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CHAPTER 1

INTRODUCTION
TO
MOTOR INSURANCE

APPLICATION OF BASIC PRINCIPLES


OF INSURANCE
Q. Discuss the application of principle of insurable interest
under Motor Insurance.
Ans. The competency of a person to effect a contract of
insurance is, inter alia, determined by his legal pecuniary
relationship to the subject matter. This legal pecuniary
relationship is known as insurable interest. Insurable interest
gives a person legal right to insure the subject matter.
There are following three essentials of insurable interest :
i) the existence of property exposed to loss, damage or a
potential liability;
ii) such property or liability must be the subject matter of
insurance;
ii) The insured must bear a legal pecuniary relationship to the
subject matter so that he would benefit by its safety or would
suffer financial loss in the form of physical damage or creation
of liability because of its loss or damage.
Following paragraphs show how the principle of
insurable interest is applicable in motor insurance:
1.Owner’s Insurable Interest in Vehicle - The motor vehicle
which is the subject matter of motor insurance is exposed to
loss by theft or damage due to an accident. Such loss or
damage would cause financial loss to the insured. This entitles
the owner to insure his vehicle against loss or damage.
2. Owner’s Insurable Interest in Legal Liability - Under
Motor Vehicle Act in the case of an accident due to negligent
use of the vehicle the insured has a legal liability towards third
parties. He may suffer financial loss if he incurs such liability.
(2)
This entitles the owner to insure his vehicle against third
party risk.
Even if the vehicle is not driven by the insured and If the
accident is caused due to negligence of the driver he is legally
liable to third party for his negligent act. So the question arises
how the insured has insurable interest in the liability of the
driver. Although owner insured has, strictly speaking, no
insurable interest in any such liability, he is deemed as having
acted as an agent in arranging the indemnity on behalf of other
persons who may drive the vehicle and incur liability.
Otherwise, the injured third parties will have no recourse to
recover damages. This entitles the owner to insure his vehicle
against third party risk.
3. Owner’s Insurable Interest offered by M.V. Act -
Moreover under the requirement of Section 146 of the Motor
Vehicles Act 1988 no person shall allow any other person to
use a vehicle in a public place unless the vehicle is covered by
an insurance policy complying with the requirements of the
Act. This entitles the owner to insure his vehicle against third
party risk.
4. Financer’s Insurable Interest - If a vehicle is purchased
under a hire purchase agreement, the finance Company has an
insurable interest in the vehicle until all the instalments are
repaid. This entitles the finance Company to insure such
vehicle under motor policy.
6. Garage Owners’ Insurable Interest Garage Owners act
as bailee for customers’ vehicle. So they have insurable
interest in respect of loss or damage to customers’ vehicle
which are in their custody.

Q. Motor Insurance is a contract of Indemnity. Discuss


Ans. The principle of indemnity requires that when a loss
arises under an insurance policy, the loss must be made good
in such a manner that financially the insured is neither better
off nor worse off as the result of the loss. The object of
this principle is to place the insured after a loss in the same
(3)
pecuniary position as far as possible as he occupied
immediately before the loss. The effect of this principle is to
prevent the insured from making a profit out of a loss. Motor
Insurance contracts are contracts of indemnity. The principle
is applied to this insurance as under:
Total Loss - In total loss of the vehicle, insurers pay the
market value of the vehicle at the time of loss or the sum
insured whichever is less.
Partial Loss - In partial loss to the vehicle, the cost of repairs
is paid, but if old parts are replaced by new, a suitable
depreciation is charged on the cost of new parts. However in
case of motor cycles and private cars no such depreciation is
applied. Insurers also reserve the option to repair or replace
the vehicle or pay in cash.
Third Party Liability – Policy indemnifies the actual
damages awarded subject to the limits of liability, if any,
specified in the policy. Policy also indemnifies actual legal
costs.

Q. Discuss the application of principle of Utmost Good


Faith under Motor Insurance.
Ans. Application of principle of Utmost Good - In insurance
contracts, the legal, doctrine of utmost good faith applies. This
casts on the insured the duty to disclose all material facts that
have a bearing on the insurance. A breach of this duty may
make the contract void or voidable depending upon the nature
of the breach.
The principle of utmost good faith is applicable to Motor
Insurance in the same manner and with the same force as it is
applicable to other classes of insurance.
The insured is under the duty to disclose all material facts
that have a bearing on the insurance. For this purpose proposal
forms is used. In this form the insured submits various
material facts such as the type of vehicle, the geographical
area of use, the physical condition of the driver, the
driving history and traffic convictions of the driver, past loss
(4)
experience etc.
There is a declaration clause in the form. The effect of
declaration is that the answers given in the proposal become
warranties. The answers are required to be literally true and
correct. Any wrong answer, irrespective of its materiality, will
render the contract voidable by insurers. Thus it converts the
common law duty into a contractual duty of utmost good faith.
However under compulsory third party insurance the
doctrine is modified. Section 149 of the Motor Vehicles Act
places the duty upon Insurers to satisfy judgements and
awards against persons insured in respect of third party risks.

Q. Discuss in brief the application of following principles


in Motor Insurance:
a) Contribution
b) Subrogation
c) Proximate Cause
Ans.
a) Contribution - The principle of Contribution is applicable
in contracts of indemnity. In motor insurance
contribution arises when the same vehicle is insured
under more than one policy. According to policy
condition the loss is shared pro-rata between the insurers.

b) Subrogation -Subrogation is the transfer of rights from the


insured to the insurer on payment of loss under the policy.
When the loss or damage to the vehicle is caused by the
negligence of another person the insured has legal rights to
claim against such person. These rights pass to the insurers on
payment to the insured. Motor policies provide a condition
for subrogation before the payment of the claim. In practice
subrogation is modified by Knock for Knock agreement
amongst insurers. According to this agreement when there is
a collision between two vehicles, one of, which is responsible
for the accident the OD Claim (under policy B) shall be paid
by insurer of the vehicle.
(5)
c) Proximate Cause - According to he doctrine of proximate
cause loss is payable if proximately caused by insured peril.
This doctrine applies to motor insurance as to other classes of
insurance. The loss or damage to the vehicle is payable only if
it is proximately caused by on of the insured perils. The
doctrine is also applicable to third party claims where in third
party injury or property damage must be proximately caused
by the negligence of the insured for which he is held legally
liable to pay damages.

CLASSIFICATION OF MOTOR VEHICLES

Q. Define Motor Vehicle. Classify Motor Vehicles for the


purpose of Motor Insurance.
Ans. Definition of Motor Vehicle - The Motor Vehicle Act
defines "Motor Vehicle" as
* a mechanically propelled vehicle adapted for use upon
roads
* whether power of propulsion is transmitted thereto
from an external or internal source
* it includes a chassis to which a body has not been
attached and a trailer
* but does not include a vehicle running upon fixed rails.

Classification of Motor Vehicles for the purposes of


insurance
For the purposes of insurance, motor vehicles are classified
into three broad categories,
1.Private cars,
2.Motor cycles / Scooters and
3.Commercial vehicles.
4. Miscellaneous and special Types of Vehicles

1. Private Cars – Private Cars includes the following:


(a) Vehicles used solely for social, domestic and pleasure
purposes.
(6)
(b) Car of private type including station wagons, used for
social, domestic and pleasure purposes and for the business or
Professional purposes of the insured. These may be used by
the insured or his employees for such purpose but the carriage
of goods other than samples is not permitted. Use of such
vehicles for the following is exclude:
i) Hire or reward
ii) Racing
iii) Pacemaking reliability trial
iv) Speed Testing
v) For any purpose in connection with the Motor Trade

(c) Three wheeled cars including cabin scooters used for


private purposes.

2. Motor Cycles / Scooters – These include the following


vehicles:
i) Mechanically propelled two wheelers with or without
side car.
ii) Mechanically propelled three wheelers with engine
capacity not exceeding 350 cc.

3. Commercial Vehicles - These include the following:


1) Goods Carrying Vehicles - Motor Tariff Categorises the
Goods Carrying Vehicle as
i) Own Goods Carrier and
ii) General Cartage Carrier for rating purpose.
2) Trailers – These include trucks, carts, carriages or other
vehicles without means of self propulsion including
agricultural implements drawn or hauled by self-propelled
vehicle.
3) Vehicles used for carrying passengers for hire or reward -
A i) Passengers Carrying Vehicles with Carrying
capacity upto 6 passengers.
ii) Three wheelers with a carrying capacity between 7
& 17 passengers.
(7)
iii) Other vehicles with a carrying capacity over 6
passengers.
B i) Taxis or Private Car Type Vehicles plying for public
hire.
ii) Private Type Taxis let out on Private Hire direct
from the Owner with or without meters and driven by the
Owner or an employee of the Owner.
iii ) Private Car type vehicles let out on Private Hire and
driven by the Hirer or any driver with his permission.
iv) Private Car Type Vehicles owned by Hotels and
hired by them to their guests.
C Passenger Carrying Motorised Rickshaws

4. Miscellaneous and Special Types of Vehicles –


Following are the few examples of vehicles in this category:
i) Agricultural Tractors Pedestrian Controlled.
ii) Delivery Truck - Pedestrian Controlled.
iii) Trailers towed by Tractors.
iv) Ambulances.
v) Cinema Film Recording& Publicity Vans.
vi) Dumpers.
vii) Fire Brigade & Salvage Corps Vehicles
viii) Road Rollers
ix) Excavators.
x) Mobile shops and Canteen Vehicles

FORMS OF MOTOR POLICIES

Q. What are the forms of Motor Policies?


Ans. Motor policies are available in following two forms:
1) Form A Policy - This covers "Act" Liability.
2) Form B Policy - This covers 'Own Damage' losses and
'Act' Liability. It can also be extended to cover additional
liabilities as provided in the Tariff, for example Increased
Third Party Property Damage Liability, Personal Accident
Risk, etc.
(8)
CHAPTER 2
LEGAL ASPECTS:
THE MOTOR VEHICLES ACT, 1988

IMPORTANT DEFINITIONS BEARING ON MOTOR


INSURANCE

Q. Define Contract Carriage and Stage Carriage and give


the distinction between them.
Ans.
Contract Carriage – The M.V. Act defines Contract Carriage
as a motor vehicle which carries passenger(s) for hire or
reward and is engaged under a contract,
* whether expressed or implied, for the use of such
vehicle as a whole for the carriage of passengers mentioned
therein, and
* entered into by a person holding a permit in relation to
such vehicle or any person authorised by him in this behalf on
a fixed or agreed rate or sum on
i) a time basis, or
ii)from one point to another, and, in either case, without
stopping to pick up or set down passengers not included in the
contract anywhere during the journey.
Contract Carriage includes a maxicab and a motorcab.
Stage Carriage – The M.V. Act defines Stage Carriage as
a motor vehicle constructed or adapted to carry more than six
passengers excluding the driver for hire or reward at separate
fares paid by or for individual passengers either for the whole
journey or for stages of the journey.

Distinction between Contract Carriage and Stage


Carriage- The contract carriage is engaged for the whole of
the journey between two points for carriage of a person or
persons hiring it. It cannot pick up other passengers en route.
(9)
Where as the stage carriage runs between two points
irrespective of any prior contract, and it can pick up
passengers en route who pay the fare for the distance they
propose to travel.

