When the Supreme Court nudged the Insurance Regulatory and Development Authority (IRDAI) into mandating long-term third-party motor insurance policies - three years for cars and five years for two-wheelers - from 2018, the move was hailed as a breakthrough for road safety and victim compensation. The intention was noble: plugging the gaps caused by annual policy lapses that left accident victims uncompensated and insurers free of statutory liability.
But as the saying goes, “the road to hell is paved with good intentions.” What looked like a consumer-friendly reform has, in practice, created new traps for vehicle owners and accident victims, particularly when gratuitous occupants in cars or pillion riders on two-wheelers are involved.
The long-term policy regime allows buyers of new vehicles to combine a multi-year third-party cover with a one-year own damage (OD) cover, often bundled together at purchase. The confusion begins when, in the second year, the owner switches the OD cover to another insurer, while the original insurer retains the long-term third-party risk.
In such scenarios, if an accident occurs, who pays? (i) The original insurer covers statutory third-party claims. (ii) The new OD insurer pays only for the vehicle’s own damage. (iii) Gratuitous occupants or pillion riders, however, find themselves outside both covers unless the owner had taken add-ons or “unnamed passenger” endorsements in the first year.
Under Section 147 of the Motor Vehicles Act, 1988, third-party policies do not automatically cover gratuitous passengers in a private car or pillion riders on a two-wheeler. The Supreme Court has repeatedly clarified this position in cases like United India Insurance v. Tilak Singh (2006).
The result? A large class of victims remains uninsured, even as vehicle owners assume they are fully protected, thanks to the marketing pitch of “bundled” policies. When disputes reach motor accident tribunals, the insurers often deny liability, leading to lengthy litigation and occasional pay-and-recover orders - solutions that are neither swift nor victim-friendly.
While bundled policies were meant to simplify coverage, they have complicated claims by fragmenting liability between multiple insurers. In the absence of clear communication about exclusions - especially for non-paying occupants - vehicle owners are left with a false sense of security.
It’s time for regulatory clarity on:
(i) Comprehensive coverage (including unnamed passengers and pillion riders) should be the default, not an optional add-on.
(ii) Insurers should be required to disclose coverage gaps upfront in plain language.
(iii) Policy renewals should preserve both third-party and occupant coverage, even when switching OD insurers.
Until then, consumers must remain vigilant, because in the fine print of long-term motor insurance policies lies a hard truth: intentions alone cannot prevent injustice when coverage is misunderstood or incomplete.
The truth of the matter to those in the know of things is that the IRDAI is clear that the insurer who has granted the long-term insurance cover shall be liable on the first year terms, to third party risks, for the entire 3 or 5 years as the case may be. Unfortunately, the pitch has been skewed by either the insurers (based on whether they issued long-term cover or OD only cover) and/or even by decisions from courts. They differ all the time and there is total lack of consistency or uniformity, which ought to be the hallmark of law as it is perceived to be.
That is why there is a dire need for immediate regulatory clarity from IRDAI or a decision on this vexed issue from the Supreme Court of India, so that “bundled policies” do not morph into “bungled policies” so far as owners of vehicles or victims are concerned, as the case may be. Everyone is a potential victim and the earlier the clarity comes, the better it would be.
Narasimhan Vijayaraghavan is a practicing advocate in the Madras High Court.