BBA.LL.

B (H) NEERAJ LALWANI ROLL NO: 30

Project Report

Course: Law of Tort

Title: Contribution of Tort Jurisprudence

to the development of “Third Party
Insurance Cover” in India.

Submitted to:
Mr.ML Shankar Kaarmukilan

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Mr. Yogesh Pratap Singh

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Abstract:
Much of tort law in practice deals with an undesirable injury to a plaintiff by a defendant
and the ways in which this injury could be redressed. One of the most important and prevalent
means of remedies in a tort claim is compensation. “A century or so ago the law of tort was
probably the primary vehicle of compensation. However, in the recent times the development of
insurance law has tended to relegate tort law to a more secondary role.”1 (Rogers, Seventeenth
Edition, 2006)

In an effort to relate tort law and insurance law, this paper attempts to convey that tort
law has played a significant role in the development of third party insurance cover in India. To
support this contention, the researcher has studied and used a variety of secondary sources which
support this thesis. This paper focuses on the various areas of tort law which have had an impact
on insurance law in one way or the other.

1 WVH Rogers, Winfield & Jolowicz on Tort, Seventeenth Edition, Sweet and Maxwell Limited, South Asian
Edition, 2006,p.23

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Table of Contents:
• Introduction 4
• Research Methodology 6
○ Objective 6
○ Scope 6
○ Research Questions 6
• Role of tort law in development of Liability Insurance 7
○ Fault and No fault Liability in third party insurance 7
○ Negligence and third party insurance cover 9
○ Vicarious Liability and third party insurance cover 12
• Conclusion 13
• Sources Cited 14

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Introduction:
India is the 5th largest insurance market in Asia2(Sathe, 2009) owing to its $30 billion
insurance industry3(Bhavanam). Moreover, with the growing economy leading to higher
disposable incomes and savings and increasing urbanization and awareness, the insurance is
expected to grow radically in the near future. Motor insurance is the largest business segment in
the insurance sector in India as it constitutes 44% of the total product mix which includes fire,
marine and health insurance.(Bhavanam). Motor insurance industry in India offers two kinds of
coverage: comprehensive insurance and third party insurance. This paper will deal with the latter
type and discern the role of tort law in its development in India.

In third party insurance or liability insurance, “the assured himself is covered against
legal liability which he may incur to a third party, and the establishment of such liability by the
third party, not merely suffered by the third party, is an essential perquisite to a claim on the
policy”4.(Rogers, Seventeenth Edition, 2006) Thus, “when you are involved in an auto accident
for which you are at fault, your liability or third party insurance will cover injuries and damages
you cause to others, up to your liability limit.”5 Typical third party insurance covers: personal
injury and property damage.

In India, under the section 1466 of Motor Vehicles Act, 1988 it is mandatory that every
vehicle should have a valid insurance that covers against third party risk to drive on the road.

2 Sathe, Anita. "General Insurance Industry in India." Casualty Loss Reserve Seminar.
Chicago, 2009. 1-20.

3 Bhavanam, Pasisrama. "India's insurance sector: Overview." IndiaOneStop. 4 December

2009 <http://www.indiaonestop.com/insurance/insurance.htm>

4 WVH Rogers, Winfield & Jolowicz on Tort, Seventeenth Edition, Sweet and Maxwell
Limited, South Asian Edition, 2006,p.24

5 "What is third party insurance cover on a vehicle?" Answers.com. 4 December 2009

<http://wiki.answers.com/Q/What_is_third_party_only_Insurance_cover_on_a_vehicle>.

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Moreover, a vehicle meant to carry dangerous or hazardous goods is required to cover risks
detailed under the Public Liability Insurance Act, 1991.However, a third party only insurance
covers the insured against third party risks if he causes injury or death in following situations:
“owner of the goods or his authorized representative carried in the vehicle; passenger in a public
service vehicle; workman, such as an employee engaged in driving the vehicle or a conductor in
a public service vehicle, or a person engaged in examining tickets in the vehicle, employees
carried in a goods carriage to the extent of liability provided under the Workmen’s
Compensation Act.”7(Kannan, 2009)

However, as Professor Pfeffer wisely said, “One must seek the scientific aspects of
insurance outside the institution itself”.(Pfeffer, 1958)8”The insurance institution derives from,
or at least builds upon, mathematics, economics and law.”9(Arthur D. Lynn, 1962). Moreover, it
is further stated by Robert I. Mehr and Robert W. Osler in Modern Life insurance that the
interpretation of life insurance is legal. Thus, one cannot deny that law over the years has had an
effect on the institution of insurance. This paper will recognize the role of tort law in developing
the various facets of third party or liability insurance by focusing on relevant areas such as; strict
liability, fault and no fault liability, negligence and vicarious liability.