Q. Define the following:


a) Gross Vehicle Weight
b) Goods Carriage
c) Light Motor Vehicle
d) Maxicab
e) Motorcab
f) Private Service
g) Public Service
h) Public Place
Ans.
a) Gross Vehicle Weight - Gross Vehicle Weight means in
respect of any vehicle, the total weight of the vehicle and load
certified and registered by the Registering Authority as
permissible for the vehicle.
b) Goods Carriage - Goods Carriage means only motor
vehicle constructed or adapted for use solely for the carriage
of goods, or any motor vehicle not so constructed or adapted
when used for the carriage of goods.
c) Light Motor Vehicle - Light Motor Vehicle (LMV) means
a transport vehicle or omnibus, the gross vehicle weight
(GVW) of either of which or a motor car or a tractor or road
roller, the unladden weight of any of which does not exceed
7,500 Kgs.
d) Maxicab- Maxicab means any motor vehicle constructed
or adapted to carry more than six, passengers, but not more
than. twelve passengers, excluding the driver, for hire or
reward.
e) Motorcab - Motorcab means any motor vehicle constructed
or adapted to carry not more than six passengers, excluding
the driver, for hire or reward.
f) Private Service Vehicle - Private Service Vehicle means
(10)
motor vehicle constructed or adapted to carry more than six
persons, excluding the driver, and ordinarily used for the
purpose of carrying persons for, or in connection with, his
trade or business otherwise than for hire or reward, but does
not include a motor vehicle used for public purposes.
g) Public Service - Public Service Vehicle means any motor
vehicle used or adapted to be used for the carriage of
passengers for hire or reward, and includes a maxicab, a
motorcab, contract carriage and stage carriage.
h) Public Place - Public Place means a road, street, way or
other place whether thoroughfare or not, to which the public
have a right of access, and includes any place or stand at
which passengers are picked up or set down by a stage
carriage.

Q. Discuss the following


a) Period or currency of driving licence
b) Classification of Goods Carrying Vehicles based on
GVW
Ans. a) Period or currency of driving licence -
i) Transport vehicle carrying dangerous goods- Licence to
drive a transport vehicle carrying goods of dangerous /
hazardous nature, the license shall be effective for a period of
one year and renewal thereof shall be subject to the condition
that the driver undergoes one day refresher course of the
prescribed syllabus.
ii) Other transport Licences - Other transport licences are
valid for 3 years.
iii) Private Cars - In case of private cars, earlier, driving
licence used to be valid upto 20 years till a person attains age
of 40 years. Now, as per amendment, the driving licence of
persons above the age of 50 years would be renewed for a
period of 5 years at a time on payment of prescribed fees.

b) Classification of Goods Carrying Vehicles based on


GVW-
(11)
LMV - Upto GVW 7,500 Kgs.
MMV - GVW 7,500 Kgs. To 12,000 Kgs.
HGV GVW above 12,000 Kgs.

Necessity For Compulsory Third Party Insurance


Q. Why there is compulsion For Third Party Insurance of
a Motor Vehicle? What exemptions are provided by the
M.V. Act?
Ans. Necessity For Compulsory Third Party Insurance -
The law has made it obligatory that no motor vehicle shall be
used without a third party insurance. Section 146 of the Motor
Vehicles Act, 1988 provides that no person shall use except as
a passenger, or allow any other person to use, a motor vehicle
in a public place, unless the vehicle is covered by a policy of
insurance complying with the requirements of the Act. As per
Amendment Act 1994 an additional duty is caste upon the
owner of the vehicle carrying dangerous or hazardous goods
for a policy of insurance under the Public Liability Insurance
Act , 1991.
This is to protect members of public travelling in
vehicles or using the roads against motor vehicles accidents. A
Court can only pass an award or decree for compensation. It
cannot ensure actual payment, because the person held liable
may be insolvent or may not have sufficient resources to meet
the award. To overcome the situation, the law has made it
obligatory that no motor vehicle shall be used without a third
party insurance.
Exemption from Compulsory Third Party Insurance –
following vehicles are exempted from compulsory third party
insurance:
i) any vehicle owned by the Central Government or a State
Government and used for Government purposes unconnected
with any commercial enterprise.
ii) exemption may also be granted by the appropriate
Government for any vehicle owned by:
(a) the Central Government or a State Government if the
(12)
vehicle is used for Government purposes connected with any
commercial enterprise:
(b) any local authority;
(c) any State Transport undertaking.
However, the above exemption is made only if a fund is
established and maintained by that authority for meeting any
liability arising out of the use of any vehicle. The fund has to
be established in accordance with the Rules framed under the
Act.

Requirement of Policies
Q. What are the requirement under M.V. Act of a policy
of insurance issued for a motor vehicle? Mention the limits
of liabilities required to be compulsorily covered.
Ans. The policy of motor insurance is required to be issued by
an 'authorised insurer. Section 147 of the Motor Vehicles Act,
1988 requires that the policy of insurance must provide cover:
i) against any liability which may be incurred by the
insured in respect of death of or bodily injury to any person,
including owner of the goods or his authorised representative
carried in the carriage, or
ii) damage to any property of a third party; or
iii) against death or bodily injury to any passenger of a
public service vehicle, caused by or arising out of the use of
the vehicle in a public place.
The policy, however, shall not be required to cover:
i) any contractual liability; or
ii) any liability in respect of death arising out of and
in the course of employment of the employee of the
Insured, or in respect of bodily injury sustained by such
employee arising of out of and in the course of his
employment. The policy must however cover liability arising
under the Workmen's Compensation Act, 1923 in respect of
death or bodily injury to any such employee
(a) engaged in driving the vehicle, or
(b) engaged as conductor or ticket examiner in a public service
(13)
vehicle, or
(c) if it is a goods carriage, being carried in the vehicle.

Transfer of Certificate of Insurance


Q. What are the provisions under M.V. Act regarding
Transfer of Certificate of Insurance?
Ans. - Section 157 of the M.V. Act 1988 provides that where
a person in whose favour a Certificate of Insurance has been
issued, transfers to another person the ownership of the motor
vehicle in respect of which the insurance was taken, then the
Certificate of Insurance and the relative Policy shall be
automatically deemed to be transferred in favour of the new
owner from the date of transfer of ownership of the vehicle.
Such deemed transfer shall include transfer off rights and
liabilities of the said Certificate of Insurance and Policy of
Insurance.
The transferee should apply within 14 days from the date
of transfer on the prescribed form to the insurer for making the
necessary changes in the Certificate of Insurance and in the
Policy, and the insurer is obliged to make such changes in the
said documents to give effect to the transfer of insurance.

Duty of Insurers to satisfy Judgements


Q. Discuss the duty of insurers to satisfy the judgement of
court in respect of a third party claim under motor policy.
What defences are available to insurers to resist such
claim?
Ans. The duty of insurers to satisfy the judgement -
Section 149 of Motor Vehicles Act, 1988 provides that if a
judgement in respect of compulsory third party liability is
obtained against an insured person, then the insurer has to pay
to the third party the amount decreed plus costs and interest
awarded, subject to the sum insured under the Policy. Thus it
is the duty of the insurers to make payment to the third parties
even though they may be entitled to avoid or cancel the Policy
or may have avoided or cancelled the Policy.
(14)
Defences are available to insurers - The Act provides
certain rights and defences to the insurers to resist third party
claims. Before the commencement of the proceedings, the
insurers are entitled to receive notice through the Court or the
Claims Tribunals, as the case may be, of the bringing of the
proceedings or in respect of any judgement awarded so long as
execution is stayed thereon pending an appeal.
The insurer who receives the notice is entitled to be made
a party thereto and to defend the action on any of the
following grounds:
a) that there has been breach of a specified condition of
the Policy, being one of the following condition, viz.:
(i) a condition excluding the use of the vehicle:
(a) for hire or reward, where vehicle is on the date of the
contract of insurance a vehicle not covered by a Permit to ply
for hire or reward, or
(b) for organised racing and speed testing, or
(c) for a purpose not allowed by the permit under which the
vehicle is used, where the vehicle is a transport vehicle, or
(d) without side-car being attached, where the vehicle is a
motor-cycle; or
(ii) a condition excluding driving by a named person or
persons or by any person who is not duly licensed, or by any
person who has been disqualified for holding or obtaining a
driving license during the period of disqualification; or
(iii) a condition excluding liability for injury caused or
contributed to by conditions of war, civil war, riot or civil
commotion; or
b) that the Policy is void on the ground that it was obtained
by the non-disclosure of a material fact or by the
representation of
fact which was false in some material particular.
The Act also provides that anything in the Policy which
restricts the liability under the Policy towards the third parties
by reference to any of the conditions relating to (a) above shall
be of no effect.
(15)
The Act, however, provides that any sum paid by the
insurer in or towards the discharge of any liability of any
person which is covered by the Policy by virtue only of this
proviso shall be recoverable by the insurer from that person.

Rights of Third parties against Insurers on Insolvency of


the Insured and Effect of Death of Insured Person

Q. What are the rights of Third parties against Insurers on


Insolvency of the Insured?
Ans. Section 150 Motor Vehicles Act, 1988 provides for the
rights of third parties in the event of the insolvency of the
insured or in the event of winding up when the insured is a
Company. The Act provides that if, either before or after that
event, any third party liability is incurred by the insured, his
rights against the insurer under the Policy are transferred to
the third party to whom the, liability was incurred. When such
transfer takes place, the insurer will be under the same liability
to the third party as he would have been to the insured person,
but
(i) if the liability of the insurer to the insured person exceeds
the liability of the insured person to the third party, the insured
person's rights against the insurer in respect of the excess are
not affected.
(ii) if the liability of the insurer to the insured person is less
than the liability of the insured person to the third party, the
rights of the third party against the insured person in respect of
the balance are not affected.
In the event of an Insured becoming insolvent or making
arrangements with his creditors ( if a company, being wound
up) the rights of the Insured under the Policy will be
transferred to and vest in the injured third party. In other
words the injured third party is able to recover compensation
direct from the Insurers.

Q. What is the effect of Death of Insured Person on a third


(16)
party claim?
Ans. Section 155 of 1988 Act provides that if the insured
person dies after incurring third party liability, then the cause
of action survives against the insured's estate, or legal heirs or
against the insurer. If this provision was not made, then the
third party's right of action against the negligent owner of the
vehicle would die with the death of the owner.

