The Supreme Court of India has ruled that insurance companies cannot deny compensation to accident victims simply because the vehicle involved was not following its permitted route. This decision was made in the case of K Nagendra v The New India Insurance Co Ltd, where a bus had strayed from its sanctioned route at the time of a fatal accident. The insurer, The New India Insurance Company Limited, had challenged the High Court’s direction to pay compensation first and later recover from the owner. However, the Supreme Court dismissed the appeal, stating that the “pay and recover” direction was justified.
The Court emphasized the social purpose of motor vehicle insurance, which is to provide compensation to victims of accidents, regardless of the circumstances. Denying compensation on technical grounds, such as route permit violation, would be “offensive to the sense of justice.” The Court noted that the purpose of an insurance policy is to shield the owner or operator from direct liability in the event of an unforeseen incident. To deny compensation to victims or their dependents simply because the accident occurred outside the bounds of the permit would be unfair.
The Court also held that the insurance policy must be used within the strict corners of the law. While the insurer has a contractual obligation to pay compensation, it is also entitled to recover the amount from the vehicle owner if the accident occurred outside the bounds of the policy. The “pay and recover” approach ensures that victims are not left without remedy due to disputes between insurers and vehicle owners.
The Supreme Court relied on several previous judgments, including National Insurance Co. Ltd. v. Swaran Singh, New India Assurance Co. v. Kamla, and Parminder Singh v. New India Assurance Co. Ltd, to reaffirm the principle of “pay and recover.” The Court directed that the insurer must first satisfy the compensation awarded to the victims or their dependents and thereafter recover the amount from the vehicle owner. This approach balances the need for payment of compensation to victims with the interests of the insurer. The judgment emphasizes the importance of providing compensation to accident victims, regardless of the circumstances, and ensures that insurers are held accountable for their contractual obligations.