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United India Insurance Company Ltd., Ernakulam v. K.N Surenderan Nair And Others
Structured Summary of the Opinion (Radhakrishna Menon, J.)
Factual and Procedural Background
This is an appeal by the Insurance Company, which was the third respondent in O.P. (M.V.) No. 774 of 1981 before the Motor Accidents Claims Tribunal, Ernakulam. The memorandum of appeal contained grounds that, on their face, were grounds that only the insured could raise. The claimant's counsel argued that the appeal by the insurer was not maintainable, relying on the limitation in sub-section (2) of S. 96 of The Motor Vehicles Act, 1939. The insurer's counsel argued that the appeal could be treated as filed on behalf of the insured under S. 110-C(2A) of the Act, and also relied on clause (2) of the insurance policy which, it was argued, permitted the insurer to take over and conduct the defence. The Tribunal had allowed the insurer to cross-examine witnesses "with permission." The court considered statutory provisions, precedent, and the policy clause and ultimately dismissed the appeal.
Legal Issues Presented
- Whether an insurer that is already a party under S. 96(2) can contest a claim on all or any of the grounds available only to the insured without obtaining the Tribunal's permission under S. 110-C(2A).
- Whether S. 110-C(2A) permits an insurer already impleaded under S. 96(2) to avail itself of the rights in S. 110-C(2A) to contest on insured-only grounds, and if so, on what procedural basis.
- Whether a clause in the insurance policy (clause (2) of the conditions) can enable the insurer to raise defences available only to the insured notwithstanding the restrictions imposed by S. 96(2) or without compliance with S. 110-C(2A).
Arguments of the Parties
Appellant's Arguments (Insurance Company)
- The appeal may be treated as one filed on behalf of the insured, relying on S. 110-C(2A) of Chapter VIII of The Motor Vehicles Act, 1939.
- The very fact that the Tribunal allowed the insurer to cross-examine witnesses "with permission" indicated that the insurer was being treated in a manner consistent with contesting the claim.
- Clause (2) of the conditions incorporated in the policy (a provision permitting the insurer to take over and conduct the defence in the name of the insured) entitles the insurer to raise defences that the insured could raise, despite the restrictions in S. 96(2).
Claimant's Arguments
- The memorandum of appeal contained grounds available only to the insured and therefore the appeal by the insurer was not maintainable.
- The insurer is not entitled to take any defence which is not specified in sub-section (2) of S. 96 of The Motor Vehicles Act, 1939.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| British India General Insurance Co. v. Captain Itbar Singh, AIR 1959 SC 1331 | Establishes that the statute (S. 96 and related provisions) confines the grounds by which an insurer can avoid liability to those expressly specified in the statute; it is not for courts to add additional grounds to the statute. Also states that an insurer can avoid hardship by reserving the right in the policy to defend in the name of the assured. | The court relied on this decision to reject the appellant's contention that clause (2) of the policy could be used to expand the insurer's statutory defences beyond those specified in S. 96(2). The Supreme Court's declaration that the statute confines avoidance to specified grounds was held to disentitle the appellant from relying on the policy clause to contend it can raise all insured-only defences without statutory permission. |
| United India Insurance Co. Ltd. v. Premakumaran, (1987) 2 Ker LT 817 (Division Bench) | Division Bench observation that a policy clause identical to clause (2) enables the insurer to contest on all or any grounds the insured alone could raise, notwithstanding S. 96(2). | The court characterized the Division Bench's observation as obiter (it quoted the Division Bench's explicit statement that it did not go into the question in view of its understanding of applicability). The present court did not accept that observation as binding and found it not supported by the Supreme Court decision in the British India case. |
| Madras Motor and Genl. Ins. Co. Ltd. v. Jagadeeswari, AIR 1974 Madras 318 (reported as 1974 Acc CJ 234) | Madras High Court decision referenced by the Division Bench in United India Insurance Co. Ltd. v. Premakumaran as supporting the view that the policy clause permits the insurer to raise insured-only defences. | The present court noted that the Madras High Court's decision was relied upon by the Division Bench, but found that the Supreme Court decision (British India) does not lend support to that view. The court implied that the Madras decision did not control the question given the Supreme Court's contrary reasoning. |
| Craies on Statute Law, 17th Edn., pp. 87-88 (statutory construction authority) | Used as authority for adopting a non-strictly grammatical or literal construction of a statute where a literal reading would lead to manifest absurdity. | The court invoked this authority to justify interpreting S. 110-C(2A) in a way that avoids a manifestly absurd result (i.e., to allow an insurer already impleaded under S. 96(2) to also avail itself of the procedure in S. 110-C(2A) so as to safeguard insurer's interests). |
Court's Reasoning and Analysis
The court proceeded through a two-stage analysis focused on statutory interpretation and the relationship between statutory rights and contractual policy clauses.
