No insurance, no fuel: Supreme Court proposes linking fuel supply with vehicle insurance

The Supreme Court on Tuesday proposed linking fuel supply with valid vehicle insurance as part of a pilot project to curb large number of uninsured vehicles on Indian roads [National Insurance Co. v. Smt. Thungala Dhana Laxmi & Ors.].

A Bench of Justice Sanjay Karol and Justice Prashant Kumar Mishra also directed the Insurance Regulatory and Development Authority of India (IRDAI) to increase mandatory third-party insurance period for new private cars from three years to four years and for new two-wheelers from five years to six years.

The Bench issued a slew of directions after finding that nearly 56 per cent of vehicles on Indian roads do not have valid insurance. The Court said this defeats the very purpose of compulsory motor insurance and leaves accident victims and their families waiting years for compensation.

“It is shocking to learn that nearly 56% of vehicles plying on Indian roads remain uninsured… The consequent effect is that the statutory safeguard of victim compensation is often delayed, if not defeated,” it said.

The Court was hearing an appeal filed by National Insurance Company against a Telangana High Court judgment directing it to compensate the family of a man who died in a road accident while travelling in his own insured vehicle.

While dismissing the appeal, the Court expanded the proceedings to address larger issues relating to uninsured vehicles, road safety and motor insurance across the country.

Fuel supply

To improve compliance with the Motor Vehicles Act, the Court directed the Ministry of Road Transport and Highways (MoRTH) and IRDAI to develop a pilot project under which fuel supply may be linked to a vehicle’s valid insurance status. It noted that the Ministry of Petroleum and Natural Gas had, in principle, expressed no objection to the proposal.

According to the Court, such a system could help identify uninsured or unregistered vehicles while encouraging owners to renew their insurance before using their vehicles on public roads.

Automatic enforcement

The Court directed that Automatic Number Plate Recognition (ANPR) cameras installed on highways and city roads be integrated with the VAHAN database and the Insurance Information Bureau so that uninsured vehicles can be automatically identified and issued e-challans.

It also directed States to equip traffic police with handheld devices or mobile applications linked to these databases, enabling officers to instantly verify a vehicle’s insurance status and issue challans wherever required.

The Bench further called for strict implementation of enhanced penalties for driving uninsured vehicles once the amended provisions of the Motor Vehicles Act are notified.

Under the amended provision, a first offence will attract a fine of three times the vehicle’s annual insurance premium or ₹5,000, whichever is higher, while subsequent offences will attract five times the premium or ₹10,000, whichever is higher.

Public access

The Bench also proposed a pilot project that would allow citizens to verify a vehicle’s insurance status. It said the system would enable passengers, employers and others to check whether a vehicle has valid insurance and report uninsured vehicles.

The Court further directed MoRTH to continue implementing pilot projects for barrier-less tolling using ANPR technology, observing that reducing queues at toll plazas would also improve road safety.

Insurer reforms

To simplify motor insurance products, the Court approved a broad four-layer policy structure for private vehicles.

Under the new framework, third-party insurance will remain the mandatory base policy. Three optional add-ons will then be available - legal liability cover for occupants or pillion riders, personal accident cover for the owner, driver and occupants and own damage cover for the insured vehicle.

Consumer choice

The Court directed that every person purchasing motor insurance be provided with a standard customer option form, both online and offline, allowing them to opt for additional insurance covers.

It also made it mandatory for insurers to provide a consumer-friendly information sheet explaining what is covered under the mandatory policy and what protection is available through the optional covers.

The Bench further directed IRDAI, in consultation with insurers, to prepare uniform policy wordings for the optional covers while leaving pricing to individual insurance companies. Insurance companies have also been directed to prominently display the benefits of comprehensive motor insurance policies on their websites in an easy-to-understand format.

Longer insurance period

The Court directed IRDAI to increase the mandatory third-party insurance period for new private cars from three years to four years and for new two-wheelers from five years to six years.

It noted that despite the earlier directions requiring three-year and five-year third-party insurance for new vehicles, a large number of vehicles continue to remain uninsured. The Bench said extending the insurance period by one year was necessary in the interest of road safety and directed IRDAI to issue the necessary directions immediately.

Compensation claims

The Court also sought to address delays in motor accident compensation claims.

It directed State police authorities to promptly file detailed accident reports along with all relevant documents in pending accident cases relating to accidents before March 31, 2022.

It also directed police to ensure timely service and production of witnesses before Motor Accident Claims Tribunals so that compensation claims can be decided expeditiously.

The Court's reasoning

The Bench said compulsory insurance is intended not only to compensate victims but also to spare them prolonged litigation after road accidents.

“The object behind mandatory insurance under Section 146 of the MVA is not just that victims of road accidents are compensated, it is also that they are not drawn into prolonged litigation,” it said.

The Court referred to a parliamentary committee report stating that 16.54 crore of the country’s 30.48 crore registered vehicles are uninsured. It also noted that India records more than 4.8 lakh road accidents every year and reiterated that road safety is an integral facet of the right to life under Article 21 of the Constitution.

While these directions applied to the system at large, the appeal before the Court concerned one family’s decades-long wait for compensation.

The Court upheld the Telangana High Court’s decision directing National Insurance Company to compensate the family of a man who died in a road accident while travelling in his insured vehicle.

The insurer had argued that the deceased’s comprehensive policy did not cover the owner’s personal risk because no additional premium had been paid. Rejecting the contention, the High Court had held that a comprehensive policy covered the owner travelling in the vehicle and awarded compensation of ₹10,00,500 with 7.5 per cent interest.

Affirming that view, the Supreme Court said courts dealing with motor accident claims should not adopt a hyper-technical approach. Referring to an IRDAI circular dated November 16, 2009, it held that a comprehensive or package policy covers occupants of the vehicle, including the owner.

The appeal was accordingly dismissed. The Court directed all stakeholders to file compliance affidavits on its broader directions by August 14. The matter will next be listed on August 18 to consider compliance.

Notably, the accident that gave rise to this case took place in July 1996 - nearly three decades before the family’s compensation claim was finally settled by the Supreme Court.

[Read Judgment]