Allahabad High Court Reaffirms “Pay and Recover” Principle: Insurers Must Compensate Accident Victims First Despite 2019 Motor Vehicles Act Amendment, Ensuring Timely Financial Relief and Upholding Third-Party Rights

Court’s Decision

The court held that the deletion of the proviso to Section 149(4) does not remove the insurer’s liability to compensate accident victims in the first instance. The court reaffirmed that the “Pay and Recover” principle remains intact, meaning that:

• The insurance company must first pay the compensation amount to the victim or their legal representatives.
• The insurer then has the right to recover the amount from the vehicle owner if a policy breach is proven.

This ensures that accident victims receive timely financial relief, maintaining the core objective of the Motor Vehicles Act—to protect third-party interests​.

Facts of the Case

• A road accident occurred on May 29, 2022, involving two vehicles—a bus and a car.
• The deceased was a passenger in the car and suffered fatal injuries on the spot.
• The bus, which was responsible for the accident, was insured by the appellant insurance company.
• The legal heirs of the deceased filed a Motor Accident Claim before the Tribunal seeking compensation.
• The Motor Accident Claims Tribunal passed an order directing the insurance company to pay the compensation upfront but also granted it the right to recover the amount from the owner of the bus​.
• The insurance company challenged this ruling, arguing that the 2019 amendment removed their obligation to pay first.

Issues Before the Court

1. Does the deletion of the proviso to Section 149(4) of the Motor Vehicles Act, 1988, eliminate the insurer’s duty to first pay and then recover?
2. Can insurers refuse to pay compensation upfront in cases where there is a policy breach?
3. Does the amendment to the law invalidate past Supreme Court rulings on the “Pay and Recover” principle?​

Arguments by the Insurance Company (Petitioner)

The insurance company raised the following arguments:

1. The Amendment Act removes their obligation to “Pay and Recover”:
   • Before the 2019 amendment, insurers were required to pay first even if there was a policy breach, and they could later recover the amount from the vehicle owner.
   • The proviso to Section 149(4), which granted this right, has been deleted in the new Section 150.
   • Therefore, they should not be liable to pay compensation at all if there is a policy violation​.
2. No express provision in the new law mandates “Pay and Recover”:
   • Since the new Section 150 does not contain an explicit “Pay and Recover” clause, the insurance company argued that it is now legally exempt from making upfront payments.
3. Legislative intent was to limit insurer liability:
   • The insurance company pointed to the Statement of Objects and Reasons of the 2019 Amendment, arguing that the amendment aimed to reduce insurance liability and prevent fraudulent claims.
4. Past Supreme Court rulings no longer apply:
   • The insurer argued that Supreme Court decisions like Swaran Singh (2004) and ICICI Lombard v. Suresh (2024) were based on the old law and are now irrelevant.
   • Courts cannot apply outdated precedents to a law that has since been amended​.

Arguments by the Claimants and Vehicle Owner (Respondents)

The claimants (victim’s family) and the vehicle owner argued:

1. The amendment does not affect third-party rights:
   • The Motor Vehicles Act is a social welfare legislation, designed to protect accident victims.
   • Deleting the proviso in Section 149(4) does not mean that insurers can escape liability.
   • The court should interpret the law in favor of victims​.
2. Section 147 still mandates insurance coverage for third parties:
   • The obligation of insurers to cover third-party risk remains unchanged in Section 147 of the amended Act.
   • Since third-party insurance is mandatory, insurers must pay first and recover later​.
3. Supreme Court rulings still apply:
   • Swaran Singh (2004), Santro Devi (2009), and ICICI Lombard (2024) all upheld the “Pay and Recover” principle.
   • The amendment does not explicitly override these judgments​.

Court’s Analysis of the Law

The court conducted an in-depth analysis of the Motor Vehicles (Amendment) Act, 2019:

1. Comparison of Old vs. New Law:
   • The old Section 149(4) contained a proviso explicitly granting insurers the right to recover after payment.
   • The new Section 150(4) omits the proviso but does not state that insurers are absolved from upfront payment obligations​.
2. Precedent Analysis:
   • The Supreme Court has consistently ruled that insurers must pay first in cases of policy breaches.
   • These rulings were based on principles of fairness, ensuring victims receive compensation without delay​.
3. Legislative Intent:
   • The amendment aimed to simplify the law but did not explicitly state that insurers are no longer liable to pay upfront.
   • If the legislature had intended to remove the “Pay and Recover” rule, it would have done so explicitly​.

Court’s Conclusion

1. The insurer must continue to “Pay and Recover”.
2. The deletion of the proviso does not mean insurers are exempt from initial liability.
3. Accident victims should not suffer due to policy disputes between insurers and vehicle owners.
4. The right of insurers to recover compensation from vehicle owners still exists​.

Implications of the Judgment

1. For Accident Victims:
   • Ensures speedy compensation, preventing financial distress.
2. For Insurance Companies:
   • Confirms that they must still compensate victims first but have a right to recover from owners.
3. For Vehicle Owners:
   • Holds them accountable in case of policy breaches.
4. For the Legal System:
   • Reinforces the social welfare objective of the Motor Vehicles Act.

This judgment reaffirms insurers’ liability to pay first, ensuring that accident victims are compensated promptly, even in cases of policy breaches

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