6 Section 146 Necessity for insurance against third party risk: (1) No person shall use,
except as a passenger, or cause or allow any other person to use, a motor vehicle in a
public place, unless there is in force in relation to the use of the vehicle by that person or
that other person, as the case may be, a policy of insurance complying with the
requirements of this Chapter.

7 Kannan, Justice K. "Motor Insurance: New Imperatives for Reforms." Halsbury's Law
Monthly July 2009

8 Pfeffer, Irving. "The nature and significance of insurance pricniples." Annals of the Society
of Chartered Property and Casualty Underwriters (1958).

9 Arthur D. Lynn, Jr. "Contributions to risk and insurance theory from the filed of law." The
Journal of Insurance (1962): 351-354.

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Research Methodology:

Objective:

The objective of this paper is to explore the evolution that has taken place in the field of
third party insurance cover in India and its relation with tort law.

Scope:

The scope of this paper will be limited to liability insurance and tort law in India. It will
also be limited to the concepts of tort law like negligence, strict liability and vicarious liability
which have an influence on liability insurance.

Research Questions:

a) What is the role of the fault principle of strict liability in third party insurance cover?
b) What is the role of the tort of negligence in third party insurance cover?
c) What is the role of vicarious liability in third party insurance cover?
d) How have these principles affected third party insurance over the years?

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e)

Role of tort law in the development of third party insurance cover:

• Fault and No-fault liability in third party insurance:

The Motor Vehicles Act, 1988 states that an insured vehicle i.e. his
insurance company will have to pay compensation to the injured party without
any consideration of whether injured was at fault or not. This is explained in
Section 140(1)10 of Motor Vehicles act. Due to this irrespective of the
insured’s fault the insurance company has to pay. This concept is derived from
the concept of Strict or Absolute Liability in tort law which is considered strict
or absolute because “it relieves the claimant of the burden of showing
fault.11”(Rogers, Seventeenth Edition, 2006) This clearly portrays India’s
Motor Vehicles Act as pro-victim. This stance is justified by stating that “there
is not injustice in awarding compensation against the person who caused the
accident even if he is not at fault, because, in most cases, he can get
reimbursement from the insurer. The main object of the law is to compensate
the injured person and not to penalize the person causing the
accident.”12(India, 1972) In India 38% (Bhavanam)of the total motor insurance
segment comprises of third party insurance. However, 2/3(Bhavanam) of the

10 Section 140 Liability to pay compensation in certain cases on the principle of no fault:
(1) Where death or permanent disablement of any person has resulted from an accident
arising out of the use of a motor vehicle or motor vehicles, the 1 owner of the vehicle shall,
or, as the case may be, the owners of the vehicles shall, I jointly and severally, be liable to
pay compensation in respect of such death or disablement in accordance with the
provisions of this section.

11 WVH Rogers, Winfield & Jolowicz on Tort, Seventeenth Edition, Sweet and Maxwell
Limited, South Asian Edition, 2006,p.693

12 India, Law Commission of. 51st report on compensation for injuries caused by
automobiles in hit-and-run cases. New Delhi: Governement of India- Ministry of Law and
Justice, 1972.

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revenue of the industry is reserved for third party segment. Moreover, in the
fiscal year 2007-08, the overall loss ratio for third party insurance was 183%
(Bhavanam). This has made the insurance industry against giving third party
only policies. However, either permanent disablement or death needs to be
proven before a victim can claim damages under Section 140. The term
permanent disablement has been defined in section 142 of the Motor Vehicles
Act, 1988 to constitute any of the following injuries:

• (a) Permanent privation of the sight of either eye or the hearing of either ear, or
privation of any member or joint; or

• (b) Destruction or permanent impairing of the powers of any member on joint; or

• (c) Permanent disfiguration of the head or face.

