Sunita v. United India Insurance Co. Ltd. (2025): Supreme Court Affirms “Pay-and-Recover” Duty Even under Liability-Only Motor Policies

1. Introduction

On 17 July 2025, the Supreme Court of India in Sunita & Ors. v. United India Insurance Co. Ltd. (2025 INSC 867) revisited two recurring controversies under the Motor Vehicles Act, 1988 (“MV Act”):

Whether a driver holding only a Light Motor Vehicle (“LMV”) licence can validly drive a commercial goods vehicle of less than 7,500 kg GVW; and
Whether, under a liability-only insurance policy that does not cover passengers, the insurer can still be directed to pay compensation to claimants and thereafter recover it from the insured (“pay-and-recover”).

The litigation stemmed from the death of Gokul Prasad, a 32-year-old cloth-seller, who travelled as an un-authorised passenger in a Tata 407 (GVW ≈ 4,995 kg) and succumbed to injuries in an accident on 27 November 2013. The Motor Accident Claims Tribunal (Seedhi, M.P.) and the Madhya Pradesh High Court fastened liability on the driver and owner alone, holding that the insurer stood exonerated because:

the policy was only “Act/Third-party Liability”; and
no premium was paid for passengers.

Allowing the claimants’ appeal, the Supreme Court has now:

Re-affirmed that an LMV licence suffices for transport vehicles up to 7,500 kg;
Enhanced compensation from ₹19.53 lakh to ₹26.97 lakh; and crucially
Directed the insurer to first satisfy the award and then recover it from the owner, despite the risk being outside the policy cover.

2. Summary of the Judgment

The Court (Karol J., Bagchi J. concurring) held:

The driver’s LMV licence was valid for the Tata 407; thus, there was no licence breach.
Although the policy was liability-only and no premium had been paid for passengers, precedents mandate invocation of pay-and-recover where innocent third parties/estate of deceased would otherwise be uncompensated.
Accordingly, United India Insurance Co. must deposit the entire compensation with 6 % interest within four weeks, with liberty to recover the amount solely from the owner (not the driver).
Conventional heads (consortium, funeral, estate) were increased by 10 % per Pranay Sethi, resulting in total compensation of ₹26,97,500.

3. Analysis

3.1 Precedents Cited and Their Influence

(a) Licence-Validity Line

Mukund Dewangan v. Oriental Insurance Co., (2017) 14 SCC 663 – held that an LMV licence suffices for transport vehicles under 7,500 kg.
Bajaj Allianz v. Rambha Devi, (2024) 1 SCC 818 – Constitution Bench which re-affirmed Mukund Dewangan and clarified that LMV and transport-vehicle classes overlap up to 7,500 kg.

The Supreme Court followed these decisions to reject the insurer’s argument of “invalid licence”.

(b) Pay-and-Recover Line

National Insurance Co. v. Baljit Kaur, (2004) 2 SCC 1 – foundational authority directing pay-and-recover when the policy did not cover gratuitous passengers.
National Insurance Co. v. Parvathneni, (2009) 8 SCC 785 – reiterated Baljit Kaur.
Anu Bhanvar v. IFFCO Tokio, (2020) 20 SCC 632 – extended the doctrine to injured gratuitous passengers.
Series of follow-ups, e.g. Saju P. Paul (2013), Manuara Khatun (2017), Puttappa (2018), also applied.

Building on this line, the Court held that even under a liability-only policy, insurer’s statutory obligation to third parties persists; equitable balancing is achieved by allowing subsequent recovery from the owner.

(c) Quantum-Determination Line

Pranay Sethi, (2017) 16 SCC 680 – settled multipliers, future prospects, and conventional sums.
Satinder Kaur, (2021) 11 SCC 780 – clarified consortium heads.
Recent updates in Rajwati (2022) and Sadhana Tomar (2025) concerning periodic revision of conventional heads.

3.2 Legal Reasoning of the Court

Statutory Interpretation of Sections 2(21), 3(1), 10(2)(d)&(e) MV Act: Using Rambha Devi, the Court held that an LMV licence suffices for a Tata 407 (4,995 kg). Hence, no breach of policy regarding licencing.
Policy Coverage Assessment: It was undisputed that the policy was “Act Only” / “Liability Only”; premiums for occupants were unpaid. Therefore, contractually, insurer had no liability.
Reconciling Statutory & Contractual Regimes: Relying on Baljit Kaur & progeny, the Court balanced:
- Statutory objective of protecting third-party victims (beneficent interpretation); and
- Freedom of contract between insurer–insured.
It revived the equitable tool of pay-and-recover to prevent denial of compensation while also respecting policy terms.
Quantum Calculation: Following Pranay Sethi parameters—income ₹12,000 p.m., 40 % future prospects (age 32), ¼ deduction, multiplier 16—resulting base dependency ₹24.19 lakh. Conventional sums enhanced by 10 % in view of triennial revision, pushing total to ₹26.97 lakh.
Allocation of Liability: Since the licence was valid, the driver was exonerated; insurer to pay and then recover only from owner.

3.3 Likely Impact

Uniformity Across India: High Courts were split on whether pay-and-recover could be ordered under liability-only policies after Vedwati (2007) and Asharani (2003). Sunita provides an authoritative, up-to-date affirmation that the doctrine applies.
Insurers’ Risk Management: Insurers must factor in potential upfront payouts even where premiums are unpaid, leading to possible recalibration of liability-only premium rates or underwriting guidelines.
Claimant Litigation Strategy: Victims/claimants can now confidently implead insurers even in liability-only cover situations, expecting faster realisation of awards.
Trial Court Directions: MACTs are likely to routinely insert pay-and-recover clauses, reducing multiplicity of execution proceedings.
Licence-Validity Certainty: Post-Rambha Devi and reiterated here, controversy over LMV vis-à-vis transport vehicles under 7,500 kg should now cease.

4. Complex Concepts Simplified

Liability-Only Policy: Motor cover that satisfies the statutory minimum—third-party property damage & bodily injury. It excludes occupants of the insured vehicle unless they fall under specific categories (e.g., paid driver, employee).
Gratuitous Passenger: A person travelling without hire/reward and not covered by the insurance contract. The deceased here belonged to this category.
Pay-and-Recover Doctrine: Judicially evolved mechanism directing the insurer to first meet the award for speedy victim relief, then permitting it to recover the amount from the insured via execution proceedings.
Light Motor Vehicle (LMV): Defined in s. 2(21) MV Act as a transport or non-transport vehicle whose gross vehicle weight (goods) or gross vehicle weight rating (passenger) does not exceed 7,500 kg.
Gross Vehicle Weight (GVW): Maximum permissible fully-loaded weight of the vehicle as per registration certificate. Tata 407’s GVW (≈ 4,995 kg) falls within the LMV category.
Multiplier Method: Standard formula for assessing loss of dependency: Annual income × (1 – personal deduction) × multiplier (based on age).
Conventional Heads: Non-pecuniary compensation for loss of consortium, funeral expenses, and loss of estate; values periodically revised by the Court.

5. Conclusion

Sunita v. United India Insurance serves a dual purpose: it cements the constitutional bench ruling on licence validity for sub-7,500 kg transport vehicles and, more significantly, clarifies that insurers under liability-only motor policies cannot escape initial liability toward innocent third-party claimants. The Court, by mandating the pay-and-recover route, reinforces the social-welfare thread running through the MV Act while balancing insurers’ contractual rights against owners. Going forward, trial courts and High Courts are expected to import this precedent liberally, ensuring expeditious redress for victims and consistency in award-enforcement architecture across the country.