Motor Accidents Claims Tribunals


Q. Write an essay on Motor Accidents Claims Tribunals.
Ans. - i) Constitution of MACT - Section 165 of Motor
Vehicles Act, 1988 provides for the constitution of the Motor
Accident Claims Tribunal by different State Governments for
the purpose of speedy disposal of third party claims at a
minimum cost. Such tribunals are presided over by a person of
the rank of a District judge or High Court Judge.
ii) Procedure and Powers of MACT – Section 169 provides
that where any Claims Tribunal has been constituted for any
area, the Civil Courts have no jurisdiction to entertain any
question relating to claims for motor accident claims
compensation. The Claims Tribunals have all the powers of a
civil court for the purpose of taking evidence on oath,
enforcing the attendance of witnesses and of compelling the
discovery and production of documents, etc.
The Motor Accident Claims Tribunals have exclusive
jurisdiction to decide the claims with regard to death, personal
injury as well as damage to third party property, irrespective
of the amount involved in the property damaged.
iii) Application for Compensation – According to Section
166 of Motor Vehicles Act, 1988 an application for
compensation arising out of an accident may be made:
a) by the person who has sustained the injury; or
b) by the owner of the property;
c) where the death has resulted from the accident, by the legal
representative(s) of the deceased; or
d) by any agent duly authorised by the person injured.
(17)
Application has to be made to the Claims Tribunal having
jurisdiction over the area in which the accident occurred, or to
the claims tribunal within the local limits whose jurisdiction
the claimant resides or carries on business or within the local
limits of whose jurisdiction the defendant resides. The
application shall be in such form and shall contain such
particulars as may be prescribed.
iv) Option regarding claims for compensation in certain
cases - A claim for compensation under the Motor Vehicle
Act and also under the Workmen's compensation Act, 1923
the person entitled to compensation may claim such
compensation under either of these Acts but not under both.
v) Award of the Claims Tribunal - Section 168 defines the
duty and obligation of the Claims Tribunal to give prior notice
of the third party's application for compensation to the
Insurers as also giving opportunity to the Insurers of being
heard.
The Claims Tribunal makes an award determining the
amount of compensation, which appears to it to be just. The
tribunal can award simple interest at such rates as it thinks fit,
to be paid along with the award for compensation. When
Award is made the Judgment debtor shall deposit the entire
amount awarded with 30 (thirty) days of the announcement of
the Award.
vi) Impleading Insurer in certain cases – According to
Section 170 where in the course of an inquiry, the Claims
Tribunal is satisfied that
(a) there is collusion between the person making the claim
and the person against whom tfi6 claim is made ( that is, there
is collusion between the claimant and insured ), or
(b) the person against whom the claim is made, has failed to
contest the claim,
it may direct that the concerned Insurer be impleaded as a
party to the proceedings. The Insurer so impleaded shall
thereupon have, without prejudice to the provisions contained
in Section 149 (2), the right to contest the claim on all or any
(18)
of the grounds that are available to the person against whom
the claim has been made.
vii) Appeals - Any person aggrieved by an award of a
Tribunal may, within ninety days from the date of the award,
prefer an appeal to the High Court. No appeal by the person
who is required to pay the amount shall be entertained unless
he deposits with the High Court Rs. 25000 or 50% of the
awarded amount, whichever is less.
The High Court may entertain the appeal after the expiry
of the said period of ninety days, if it is satisfied that the
appellant was prevented by sufficient cause from preferring
the appeal in time.
According to Section 173 no appeal is permissible if the
amount in dispute is less than Rs. 10000.

Q. Discuss the features of provision regarding liability


without fault under the M.V. Act.
Ans. No Fault Liability - Section 140 of M.V. Act, 1988
provides for Liability without Fault. Following are the feature
of this provision -
i) Strict Liability - This is a strict liability. The claimant
involved in a motor vehicle accident is not required to prove
wrongful act, neglect, or default (i.e. negligence) on the part
of the owner of the vehicle or by any other person. The claim
under these provisions is not defeated or affected in any way,
by my wrongful act, neglect or default on the part of the
claimant; nor can be quantum of compensation be reduced on
the basis of the claimant's share of responsibility for the
accident. In other words, the legal defence of 'contributory
negligence' is not available to the motorist and his insurers.
ii) Application of Provision - these provisions apply in cases
where the claimant suffers death or permanent disablement.
iii) Amounts of Compensation - The amounts of
compensation are fixed as follows: Death, Rs. 50000, and
Permanent Disablement Rs. 25000.
(19)
iv) Object of the provision - The object behind the no-fault
principle is to get minimum statutory relief expeditiously to
the victim of the road accident or his legal representative.

Q. What is Permanent Disablement fir the purpose of No-


fault Liability?
Ans. Permanent Disablement – According to Section 142
permanent disablement shall mean injury or injuries involving
(a) permanent privation of the sight of either eye or the
hearing of either ear, or privation of any member or joint; or
(b) destruction or permanent impairing of the powers of any
member or joint; or
(c) permanent disfiguration of the head or face.

Hit and Run Accident


Q. Write a short note on Hit and Run Accident
Ans. Hit and Run Accident - Hit and Run Accident is a
motor accident arising out of the use of a motor vehicle or
motor vehicles the identity whereof cannot be ascertained in
spite of reasonable efforts for the purpose. Section 161 of the
M.V.Act. provides for payment of following compensation for
such accidents:
i) Death - Rs. 25000
ii) Grievous hurt - Rs. 12500
As per the new M.V. Act, the payment of Compensation shall
be made by G.I.C. and its subsidiaries.

Q. What is grievous hurt under M.V. Act for the purpose


of compensation under hit and run accident?
Ans. Grievous Hurt - According to Section 161 grievous hurt
shall have the same meaning as in the Indian Penal Code.
Section 320 of the Indian Penal Code has designated the
following kinds of hurt as grievous:
i) Emasculation
ii) Permanent privation of the sight of eye.
iii) Permanent privation of the hearing of either ear.
(20)
iv) Privation of any member or joint.
v) Destruction or permanent impairing of the powers of any
member or joint.
vi) Permanent disfiguration of the head or face.
vii) Fracture or dislocation of a bone or tooth.
viii) Any hurt which endangers life or which causes the
sufferer to be during the space of twenty days in severe bodily
pain or unable to follow his ordinary pursuits.

Compensation on Structural Formula Basis


Q. What is Structural formula Basis of compensation to
road accident victims? How the compensations are
determined under this provision of M.V. Act?
Ans. Compensation on Structural Formula Basis - Section
163 (A) of M.V. Act has introduced a new provision for
payment of compensation to road accident victims on
Structural Formula Basis. Under this Section the amount of
compensation payable to claimants is calculated in a tabular
form and shown in the Schedule. For any claim compensation
under this Section, the claimant is be required to plead or
establish that the death or permanent disablement in respect of
which the claim has been made, was due to any wrongful act
or neglect or default of the owner(s) of the vehicle(s)
concerned or of any other person. Thus, the compensation
shall be payable on the basis of ‘No Fault’. However, he
scheme is optional, and if the claimant feels that the amount
prescribed in the Schedule is not acceptable, a claim can be
filed under Section 166 of the Motor Vehicles Act.
Computation of Amount of Compensation - Following is
the method of computation of compensation under Section
163 A :
(a) Fatal Accidents - In case of fatal accidents a table of
compensation is provided showing the amounts payable
depending on the age of the victim and the multiplier
applicable. The amount of compensation so arrived at in case
of fatal accident claims reduced by one-third in consideration
(21)
of the expenses which the victim would have incurred towards
maintaining himself, had he been alive.
It is provided that the amount of such compensation shall
not be less than a specified amount (at present Rs. 50,000)
Besides the amount of compensation shown above for
fatal cases, the schedule also indicates General Damages of
specified amounts payable in case of death for:
1.Funeral expenses.
2.Loss of consortium, if beneficiary is the spouse.
3.Loss of estate.
4.Medical expenses incurred before death not exceeding
a specified amount. These are to be supported by bills/
vouchers
(b)Disability in non-fatal accidents - In case of non-fatal
accidents Compensation is payable for loss of Income, if any,
for actual period of disablement not exceeding 52 weeks, Plus
either of the following:
In case of payment total disablement, the amount payable
shall be arrived at by multiplying the annual loss of income by
the "multiplier" applicable to the age on the date of
determining the compensation, or
In case of permanent partial disablement, such percentage
of compensation which would have been payable in the case
of permanent total disablement as specified in the above item.
Besides the amount of compensation shown above the
schedule also indicates General Damages of specified amount
are payable in case of injuries and disabilities for :
1.Pain and suffering for grievous and non-grievous
injuries.
2.Medical expenses incurred not exceeding a
specified amount as one time payment. These are to be
supported by bills/ vouchers.

The Schedule also specifies notional income of non-


earning persons.
(22)
CHAPTER 3
LOK ADALAT / LOK NYAYALAYA
AND
JALAD RAHAT YOJANA
Lok Adalat or Lok Nyayalaya
Q. Explain the concept of Lok Adalat. What are
advantages of Lok Adalat Settlements from the viewpoint
of insurance companies?
Ans. - Nature and Procedure - For the purpose of bringing
about voluntary settlement of disputes Hon'ble Shri
P.N.Bhagwati, the ex-Chief Justice of the Supreme Court,
conceived a unique concept Lok Adalat or Lok Nyayalaya.
Due to enormous increase in the number of accidents and
the number of persons maimed or killed, the MACT Courts
are faced with a very large number of cases. The net result is
that it takes years through the MACT for disposal of claims.
Arising from this problem, G.I.C supported the concept and
adopted settlements in Lok Adalat. to dispose of such cases
speedily in an informal way but with judicial backing and in a
spirit of compromise. This movement, in the last five years.
resulted in expeditious disposal.
For bringing about amicable and speedy settlement of
cases pending before the MACT, Lok Adalat sessions are held
from time to time in close liaison with the local Legal Aid
Committee of the Legal Aid Board of each State and the
MACT or the District and Sessions Judge. Following
procedure is adopted:
i) Consent application from parties concerned - Consent
application well in advance is taken from the applicant,
dealing advocates for the parties, and the insurer is obtained
for placing the cases before the Lok Adalat.
ii) Notice to parties concerned - Notice under registered
post is issued to the applicant and his advocate and to the
(23)
concerned insurer calling upon them to be present in the Lok
Adalat on the appointed date and time.
iii) Compromise - Efforts are made to bring the parties to a
fair compromise without coercion or forces and the agreement
arrived at is reduced in writing on the prescribed form.
iv) Submission of compromise memo to the concerned
Claims Tribunal - The compromise memo is submitted to the
Claims Tribunal for passing the final order and apportionment
of the compensation in terms of the settlement.
v) Payment - The insurers are required to deposit the cheque
for the amount agreed with MACT within specified time from
the date of the agreement to settle.
As per current guidelines of G.I.C., only those cases
where claim made to MACT is upto Rs. 500000 are to be
considered in the Lok Adalat sessions.
Advantages of Lok Adalat Settlements - Settlement of T.P.
Claims in the Lok Adalat is advantageous to insurance
companies for the following reasons:
a) the insurers get an opportunity to clear up a large backlog of
motor claims cases;
b) the claim is deemed have been settled once and for all and
there is no further litigation by way of appeal to the higher
Courts;
c) speedy settlement gives satisfaction to third party as well as
to the insured.
d) serves as a means of good publicity, good name and
prestige to the insurance company.

Jald Rahat Yojana


(Pre-litigation Scheme for settlement
Third Party Motor Insurance Claims)

Q. “Jald Rahat Yojana is an unique Pre-litigation Scheme


for settlement Third Party Motor Insurance Claims”.
Discuss.
Ans. Nature of Jald Rahat Yojana - The Jald Rahat Yojana
(24)
was introduced by General Insurance Corporation of India
with effect from 14th March. 1992. This is a Pre-litigation
Scheme for settlement Third Party Motor Insurance Claims for
motor accident victims. It provides quick payment of
compensation to victims of road accidents without their
adopting legal proceedings. In Lok Adalat only cases pending
before MACT are taken up for compromise settlement,
whereas under the Jalad Rahat Yojana injured persons or
legal heirs of the victims need not have to go to MACT at all.
Cases can be straightaway taken to this forum.

