insurance Against Third-Party Risks under the Motor

Vehicles Act, 1988

The Motor Vehicles Act, 1988 provides a comprehensive framework for regulating the operation of
motor vehicles in India, including the issue of insurance for third-party risks. Insurance against third-
party risks is a crucial component of this Act, as it protects individuals and entities from the financial
consequences of accidents or damage caused by motor vehicles. The Act mandates third-party
liability insurance for all motor vehicles, ensuring compensation for victims of accidents caused by
motor vehicles.

Here’s an in-depth look at the nature and scope of third-party insurance under the Motor Vehicles
Act, along with provisions related to insolvency or death, certificates of insurance, and the Motor
Accident Claims Tribunal (MACT):

1. Nature and Scope of Insurance Against Third-Party Risks

a. Third-Party Insurance Requirement (Section 145-164)
 Section 146 of the Motor Vehicles Act mandates that every motor
vehicle must be insured against third-party risks. This is to ensure that in
the event of an accident, the victim (or their legal representatives) can
receive compensation for bodily injury, death, or property damage
caused by the vehicle.
 The insurance must be at least third-party liability insurance, which
covers:
o Bodily injury or death to third parties (such as pedestrians, other
vehicle occupants, or bystanders).
o Property damage caused by the vehicle, such as damage to
another vehicle or public property.
 Comprehensive Insurance that covers damage to the insured vehicle is
optional but typically purchased alongside third-party insurance.
 The insurance must be obtained from an insurance company authorized
by the Insurance Regulatory and Development Authority of India
(IRDAI).
b. Exclusions from Third-Party Insurance
 Personal Injury to the Driver or Owner: The insurance does not cover
injuries sustained by the driver of the vehicle or the owner.
  Intentional Damage: Damage caused by the intentional actions of the
driver or owner.
 Damage during Unlawful Use: If the vehicle is being used in a manner
that is unlawful, such as driving under the influence of alcohol or drugs,
the insurance may not cover claims.

2. Effect of Insolvency or Death of Parties on Claims

a. Insolvency of the Insured Party
 If the insured party (the vehicle owner) becomes insolvent, it does not
affect the third-party claims under the insurance policy. The victim can
still claim compensation from the insurance company. However, the
insolvency of the vehicle owner might complicate the settlement if the
claim involves the vehicle owner's own liability (such as damages to their
own property).
 If the insurer refuses to settle the third-party claim or is not financially
solvent, the victim may need to pursue legal action directly against the
insurer or, in extreme cases, against the insolvency proceedings of the
insurer.
b. Death of the Owner or Driver
 If the owner or driver of the vehicle dies in an accident, the claim for
third-party compensation can still be filed against the insurance
company, as the liability remains with the vehicle.
 The legal heirs or representatives of the deceased driver or owner can
represent the deceased’s interests in relation to the insurance claim.
 If the driver’s death was due to an accident caused by their negligence,
the insurance would cover the third-party claims, but the vehicle
owner’s legal heirs might have to address any liabilities.

3. Certificate of Insurance
a. Requirement for Certificate (Section 147)
  Under Section 147 of the Motor Vehicles Act, it is mandatory for every
vehicle on the road to carry a certificate of insurance. The certificate
serves as proof that the vehicle is covered against third-party liabilities.
 The certificate is issued by the insurance company and must be
produced whenever demanded by an enforcement officer or in case of
an accident.
 The certificate specifies details such as:
o Policy number.
o Coverage limits for third-party liabilities.
o Insurance period (validity).
o Policyholder and vehicle details.
o Insurer's name.

