The Status of Passengers as 'Third Parties' under Indian Motor Vehicle Insurance Law

The Evolving Definition of 'Third Party' in Motor Vehicle Insurance: A Study of Passenger Rights under Indian Law

Introduction

The determination of who constitutes a 'third party' for the purposes of compulsory motor vehicle insurance under Indian law has been a subject of extensive judicial scrutiny. A critical aspect of this determination revolves around the status of passengers—individuals travelling within an insured vehicle at the time of an accident. The Motor Vehicles Act, 1939 (hereinafter 'MVA 1939') and its successor, the Motor Vehicles Act, 1988 (hereinafter 'MVA 1988'), along with subsequent amendments, lay down the framework for insurer liability. This article analyses the legal position of passengers, particularly whether they are invariably considered 'third parties' entitled to compensation under statutory insurance policies, by examining key legislative provisions and landmark judicial pronouncements.

Statutory Framework

The obligation for motor vehicle insurance is primarily designed to protect individuals who suffer loss or injury due to the use of motor vehicles. The scope of this protection, particularly concerning passengers, has evolved through legislative changes and judicial interpretation.

The Motor Vehicles Act, 1939

Section 95(1) of the MVA 1939 mandated that an insurance policy must cover any liability incurred by the insured in respect of the death of or bodily injury to any person or damage to any property of a third party. However, proviso (ii) to Section 95(1)(b) was crucial. It stipulated that a policy shall not be required: "except where the vehicle is a vehicle in which passengers are carried for hire or reward or by reason of or in pursuance of a contract of employment, to cover liability in respect of the death of or bodily injury to persons being carried in or upon or entering or mounting or alighting from the vehicle at the time of the occurrence of the event out of which a claim arises."

This proviso effectively excluded gratuitous passengers in private vehicles from the ambit of compulsory statutory insurance.[1] (Pushpabai Purshottam Udeshi v. Ranjit Ginning & Pressing Co. (P) Ltd.), [2] (Dr. T.V Jose v. Chacko P.M) The Kerala High Court in The New India Assurance Co. Ltd. And Etc. v. K.T Jose And Others Etc. observed that under the MVA 1939, the term "third-party" was not wide enough to cover gratuitous passengers in a private car due to this proviso.[3] Similarly, the Bombay High Court in New India Assurance Company Ltd. v. Babasaheb Anna Mali And Others, relying on the same proviso, rejected a broad interpretation of "third party" that would include all passengers.[4]

The Motor Vehicles Act, 1988

Section 147(1) of the MVA 1988 replaced Section 95 of the MVA 1939. Initially, the MVA 1988 did not contain a proviso identical to proviso (ii) of Section 95(1)(b) of the MVA 1939. This omission led to some initial interpretations suggesting a broader scope of coverage. Section 147(1)(b) requires a policy to cover liability incurred by the insured in respect of the death of or bodily injury to "any person," including the owner of the goods or his authorized representative carried in the vehicle (after the 1994 amendment), or damage to any property of a third party.

The Act was amended by the Motor Vehicles (Amendment) Act, 1994 (Act 54 of 1994), which, inter alia, inserted the words "including owner of the goods or his authorized representative carried in the vehicle" in Section 147(1)(b)(i). This amendment specifically addressed the coverage for persons associated with goods in goods carriages but did not explicitly clarify the status of all other types of passengers across different vehicles.

Judicial Interpretation of "Third Party" and Passenger Liability

The judiciary has played a significant role in delineating the scope of "third party" and the extent of an insurer's liability towards passengers.

Early and Divergent Interpretations

Some High Courts initially adopted a broad interpretation. For instance, the Jammu and Kashmir High Court in National Insurance Co. Ltd. v. Faqir Chand And Others opined that "the expression 'third party' therefore, should include everyone, be it a person travelling in another vehicle, one walking on the road or a passenger in the vehicle itself which is the subject matter of the insurance policy."[5] The Madhya Pradesh High Court in New India Assurance Co. Ltd. v. Riaz Mohammed And Others held that passengers in a bus were to be treated at par with any other third party.[6] However, these broader interpretations, especially concerning gratuitous passengers in non-public service vehicles, were not consistently upheld, particularly by the Supreme Court.

