Court’s Decision
The Supreme Court allowed the appeal filed by the owner of a utility vehicle and set aside the High Court’s direction of “pay and recover.” It held that the insurance company was directly liable to indemnify the owner since the vehicle was registered as a contract carriage with seating capacity of five persons (4+1) and covered under a valid package policy. The Court observed:
“The limitation as to use applies only to goods vehicles. A utility vehicle registered as a contract carriage, permitted to carry 4+1 passengers, cannot be treated as a goods carriage to deny liability.”
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The Court further directed that in one of the claim petitions, the Tribunal must apply 1/3rd deduction towards personal expenses before disbursement, to ensure just compensation.
Facts
The case arose out of a motor accident involving a Bolero Camper Utility Van manufactured by Mahindra & Mahindra. The vehicle, registered as a utility van with seating capacity of 5 (including the driver), was insured under a package policy and held a contract carriage permit.
In the accident, multiple claimants including passengers and pedestrians sustained fatal injuries. The Motor Accident Claims Tribunal (MACT) held the vehicle covered by a valid package policy and directed the insurer to satisfy awards.
The High Court, however, in the appeal filed by the insurer, modified the award by directing “pay and recover,” holding that the policy imposed a limitation restricting the carriage of passengers.
Aggrieved, the vehicle owner approached the Supreme Court.
Issues
- Whether a utility vehicle registered as a contract carriage with seating capacity of five could be treated as a goods vehicle for the purpose of insurance liability.
- Whether the limitation clause in the policy justified the High Court’s order of “pay and recover.”
- Whether the insurer was liable to indemnify the owner directly in respect of compensation awards.
Petitioner’s Arguments
The owner argued that the registration certificate and permit both clearly recorded the vehicle as a utility van and contract carriage with seating capacity of 4+1. The insurance policy also specified the same, and there was no recital that it was insured as a goods vehicle.
He contended that the “limitation as to use” clause in the package policy applies only to goods vehicles, not to utility vans permitted to carry passengers. Since the insurer had not taken a specific defence that the vehicle was insured as a goods vehicle, there was no justification for “pay and recover.”
The claimants, being passengers or pedestrians, were entitled to compensation covered under the policy.
Respondent’s Arguments
The insurer argued that the policy permitted carriage only of persons falling within the scope of the Workmen’s Compensation Act, not general passengers. Since some deceased included a student, postal employee, and unemployed man, they could not be treated as covered passengers.
It was further contended that more than four passengers were travelling in the vehicle, as five claims were filed and there was an allegation of nine deaths, pointing to overloading. Hence, liability should not fall directly on the insurer, and “pay and recover” was appropriate.
Analysis of the Law
The Court examined the registration certificate, permit, and policy documents, which consistently described the vehicle as a utility van/contract carriage with seating capacity of 4+1. The policy did not classify it as a goods vehicle.
The Court emphasized the statutory distinction:
- Contract carriage (Section 2(7), Motor Vehicles Act, 1988) – carries passengers for hire or reward under contract.
- Goods carriage (Section 2(14), MVA) – used solely for carriage of goods.
Since the vehicle was not a goods carriage, the insurer’s reliance on the “limitation as to use” clause was misplaced. Evidence also showed that the package policy was issued after verifying the registration certificate, fitness, and permit.
The insurer’s own branch manager admitted during cross-examination that the utility van was a dual-purpose vehicle with space for both goods and passengers.
Precedent Analysis
- B.V. Nagaraju v. Oriental Insurance Co. (1996) 4 SCC 647 – Held that insurers cannot escape liability unless a fundamental breach of policy conditions is shown. Applied to reject insurer’s defence.
- Skandia Insurance Co. v. Kokilaben Chandravadan (1987) 2 SCC 654 – Reiterated that policy clauses must be interpreted reasonably to protect third-party victims. Applied to support insurer’s liability.
- National Insurance Co. v. Swaran Singh (2004) 3 SCC 297 – Established that insurer’s liability towards third parties is wide, and technical defences cannot defeat claims. Relied upon.
Court’s Reasoning
The Court held that the insurer could not escape liability on technicalities:
- The registration, permit, and policy consistently recognized the vehicle as a utility van/contract carriage.
- The “limitation as to use” clause applied only to goods vehicles, not to utility vans carrying permitted passengers.
- Evidence of five claim petitions did not establish overloading, since one claim pertained to a pedestrian, and the eyewitness confirmed only four passengers were in the vehicle.
Accordingly, the High Court’s order of “pay and recover” was unsustainable.
Conclusion
The Supreme Court allowed the appeal, restoring the Tribunal’s direction making the insurer directly liable to satisfy the awards, with one modification: in MACT Case No. 134 of 2014 (death of Jagdish Prasad Gaur), the Tribunal must apply 1/3rd deduction towards personal expenses before disbursing compensation.
Implications
This ruling reinforces that utility vehicles registered as contract carriages cannot be treated as goods vehicles to deny insurance liability. It underscores that insurers cannot rely on vague “limitation as to use” clauses to avoid indemnification where permits, registration, and policy explicitly allow passenger carriage. The judgment protects third-party claimants and ensures consistency in interpreting insurance contracts.
FAQs
1. Can insurers deny liability if a utility vehicle carries passengers?
No, if the vehicle is registered as a contract carriage with seating capacity for passengers, insurers remain liable.
2. Does the “limitation as to use” clause apply to utility vans?
No. It applies only to goods vehicles used solely for carriage of goods, not to utility vehicles with passenger permits.
3. What was the final ruling of the Court?
The insurer was held directly liable to indemnify the owner; the High Court’s “pay and recover” order was set aside.