First, addressing the contention based on S. 110-C(2A), the court explained the text and purpose of that provision: it allows the Claims Tribunal, when satisfied of collusion between claimant and insured or of the insured's failure to contest, to direct that the insurer be impleaded and to permit the insurer to contest on all or any of the grounds available to the insured. The insurer's counsel had argued that this provision permitted the insurer (including one already impleaded under S. 96(2)) to contest insured-only defences without further formality.
The court rejected a strictly grammatical reading that would limit the operation of S. 110-C(2A) to insurers impleaded as a direct consequence of that specific direction. It held that the sub-section was introduced to safeguard insurer interests because S. 96(2) limits the defences an insurer may take. To effect the legislative objective, the insurer who is already a party (impleaded under S. 96(2)) must nonetheless be able to invoke S. 110-C(2A) by making an appropriate application to the Tribunal. The court, invoking Craies on Statute Law, accepted a non-literal construction to avoid manifest absurdity and to ensure the statute's objective is achieved.
However, the court imposed a procedural requirement: an insurer who seeks to contest on grounds available only to the insured must move the Tribunal under S. 110-C(2A) and obtain written permission after the Tribunal considers the application on merits and after notice to the claimant and the insured. On the facts, the court found no record showing that the insurer-appellant had obtained such permission; therefore the insurer was not entitled to contest insured-only grounds in the appeal.
Second, considering clause (2) of the insurance policy (the clause permitting the insurer to take over and conduct the defence in the name of the insured), the court examined prior decisions. A Division Bench of this court had observed that an identical clause enabled insurers to contest on insured-only grounds; that Division Bench based its observation in part on a Madras High Court decision. The present court characterized that observation as obiter and examined the Supreme Court's decision in British India General Insurance Co. v. Captain Itbar Singh.
The Supreme Court in British India had emphasized that the statute creates liability but also expressly confines the right to avoid liability to certain grounds; courts should not add to those grounds. The Supreme Court further observed that an insurer can avoid hardship by reserving a right in the policy to defend in the name of the assured. The present court interpreted these statements as not permitting a policy clause to override the statutory scheme: any policy clause must be read subject to the requirements of Chapter VIII of the Act. Accordingly, clause (2) of the policy is effective only to the extent consistent with the statute and cannot displace the requirement that an insurer obtain Tribunal permission under S. 110-C(2A) before raising insured-only defences.
In sum, the court concluded (1) that an insurer already a party under S. 96(2) may invoke S. 110-C(2A) but must obtain Tribunal permission under that subsection before raising insured-only defences, and (2) that a policy clause cannot be read so as to conflict with the statutory scheme; any inconsistent portion is liable to be ignored.
Holding and Implications
Holding: The court's final determination was that the appeal by the insurer is not maintainable and the appeal is dismissed. The court also ordered "No costs."
Implications (direct effect on the parties):
- The insurer-appellant may not raise defences that are available only to the insured because there is no record that it obtained the requisite permission from the Tribunal under S. 110-C(2A).
- Clause (2) of the particular insurance policy cannot be used to circumvent the statutory restrictions in Chapter VIII of The Motor Vehicles Act, 1939; any clause inconsistent with the statutory provision is to be read subject to the statute and, to the extent contrary, ignored.
- The immediate consequence for the parties is the dismissal of the insurer's appeal; the claimant's judgment (or Tribunal order as applicable) stands as against the insurer insofar as the insurer attempted to prosecute insured-only defences without statutory permission.
Broader precedent or doctrinal note: The opinion applies and reaffirms the principle from British India General Insurance Co. v. Captain Itbar Singh that statutory provisions confining insurers' rights to specified grounds cannot be enlarged by contract; insurers must operate within the statutory framework and, where permitted by statute, obtain the Tribunal's permission before asserting insured-only defences. The court did not indicate that it was creating a new rule beyond its statutory construction and application to the facts.
Appeal dismissed. No costs.
Radhakrishna Menon, J.:— The Insurance Company, the third respondent in O.P (M.V) No. 774, 1981 before the Motor Accidents Claims Tribunal, Ernakulam is the appellant.
2. On a perusal of the memorandum of appeal it is clear that the grounds urged therein are gounds which can be availed of only by the insured.