4. Motor Accident Claims Tribunal (MACT)

The Motor Accident Claims Tribunal (MACT) plays a critical role in resolving
disputes arising from motor vehicle accidents, including compensation claims
for third-party injuries, deaths, and property damage.
a. Constitution of the Claims Tribunal
 Section 165 of the Motor Vehicles Act establishes the Motor Accident
Claims Tribunal (MACT), which is a specialized tribunal for the purpose
of adjudicating compensation claims arising from motor vehicle
accidents.
 The tribunal consists of a presiding officer, who is a judicial officer, and
the procedure for adjudicating claims is governed by civil procedure
rules.
 The Tribunal can be set up by the state government in any district or
jurisdiction where accidents frequently occur, and the matter involves
third-party claims.
b. Functions of MACT
  The primary function of the Motor Accident Claims Tribunal (MACT) is
to decide on claims for compensation in the event of motor vehicle
accidents, which may involve:
o Personal injury or death.
o Property damage caused by accidents.
 The tribunal ensures a speedy resolution of claims, minimizing delays in
compensation payouts.
 The tribunal can issue an award of compensation after considering
evidence, including medical reports, eyewitness testimonies, police
reports, and the damage caused.
c. Application for Compensation
 A claim for compensation can be made to the MACT by:
o The victim(s) or the legal heirs of the victim(s) in case of death.
o The owner of the damaged property.
o The insured or their legal representatives.
 The application must be made in the prescribed form, which typically
includes:
o Details of the accident.
o Details of the injuries or damage.
o Witnesses and evidence supporting the claim.
o Medical reports or death certificates.
 Time Limitation: Claims for compensation must be filed within six
months from the date of the accident (although in exceptional cases, the
tribunal may allow an extension).
d. Procedure for Claims
 The procedure for filing claims involves the following steps:
1. Filing an Application: The claimant files an application with the
MACT detailing the accident and the damages or injuries suffered.
 2. Issuance of Notice: The tribunal issues a notice to the opposite
party (the person or insurer liable for the claim) to present their
side.
3. Hearing of the Case: The tribunal conducts hearings, and both
parties (claimant and defendant/insurer) present their evidence,
witnesses, and arguments.
4. Judgment and Award: After evaluating the evidence, the tribunal
makes a decision and determines the amount of compensation.
5. Appeal: Either party can appeal the tribunal’s award to a higher
court if dissatisfied with the decision.
e. Powers of the Claims Tribunal
 The tribunal has the power to:
o Summon witnesses.
o Examine documents.
o Order compensation for victims of motor vehicle accidents.
o Determine liability (whether the vehicle owner or the insurance
company is liable for the payment).
o Award interim compensation for medical expenses in cases where
the victim’s life is at risk or immediate financial relief is needed.
f. Award of Compensation
 The compensation amount awarded by the tribunal can include:
o Medical expenses.
o Loss of income.
o Pain and suffering.
o Funeral expenses (in case of death).
o Loss of future earnings (in case of permanent disability).
o Damages for loss of amenities and quality of life.
 The amount of compensation varies depending on the severity of the
injuries, the impact on the victim’s life, and the financial loss incurred.
Liability Insurance: Nature and Kinds
Liability insurance is a type of insurance that protects an individual or
organization against claims arising from injuries or damage to another party. It
helps cover the financial costs associated with lawsuits, settlements, and claims
made by third parties, where the insured party is deemed legally responsible.
1. Nature of Liability Insurance
Liability insurance is designed to provide financial protection against claims of
negligence, property damage, bodily injury, or other legal liabilities caused by
the insured's actions, omissions, or operations. This insurance can cover a wide
range of incidents, from accidents that occur in public places to mistakes made
by professionals in their line of work.
The key purpose of liability insurance is to shield the insured from the costs of
legal defense, settlements, and damages arising from lawsuits or claims made
by third parties.