The procedure – For disposal of T.P. Claims a panel


consisting of following persons is constituted:
i) a retired Judge,
ii) a medical practitioner and
iii) a retired executive of an insurance company having
sound knowledge and clear understanding of motor
accident claim cases.
This panel jointly examines individual cases on a regular basis
on certain specified time and terms and offer compromise
settlement of claims. If the parties accept such offers,
settlement can be promptly finalised.
In the initial stage, the Scheme applies to Non-fatal
bodily injury claims of road accident victims above 18 years
of age. It covers both "fault" and "no-fault" liability claims.
To settle any claim under this scheme the claimants’
application is to be supported by the following documents:
a) Copy of First Information Report lodged with the Police.
b) Registration number and Insurance particulars of
offending vehicle.
c) Medical certificates in support of claim.
d) Medical bills and hospital records.
e) Proof of age and income.
f) Passport size photograph of victim.

There is no mention of any time limit for lodging claims


(25)
under the Scheme. However some time limit ought to be set
keeping in view the statutory limit under the Motor Vehicles
Act.
Benefits of the Scheme - The Jald Rahat Yojana offers
following benefits to public:
i) ‘No Expenses’ and Litigation Free Remedy – This is a
litigation free remedy to get compensation for road accidents.
The claimant is not required to incur any expenses on Court
fees and lawyer’s fees. The claimant is of course free to take
assistance from lawyers.
ii) Early and easy settlement – the scheme provides
settlement of claims within shortest possible time of 2 to 3
months.
iii) Option open to go to MACT – Settlement is not binding
under this scheme. If the claimant is not satisfied with the
compensation offered, the offer can be rejected and the
claimant can go to MACT for getting compensation.
iii) Just and fair assessment of claims -The scheme offers a
just and fair assessment of claims as it is done by independent
panels of retired judges, medical practitioners and retired
insurance executives.
Settlement of T.P. Claims under this scheme is
advantageous to insurance companies for the following
reasons:
a) the insurers get an opportunity to clear up cases without
going for litigation. If many claims get settled through this
machinery, it is felt that smaller number of cases will go to
MACT Courts.
b) the claim is deemed have been settled once and for all and
there is no further litigation by way of appeal to the higher
Courts;
c) speedy settlement gives satisfaction to the insured.
d) serves as a means of good publicity, good name and
prestige to the insurance company.
(26)
CHAPTER 4
MOTOR POLICIES
Policy A and Policy B

Q. What is the difference between Motor Policy A and


Policy B?
Ans. India Motor Tariff provides for following two types of
policies:
Policy 'A' - Policy ‘A’ covers liability to public risks as
required under the M.V.Act. In this type of Insurance the loss/
damage to the Motor Vehicle itself, generally known as 'own
damage' is not covered.
Policy 'B' - Policy 'B'. covers third party (T.P.) liability risk
as per the Act and own damage. This is a wider cover and
called as 'Comprehensive Insurance'.
Motor vehicles are generally classified by Insurers into a)
Private Cars, b) Motor cycles, Motor Scooters, Auto cycles
etc. and c) Commercial Vehicles. Both Policy A and Policy B
are available to all these classes of Motor Vehicles.
Policy A is issued in a Standard Form which is uniformly
applicable to all above classes of vehicles. Whereas Policy B
varies with the class of vehicle covered.
Policy 'B' has two sections in the case of Private car and
Motor Cycle/Scooters - Section I Loss or Damage and
Section II Liability to Third parties. In the case of Commercial
vehicles there are three sections - Section I Loss or Damage,
Section II Liability to Third parties and Section III Towing
Disabled Vehicle.

Scope of Standard Form for A Policy

Q. Discuss the cover provided by Motor Policy A.


Ans. - Policy A is issued in a Standard Form which is
uniformly applicable to all above classes of vehicles.
(27)
Scope of Cover - Liability to Third Parties – The policy
provides:
(1) Subject to the limit of liability as laid down in the Motor
Vehicles Act, 1988, the Insurance Company will indemnify
the Insured in the event of accident arising out of the use of
the motor vehicle anywhere in India, against all sums,
including claimant's costs and expenses, which the Insured
shall become legally liable to pay in respect of
i) death of or bodily injury to any person, and/or
ii) damage to any property of third party.
(2) The Company will also pay all costs and expenses
incurred with its written consent.
(3) The Company will indemnify any driver who is driving
the insured motor vehicle on the insured's order or with his
permission.
(4) In the event of the death of any person entitled to
indemnity under the policy, the Company will indemnify his
legal representatives in terms of and subject to the limitations
of the policy.
(5) The Company may at its own option -
A) arrange for representation at any Inquest of Fatal Injury
in respect of death which may be the subject of indemnity, and
B) undertake the defence of proceedings in any Court of
Law in respect of any liability which may be the subject of
indemnity under policy.

Q. Explain the following clauses under Motor Policy A:


a) Application of Limits of Indemnity
b) Avoidance of certain terms and Right of Recovery
Ans.
a) Application of Limits of Indemnity - In the event of any
accident involving indemnity to more than one Person, any
limitation of the amount of any indemnity shall apply to the
aggregate amount of indemnity to all persons indemnified and
such indemnity shall apply in priority to the Insured.
(28)
b) Avoidance of certain terms and Right of Recovery - The
Motor Vehicles Act provides that the judgement obtained
against insurers shall not be defeated by the incorporation of
exclusion clauses in the policy other than those authorised by
Section 149 of the Act. All motor policies therefore contain a
clause called "Avoidance of certain terms and right of
recovery" reading as under:
"Nothing in this policy or any endorsement hereon shall affect
the right of any person to recover an amount under or by
virtue of the provision of the Motor Vehicles Act.
But the Insured shall repay to the Company all sums paid
by the Company, which the Company would not have been
liable to pay but for the said provisions shall for all purpose be
deemed to have been abandoned and shall not thereafter be
recoverable under the policy”.
Thus this clause in its effect provides that any provision
in the policy which has the effect of denying payment of claim
to any person who is entitled to receive it by virtue of
provisions of the Motor Vehicles Act, is of no effect. Thus, the
interests of third parties are safeguarded.

Q. What are the General Exceptions under Motor Policy


A?
Ans. Following are the General Exceptions under Motor
Policy A:
(1) The Insurer shall not be liable for any claim arising whilst
the, motor vehicle is
a) being used otherwise than in accordance with Limitation as
to Use, or
b) being driven by any person other than a driver as stated in
Driver's Clause.
(2) There is no liability in respect of any claim arising out of
any contractual liability.
(3) Except in so far as is necessary to meet the requirements
of the Motor Vehicles Act, the Insurance Company shall not
(29)
be liable for death or bodily injury arising out of and in the
course of employment of a person in the employment of the
Insured or in the employment of any person who is
indemnified under the Policy.
(4) Except so far as is necessary to meet the requirements of
the Motor Vehicles Act, the Company shall not be liable in
respect of death or bodily injury to any person (other than a
passenger carried by reason of or in pursuance of a contract of
employment) being carried in or upon or entering or mounting
or alighting from the motor vehicle at the time of occurrence
of the event out of which any claim arises.
(5) War and allied perils.
(6) Nuclear Risk.

Private Car B Policy

Q. Describe the cover offered by Section I of Private Car


Policy B and exclusions applicable to this section.
Ans. Risks Covered under Section I - Loss or Damage of
Private Car Policy B – This section is also known as ‘Own
Damage’ Section. It provides indemnity to the Insured against
loss or damage to the insured Motor Car and/or its accessories
whilst thereon:
a) by fire, explosion, self-ignition or lightening;
b) by burglary, housebreaking or theft;
c) by riot and strike;
d) by earthquake (fire and shock damage);
e) by flood, typhoon, hurricane, storm, tempest, inundation,
cyclone, hailstorm, frost;
f) by accidental external means;
g) by malicious act;
h) by terrorist activity;
i) whilst in transit by road, rail, inland waterway, lift,
elevator
or air;
j) by landslide / rockslide.
(30)
Protection and Removal Costs - If the motor car is disabled
by reason of loss or damage covered under the policy, the
insurer will bear reasonable cost of protection and removal to
the nearest repairers and of redelivery to the insured but not
exceeding in all Rs. 1,500/- in respect of any accident.

Authorisation for Repair - The insured may authorise


repairs necessitated by damage covered under the policy,
provided that :
(a) the estimated cost of such repairs does not exceed Rs.
500/-
(b) the insurer is furnished forthwith a detailed estimate of
the cost, and
(c) the insured gives the insurer every assistance to see that
such repair is necessary and the charge reasonable.

Exclusions under Section I - The insured will not be liable


to make any payment for the following:
(a) consequential loss, depreciation, wear and tear,
mechanical or electrical breakdown, failures and breakage.
(b) damage to tyres unless the motor car is damaged at the
same time when the liability of the insurer is limited to 50% of
the cost of replacement.
(c) any accidental loss or damage suffered whilst the insured
or any person driving with the knowledge and consent of the
insured is under the influence of intoxicating liquor or drugs.

Q. Explain the following under Motor Car Policy B:


a) Loss to Accessory
b) Consequential loss
c) Mechanical Breakdown
Ans. a) Loss to Accessory - The parts which are directly
supplied by the manufacturer along with the car, but are
not essential for the running of the motor car, are
considered as accessories. The engine of a car, is an
essential part for the running of the vehicle. So it is not
an accessory. Whereas
(31)
a taximeter will be considered as an accessory of a taxi cab
because the vehicle can run without it.
Loss or damage of accessories are covered only if the
accessories are on the motor car. For example, the stepny is
removed from the car and kept separately in a garage from
where it is stolen, the loss will not be covered by the policy.
Accessory should be distinguished from Extra Fittings.
Radios, tape recorders, air conditioners and other electric or
electronic items, etc. which are fitted on the motor cars are not
accessories. They will be considered as extra fittings and will
not be covered unless they are separately described and valued
in the Schedule of the Policy.
b) Consequential Loss - The policy covers only direct loss
caused by an accident to the car and not the consequential
loss. The insured may suffer loss of use of the car during
repairs in the form of cost and expenses of alternate
transportation. This is a consequential loss which is not
covered.
c) Mechanical Breakdown – The policy does not cover
mechanical or electrical breakdown, failures, breakages. The
reason being they are associated with wear and tear. However,
subsequent damage following mechanical breakdown is
covered. If the steering rod breaks and causes an accident
resulting in damage to the car, claim in respect of breakage in
steering is not payable, but subsequent damage to the car is
accidental damage and claim in respect of that will be
admissible.

Q. Describe the cover granted by Section II-Liability to


Third Parties of Private Car Policy B.
Ans. Cover granted by Section II-Liability to Third Parties
of Private Car Policy B – This Section provides the
following coverage:
1. Liability to Third Party - This section provides indemnity
to the insured in the event of accident caused by or arising
out of the use of the motor car against all sums, including
(32)
claimant's cost and expenses, which the insured shall become
legally liable to pay in respect of
(i) death or bodily injury to any person, including occupants
carried in the motor car, provided such occupants are not
carried for hire or reward.
This does not cover the employees of the insured as the
risk falls under the Workmen's Compensation insurance
policy. However, as required by the Motor Vehicles Act,
workmen's compensation liability towards a paid driver is
covered under this section.
(ii) damage to property other than property belonging to the
insured or held in trust or in the custody or control of the
insured.
2. Legal costs and expenses - The insurer will also pay all
legal costs and expenses incurred with its written consent.

