cpa

 THIRD PARTY INSURANCE

Third-party insurance for motor vehicles is a statutory requirement and benefits the liability

of the insured towards the death or disability of the third party. This is to ensure that the

insurer is paid his damages irrespective of the solvency capacity of the driver. In this

insurance contract, the insured is said to be the first party while the second party is the

insurance company. Finally, the person who claims damages from you is the third party of

the contract. In the case of National Insurance Co. Ltd V. Fakir Chand, it was held that the

term “third party” includes a wide scope of people. This includes another party present in a

vehicle or a passerby, who are the subject matters of the insurance contract. An important fact

to note is that third party insurance does not seek to insure the insured himself but is

enforceable against the rest of the world injured by the acts of the insured. Thus, the insured

is the ultimate beneficiary of third-party insurance policies. At the time of the payment, the

insured amount is paid directly to the injured, i.e., the third party without falling on the hands

of the insured. Since the amount of liability cannot be directly calculated, only the legal

liability is insured due to which the amount of premium to be paid does not vary. Since it is

fault-based, the fault of the insured has to be proved along with the fact that the injury was

caused due to his actions. Due to these reasons along with the fact that the amount to be

finally paid cannot be determined, insurance companies find this policy unpopular. An

insurance company cannot ignore its liability to the third party except when it falls under the

exceptions as provided in Section 149(2) of the Act. Even otherwise, if the insurance

company has proved its defence, it is not completely absolved from its liability as the said

amount can be recovered from the insured or the owner of the vehicle. Thus, the onus lies on

the insurance companies to prove that the accident falls under any of the exceptions provided

by the Act. They must prove not just the exception, but also the fact that the breach of clauses

was done with the knowledge of the driver or owner. If the insurer is unable to prove the

latter, they shall still remain liable for the payment of the insurance amount.