined liability of the insurance company in cases of breach of policy condition due to disqualification of the driver or invalid driving licence of the driver and held that in case of third party risks, the insurer has to indemnify the compensation amount to the third party and the insurance company may recover the same from the insured.


The apex court considered elaborately the insurer’s contractual liability as well as statutory liability in relation with the claims of third parties and issued detailed guidelines as to how and in what circumstances, “pay and recover” can be ordered. In paragraph 110 of this judgment, the Supreme Court has summarised its conclusions.


As per the decision in the Swaran Singh’s case, onus is always upon the insurance company to prove that the driver had no valid driving license and that there was breach of policy conditions. Where the driver did not possess the valid driving licence and there are breach of policy conditions, “pay and recover” can be ordered in case of third party risks.


The Tribunal is required to consider as to whether the owner has taken reasonable care to find out as to whether the driving licence produced by the driver, does not fulfill the requirements of law or not will have to be determined in each case. The Supreme Court considered the decision in the case of Swaran Singh in the judgement of the case – National Insurance Co. Ltd. v. Laxmi Narain Dhut- (2007) 3 SCC 700, wherein this court held that “the decision in the Swaran Singh’s case has no application to cases other than third party risks and in case of third party risks, the insurer has to indemnify the amount and if so advised, to recover the same from the insured. The same principle was re-iterated in Prem Kumari v. Prahlad Dev and Others – (2008) 3 SCC 193.


The court has also referred to a few judgements, Where the breach of policy conditions was fundamental and the Supreme Court took contrary view that the insurance companies were not liable to pay the compensation. In the decision of the case – National Insurance Co. Ltd. v. Bommithi Subbhayamma and Others, -(2005) 12 SCC 243, the Supreme Court reversed the judgement of the Andhra Pradesh High Court in making the insurance company liable for payment of compensation in respect of gratuitous passengers carried in the goods vehicle.


In the judgement of the case – Oriental Insurance Co. v. Brij Mohan and Others – (2007) 7 SCC 56, the claimant was travelling in the trolley attached to tractor carrying earth to brick kiln. It was found that the tractor and the trolley were not used for “agricultural works”, the only purpose for which the tractor was insured, when the claimant sustained the injuries.


The Supreme Court though held that the insurance company was not liable to pay the compensation, however, invoked the power vested in the Supreme Court under Article 142 of the Constitution of India in directing the insurance company to satisfy the award by paying compensation to the insured /claimant and realise the same from the owner of the tractor. In the present case, to deny the benefit of ‘pay and recover’, what seems to have substantially weighed with the Karnataka HC is the reference made to the larger Bench made by the two-judge Bench in National Insurance Co. Ltd. v. Parvathneni and Another –(2009) 8 SCC785 which doubted the correctness of the decisions which in exercise of jurisdiction under Article 142 of the Constitution of India directing Insurance Company to pay the compensation amount even though insurance company has no liability to pay.
In the Parvathneni decision, the SC pointed out that Article 142 does not cover such type of cases and that “if the insurance company has no liability to pay at all, then, it cannot be compelled by the order of the Court under Article 142 to pay the compensation amount and later on recover it from the owner of the vehicle. The reference in Parvathneni case has been disposed of on September 17, 2013 by the 3-judge Bench keeping the questions of law open to be decided in an appropriate case.


As the said reference to the larger bench was disposed of in the Parvathneni case, keeping the questions of law open to be decided in an appropriate case, at present the decision in Swaran Singh’s case followed in Laxmi Narain Dhut and other cases holds the field.


The award passed by the Tribunal directing the insurance company to pay the compensation amount awarded to the claimants and thereafter, recover the same from the owner of the vehicle in question, is in accordance with the judgement of the apex court in Swaran Singh and Dhut cases.


In the Supreme Court’s view, the HC ought
not to have interfered with the award passed by the Tribunal.
The impugned judgement of the HC exonerating the insurance company from its liability and directing the claimants to recover the compensation from the owner of the vehicle was set aside and the award passed by the Tribunal was restored. So far as the recovery of the amount from the owner of the vehicle, the insurance company shall recover as held in the decision in Oriental Insurance Co. Ltd. v. Nanjappan and Other- (2004) 13 SCC 224, wherein the SC held that in such cases the insurer may approach 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.


In the result, the SC affirmed the HC’s Dharwad Bench’s judgement of September 14, 2016 to the extent of enhancement of compensation to Rs. 4,94,700 from Rs. 3,55,500.


The SC has set aside the HC’s direction to the claimant to recover the ordered compensation from the owner of the vehicle and partly allowed the appeal. It has directed the Insurance Company to pay the enhanced compensation with the accrued interest to the appellant-claimants and shall recover it from the owner of the vehicle.