Gratuitous Passengers in Private Vehicles

The Supreme Court in Amrit Lal Sood And Another v. Kaushalya Devi Thapar And Others drew a distinction between a statutory "Act only" policy and a "comprehensive" policy. It held that while statutory insurance under Section 95 of the MVA 1939 did not cover gratuitous passengers, a comprehensive policy could extend coverage to such passengers if its terms were wide enough.[7] The term "any person" in such a comprehensive policy was interpreted to include a gratuitous passenger.

In Dr. T.V Jose v. Chacko P.M Alias Thankachan And Others, the Supreme Court, referring to the MVA 1939, reiterated that a statutory policy does not cover liability to gratuitous passengers who are not carried for hire or reward.[2] This position was firmly established for the MVA 1988 in United India Insurance Co. Ltd., Shimla v. Tilak Singh And Others, where the Apex Court held that a statutory insurance policy does not cover the risk of death or bodily injury to a gratuitous passenger in a private vehicle (in this case, a pillion rider on a scooter).[8] The Court observed that although proviso (ii) to Section 95(1) of the MVA 1939 was eliminated in Section 147 of the MVA 1988, the reasoning in New India Assurance Co. Ltd. v. Asha Rani (discussed below in the context of goods vehicles) would apply with equal force to gratuitous passengers in any other vehicle.[8], [9] (Sh. Jagdish Chand Sharma v. Sh. Bachan Singh & Ors.) The Rajasthan High Court in Imam Khan & Anr. v. Akram & Ors. also cited Tilak Singh to state that gratuitous passengers in a private car are not 'third party' for statutory coverage.[10]

Passengers in Goods Vehicles

The status of passengers in goods vehicles has seen significant legal evolution. In New India Assurance Company v. Satpal Singh And Others, the Supreme Court initially held that under the MVA 1988, an insurance policy covering third-party risk was not required to exclude gratuitous passengers, irrespective of the vehicle type.[11]

However, this view was overruled by a larger bench in New India Assurance Co. Ltd. v. Asha Rani And Others. The Court clarified that under the MVA 1988 (prior to its 1994 amendment), insurers were not mandatorily liable to cover passengers in goods vehicles.[12] The Court reasoned that the 1988 Act redefined "goods vehicle" to mean "solely for the carriage of goods" and omitted the specific proviso from the 1939 Act that mandated coverage under certain conditions. The term "any person" in Section 147 was interpreted in the context of "a third party" and not to include every passenger in a goods vehicle.[13] (Rajan v. Pravith, citing Asha Rani)

The position post the 1994 amendment to Section 147 (which included "owner of the goods or his authorized representative") was addressed in National Insurance Co. Ltd. v. Baljit Kaur And Others. The Supreme Court held that even after this amendment, the statutory policy for a goods vehicle does not cover gratuitous passengers.[14] The Court directed the insurer to pay the compensation and then recover it from the owner of the vehicle, applying the "pay and recover" principle often invoked to protect victims while acknowledging the insurer's limited statutory liability. The Bombay High Court in VITHOBA SHRAWANJI PESHNE v. WASUDEORAO UPASRAO GOLE also cited Asha Rani to deny coverage to gratuitous passengers in goods vehicles.[15]

Passengers in Public Service Vehicles

The MVA 1988, under Section 147(1)(b)(ii), explicitly requires a policy to cover liability against the death of or bodily injury to any passenger of a public service vehicle caused by or arising out of the use of the vehicle in a public place. This implies that fare-paying passengers in vehicles like buses are generally considered covered under statutory policies. The Karnataka High Court in National Insurance Co. Ltd. v. Ningamma & Others noted that Rule 3(k) of the Karnataka Motor Vehicles Rules, 1963 defines a passenger as "any person travelling in a public service vehicle other than the driver or the conductor or an employee of the permit-holder while on duty."[16]