3. Indemnity to driver - The indemnity under this Section is


available to any driver who is driving the motor car or with his
permission, provided that such driver shall as though he were
the insured observe, fulfill and be subject to the terms,
exceptions and conditions of the policy in so far as they can
apply.

Limits of Liability
Under Section- II- 1 (i) - As per Motor Vehicles Act, 1988
(The Act provides for unlimited liability in respect of third
party death or bodily injury).
Under Section- II- 1 (ii)Rs. 6,000/- in respect of any one claim
or series of claims arising out of one event.
For third party property damage the limit provided is that
required by the Act . The tariff however provides for increased
limits upto unlimited liability for T.P. property damage, on

Q. What are the general exceptions under Private Car


Policy B which are applicable to both the sections of the
policy.
(33)
Ans. - General Exceptions - Private Car Policy B is subject
to certain general exceptions which are applicable to both the
sections of the policy. According to these exceptions the
Insurer shall not be liable in respect of the following:
(1) Any accident, loss, damage or liability caused, sustained
or incurred outside the Geographical Area described in the
Policy.
(2) Any claim out of any contractual liability.
(3) Whilst the insured vehicle is -
(i) being used otherwise than in accordance with the
limitations as to Use.
(ii) being driven by any person other than a Driver as
stated in the Driver's Clause.
(4) Nuclear risks
(5) Any accident, loss, damage or liability directly or
indirectly arising from nuclear weapons material.
(6) War and Allied Perils.

Q. Discuss the following under Private Car Policies:


a) Limitations as to Use under Private Car Policy
b) Driver’s Clause
Ans. a) Limitations as to Use under Private Car Policy –
This clause under the policy reads as under:
"Use only for social, domestic and pleasure purposes and for
the Insured's own business.
The Policy does not cover the use for hire or reward or for
organised racing, pacemaking, reliability trials, speed testing,
the carriage of goods (other than samples) in connection with
any trade or business or use for any purpose in connection
with Motor Trade."
b) Driver’s Clause - This clause under the policy reads as
under:
Driver: Any person including Insured -
Provided that the person driving is holding an effective
driving licence at the time of accident and is not disqualified
from holding or obtaining such a licence Provided also that the
(34)
person holding an effective learner's license may also drive the
vehicle and such a person satisfies the requirements of Rule 3
of the Central Motor Vehicles Rules, 1989.

Conditions of the Policy


Q. What are the conditions under Private Car Policy B?
Ans. Following are the conditions under Private Car Policy B:
(1) Notice of loss:
- Notice should be given immediately to the insurer upon
the occurrence of any accident, loss or damage and, in the
event of any claim the insured should give all information and
assistance as the insurer may require.
- Every letter, claim. writ, summons, etc. should be forwarded
to the insurer immediately on the receipt of insured.
-In the event of any impending prosecution, inquest or fatal
inquiry, the insured should immediately inform the insurer in
writing.
- In case of theft or other criminal act which may be the
subject of a claim, the insured should give immediate notice to
the Police and cooperate with the insurer in securing the
conviction of the offender.
(2) No, admission, offer, promise or payment:
- The insured should not settle or make any payment in respect
of any claim, or admit liability or make any other admission
with respect to the accident or any claim arising there from
without the written consent of the insurer.
- The insurer shall be entitled, if he so desires, to take over and
conduct in the name of the insured , the defence or settlement
of any claim or to prosecute in the name of the insured any
claim for indemnity. The insured should give any information
or assistance which the insurer may require for the purpose of
resisting or settling any claim.
(3) Indemnity:
- The insurer has the option to repair, reinstate or replace the
motor car or part thereof and / or its accessories or may pay in
cash the amount of the loss or damage.
(35)
- In any event, the liability of the insurer shall not exceed the
value of parts damaged or lost less depreciation plus
reasonable cost of fitting. In no case shall the liability of the
insurer exceed the insured's estimate of value of the motor car
(including accessories thereon) at the time of the loss or
damage, whichever is less.
(4) Safeguarding the vehicle from loss or damage:
- The insured is expected to take all reasonable steps to
safeguard the motor car from loss or damage.
-He is also obliged to maintain it in an efficient condition.
-In the event of any accident or breakdown the motor car
should not be left unattended without proper precaution being
taken to prevent further damage or loss.
-If the motor car is driven before necessary repairs are
effected, any extension of the damage or any further damage
shall be entirely at insured's own risk.
(5) Cancellation:
- The insurer may cancel the policy by sending seven days
notice by registered letter to the insured, and in such event he
will return to the insured the premium paid less the prorata
portion thereon for the period the policy has been in force.
- The policy may be cancelled by the insured on seven
days notice and provided no claim has arisen during the
currency of the policy, the insured shall be entitled to a return
of premium, less premium at the insurance company's Short
Period Rates for the period the policy has been in force.
- However where the ownership of the vehicle is
transferred, the policy cannot be cancelled, unless evidence
that the vehicle is insured elsewhere is produced.
(6) Contribution :
If at the time any claim arises, there is any other existing
insurance covering the same loss, damage or liability, then the
insurer shall not be liable to pay or contribute more than its
rateable proportion of such loss, damage, compensation, costs
or expenses.
(36)
(7) Arbitration:
-This condition provides for settlement of disputes under the
policy through arbitration which is a less expensive and faster
method of settlement than litigation. Only disputes regarding
the amount or quantum of the claim can be referred to
arbitration. If the insurer has disputed or denied liability under
the policy, then the insured will have to take recourse to a
court of law.
-The arbitrator has to be appointed in writing by the parties in
difference.
- If the parties cannot agree upon a single arbitrator, then two
disinterested persons are to be appointed as arbitrators, of
whom one shall be appointed in writing by each of the parties.
-If either party shall refuse or fail to appoint an arbitrator
within two calendar months after receipts of notice in writing
by the other party in accordance with the provisions of the
Arbitration Act, 1940 then the other party shall be at liberty to
appoint a sole arbitrator.
In case of disagreement between the arbitrators, the
difference will have to be referred to the decision of an
Umpire, who has to be appointed by the arbitrators in writing
before entering on the reference. The Umpire has to sit with
the arbitrators and preside at the meetings.
It shall be a condition precedent to any right of action or
suit upon the policy that award by such arbitrators or Umpire
of the amount of the loss or damage shall be first obtained.
A claim will be deemed to be abandoned or time-barred
if a suit is not filed in a court of law within 12 calendar
months from the date the insurer declines liability for the
claim,. Thus this condition stipulates a time limit for filing
suit.
(8) Observance of conditions as precedent to liability:
Due observance and fulfillment of the terms, conditions and
endorsement of the policy and the truth of the statements and
answers in the proposal form shall be the conditions precedent
to any liability of the insurer under the policy.
(37)
Q. Write a short note on Bonus/Malus Clause
Ans. Bonus/Malus Clause - The insured should always be
rewarded by way of reduction in premium for good risk and
penalised for bad risk. Under erstwhile Motor Tariff there
was only reward by way of No Claim Bonus. But with the
introduction of the new Motor Tariff, effective from Ist April,
1990 a new concept is introduced in India which provided
loading of premium for the insured who made a claim or
claims under his policy. This is provided by Bonus/Malus
Clause. Under this clause there is a discount, called Bonus for
the claims free period which is given on renewal premium.
Similarly if the insured lodges a claim in his policy, loading is
applied on the renewal premium which is called Malus. No
claim discount is allowed if policy is renewed within 90 days
of the expiry of the previous policy. Percentage of
bonus/malus is given in the policy.

Motor Cycle "B" Policy

Q. Describe the cover offered by Section I of Motor Cycle


Policy B and exclusions applicable to this section.
Ans. Risks Covered under Section I - Loss or Damage of
Private Car Policy B – This section is also known as ‘Own
Damage’ Section. It provides indemnity to the Insured against
loss or damage to the insured Motor Cycle and/or its
accessories whilst thereon:
a) by fire, explosion, self-ignition or lightening;
b) by burglary, housebreaking or theft;
c) by riot and strike;
d) by earthquake (fire and shock damage);
e) by flood, typhoon, hurricane, storm, tempest, inundation,
cyclone, hailstorm, frost;
f) by accidental external means;
g) by malicious act;
h) by terrorist activity;
i) whilst in transit by road, rail, inland waterway, lift,
(38)
elevator or air;
j) by landslide / rockslide.
(You shall kindly observe that the risks covered are the same
as those enumerated in the Private Car "B" Policy.)

Protection and Removal Costs - If the motor cycle is


disabled by reason of loss or damage covered under the
policy, the insurer will bear reasonable cost of protection and
removal to the nearest repairers and of redelivery to the
insured but not exceeding in all Rs.300 /- in respect of any
accident.

Authorisation for Repair - The insured may authorise


repairs necessitated by damage covered under the policy,
provided that :
(a) the estimated cost of such repairs does not exceed Rs.
150/-
(b) the insurer is furnished forthwith a detailed estimate of
the cost, and
(c) the insured gives the insurer every assistance to see that
such repair is necessary and the charge reasonable.
Exclusions under Section I - The insured will not be liable
to make any payment for the following:
(a) consequential loss, depreciation, wear and tear,
mechanical or electrical breakdown, failures and breakage.
(b) damage to tyres unless the motor cycle is damaged at the
same time when the liability of the insurer is limited to 50% of
the cost of replacement.
(c) Loss of or damage to accessories by burglary,
housebreaking or theft, unless the Motor Cycle is stolen at the
same time.(This is additional exclusion in Motor Cycle Policy
which do not appear under Motor Car Policy.)
(d) any accidental loss or damage suffered whilst the insured
or any person driving with the knowledge and consent of the
insured is under the influence of intoxicating liquor or drugs.
(You shall kindly observe that except exception (d) other
(39)
exceptions are the same as those enumerated in the Private
Car "B" Policy.)

Q. Describe the cover granted by Section II-Liability to


Third Parties of Motor Cycle Policy B.
Ans. Cover granted by Section II-Liability to Third Parties
– This Section provides the following coverage:
1. Liability to Third Party - This section provides indemnity
to the insured in the event of accident in the event of any
accident involving the insured vehicle against all sums which
the insured shall become legally liable to pay in respect of
(i) death of or bodily injury to any person, including person
conveyed in or on the Motor Cycle, provided such person is
not carried for hire or reward;
(ii) damage to property other than property belonging to the
insured or held in trust or in the custody or control of the
insured.
It is provided the insurer shall not be liable in respect of
death, injury or damage caused or arising beyond the limits of
any carriageway or thoroughfare in connection with the
bringing of the load to the Motor Cycle for loading thereon or
taking away of the load from the Motor Cycle after unloading
therefrom.

2. Legal costs and expenses - The insurer will also pay all
legal costs and expenses incurred with its written consent.

3. Indemnity to driver - The indemnity under this Section is


available to any driver who is driving the motor cycle with
insured’s permission, provided that such driver shall as though
he were the insured observe, fulfill and be subject to the terms,
exceptions and conditions of the policy in so far as they can
apply.
Limits of Liability
Under Section- II- 1 (i) - As per Motor Vehicles Act, 1988
(The Act provides for unlimited liability in respect of third
(40)
party death or bodily injury).
Under Section- II- 1 (ii) - Rs. 6,000/- in respect of any one
claim or series of claims arising out of one event.
For third party property damage the limit provided is that
required by the Act . The tariff however provides for increased
limits upto unlimited liability for T.P. property damage, on
extra premium.

