K. Nagendra vs. The New India Insurance Co. Ltd. & Ors.
Background
Srinivasa alias Murthy was riding his motorcycle when he was fatally struck by a bus in a rash and negligent manner. His dependents filed a claim before the Motor Accident Claims Tribunal, which awarded about Rs. 18.86 lakh in compensation. On appeal, the Karnataka High Court raised the compensation to about Rs. 31.84 lakh, but also held that the bus had deviated from its permitted route (it entered Channapatna City, which its permit did not cover), a fundamental violation of the insurance policy's conditions, and directed the Insurance Company to first pay the compensation to the victim's family but then recover that amount from the bus owner (the "pay and recover" principle).
Decision Breakdown
The Supreme Court examined whether a route deviation from the permit affects the insurer's liability to third-party victims. Relying on its own precedents (including National Insurance Co. v. Swaran Singh and related rulings), the Court held that permit violations by the insured vehicle do not extinguish the insurer's statutory duty to first compensate an innocent accident victim, since the victim should not suffer for a fault entirely attributable to the vehicle owner/operator. At the same time, insurers are entitled to enforce the boundaries of their contract, so the "pay and recover" mechanism appropriately balances the victim's right to compensation against the insurer's right to later recover the amount from the person who breached the policy conditions. The Court found the High Court's approach "entirely justified" and dismissed the appeal, with no order as to costs.
Lesson Learnt
Even if a vehicle owner breaches insurance policy conditions (such as by deviating from a permitted route), a genuine accident victim or their family cannot be denied compensation on that ground alone: the insurance company must pay first and can then recover the amount from the person at fault.