However, fault and no fault liability are differentiated by the upper cap on
their damages. If the fault of the driver is not proven then the claimant can
claim up to Rs.50, 000 in case of death and Rs.25, 000 in case of permanent
disablement. (, 1988)However, in the case where fault of the driver is
proven the compensation amount under third party insurance can go up to
Rs.7, 50,000. The principle of no fault liability was first established in
Gujarat State Road Transport Corporation v. Ramanbhai Prabhatbhai13 in
which the Supreme Court held that “Where a pedestrian, without negligence
on his part, is injured or killed by a motorist whether negligently or not, he
or his legal representatives, as the case may be, should be entitled to recover
damages if the principle of social justice should have any meaning at
all.”()14.

13 (1987) 3 SCC 234

14 Venkataramiah J, Gujarat State Road Transport Corporation v. Ramanbhai Prabhatbhai

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• Negligence and Third party Insurance Cover:

“Negligence as a tort is a breach of duty to take care which results
in damage to the claimant.”15(Rogers, Seventeenth Edition, 2006)
Negligence has three ingredients: a legal duty to take care, breach of that
duty and a consequential damage to the claimant. Negligence has an
important implication in third party insurance. One of the most important
functions of negligence in third party insurance is that it helps in
determining whether the principle of fault and no fault liability is to be
applied. This determination is vital as it can affect the amount of
compensation received by the claimant. Under Motor Vehicles Act, 1988
certain duties of care to be observed by the drivers of motor vehicles are
established. These are:
a) Duty to obey Driving regulations16
b) Duty to obey traffic signs17
c) Duty to drive vehicles with left hand control18
d) Duty to observe safety measures for drivers and pillion riders19

15 WVH Rogers, Winfield & Jolowicz on Tort, Seventeenth Edition, Sweet and Maxwell
Limited, South Asian Edition, 2006,p.132

16 Section 118 Driving regulations: The Central Government may, by notification in the
Official Gazette, make regulations for the driving of motor vehicles.

17 Section 119 Duty to obey traffic signs: (1) Every driver of a motor vehicle shall drive the
vehicle in conformity with any indication given by mandatory traffic sign and in conformity
with the driving regulations made by the Central Government, and shall comply with all
directions given to him by any police officer for the time being engaged in the regulation of
traffic in any public place.(2) In this section "mandatory traffic sign" means a traffic sign
included in Part A of 1[The First Schedule], or any traffic sign of similar form (that is to say,
consisting of or including a circular disc displaying a device, word or figure and having a red
ground or border) placed or erected for the purpose of regulating motor vehicle traffic under
sub-section (1) of section 116.

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e) Duty to produce license and certificate or registration20

f) Duty of driver to stop in certain cases21
g) Duty of driver in case of accident and injury to a person22
h) Duty to allow inspection of vehicle involved in accident.23

If any of the above mentioned duties are breached and claimant suffers
damages as a result of that breach than the case can be qualified as one
involving fault liability. An instance of such liability is the case of Minu

18 Section120. Vehicles with left hand control: No person shall drive or cause or allow to be
driven in any public place any motor vehicle with a left-hand steering control unless it is
equipped with a mechanical or electrical signaling device of a prescribed nature and in
working order.

19 Section 128 Safety measures for drivers and pillion riders: (1) No driver of a two-wheeled
motor cycle shall carry more than one person in addition to himself on the motor cycle and
no such person shall be carried otherwise than sitting on a proper seat securely fixed to the
motor cycle behind the driver's seat with appropriate safety measures.(2) In addition to the
safety measures mentioned in sub-section (1), the Central Government may, prescribe
other safety measures for the drivers of two-wheeled motor cycles and pillion riders
thereon.

20 Section 130 Duty to produce license and certificate of registration: (1) The driver of a
motor vehicle in any public place shall, on demand by any police officer in uniform, produce
his license for examination

21 Section132. Duty of driver to stop in certain cases: (1) The driver of a motor vehicle shall
cause the vehicle to stop and remain stationary so long as [may for such reasonable time as
may be necessary, but not exceeding twenty-four hours],-[(a) when required to do so by
any police officer not below the rank of a Sub-Inspector in uniform, in the event of the
vehicle being involved in the occurrence of an accident to a person, animal or vehicle or of
damage to property, or](b) when required to do so by any person in charge of an animal if
such person apprehends that the animal is, or being alarmed by the vehicle will become,
unmanageable.