Q. What are the general exceptions under Motor Cycle


Policy B which are applicable to both the sections of the
policy.
Ans. - General Exceptions under Motor Cycle Policy B -
General exceptions (applicable to all Sections of the Policy)
under Motor Cycle Policy B are the same as those found in
the private car policy.

Q. What are the conditions under Motor Cycle Policy B.


Ans. –Conditions under Motor Cycle Policy B –
Conditions under Motor Cycle Policy B are the same as those
found in the private car policy.

Commercial Vehicles B Policy

Q. Describe the cover offered by Section I of Commercial


Vehicle Policy B and exclusions applicable to this section.
Ans. Risks Covered under Section I - Loss or Damage of
Commercial Vehicle Policy B – This section is also known as
‘Own Damage’ Section. It provides indemnity to the Insured
against loss or damage to the insured vehicle and/or its
accessories whilst thereon:
a) by fire, explosion, self-ignition or lightening;
b) by burglary, housebreaking or theft;
c) by riot and strike;
d) by earthquake (fire and shock damage);
e) by flood, typhoon, hurricane, storm, tempest, inundation,
cyclone, hailstorm, frost;
(41)
f) by accidental external means;
g) by malicious act;
h) by terrorist activity;
i) whilst in transit by road, rail, inland waterway, lift,
elevator or air;
j) by landslide / rockslide.
(You shall kindly observe that the risks covered are the same
as those enumerated in the Private Car "B" Policy.)
Protection and Removal Costs - If the vehicle is disabled by
reason of loss or damage covered under the policy, the insurer
will bear reasonable cost of protection and removal to the
nearest repairers and of redelivery to the insured but not
exceeding in all Rs.2500 /- in respect of any accident.
Authorisation for Repair - The insured may authorise
repairs necessitated by damage covered under the policy,
provided that :
(a) the estimated cost of such repairs does not exceed Rs.
500/-
(b) the insurer is furnished forthwith a detailed estimate of
the cost, and
(c) the insured gives the insurer every assistance to see that
such repair is necessary and the charge reasonable.
Deduction for Depreciation:
a)For all rubber, nylon, plastic parts, tyres and battery 50 %
b)For all parts made of glass Nil
c)For all other parts:
AGE OF VEHICLE PERCENTAGE OF
DEPRECIATION
Up to 6 months Nil
Between 6 months& One year 5%
Between 1 year & 2 years 10%
Between 2 years & 3 years 15%
Between 3 years & 4 years 25%
Between 4 years & 5 years 35%
Between 5 years & 10 years 40%
Over 10 years 50%
(42)
Compulsory Excess - The Commercial Vehicle Policy B for
certain classes of vehicles to which Endorsement No.26
applies is subject to Compulsory Excess of Rs. 1,5 00/- . This
endorsement further provides that except in case of total loss
of the vehicle, the insurer shall not liable under Section I of
the Policy for loss/damage to lamps, tyres, mudguards and/or
bonnet side parts, bumpers and/or paintwork.

Exclusions under Section I - The insurer shall not be liable


to make any payment -
(a) in respect of consequential loss, depreciation, wear and
tear mechanical or electrical breakdowns, failure or breakages,
nor for damage caused by overloading or strain of the motor
vehicle, nor for loss of or damage to accessories by burglary,
house-breaking or theft unless such motor vehicle is stolen at
the same time;
(b) in respect of damage to tyres unless the motor vehicle is
damaged at the same time, when the liability of the insurer is
limited to 50% (fifty percent) of the cost of replacement;
(c) in respect of any accidental damage or loss suffered
whilst the insured or any person driving with his knowledge
and consent is under the influence of intoxicating liquor or
drugs.
(d) there is no liability for damage caused by overloading or
strain of the motor vehicle;
(e) nor is there any liability for loss of or damage to
accessories by burglary, house-breaking or theft unless the
motor vehicle is stolen at the same time.
(You shall kindly observe exclusions (a) to (c) above are
substantially the same as in the Private Car "B" Policy.)

Q. Describe the cover granted by Section II-Liability to


Third Parties of Commercial Vehicle Policy B.
Ans. Cover granted by Section II-Liability to Third Parties
of Commercial Vehicle Policy B – This Section provides the
following coverage:
(43)
1. Liability to Third Party - This section provides indemnity
to the insured in the event of accident caused by or arising
out of the use of the vehicle against all sums, including
claimant's cost and expenses, which the insured shall become
legally liable to pay in respect of
(i) death/bodily injury to any person caused by or arising out
of the use (including the loading and/or unloading) of the
motor vehicle;
(ii) damage to third party property caused by the use
(including the loading and/or unloading) of the motor vehicle.
2. Legal costs and expenses - The insurer will also pay all
legal costs and expenses incurred with its written consent.
3. Indemnity to driver - The indemnity under this Section is
available to any driver who is driving the vehicle with
insured’s permission, provided that such driver shall as though
he were the insured observe, fulfill and be subject to the terms,
exceptions and conditions of the policy in so far as they can
apply.
Limits of Liability
Under Section- II- 1 (i) - As per Motor Vehicles Act, 1988
(The Act provides for unlimited liability in respect of third
party death or bodily injury).
Under Section- II- 1 (ii)Rs. 6,000/- in respect of any one claim
or series of claims arising out of one event.
For third party property damage the limit provided is that
required by the Act . The tariff however provides for increased
limits upto unlimited liability for T.P. property damage, on

Q. What are the exceptions under Section II-Liability to


Third Parties of Commercial Vehicle Policy B.
Ans. Following are the exclusions under this section:
(a) The insurer shall not be liable in respect of death, injury
or damage caused or arising beyond the limits of any
carriageway or thoroughfare in connection with the bringing
of the load for loading on the motor vehicle or taking away of
the load from the motor vehicle after unloading therefrom
(44)
.This liability may be covered under a separate Workmen's
Compensation Policy.
(b) Except so far as is necessary to meet the requirements of
the Motor Vehicles Act, the insurer shall not be liable for
death or bodily -injury to any person in the employment of the
insured, arising out of and in the course of such employment.
Section 147 of the Motor Vehicles Act, 1988 provides
that a policy shall not be required to cover liability in respect
of death or bodily injury sustained by an employee of the
insured arising out of and in the course of his employment
other than a liability arising under the Workmen's
Compensation Act, 1923 in respect of death/bodily injury to
employees:
(i) engaged in driving the vehicle, or
(ii) if it is a public service vehicle, engaged as conductor or
ticket examiner, or
(iii) If it is a goods carriage, being carried in the vehicle.
(c) Legal liability towards person carried in the vehicle is
excluded. However, as required by the Motor Vehicles Act,
legal liability towards fare paying passengers and persons
carried by virtue of a contract of employment is covered.
(d) The insurer is not liable in respect of damage to property
belonging to or held in trust by or in the custody or control of
the insured or a member of the insured's household or being
conveyed by the motor vehicle.
(e) The insurer shall not be liable in respect of damage to any
bridge and/or viaduct and/or to any road and/or anything
beneath by vibration or by the weight of the motor vehicle
and/or load carried by the motor vehicle.
(f) Except so far as is necessary to meet the requirements of
the Motor Vehicles Act, the insurer shall not be liable for
death and/or injury to any person or persons who are not
employees of the insured and not being carried for hire or
reward, other than the owner of goods being carried in or upon
or entering or mounting or alighting from the motor vehicle
insured under the policy, or of such owner of the goods.
(45)
Q. Describe the cover granted by Section III - Towing
Disabled Vehicles of Commercial Vehicle Policy B.
Ans. This Section provides that the policy shall be operative
i.e. indemnity shall be available whilst the motor vehicle being
used for the purpose of towing any one disabled mechanically
propelled vehicle, and the indemnity provided by Section II of
the policy. (Third Party Liability ) shall be extended to apply
in respect of liability in connection with such towed vehicle,
provided that
(a) such towed vehicle is not towed for reward; and
(b) the insurer shall not be liable in respect of damage to
such towed vehicle nor in respect of property being conveyed
there by.

Q. What are the general exceptions under Commercial


Vehicle Policy B which are applicable to all the sections of
the policy?
Ans. All the six "exceptions" are identical to those in the
Private Car "B" Policy.

Q. What are the Conditions under Commercial Vehicle


Policy B?
Ans. Following are the conditions under Commercial Vehicle
Policy B which are substantially same as those in Private Car
B Policy :
i) Notice of loss.
ii) No admission, offer, promise or payment
iii) Indemnity (repair, reinstate or replace etc.)
iv) Safeguarding the vehicle from loss/damage and
maintaining it in efficient condition.
v) Contribution Clause
vi) Cancellation Clause
yii) Arbitration Clause
viii) Observance of Conditions as precedent to liability.
(46)
Q. What is the Specialty of Condition No. 3 ‘Indemnity’ of
Commercial Vehicle Policy B as compared to this
condition under B Policies for other classes of vehicle?
Ans. Condition No. 3 ‘Indemnity’ of Commercial Vehicle
Policy B as compared to this condition under B Policies for
other classes of vehicle has a distinct feature. This condition
under commercial Vehicle Policy provides that after a valid
claim for Third Party Property Damage under Section 11- 1
(ii) of the Policy, the insurer may pay the insured the full
amount of his liability under the Section and relinquish the
conduct of any defence, settlement or proceeding without
prejudice to its interests for having taken that course of action;
nor shall the insurer be liable for any costs or expenses
incurred by the insured or any claimant after the insurer has
relinquished such conduct.
For Third Party Property Damage the Act requires a limit
of Rs. 6,000/-. The policy under Section II-1(ii) also provides
this limit. But there is provision in Motor Tariff for higher
limits for property damage, subject to additional premium. If
the insured has opted for a limit which is below unlimited,
then a situation may arise when the third party claim against
the insured for such property damage may be for an amount
far higher than the limit provided under the policy. In order to
defend such claim on behalf of the insured, the insurers will
have to incur legal expenses disproportionate to the limit of
liability. In such circumstances, the indemnity is paid as per
the limit under the policy, and the defence of the claim is left
to the insured himself.
There is another argument in favour of this condition. In
the event of property damage claim far in excess of the limit
under the policy, the financial interest of the insured would
obviously be greater than that of the insurer. The insured
would therefore want to appoint his own legal advisers and
would be averse to the insurer exercising their rights of
dealing direct with third parties. Thus, this condition provides
a solution to the insurers who can pay to the insured the full
(47)
amount of their liability under Section II - I (ii) - third party
property damage - and leave the insured to conduct the
defence and proceedings at his own cost and expense.

