Insurer Directed To Satisfy Tribunal Award With Liberty To Recover From Vehicle Owner

A bench of Justices Sanjay Karol and Manoj Misra heard an appeal by a claimant challenging a Telangana High Court judgment that had set aside a Motor Accidents Tribunal award to the extent it made the insurer liable to pay compensation. The sole issue before the Supreme Court was whether the insurer ought to be completely absolved of liability or directed to satisfy the award with liberty to recover the amount from the vehicle owner.

The Court allowed the claimant’s appeal in part and directed the insurer to satisfy the award while retaining the right to recover the amount from the insured owner. The Court relied on the long-standing "pay and recover" principle where the contract of insurance was not disputed and followed recent precedents applying that principle. The Court, in its reasoning, observed: "Where the contract of insurance is not disputed, even on breach of insurance conditions, this Court had allowed recovery of compensation from the insurer by giving right to the insurer to recover the same from the vehicle owner. The pay and recover principle has been consistently followed even though it was doubted in a reference which remained unanswered. Taking a conspectus of various pronouncements, this Court recently in Rama Bai v. Amit Minerals again applied the said principle and while allowing the appeal of the claimant directed that the insurance company shall satisfy the award and may recover from the insured. Following the aforesaid decisions, we deem it appropriate to allow the appeal by directing that the first respondent (i.e., the insurer) shall satisfy the award, though, however, it can recover the amount so paid from the insured (i.e., owner of the vehicle)."

Background: The claimant appealed from a High Court order of 8 June 2022 which, on an insurer’s appeal, set aside the Tribunal’s finding that the insurer and the vehicle owner were jointly and severally liable. The Tribunal had awarded compensation after accepting testimony of the insurer’s administrative manager that additional premium had been collected for carrying conductor and cleaner; the Tribunal concluded that the additional premium indicated the deceased passenger qualified as a third party under the policy. The High Court accepted the insurer’s contention that the statutory policy did not treat gratuitous passengers (other than driver, conductor or cleaner) as third parties and further noted the vehicle was a five-seater carrying nine persons in breach of the policy’s conditions; on those bases it absolved the insurer of liability.

The claimant contended that additional premium had been collected to cover risk for driver, conductor and cleaner and that the insurer therefore remained liable, at least to the extent of covering three persons, relying on precedent including Mata Ram v. National Insurance Co., National Insurance Co. v. Swaran Singh, Shamanna v. Divisional Manager, and the recent decision in Rama Bai v. Amit Minerals. The insurer argued the policy was statutory, gratuitous passengers other than those specified were not third parties, and the overloading breached policy conditions disentitling the insurer to liability.

The Supreme Court observed there was no appeal by the insured owner against the High Court’s finding that the owner was not entitled to insurance benefit. The Court confined its consideration to whether the insurer should have been completely absolved. After reviewing authorities, the Court applied the pay-and-recover doctrine and directed the insurer to satisfy the Tribunal award with liberty to recover the paid amount from the vehicle owner. The appeal was allowed to that extent; pending applications, if any, were disposed of.

Case Details: Case No.: CIVIL APPEAL NO. 013509 OF 2025 (Arising out of SLP (C) No. 8434/2023) Case Title: Akula Narayana v. The Oriental Insurance Company Limited & Anr. Appearances: For the Petitioner(s): Not indicated in the judgment For the Respondent(s): Not indicated in the judgment