The "Pay and Recover" Principle

In cases where an insurer is not statutorily liable (e.g., for a gratuitous passenger), courts have sometimes directed the insurer to satisfy the award first and then recover the amount from the insured owner of the vehicle. This approach, notably discussed in National Insurance Co. Ltd. v. Swaran Singh ((2004) 3 SCC 297) primarily in the context of breaches of policy conditions like driving license violations, has been extended by analogy in some passenger liability cases like Baljit Kaur[14] to ensure that third-party victims receive timely compensation.[10] (Imam Khan & Anr. v. Akram & Ors. citing Swaran Singh)

Defining "Third Party" - A Synthesis

From the legislative provisions and judicial pronouncements, a nuanced understanding of "third party" emerges in the context of motor insurance:

  • A 'third party' is generally understood as someone other than the two parties to the insurance contract: the insurer (first party) and the insured (second party).[6] (New India Assurance Co. Ltd. v. Riaz Mohammed And Others)
  • However, not all individuals injured in a motor accident involving an insured vehicle are automatically considered 'third parties' for the purpose of compulsory statutory insurance coverage, especially if they are passengers.
  • The status of a passenger depends significantly on:
    • Type of Vehicle: Rules differ for private cars, goods vehicles, and public service vehicles.
    • Nature of Passenger: A distinction is made between gratuitous passengers, fare-paying passengers, employees covered under the Workmen's Compensation Act, 1923 (now Employee's Compensation Act, 1923), and the owner of goods or their representative.
    • Terms of the Insurance Policy: A comprehensive or package policy may offer wider coverage than a statutory "Act only" policy.[7] (Amrit Lal Sood), [2] (Dr. T.V Jose)
    • Applicable Statute and Amendments: The MVA 1939, MVA 1988 (pre and post-1994 amendment) have different implications.
  • The Karnataka High Court in Ningamma[16] emphasized that to determine if a person is a passenger or a third party, their status at the time of the accident is crucial – whether they were travelling in the vehicle or were outside it. It also noted that a person alighting from a vehicle could still be considered a passenger.
  • The Supreme Court has generally adopted a more restrictive interpretation of "third party" concerning gratuitous passengers under statutory policies, as seen in Asha Rani[12] and Tilak Singh[8], effectively meaning that the term "any person" in Section 147 of MVA 1988 does not automatically include all passengers for the purpose of mandatory coverage, unless specified (e.g., passengers in public service vehicles, or owner of goods/representative in goods vehicles).
  • The Himachal Pradesh High Court in Jagdish Chand Sharma & Etc. v. Bachan Singh & Ors., Etc., synthesizing Supreme Court rulings, concluded that gratuitous passengers, unauthorized passengers, and even certain employees not covered under the Employee's Compensation Act, and pillion riders have not been considered third parties for statutory coverage.[17] This line of cases also clarified that "property of a third party" under Section 147 refers to property outside the vehicle, not goods being carried within it.[17], [18] (Sh. Jagdish Chand Sharma v. Sh. Bachan Singh & Ors. S)

Conclusion

The legal definition of a 'third party' in Indian motor insurance law, particularly concerning passengers, is not monolithic. While the overarching aim of the Motor Vehicles Act is to provide a safety net for accident victims, the judiciary has meticulously interpreted legislative provisions to delineate the boundaries of an insurer's compulsory statutory liability. The general principle that has emerged is that statutory insurance policies, often termed "Act only" policies, do not automatically cover all passengers. Gratuitous passengers in private vehicles and goods vehicles are largely outside the scope of such mandatory coverage, unless the insurance policy is a comprehensive one that explicitly extends such benefits, or unless they fall into specific categories like fare-paying passengers in public service vehicles or the owner of goods/authorized representative in a goods vehicle post the 1994 amendment.

The evolution from Satpal Singh[11] to Asha Rani[12] and Tilak Singh[8] demonstrates a judicial correction towards a more contextual and purposive interpretation of terms like "any person" and "third party" within the statutory scheme. While the "pay and recover" directive offers some relief to victims in specific cases, the fundamental position remains that the term 'passenger' is not synonymous with 'third party' for all intents and purposes under the compulsory insurance regime in India. Legal practitioners and policyholders must, therefore, carefully consider the type of vehicle, the nature of the passenger, and the specific terms of the insurance policy to ascertain the extent of an insurer's liability.

References