Insurance firm must pay third-party damages even if vehicle is hired out: Supreme Court

Top court gives verdict in case pertaining to fatal accident involving bus hired by UPSTC

The liability of a insurance company to pay third-party damages does not freeze merely because the vehicle has been hired out by the registered owner, the Supreme Court has held in a recent order.

The insurance company would still have to pay up in case of an accident and cannot lob the responsibility on to the hirer.

Both the insurance policy and the vehicle are transferred into the possession of the hirer on the basis of an agreement with the registered owner. The hirer becomes the ‘owner’ for a specified period.

“It will be deemed that that vehicle was transferred along with the insurance policy, even if it were insured at the instance of the original owner. Thus, the insurance company would not be able to escape its liability to pay the amount of compensation,” a Bench of Justices S. Abdul Nazeer and Krishna Murari held on July 14.

The case pertains to a fatal accident involving a bus hired by the Uttar Pradesh State Transport Corporation in 1998.

The family of the accident victim had approached the Motor Accident Claims Tribunal claiming compensation.

The tribunal ordered the insurance firm to pay ₹ 1.82 lakh to the dependants of the dead man.

However, the insurance company appealed to the Allahabad High Court on the grounds that the corporation had hired the vehicle. The bus was under the “control” of the Corporation when the accident took place. The company said it had no agreement with the corporation and its contract of insurance was only limited to the registered owner.

The High Court, in 2009, agreed and exempted the insurance company from the liability and ordered the corporation to pay the family.

The corporation subsequently approached the Supreme Court, which set aside the HC decision and confirmed the tribunal verdict.

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