In a recent ruling, the Rajasthan High Court clarified that private vehicle insurance under an “Act-Only Policy” does not extend to the occupants of the vehicle. This decision came as the court overturned a previous order that required an insurance company to compensate occupants involved in an accident.
Justice Nupur Bhati presided over the appeal filed by HDFC Ergo General Insurance Company Limited against a directive from the Motor Accidents Claims Tribunal. The Tribunal had mandated the insurance company to pay damages to the occupants of a jeep involved in a collision caused by reckless driving. The Tribunal’s decision also included a recovery clause, ordering the insurer to recoup the amount from the driver and owner of the vehicle.
The insurance company contested this ruling, arguing that their policy only covered third-party liabilities and not the occupants. The High Court agreed, referencing precedents set by the Supreme Court in similar cases.
In National Insurance Co. Ltd. v. Balakrishnan, the Supreme Court made a clear distinction between an “Act-Only Policy” and a “Comprehensive/Package Policy.” The latter provides coverage for occupants, whereas the former does not, focusing solely on third-party risks.
Additionally, in United India Insurance Company Limited v. Vinod Kanwar, the Supreme Court ruled that “pay and recover” orders are only applicable to third-party liabilities, not to risks associated with vehicle occupants. This ruling emphasized that statutory provisions do not mandate coverage for private car occupants under an “Act-Only Policy.”
Given this legal framework, the Rajasthan High Court concluded that the insurance coverage in question, being an “Act-Only Policy,” did not include occupants as third parties. Therefore, the Tribunal’s directive for the insurance company to pay compensation and recover the costs from the vehicle’s driver and owner was deemed invalid.
The court noted that the insurance policy in question was explicitly for “Private Car Liability Only” or “Act Only,” which excludes occupant coverage. Consequently, no premium had been collected for such coverage, reinforcing the insurance company’s position.
The High Court’s ruling has set aside the Tribunal’s earlier order and ruled in favor of the insurance company, affirming that “Act-Only” insurance policies do not cover occupants’ liabilities.