3. The counsel for the claimant therefore argued that the appeal was not maintainable. Dilating on this argument the counsel submitted that the Insurance Company was not entitled to take any defence which is not specified in sub-section (2) of S. 96 of The Motor Vehicles Act, 1939, for short. The Act. Before we consider this case of the claimant we shall briefly state the arguments advanced by the counsel for the appellant. The counsel submits that the appeal may be treated as one filed on behalf of the insured and that is possible in view of S. 110-C(2A) of Chapter VIII of the Act. Had that not been the position there was no need for the Tribunal to allow the appellant to cross-examine the witnesses ‘with permission’, the counsel submits. He has a further case that in any event, in view of clause (2) of the conditions incorporated in the policy, the appellant has every right to take up the defence, the insured ordinarily can take in a case like this.
4. We shall now consider the argument based on S. 110-C(2A). Section 110-C(2A) reads:—
“Where in the course of any inquiry, the Claims Tribunal is satisfied that—
(i) there is collusion between the person making the claim and the person against whom the claim is made, or
(ii) the person against whom the claim is made has failed to contest the claim,
it may, for reasons to be recorded by it in writing, direct that the insurer who may be liable in respect of such claim, shall be impleaded as a party to the proceeding and the insurer so impleaded shall thereupon have the right to contest the claim on all or any of the grounds that are available to the person against whom the claim has been made”.
This section provides that where in the course of any enquiry the Claims Tribunal is either satisfied that there was collusion between the claimant and the person against whom the claim was made or the person against whom the claim was made had failed to contest the claim; then, the Tribunal, for reasons to be recorded in writing, can direct that the insurer who will be liable in respect of the claim shall be impleaded as a party to the proceeding and the insurer so impleaded has the right to contest the claim on all or any of the grounds that are available to the insured.
5. This sub-section would suggest that an order under this section enabling an insurer to contest the claim on all or any of the grounds that are available to the insured, can be passed by the Tribunal only as a sequel to the order directing impleadment of the insurer, he would pass on his being satisfied that either there is collusion between the claimant and the insured or the insured has failed to contest the claim, the counsel representing the contesting respondents submit. We are not impressed by this argument. This sub-section, in our view, was introduced to safeguard the interests of the insurer which, going by S. 96(2) is not entitled to take any defence which is not specified therein. Apart from S. 96(2), an insurer had no right to get itself impleaded as a party to the action by the claimant against the insured causing the injury. This right is a statutory right. While conferring this right, sub-sec. 2 of S. 96 has imposed certain restrictions in regard to the defences, the insurer can take. The insurer is not entitled to take any defence which is not specified in that sub-section. In short the only-method of avoiding the liability provided for under sub-sec. 2 is setting up the defences enumerated therein. (See British India General Insurance Co. v. Captain Itbar Singh. AIR 1959 SC 1331). The restriction thus imposed on the defences made it impossible for the insurer to contest the claim not properly contested by the insured. The intention of the legislature thus is clear that the sub-section is meant to safeguard the interest of the insurer. The objective of the sub-section could be achieved only if the insurer is allowed to contest the claim on all or any of the grounds available to the insured. However a literal adherence to the words used in the section namely that “an insurer who may be liable in respect of such claim, shall be impleaded as a party to the proceeding and the insurer so impleaded shall thereupon have the right to contest” would result in the insurer who had already been impleaded lunder S. 96(2), not getting a chance to contest the claim on all or any of the grounds available to the insured even if it is established that the insured is hand and glove with the claimant and as such not contesting the claim. A grammatical or literal interpretation of these words, in our view, would lead to manifest absurdity. In such circumstances a construction not quite strictly grammatical or literal can be adopted. (See Craies on Statute Law, 17th Edn., pages 87-88). We therefore are of the view that the insurer who is already a party to the claim petition (having been impleaded under S. 96(2) can also avail of this defence. Such an insurer accordingly can move the Tribunal under this sub-section and obtain the requisite permission to contest the claim on all or any of the grounds the insured would take. If the insurer makes an application in this regard, the Tribunal shall consider the same on merits after notice to the claimant and insured and pass appropriate orders in writing enabling the insurer to contest the claim on the grounds available to the insured. In the present case there is nothing on record to show that the insurer appellant has obtained such permission from the Tribunal and if that be so the insurer-appellant is not entitled to contest the claim on the grounds that are available only to the insured. The above argument of the learned counsel therefore is rejected.
