Institute of Legal and Management Studies

The Supreme Court has held that insurance companies cannot deny compensation to accident victims merely because the vehicle involved had deviated from its permitted route. Emphasising the social purpose of motor vehicle insurance, the Court observed that to deny compensation on such a technical ground would be “offensive to the sense of justice”.

A Bench comprising Justice Sanjay Karol and Justice Prashant Kumar Mishra made these observations while dismissing an appeals filed by vehicle owner K Nagendra and insurer, The New India Insurance Company Limited. The case arose from a fatal accident involving a bus that had strayed from its sanctioned route at the time of the mishap. While the insurer challenged the High Court's direction to pay compensation first and later recover from the owner, the owner challenged the High Court's order allowing recovery from him.

Dismissing both the appeals, the bench stated that 'pay and recover' direction was justified. The bench rejected the insurer's contention that route permit violation absolved it from the liability.

“The purpose of an insurance policy in the present context is to shield the owner or operator from direct liability when such an unforeseen or unfortunate incident takes place. To deny the victim or dependents of the victim compensation simply because the accident took place outside the bounds of the permit and therefore is outside the purview of the insurance policy, would be offensive to the sense of justice, for the accident itself is for no fault of his. Then, the Insurance Company most certainly ought to pay,” the Bench stated.

At the same time, the Bench held that the insurance policy must be used within the strict corners of law.

"At the same time though, when an Insurance Company takes on a policy and accepts payments of premium in pursuance thereto, it agrees to do so within certain bounds. The contract lays down the four corners within which such an insurance policy would operate. If that is the case, to expect the insurer to pay compensation to a third party, which is clearly outside the bounds of the said agreement would be unfair."

Therefore, the Court held that the direction to "pay and recover" was balancing the need for payment of compensation to the victim vis-à-vis the interests of the insurer.

Reliance was placed on the judgments in National Insurance Co. Ltd. v. Swaran Singh (2004) 3 SCC 297, New India Assurance Co. v. Kamla (2001) 4 SCC 342,Parminder Singh v. New India Assurance Co. Ltd (2019) 7 SCC 217, S. Iyyapan v. United India Insurance Co. Ltd (2013) 7 SCC 62.

Reference was also made to the recent judgment in Chatha Service Station v. Lalmati Devi & Ors which held that insurer will have only the 'pay and recover' option even if the offending vehicle carried impermissible goods.

Reaffirming the principle of “pay and recover,” the Court directed that the insurer must first satisfy the compensation awarded to the victims or their dependents and thereafter recover the amount from the vehicle owner. This approach, the Court said, ensures that the victims are not left without remedy due to disputes between insurers and vehicle owners.

Case : K Nagendra v The New India Insurance Co Ltd

Citation : 2025 LiveLaw (SC) 1044

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