Insurer is Liable to Indemnify Insured under Insurance Contract

The Apex Court on 26th august 2013 in the aforesaid matter held that the insurance company is liable to indemnify the insured under the contract of insurance even in cases where the driver of insured does not possess a valid driving license. Section 149 (2) (a) of the Motor Vehicles Act, 1988 provides that the insurer or insurance company shall not be liable to the insured in cases where the insured breaches any condition regarding driving license. The law provides that insurance company or insurer are not liable to pay compensation to the insured in cases where the vehicle at the time of accident is driven by person who is not duly licensed or by a person who is disqualified from holding or obtaining a driving license during the period of disqualification.

The question in aforesaid dispute was whether the insurance company was liable to indemnify the insured in case where there was breach of condition as provided under the Motor Act by the insured. The insured were the appellants in the aforesaid matter who were seeking compensation from the insurance company on account of payment of compensation by them under third party insurance. The insurance company had refused to pay the compensation to the appellants and suggested that they had been absolved from their liability on account of fact that license of the driver of the insured company was found to be fake in the accident for which the insured had paid compensation. The appellant brought appeal against this matter before the apex court and contended that insurer were liable to indemnify the insured even in case where the license of the driver was fake as they had taken all reasonable steps under the policy and had not breached any conditions. The basis of this is that insurance is a contract of indemnity.

The appellants in the matter submitted that they had provided proper training to the driver appointed by them and had also taken all reasonable steps to verify the driving license of the driver and therefore it cannot be said that they had breached any condition and had in fact taken all reasonable steps so as to not make them liable for any breach of condition.

The Apex Court after relying upon series of precedents on the same issue said that insurers under section 149 (2) (a) of the Motor vehicle Act were open to raise in defense that the driver involved in the accident was not duly licensed. The Court said that the owner of a vehicle cannot held to be at fault under the contract of insurance in cases where he had checked the fact whether the driver possessed a valid driving license and has also satisfied himself as to the competence of the driver. The court said that owner of the vehicle or the insured in such circumstance is said to have taken reasonable steps in employing qualified and competent driver and cannot be expected to go beyond this and be expected to check the genuineness of the driving license with the licensing authority before hiring the driver.

The court said further that the situation shall be different in case where at the time of the insurance of the vehicle or thereafter, the insurance company requires the owner of the vehicle to have the license duly verified from the Licensing authority or in case where the allegation of the fake license possessed by the driver is brought to the notice of the owner and the owner does not take appropriate steps to verify the genuineness of the license of the driver. The court said that in such case the insured shall be at fault and in such circumstance the insurance company is not liable to pay compensation.

The court held that in the aforesaid case the appellant or insured cannot be said to be at fault in having employed a person whose driving license turned out to be fake. The court said that the driver had been in service for six years and had also been imparted training and put to driving test by the insured and therefore could not held liable for any fault and can be said to have taken all reasonable steps even in case where the insurance company had proved before the tribunal that license of the driver was fake. The court also noted the evidence produced before it which clearly had indicated that it cannot be absolutely held that license was not issued by the license authority and was fake as the evidence provided that records for issuance of license were said to be missing due to shifting of the office. In view of this, the court allowed the appeal and held that insurer or insurance company was liable to indemnify the insured under the insurance contract.