6. We nonetheless are constrained to consider yet another argument of the learned counsel namely, that in any event the appellant is entitled to contest the claim raising the grounds the insured alone can raise, in view of clause (2) of the conditions incorporated in the policy. Clause (2) reads:—
“No admission offer promise payment or indemnity shall be made or given by or on behalf of the insured without the written consent of the Company which shall be entitled if it so desires to take over and conduct in the name of the Insured the defence or settlement of any claim or to prosecute in the name of the Insured for its own benefit any claim for indemnity or damages or otherwise and shall have full discretion in the conduct of any proceedings or in the settlement of any claim and the insured shall give all such information and assistance as the Company may require”.
Construing an identical clause, a Division Bench of this Court in United India Insurance Co. Ltd. v. Premakumaran, (1987) 2 Ker LT 817 no doubt, has observed that the said clause enables the Insurance company to contest the claim on all or any of the grounds, the insured alone could raise, notwithstanding the restrictions imposed by sub-sec. (2) of S. 96. This observation of the Division Bench is based on a decision of the Madras High Court in Madras Motor and Genl. Ins. Co. Ltd. v. Jagadeeswari, 1974 Acc CJ 234 : (AIR 1974 Madras 318). The Madras High Court while holding so, has made reference to the decision of the Supreme Court in British India General Insurance Co. v. Captain Itbar Singh, AIR 1959 SC 1331. On going through the following observation of this court we are of the view that the above observation is obiter:
“There is some force in this argument of the learned counsel for the Insurance Company. However, we do not go into that question since we feel that the decision reported in British India General Insurance Co. v. Captain Itbar Singh, AIR 1959 SC 1331, may not be applicable to the case in hand”.
(emphasis supplied)
In our view the decision of the Supreme Court does not lend support to the view taken by the Madras High Court which provides the basis for the above observation of the Division Bench. A reference in this connection to the following observations of the Supreme Court in British India General Insurance case, is profitable (at p. 1335):—
“There is another ground on which the learned Solicitor-General supported the contention that all defences are open to an insurer excepting those taken away by sub-sec. (3). He said that before the Act came into force, an injured person had no right of recourse to the insurer and that it was S. 96(1) that made the judgment obtained by the injured person against the assured binding on the insurer and gave him a right against the insurer. He then said that being so, it is only fair that a person sought to be made bound by a judgment should be entitled to resist his liability under it by all defences which he can in law advance against the passing of it. Again, we find the contention wholly unacceptable. The Statute has no doubt created a liability in the insurer to the injured person but the statute has also expressly confined the right to avoid that liability to certain grounds specified in it. It is not for us to add to those grounds and therefore to the statute for reasons of hardship … “.
The Supreme Court thereafter stated as follows (at p. 1335):—
“We are furthermore not convinced that the statute causes any hardship. First, the insurer has the right, provided he has reserved it by the policy, to defend the action in the name of the assured and if he does so, all defences open to the assured can then be urged by him and there is no other defence that he claims to be entitled to urge. He can thus avoid all hardship if any, by providing for a right to defend the action in the name of the assured and this he has full liberty to do”.
(emphasis supplied)
The Supreme Court made the above observation (underlined portion of the excerpt) at a time when S. 110-C(2A) was not there. Whatever that be, the positive declaration of the Supreme Court namely “the Statute has no doubt created a liability in the insurer to the injured person but the statute has also expressly confined the right to avoid that liability to certain grounds specified in it. It is not for us to add to those grounds and therefore to the statute for reasons of hardship” disentitles the appellant to rely on clause (2) of the Insurance policy and contend for the position that the said clause reserves its right to contest the claim on all or any of the grounds that are available to the insured. Sub-section 2A of S. 110-C, as construed by us, entitled the insurer to contest the claim on all or any of the grounds available to the insured provided the Tribunal grants the requisite permission in terms of the said sub-section to the insurer to take up the said defence. There is another aspect that should be borne in mind while considering this question and it is this: The policy issued by the insurer is a policy of insurance in respect of Third-party risk, arising out of the use of motor vahicles, such as complies with the requirements of Chapter VIII of the Act and includes unless the context requires otherwise, a cover note. The policy therefore should be one that complies with the requirements Chapter VIII of the Act. That means any clause or condition in the policy can have force only subject to the provisions contained in Chapter VIII of the Act. Clause 2 of the policy extracted above therefore should be read and understood in the light of sub-sec. 2A of S. 110-C. This clause, to the extent to which it runs counter to the above sub-section is liable to be ignored. It therefore follows that an insurer with the permission of the Tribunal alone can contest the claim on all or any of the grounds, the insured can raise against the claim.
In the light of what is stated above we are of the view that the appeal is not maintainable. The appeal fails. Accordingly the same is dismissed. No costs.
Appeal dismissed.
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