Accident Compensation Liability Rests with Insurance Company, Rules Supreme Court

Moneylife Digital Team 08 September 2025

Personal Finance

The Supreme Court has held that in motor accident cases, the entire liability to pay compensation rests squarely on the insurance company, and there is no justification for shifting the burden onto the vehicle owner through a 'pay and recover' order.

In an order last week, the bench of justice K Vinod Chandran and justice NV Anjaria, set aside a high court (HC) ruling that had directed Shriram General Insurance Co Ltd, the insurer, to first pay the compensation and then recover the amount from the owner of the vehicle. "We find absolutely no reason to sustain the order of the high court directing pay and recovery. The liability is on the insurance company and that has to be satisfied fully by the insurance company."

The case arose out of a fatal accident involving a Mahindra Bolero Camper utility vehicle. Five claim petitions were filed before the motor accident claims tribunal (MACT). The tribunal found negligence on the part of the driver and directed Shriram General Insurance to pay compensation under the valid policy issued.

However, on appeal, the HC held that the passengers were not validly covered under the policy and ordered a 'pay and recover' arrangement, placing the ultimate burden on the vehicle-owner.

The Supreme Court, after examining the vehicle’s registration certificate, the contract carriage permit and the package insurance policy, rejected Shriram General Insurance's arguments.

The bench observed that the Bolero utility van was registered with a seating capacity of four+one (including the driver) and had a valid contract carriage permit. The policy clearly covered passengers in addition to goods, and hence the insurer could not claim that it was a 'goods vehicle' subject to restrictive clauses.

The SC also took note of evidence from the insurer’s own branch manager who admitted that policies are issued only after verifying the vehicle’s registration and permit details.

“There can be no restriction insofar as the ‘limitation as to use’ as found in the policy, which applies only to goods vehicles. The present vehicle, as per the certificate of registration, is a utility vehicle with a permit issued as a contract carriage. Shriram General Insurance, in such circumstances, cannot wriggle out of its liability to indemnify the owner,” the judgement says.

On the insurer’s contention that the accident involved more passengers than permitted, the apex court clarified that some victims were pedestrians who had been dragged by the vehicle. An eyewitness confirmed that only four passengers were travelling in the vehicle at the time of the accident, consistent with the seating capacity, the bench pointed out.

While restoring the tribunal’s order, the Supreme Court made one modification in a specific claim—directing the MACT to ensure that a one-third deduction for personal expenses is made from the compensation for loss of income in MACT Case No134 of 2014.

Allowing the appeals, the Supreme Court categorically held that the liability to pay compensation lies entirely with Shriram General Insurance. The HC’s 'pay and recover' direction was quashed.

This ruling reinforces that insurers cannot evade responsibility when a valid policy exists, ensuring that accident victims and their families receive timely compensation without being caught in prolonged recovery disputes.

(Civil Appeal Nos5177-81 of 2022 Date: 4 September 2025)

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