Fixation of primary liability on insurer

A bench comprising of Hon’ble M Katju and Hon’ble AK Ganguli, JJ have has criticized the judicial trend of  imposing the primary liability on the Insurance Co. to satisfy the award amount in motor accident claims with a liberty to recover from the owner, where it is found that legally the Insurance Co is not liable to indemnify the owner. The bench has referred the matter  for constituting      a    larger    bench      to   decide    the    following questions:

             (1)   If an Insurance Company can  prove   that it   does  not  have  any  liability to pay any amount in law to the claimants under the Motor Vehicles Act or any other enactment, can the Court yet compel it to pay the amount in question giving it liberty to later on recover the same from the owner of the vehicle?

             (2)    Can such a direction be given  under Article 142 of the Constitution, and what is the scope of Article 142? Does Article 142 permit the Court to create a liability where there is none?

 In the instant case even though there was no valid insurance cover at the time of accident,    the     High     Court    had     directed       the insurance company to pay the compensation amount to the claimants with liberty to the Insurance Company to recover the same from the owner of the vehicle.

The referring bench observed that: “No doubt, there are some decisions which have taken the   view     that      even    if   the     insurance    company       has    no liability, yet it must pay and later on recover it from the owner of the vehicle. [See for example National Insurance Co. Ltd. vs. Yellamma & Another (2008) 7 SCC 526, Samundra Devi vs. Narendra Kaur (2008) 9 SCC 100 (vide para 16), Oriental Insurance Co. vs. Brij Mohan (2007) 7 SCC 56 (vide para 13), New India Insurance Co. vs. Darshan Devi (2008) 7 SCC 416 (vide para 21), etc.].”

Doubting the correctness of these decisions the referring bench has opined that:

“We have some reservations about the correctness of the aforesaid decisions of this Court.  If the insurance company      has   no    liability     to   pay   at    all,     then,   in    our opinion, it can not be compelled by order of the Court in exercise      of   its    jurisdiction        under    Article    142    of    the Constitution of India to pay the compensation amount and later on recover it from the owner of the vehicle.                        In our view, Article 142 of the Constitution of India does not cover such type of cases. When a person has no liability to pay at all how can it be compelled to pay?                   It may take years for the insurance company to recover the amount from the owner of the vehicle, and it is also possible that for some reason the recovery may not be possible at all.”

Prima facie, the bench was of the opinion that if the Insurance Company proves that it has no liability to pay compensation to    the     claimants,     the   Insurance       Company     can    not    be compelled to make payment and later on recover it from the owner of the vehicle.