2. Kinds of Liability Insurance

There are various types of liability insurance, each designed to cover specific
types of risks. The main types include:
a. Public Liability Insurance
 Purpose: Public liability insurance covers claims for injury or damage to
third parties or their property caused by the actions or negligence of the
insured. It is primarily intended for businesses or individuals who
interact with the public or operate in environments where they may
cause harm to others.
 Coverage:
o Bodily injury to third parties (e.g., customers, pedestrians).
o Property damage to third parties (e.g., damage to property during
construction or repairs).
o Legal costs associated with defending against claims.
 Applications: Common for businesses like retailers, manufacturers, event
organizers, contractors, etc.
  Example: A customer slips and falls in a store, and public liability
insurance would cover their medical expenses and any legal claims.
b. Product Liability Insurance
 Purpose: This insurance protects manufacturers, distributors, and
retailers from claims arising from injuries or damage caused by defective
products. It is particularly important for businesses involved in the
production or sale of goods.
 Coverage:
o Injury or damage caused by defective products.
o Legal costs and defense against product-related claims.
 Example: If a consumer is injured by a faulty appliance, the
manufacturer may be liable for the injury.
c. Professional Liability Insurance (Errors & Omissions Insurance)
 Purpose: Professional liability insurance protects professionals such as
doctors, lawyers, architects, and accountants from claims arising from
negligence, errors, or omissions in the performance of their professional
duties. It is sometimes called Errors and Omissions (E&O) insurance.
 Coverage:
o Legal defense costs.
o Claims arising from professional mistakes, negligence, or failure to
perform services as promised.
o Claims for inadequate or substandard advice.
 Example: A lawyer provides incorrect legal advice that leads to financial
loss for their client, and the client sues for damages.
d. Employers’ Liability Insurance
 Purpose: This insurance covers an employer’s liability to employees for
work-related injuries or illnesses. It is mandatory in many countries to
protect employees who may get injured during the course of
employment.
 Coverage:
 o Injuries or illnesses sustained by employees during the course of
employment.
o Legal costs of defending claims brought by employees.
 Example: An employee is injured while using machinery at work, and the
insurance covers medical expenses and legal claims.
e. Directors’ and Officers’ Liability Insurance (D&O)
 Purpose: D&O insurance protects company directors and officers from
personal financial losses due to lawsuits brought against them for alleged
wrongful acts while managing a company.
 Coverage:
o Personal legal defense costs for directors or officers.
o Settlements or damages from lawsuits alleging mismanagement,
breach of fiduciary duty, or other misconduct.
 Example: A company’s shareholders sue the board of directors for
financial mismanagement, and the D&O policy helps cover the legal
costs.
f. Motor Vehicle Liability Insurance
 Purpose: Motor vehicle liability insurance is mandatory in most countries
and covers third-party liability for injuries or property damage caused by
the insured's vehicle.
 Coverage:
o Injury or death caused to third parties in an accident.
o Property damage caused to other vehicles, buildings, or
structures.
 Example: If a driver causes an accident that injures another person or
damages property, the insurance covers medical costs and repairs.

3. Miscellaneous Insurance Schemes

In addition to liability insurance, there are other insurance schemes that cater
to various personal, business, and health-related needs. These include group
life insurance, medical insurance, and sickness insurance.
a. Group Life Insurance
 Purpose: Group life insurance is a type of life insurance coverage
provided to a group of people, typically employees of an organization,
members of an association, or participants in a union. It offers life
insurance protection under a single master policy.
 Coverage:
o Provides financial protection to the family or beneficiaries of the
insured employee or member in case of their death.
o Premiums are generally lower than individual life insurance
because the risk is spread across the group.
 Applications: Commonly offered by employers to employees as part of
their benefits package.
 Example: An employee passes away unexpectedly, and their family
receives a death benefit under the group life insurance policy provided
by the employer.
b. Mediclaim (Health Insurance)
 Purpose: Mediclaim, also known as health insurance, is a policy that
provides coverage for medical expenses incurred due to illness,
hospitalization, or surgery. It ensures financial protection against high
healthcare costs.
 Coverage:
o Hospitalization expenses, including room charges, medical tests,
and treatments.
o Pre- and post-hospitalization expenses.
o Surgery, doctor’s fees, and emergency services.
 Types:
o Individual Mediclaim: Covers a single person.
 o Family Floater Mediclaim: Covers the entire family under a single
policy.
 Example: A person needs surgery, and the insurance policy covers the
cost of hospitalization, surgeon fees, and post-operative care.
c. Sickness Insurance
 Purpose: Sickness insurance provides compensation to an individual who
is unable to work due to illness or injury. It is designed to replace lost
income while the individual is unable to perform their duties.
 Coverage:
o Daily or weekly payments for lost income during a period of illness
or injury.
o Can be part of a larger disability or accident insurance policy.
 Applications: Typically offered by employers, unions, or purchased
privately as part of a comprehensive health insurance plan.
 Example: An individual suffers from a prolonged illness (like a severe flu
or surgery recovery) and receives a weekly payout from the sickness
insurance policy to cover lost wages.

4. New Dimensions in Insurance

a. Cyber Liability Insurance
 With the rise of digital data and online operations, cyber liability
insurance has become increasingly important for businesses. It covers
losses from data breaches, hacking, and other cyber-related incidents.
 Coverage includes the cost of data recovery, legal fees, and notification
costs for affected individuals or businesses.
b. Environmental Liability Insurance
 Environmental liability insurance helps companies address the risks
associated with pollution or environmental damage caused by their
operations. It covers costs related to cleanup, damage to natural
resources, and legal claims from environmental violations.
c. Pet Insurance
 Pet insurance has become a growing segment, covering the costs of
veterinary bills, surgery, and treatment for pets.
 Coverage can include medical treatment for accidents, illnesses, and
sometimes even routine check-ups.