Q. In what way does the scope of cover under Section II of


the Commercial Vehicle B Policy differ from that of the
Section II Cover of a Private Car Policy B?
Ans. The scope of cover under Section II Liability to Third
Party of the Commercial Vehicle Policy B differs from that of
Section II cover of the Private Car Comprehensive Policy as
under:
a) Death of or bodily injury to persons carried for hire or
reward or in pursuance of a contract employment only is
covered under Commercial Vehicle Policies whereas liability
in respect death/ injury to any occupant carried is covered in
the Private Car Policy.
b) Death of or injury to third party or damage to third party
property arising out of the accident beyond the limits of any
carriage -way or thoroughfare in connection with bringing
load to the motor vehicle or taking away loads therefrom are
not covered under Commercial Vehicle Policy.
c) Damage to any bridge, weighbridge, viaduct or to any
road by vibration or by the weight of the motor vehicle and/or
load carried by the motor vehicles is also excluded under the
Commercial Vehicle Policy.
d) The insurers are not liable for damage to third party
property caused by sparks or sparks or ashes from the motor
vehicle or out of the explosion of the boiler of the motor
vehicle under the Commercial Vehicle Policy.

Q. Describe the Wordings regarding Limitations as to Use:


(i) For Goods Carrying Vehicle (IZ-300-301):
(ii)For Passenger Carrying Vehicle (IZ-400)
Ans. (i) Wordings regarding Limitations as to Use For
Goods Carrying Vehicle (IZ-300-301):
(48)
Use only for carriage of goods within the meaning of the
Motor Vehicles Act, 1988.
The Policy does not cover
(1) Use for organised racing, pace making, reliability trial or
speed testing.
(2) Use whilst drawing a trailer except the towing (other than
for reward) of any one disabled mechanically propelled
vehicle.
(3) Use for carrying passengers in the vehicle except
employees (other than driver) not exceeding six in number
coming under the purview of Workmen's Compensation Act,
1923.
(ii) Wordings regarding Limitations as to Use For
Passenger Carrying Vehicle (IZ-400)
Use only for carriage of passengers in accordance with the
permits (Contracts Carriage or Stage Carriage) issued within
the meaning of the Motor Vehicles Act, 1988
The Policy does not cover
(1) Use for organised racing, pace-making, reliability trial or
speed testing.
(2) Use whilst drawing a trailer except the towing (other than
for reward) of any one disabled mechanically propelled
vehicle.

Q. Describe the Wordings of Drivers Clause in respect of:


(a) Stage Carriage / Contract Carriage / Private Service
Vehicle
(b) Goods Carriage
(c) Non-transport vehicles
Ans. (a) Wordings of Drivers Clause in respect of Stage
Carriage / Contract Carriage / Private Service Vehicle:
Persons or class persons entitled to drive:
Any person including the Insured -
Provided that a person driving holds an effective driving
licence at the time of the accident and is not disqualified from
holding or obtaining such a licence.
(49)
Provided also that the person holding an effective
learner's licence may also drive the vehicle when not used for
the transport of passengers at the time of the accident and that
such a person satisfies the requirements of Rule 3 of the
Central Motor Vehicle Rules, 1989.

(b) Wordings of Drivers Clause in respect of Goods


Carriage:
Persons or class persons entitled to drive
Any person including the insured -
Providing that a person driving holds an effective driving
licence at the time of the accident and is not disqualified from
holding or obtaining such a licence.
Provided also that the person holding an effective
learner's licence may also drive the vehicle when not used for
the transport of goods at the time of the accident and that such
a person satisfies the requirements of Rule 3 of the Central
Motor Vehicle Rules, 1989.

(c) Wordings of Drivers Clause in respect of non-


transport vehicles:
Persons or class persons entitled to drive
Any person including Insured -
Provided that a person driving holds an effective driving
licence at the time of the accident and is not disqualified from
holding or obtaining such a licence
Provided also that the person holding an effective learn-
-er's licence may also drive the vehicle and such a person
satisfies the requirements of Rule 3 of the Central Motor
Vehicle Rules, 1989.

Tariff Endorsement No.26


Q. What special exclusions form part of Policy B on Public
Carriers?
Ans. Tariff Endorsement No.26 - Section I of the Policy B
on Public Carriers is subject to Tariff Endorsement No.26.
(50)
This endorsement provides for Special Exclusions which
relate to Compulsory Excess and exclusion of loss/ damage to
certain parts of Public Carriers as under:
a) Compulsory excess - In respect of Own Damage claims
arising out of each and every accident during the currency of
the policy, the insured is required to bear the first Rs. 1500 as
Compulsory Excess. This is applicable in regard to claims for
total loss also.
b) Loss/damage to certain parts - The insurers are not
liable for loss of or damage to lamps, tyres, mudguards and/or
paint work. However, this is not applicable to a total loss
claim.
The purpose of these Special Exclusions is to discourage
small claims as otherwise the insurers' claims experience in
respect of own damage would be more, resulting in increase in
the rate of premium in the long run.

Q. Discuss the insurer's liability under Comprehensive


Motor Policies for following claims.
(a) Loss of horn by theft from a motor cycle.
(b) Accident damage to an ornamental hub-cap of a private
car.
(c) Damage to the cabin due to an accident to a public
carrier, the estimated repair cost of which is Rs.1475/-.
(d) Death of an employee of the owner of the goods carrier
who was travelling in the lorry at the time of the accident.
Ans. (a) Motor Cycle Comprehensive Policy does not cover
the loss of or damage to accessories by burglary, house-
breaking or theft unless the Motor Cycle is stolen at the same
time. Hence the insurers are not liable, for the loss of the horn,
an accessory alone by theft from a Motor Cycle.
(b) The ornamental hub cap is an extra fitting. The loss of or
damage to Extra fittings is payable only if such fittings are
specifically covered.
(c) The Comprehensive Policy for a public carrier is subject
to a compulsory excess of Rs. 1500/- as per the endorsement
(51)
No.26. As the estimated repair cost is less than Rs. 1500, there
is no liability under the Policy.
(d) According to the provisions of the Motor Vehicles Act,
an insurance Policy in respect of a lorry (goods vehicles) is
required to cover employees being carried in the vehicle in the
course of or arising out of their employment. As per the
interpretation of the provisions by various High Courts, the
employment need not necessarily be with the insured. Hence
the insurers are liable for Death of an employee of the owner
of the goods carrier who was travelling in the lorry at the time
of the accident.

Q. A goods carrying vehicle (general cartage) insured for


comprehensive risks without extra benefit met with an
accident inside a factory compound. How will you deal
with claims lodged for the following?
(a) Damage to the mudguard and/or bonnet side parts, head
light and bumper the estimated loss of which is Rs. 1600/-.
(b) Death of a coolie carried in the vehicle.
(c) Damage to the car of the owner of that public carrier
which happened to accompany the lorry inside the private
place at the material time of the accident.
(d) Injury to the driver's friend travelling in the vehicle.
(e) Damage to stereo.

Ans. Under the Comprehensive Policy conditions, the insurers


are liable for claims arising out of the use of vehicle in a
private place e.g. a factory compound also.
(a) As the damage relates to parts specially excluded under
Tariff Endorsement No.26 there is no liability under the
policy,
(b) The insurers are liable to the extent of the requirements of
the Workmen's Compensation Act.
(c) Section II of the Comprehensive Policy for commercial
vehicle excludes liability in respect of damage to property
belonging to the insured. As the lorry and the car belong to
(52)
the same owner, there is no liability under the Policy.
( d) Such liability can be covered by way of extra benefit on
legal liability to non-fare paying passengers. Otherwise the
insurers are not liable.
( e) The stereo is an extra fitting. The loss of or damage to
Extra fittings is payable only if such fittings are specifically
covered.
(53)
CHAPTER 5
MOTOR TRADE POLICIES
Q. What are the special insurance requirements of Motor
Traders? What are the policies available to satisfy them?
Ans. Motor Traders like dealers of vehicles or those engaged
in overhaul or repair of motor vehicles have to demonstrate
the vehicles to prospective clients by giving a trial run. These
activities involve risk. Motor Traders are also exposed to legal
liability for accidental bodily injury, fatal or otherwise, and/or
damage to property of third parties, caused by negligence in
connection with the use of the vehicles, and/or defects in the
plant or premises of the Motor Trader.
In view of the above they have special insurance
requirements. The Motor Tariff provides for special policies
named Motor Trade Policies to cater to the special insurance
requirements of the Motor Trade.
There are following two types of motor trade policies:
(i) Motor Trade 'B' Policy: Road Risks –This is a
comprehensive policy which covers loss or damage to the
motor vehicle, third party liability and trailers attached to the
vehicle whilst the motor vehicle is in a public place or; is
temporarily garaged during the course of a journey.
(ii) Motor Trade Internal Risk Policy – this Policy offers
cover against loss or damage to the vehicle or liability arising
out of an event occurring on the insured’s business premises.

Q. Write a short note on Motor Trade Certificate.


Ans. - Motor Traders like dealers of vehicles or those engaged
in overhaul or repair of motor vehicles have to demonstrate
the vehicles to prospective clients by giving a trial run. To
enable them to do so, the transport authorities allow them
number plates which are known as Trade Certificates. The
Trade Certificate can be temporarily attached to the vehicle
being taken out on the public road for trial runs. Normally,
Trade Certificates are used in. case of brand new vehicles
(54)
which are unregistered. Alternatively, these plates are allotted
the names of the drivers who will be demonstrating the
vehicles. Such named driver plates are normally used for
driving secondhand registered vehicles.

Q. Describe the Cover granted under Motor Trade B


Policy.
Ans. The cover under Motor Trade B Policy is operative
whilst the motor vehicle is in a public place or; is temporarily
garaged during the course of a journey but not in or on any
premises owned by or in the occupation of the insured. There
are following three Sections of the policy:
Section I Loss or Damage – This section provides indemnity
in respect of loss or damage to the motor vehicle. This Section
is not subject to Depreciation Clause.
Cost of Protection and Removal upto Rs. 150 is also payable.
Section II Liability to Third Party – The cover provided
under this section is identical to that granted under the
Commercial Vehicles "B" Policy.
Section III Trailers – This section deals with extension of
cover in respect of trailers (mechanically propelled or
otherwise) attached to the motor vehicle for the purpose of
being towed. The indemnity provided by Section I (Own
Damage) and Section II (Liability to Third Party) is extended
to such trailers. This extension is subject to the following
provisions:
a) the Limits of Liability shown in the Schedule of the
Policy are not increased by this extension;
b) the insurer shall not be liable in respect of damage to
property conveyed by the towed vehicle;
c) there is no liability in respect of loss, damage and/or
liability sustained or incurred whilst the motor vehicle is
towing a greater number of vehicles than is permitted by law.

MOTOR TRADE INTERNAL RISKS POLICY


Q. Describe the Scope of Comprehensive Motor Trade
(55)
Internal Risks Policy.
Ans. This policy applies to accident, loss or damage or
liability arising out of an event occurring only on the business
premises of Motor Trader. There are following two Sections
under the policy:
Section I – Damage - The insured shall be indemnified in
respect of damage to any motor vehicle, including its
accessories, whilst thereon
i) the property of the insured or any member of the
insured's family or household,
ii) caused by accidental external and visible means, and
iii) occurring in or on the insured premises mentioned in the
policy,
Exceptions - This section is subject to following exceptions:
The Insurer shall not be liable to pay -
a) for loss of use, depreciation, wear and tear, mechanical or
electrical breakdowns, failures or breakages,
b) for damage to tyres by application of breaks or by
puncture, cuts or bursts.
Excess –The indemnity under this section is subject to an
"excess" of Rs. 50/- any one accident or a number of accidents
arising out of one cause.
Limit of Liability for own damage - The present Motor Tariff
provides for a limit of Rs. 30,000/- any one accident.

