Third Party Insurance How Helpful

Third party insurance in policies, other than vehicle, can be on equipment like machines or workplace policy cover for any death or damage to employees or staff who are possibly. This is a contract between the first person, insured and the second person, insurance company against the claims of some third person.

Tue Aug 16 2022 | Civil Litigation and Others | Comments (0)

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Introduction

Plying an uninsured vehicle on Indian roads is an offence as mentioned in section 146 of Motor Vehicle Act 1988. Non compliance can lead to enforcement of legal punishments which includes hefty fines and prosecution under various road safety laws.

Many a time,  owners of the vehicle do not have adequate means to satisfy the claims of accident caused to a third party. So, the parliament thought it fit to have a statutory mandate for the people purchasing motor vehicle to have third party insurance. 

The Supreme Court of India in the case of Skandia Insurance Co.Ltd v. Kokilaben Chandravan [1987 AIR 1184] explained the objective behind the mandatory third party insurance cover which is not to flourish or protect the business of the insurance companies but to protect the people travelling in roads. The law provides for compensation to the victims or their dependents in case of accident. So, to ensure that such protection not only remains in the papers after the order of court, the compulsory statutory requirement of third party insurance was necessary.

Third party insurance in policies, other than vehicle, can be on equipment like machines or workplace policy cover for any death or damage to employees or staff who are possibly  affected by any work-related incident. For instance, any bodily injury that is prone to happen to people commuting in a lift in any building like shopping malls or hospitals is covered by a public liability policy, which is a third party policy.

It might be a situation where a worker in a factory might get injured while performing his duties with machinery. In that case, he can avail cover by two ways. He can claim through the group insurance cover provided by company for all employees. But, the compensation he will get will depend  on the type of cover offered to him. Secondly, he can get coverage if the machinery is insured with third party cover. Many a times due to lack of awareness of this, employees are satisfied with whatever they are offered as compensation.


What is third party insurance?

This is a contract between the first person, insured and the second person, insurance company against the claims of some third person, injured. The first person is responsible for the damages or losses, regardless of who caused the loss or damages. It is also known as Act only cover. The beneficiary in a contract is some third party, therefore it is known as third party insurance. The third party may be the person travelling in another vehicle, people walking on the  road, passengers in the vehicle itself which is insured.

Under the provisions of Motor Vehicle Act 1988, claim of compensation can be based on No Fault liability and fault liability. Under No fault liability, the claimant is not required to prove the wrong or neglect or default of the owner. On the other hand, under fault liability, claimant is required to prove the omission or the negligence on the part of the vehicle that caused the accident. In this case, compensation is unrestricted and it is based on the loss of earning caused by the disability of the person. But in case of property damage in both the above cases, liability is restricted to a maximum amount of rupees 7.5 lakhs. 

Earlier, this third party insurance had  to be renewed every year. But the Insurance Regulatory and Development Authority of India (IRDAI), from September 2014, allowed  insurance companies to sell 2-year and 3-year policies to its customers. 


How is third party insurance helpful and what are its  drawbacks?

It offers protection of any kind to  third party and helps with financial burden like  meeting the expenses of medical treatment to the third party and also his vehicle repair costs. It also gives legal protection in case of death or permanent/total disability or loss of property.

The drawbacks are if any individual, other than the owner of the vehicle or designated driver, was driving the vehicle than this cover will not protect. It also does not cover  accidental loss caused outside a geographical territory. It does not give any protection to the insured, neither damage to vehicle nor injuries suffered. According to the existing laws, the liability of the insurance company cannot exceed the amount of 7.5 lakhs and any amount exceeding this will be borne by the insured. 


How is third party insurance cover different from Comprehensive cover?

Whilst the third party insurance only covers the bodily injury or accidental death and vehicular damage to third party, but comprehensive policy will cover all liabilities to third parties plus damage/loss caused to your own vehicle. Third party insurance cover is cost effective because the premium rate is much lower as compared with comprehensive cover. The latter  cover is fit for expensive vehicles because it covers loss caused due to natural calamities, theft and many more.

Comprehensive cover allows an insured person also to claim for compensation for the loss suffered in the accident due to his fault. In case, while reversing car in the parking a person hit the car of another which caused dent in the bumper and broken headlights in that car and due to this, the tail light of the car is also broken; if  there is a comprehensive cover, it will cover loss to your car as well as the third person’s  car but the third party cover will not cover loss caused to your car even though it may be more.    


How to claim third party insurance?

To claim compensation first file an F.I.R. in the nearest police station with the complete detail of vehicle and its insurance detail. File the third party insurance claim and this can be done through a lawyer because he/she will help in filing the case in the right jurisdiction. Then approach Motor Accident Claims Tribunal (MACT) and file in a case here. The tribunal will first check the jurisdiction according to the police station in which you filed the  FIR, which can be at the place where the accident took place or where you live or near the hospital. Both the parties will get chance to represent themselves and prove their side and then the judge will decide the amount of compensation.

In most of the cases, the driver or owner of the car will try to make an out of court settlement. But the amount will be often less and if you feel the damage caused is much more then  approach the MACT.


What changes the new notification of 2018 has brought with regard to compensation in the Act?

The notification of May 2018 has brought changes in the formula system of compensation, which was there in the second schedule of the Motor Vehicle Act 1988 since 1994. The Supreme Court of India in Sarla Verma v. Delhi Transport Corporation [(2009) 6 SCC 12] held that the compensation formula of victims age and income suffered from several defects. The inconsistency in awarding compensation on the same facts led to lack of uniformity. After the notification,  the compensation payable will be 5 lakhs rupees for fatal accidents, for accidents resulting in permanent disability, the compensation will be based on disability percentage, however, a minimum of INR  50,000 has to be paid with maximum limit of rupees 5 lakhs, for minor injury caused in accident fixed amount of INR  20,000. Except for the fatal accident, amount in every other case will be increased at the rate of 5 per cent annually from 1 January 2019.   


Conclusion

The third party insurance cover is a very important insurance cover because it protects you from any kind of financial impact from the liability arising out of a  third party. And this insurance cover is also a statutory requirement under Motor Vehicle Act 1988. It is easy to get a third party insurance cover and it can be obtained online. This cover is also the most economic insurance cover. The changes brought by the notification of 2018 in the MV Act will be tested in the future on its application mainly on claims of a bigger amount. Third party insurance cover is helpful to get away with complications and tension at the time of accident.

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