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B. Mehta v. Balkrishna Ramchandra Nayan24 where the court holding that

the driver was liable for negligence said that the owners need to prove that
“despite taking all reasonable care a mechanical defect remained hidden”
which caused the accident otherwise it will assumed that the “accident
took place due to rash and negligent driving.”25 It has been argued that the
pro victim nature of tort law has increased the demand for third party

22 Section 134 Duty of driver in case of accident and injury to a person: When any person
is injured or any property of a third party is damaged, as a result of an accident in which a
motor vehicle is involved, the driver of the vehicle or other person in charge of the vehicle
shall- (a) unless it is not practicable to do so on account of mob fury or any other reason
beyond his control, take all reasonable steps to secure medical attention for the injured
person,[by conveying him to the nearest medical practitioner or hospital, and it shall be the
duty of every registered medical practitioner or the doctor on the duty in the hospital
immediately to attend to the injured person and render medical aid or treatment without
waiting for any procedural formalities], unless the injured person or his guardian, in case he
is a minor, desires otherwise; (b) give on demand by a police officer any information
required by him, or, if no police officer is present, report the circumstances of the
occurrence, including the circumstances, if any, for not taking reasonable steps to secure
medical attention as required under clause (a), at the nearest police station as soon as
possible, and in any case within twenty-four hours of the occurrence; (c) give the following
information in writing to the insurer, who has issued the certificates of insurance, about the
occurrence of the accident, namely:- (i) insurance policy number and period of its validity;
(ii) date, time and place of accident; (iii) particulars of the persons injured or killed in the
accident; (iv) name of the driver and the particulars of his driving license.

23 Section 136 Inspection of vehicle involved in accident: When any accident occurs in
which a motor vehicle is involved, any person authorized in this behalf by the State
Government may, on production if so required of his authority, inspect the vehicle and for
that purpose may enter at any reasonable time any premises where the vehicle may be,
and may remove the vehicle for examination:
Provided that the place to which the vehicle is so removed shall be intimated to the owner
of the vehicle and the vehicle shall be returned [after completion of the formalities to the
owner, driver or the person in charge of the vehicle within twenty-four hours].

24 (1977) 2 SCC 441

25 Kailasam J, Minu B. Mehta v. Balkrishna Ramchandra Nayan

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insurance because people know that during the occurrence of an accident

if they cause an injury they will be liable to pay damages. As a result of
this they opt for insurance so that their insurance company can cover
these damages. However, because they know that their damages are being
covered by the insurance company their “incentive to exercise due care is
reduced”26 and this causes more negligence and thus more accidents. This
is referred to as the moral hazard in insurance.

26 Tom Baker, Guy Chappuis, et al. Tort Law and Liability Insurance: An Intricate
Relationship. Munich: Munich Re Group, 2007.

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• Vicarious Liability and Third Party insurance cover:

The concept of Vicarious Liability is based on the phrases
respondeat superior27 and qui facit per alium facit per se28. The reasoning
behind vicarious liability is that “the master is expected to be in a far
better position for paying the damages than the servant.”29(Singh, 2009).
There is a similar reasoning used to justify necessary third party
insurance. It is assumed that if provisions, in form of insurance, are made
in advance by a car owner for the injuries he may cause to a third party
then the likelihood of claimant recovering the needed damages is higher.
It has been held that the owner will be liable for the negligent actions of
the persons who he allows to drive his car. This was the case in
Pushpabai Purshottam Udeji v. Ranjit Ginning and Pressing Co. Pvt.
Ltd30 where “the car met with an accident because of the negligence of the
manager in driving the car and Purshottam (a third party) travelling with
him, died.”(Singh, 2009) As a result, the defendant company was held
responsible for the negligent driving of its manager.
It was further seen in Guru Govekar v. Miss Filomena F.
Lobo and Others31 In this case the Supreme Court held that “the owner
and his insurer are liable to a third party for injuries sustained by

27 Respondeat Superior: Let the one in the superior position be responsible

28 Qui facit per alium facit per se: He who acts through another acts himself

29 Singh, Justice GP. Ratanlal and Dhirajlal's The Law Of Torts. New Delhi: LexisNexis
Butterworths Wadhwa Nagpur, 2009, p.148

30 (1977) 2 SCC 745

31 (1988) 3 SCC 1

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negligent driving of an employee of a garage owner to whom the vehicle

has been delivered for repairs.”32

32 Singh, Justice GP. Ratanlal and Dhirajlal's The Law Of Torts. New Delhi: LexisNexis
Butterworths Wadhwa Nagpur, 2009, p.650

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Conclusion:

This paper made an effort to draw relations between various facets of tort law and
its impact on third party insurance in India. The researcher intended to elucidate how tort law
has shaped the Insurance laws and has contributed to the Motor Vehicles Act, 1988. With the
scope of tort law increasing the scope of third party insurance has increased proportionately.
“The cases of motor accidents constitute the major bulk of tort cases in India. Tort law has
expanded to assign liability to defendants for reasons other than negligence. Recent doctrines
include joint and several liability, retroactive liability, and unlimited duration of
liability.”33(Singh, 2009)

Word Count: 3,322 words

33 Singh, Ram. Relationship between liability regimes and economic development: A study
of motor vehicle accidents in India. Working Paper. New Delhi: Centre for the Study of Law
and Governance: Jawaharlal Nehru University, 2009

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Sources Cited:

Cases Referred:

Guru Govekar v. Miss Filomena F. Lobo and Others

(1988) 3 SCC 1

Pushpabai Purshottam Udeji v. Ranjit Ginning and Pressing Co. Pvt. Ltd
(1977) 2 SCC 745

Minu B. Mehta v. Balkrishna Ramchandra Nayan

(1977) 2 SCC 441

Gujarat State Road Transport Corporation v. Ramanbhai Prabhatbhai

(1987) 3 SCC 234

Other Sources Cited:

Arthur D. Lynn, Jr. "Contributions to risk and insurance theory from the field
of law." The Journal of Insurance (1962): 351-354.

Bhavanam, Pasisrama. "India's insurance sector: Overview." IndiaOneStop. 4

December 2009 <http://www.indiaonestop.com/insurance/insurance.htm>.

"Gujarat State Road Transport Corporation v. Ramanbhai Prabhatbhai." V

Lex. 4 December 2009 <http://vlex.in/vid/road-ahmedabad-ramanbhai-
prabhatbhai-29682721>.

Law Commission of India. 51st report on compensation for injuries caused by

automobiles in hit-and-run cases. New Delhi: Governement of India- Ministry
of Law and Justice, 1972.

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Kannan, Justice K. "Motor Insurance: New Imperatives for Reforms."

Halsbury's Law Monthly July 2009.

"Motor Vehicles Act." 1988.

Pfeffer, Irving. "The nature and significance of insurance pricniples." Annals

of the Society of Chartered Property and Casualty Underwriters (1958).

Rogers, WVH. Winfield and Jolowicz on Tort. London: Sweet and Maxwell
Limited, Seventeenth Edition, 2006.

Sathe, Anita. "General Insurance Industry in India." Casualty Loss Reserve

Seminar. Chicago, 2009. 1-20.

Singh, Justice GP. Ratanlal and Dhirajlal's The Law Of Torts. New Delhi:
LexisNexis Butterworths Wadhwa Nagpur, 2009.

Singh, Ram. Relationship between liability regimes and economic

development: A study of motor vehicle accidents in India. Working Paper.
New Delhi: Centre for the Study of Law and Governance: Jawaharlal Nehru
University, 2009.

Thomson Reuters. Indlaw.com-A definitive guide to Indian law. . 24

November 2009 <http://www.indlaw.com/>.

Tom Baker, Guy Chappuis, et al. Tort Law and Liability Insurance: An
Intricate Relationship. Munich: Munich Re Group, 2007.

"What is third party insurance cover on a vehicle?" Answers.com. 4

December 2009
<http://wiki.answers.com/Q/What_is_third_party_only_Insurance_cover_on_a_
vehicle>.

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