Section II Liability to the Public Risks - This Section


indemnifies the Insured against all sums, including claimants
costs and expenses, which the Insured shall become legally
liable to pay in respect of
(1) accidental death or bodily injury to any person other
than a person in the Insured's service or a member of the
Insured's family or household;
(2) accidental damage to -
a) any motor vehicle (including its accessories whilst
thereon ) held in trust by or in the custody or control of the
Insured;
(56)
b) other property not being property belonging to or held in
trust by or in the custody or control of the Insured; occurring,
in on or about the premises through
i) the negligence of the Insured or any person in the
service of or acting on behalf of the Insured, or
ii) by or through any defect in the premises or in the
ways,
works, machinery or plant therein.
Limits of Liability
(a) Under Section II (1) in respect of any one claim or number
of claims arising out of one cause - Unlimited As per Motor
Vehicles Act, 1988
(b) Under Section II (2) in respect of any one claim or number
of claims arising out of one cause .... Rs.6,000/-. The Tariff
however provides for following higher limits
i)Property damage excluding damage to vehicles - Rs.
1,50,000/- any one accident.
ii)Damage to vehicles property damage - Rs. 1,50,000/-
any one accident.

Q. What are the General Exceptions of Comprehensive


Motor Trade Internal Risks Policy?
Ans. General Exceptions - These exceptions are applicable
to both the Sections of the policy. The Insurer shall not be
liable under the policy in respect of -
a) accident, loss, damage or liability due to
i) war and allied perils.
ii) flood, volcanic eruption, earthquake and other convulsions
of nature-
b) damage to property caused directly or indirectly by fire or
explosion.
c) any consequence of burglary, housebreaking or theft or
any attempt thereat.
d) damage to property sustained while it is being worked
upon and directly resulting from such work,
e) any defective workmanship,
(57)
f) death, injury or damage caused by or through any
demolition or of structural alteration or addition to the
premises or by or through the installation of any equipment.
g) death, injury or damage caused by or through or in
connection with the use by the insured of power driven cranes,
elevators, lifts or hoists other than car hoists having a lift not
exceeding six feet or its equivalent,
h) any liability which attached by virtue of an agreement.
i) death, injury or damage resulting from the driving else
where than in or on the premises of any vehicle by the Insured
or any person in the service of or acting on behalf of the
Insured,
j) damage to any motor vehicle or its accessories caused by
weather conditions.
k) any accident, loss, damage or liability caused by nuclear
weapons material.
(58)
CHAPTER 6
MOTOR TARIFFS
GENERAL TARIFF REGULATIONS

Q. Discuss the following tariff provisions:


1) Geographical Area
2) Prohibition of Agreed Value Policies
3) Short Period Scale of Premium
Ans.1) Geographical Area - Under Motor Policies
Geographical Area is India which may be extended to include
Nepal and Bhutan without charging additional premium. By
charging flat additional premium Geographical Area may be
extended to include Bangladesh.
2) Prohibition of Agreed Value Policies - An "Agreed Value
Policy" is a policy which undertakes in the event of a total loss
to pay a specified sum as the value of the vehicle insured and
which does not take into account the current market value of
such vehicle. For Motor Vehicles it is not permissible to issue
such policies except for vintage cars. A vintage car is any car
which is over 40 years old and is certified to be in working
condition by an automobile engineer or surveyor.
3) Short Period Scale of Premium - Tariff provides
following Short Period Scale of Premium for Policies issued
or renewed for periods shorter than 12 months:
Period (Not Exceeding) Rate
1Week ... 10% of the Annual Rate
1Month ... 25% of the Annual Rate
2 Months ... 35% of the Annual Rate
3 Months ... 50% of the Annual Rate
4 Months ... 60% of the Annual Rate
6 Months ... 75% of the Annual Rate
8 Months ... 85% of the Annual Rate
Exceeding 8 Months ... Full Annual Premium.
(59)
The above scale must also be applied in calculating the
premium when policies are cancelled during the currency at
the request of the insured.

Q. Discuss the following tariff provisions:


1) Transfer of a Vehicle
2) Cancellation of Insurance
3) Double insurance
Ans. 1) Transfer of a Vehicle - On transfer of a vehicle, the
benefits under the policy in force on the date of the transfer
shall automatically accrue to the new owner. If transferee is
not entitled to the benefit of the bonus or subjected to malus
already shown on the policy, the recovery of the difference
between his entitlement if any, and that shown on the policy
shall be waived till the expiry of the policy. However, on
expiry and/or termination of existing policy, the transferee
will be eligible for Bonus or will be subjected to Malus as per
his own entitlement.
If the transferee wants to change the policy in his name, it
may be done on getting acceptable evidence of sale and fresh
proposal form duly filled and signed. If a new Certificate of
Insurance in the Transferee's name is required, the old
Certificate of Insurance must be surrendered and a fee
ofRs.20/ -must be collected. If the old Certificate of Insurance
is not surrendered, a proper declaration must be taken from.
the transferee before a new Certificate of Insurance is issued.
2) Cancellation of Insurance - A policy can be cancelled
only after ensuring that the vehicle is insured elsewhere and
the original Certificate of Insurance is surrendered. If a claim
is made or reported, no refund of premium should allowed. A
pro-rata refund subject to minimum premium being retained,
can be made if the vehicle has been insured continuously for
at least 12 months preceding the date of cancellation under a
policy in the name of the policy holder. If the policy has been
in force for less than a year, the refund should be on short
period basis subject to minimum premium being retained.
(60)
The Insurer should inform the R.T.O. by registered
A.D. post about the cancellations of the insurance.
3) Double insurance – In case of double insurance the
insurers or insured may cancel one of the policies. In that case
refund should be granted on pro-rata basis and not on short
period basis for the period both the policies are in force
concurrently.

Q. Write notes on:


a) The cover note
b) Cancellation of Certificate of Insurance
c) Lost, Destroyed or Mutilated Certificates
Ans. a) The cover note - The cover note is issued pending
issuance of a policy. It is valid for 15 days. If due to any
reason, the Insurer is not able to issue a policy during that
period, the validity of the Cover Note shall be extended for
further period of 15 days, at a time, but in no case the total
period of validity of the Cover Note shall exceed two months.
Where a Cover Note is not followed by Policy of Insurance
within the prescribed time limit, the Insurer is required, within
seven days of the expiry of the period of the validity of the
Cover Note, to notify the fact to the Registering Authority in
whose records the vehicle to which the Cover Note relates has
been registered.
The cover note is issued only in the form prescribed by
the Tariff.
b) Cancellation of Certificate of Insurance – Tariff provides
the following in this regard:
a) Whether any alteration is made in the policy affecting the
information shown on the Certificate of Insurance, the
Certificate of Insurance must be returned to the Insurance
Company by the Insured for cancellation, and a new
Certificate must be issued.
b) Whenever the period of cover made under a Policy is
terminated or suspended before its expiration by effluxion of
time, the Insured should be advised by registered mail that he
(61)
must return the Certificate of Insurance within seven days, or
if the Certificate is lost or destroyed, he should make a
declaration to that effect.
c) Whenever a Policy is cancelled or suspended by the
Insurer, the Insurer should, within seven days, notify such
cancellation or suspension to the registering authority
concerned.
c) Lost, Destroyed or Mutilated Certificates - In the event
of a Certificate of Insurance (or Cover Note) is lost,
destroyed, torn, soiled, defaced or mutilated, a fresh
Certificate may be issued on the representation of the
Insured. The insured is required to comply with the
following:
a) to lodge with the Insurer a declaration in which he should
set out also the particulars of the circumstances connected
with the loss or destruction and the effort§ made to find it; or
b) to return to the insurer the Certificate in such defaced or
mutilated condition, and
c) to pay to the Insurer a fee of Rs. 50/- for each new
Certificate of insurance that he may issue after being satisfied
about fact of its loss, destruction or mutilation. The new
Certificate shall be plainly endorse to the effect that it is a
duplicate, issued to replace the original.
When a fresh Certificate is issued on the representation
that a Certificate has been lost, and if the original Certificate is
later found by the holder, it shall be forthwith delivered to the
Insurer.

Q. a) What is bonus/malus and what are the rules


provided under Motor Tariff regarding application of
bonus/malus to Policy renewals?
b) What procedure is adopted for charging premium if the
insured is unable to produce evidence of Bonus/Malus?
Ans.(a) Bonus/Malus - 'Bonus' is a reward which allows
discount in renewal premium for claim-free experience.
'Malus' is a form of loading on the renewal premium for
adverse claims experience.
(62)
Rules regarding application of bonus/malus - Following are
the rules provided under the Motor Tariff regarding
application of bonus/malus:
a) The bonus/malus concept is applicable only to the OD
section of 'B' policies except Road Transit and Motor Trade
Policies and Policies which cover only fire and theft risks.
b) The discounts/ loading shall follow the fortunes of the
original insured and not the Policy and in the event of transfer
of interest in the policy from one insured to another the period
of qualification for discount or application of loading, so far as
it affects the new insured shall commence afresh with effect
from the date of renewal only;
c) In the event of the insured transferring his insurance from
one insurance company to another, the new company shall be
entitled to allow him the same rate of discount which he
would have received from the previous company or must
charge the same loading which would have been charged by
the previous company on the basis of evidence in the form of a
renewal notice or letter;
d) No Claim Discount will be allowed, provided a fresh
Policy is obtained within 90 days of the expiry of the previous
Policy.
e) When an insured vehicle is sold and not followed by the
replacement of a new vehicle and the insured is not able to get
the renewal effected immediately, the already earned No
Claim Discount may be granted on a subsequent insurance,
provided such new insurance is effected within 3 years of the
date of expiry of previous insurance;
f) In the event of an accident for which the insured is wholly
free from blame coming within the scope of a Knock-for-
Knock Agreement, the insurance company has the discretion
to treat it as if no claim has been made.
g) Bonus/Malus Clause – Following shall be the Table of
Discount or Loading as applicable:
(63)

Loading/Discount % Loading/discount on O.D. Premium to be


Position on O.D. applied at Renewal
Premium at
Expiry of Policy
If claim is made during If no claim is made
expiring policy year During expiring
policy year

PRIVATE CARS and TAXIS


with 50% loading continue50%loading charge 30% loading
with 30% loading charge 50% loading charge 10% loading
with 10% loading charge 30% loading No loading/No disc.
No loading/ Disc. charge 10% loading allow 20% discount
with 20% Disc. No loading/No Disc. allow 35% discount
With 35% Disc. reduce Disc.to 20% allow 50% discount
with 50% Disc. reduce Disc.to 35% allow 65% discount
with 65% Disc. reduce Disc.to 50% allow 65% discount
MOTOR CYCLE/SCOOTER & COMMERCIAL VEHICLES
with 40% loading continue 40% loading charge 30% loading
with 30% loading charge 40% loading charge 25% loading
with 25% loading charge 30% loading charge 15% loading
with 15% loading charge 25% loading No loading/No disc.
No loading/ Disc. charge 15% loading allow 20% discount
with 20% Disc. No loading/No Disc. allow 30% discount
With 30% Disc. reduce Disc.to 20% allow 35% discount
with 35% Disc. reduce Disc.to 30% allow 45% discount
with 45% Disc reduce Disc.to 35% allow 55% discount
with 55% loading reduce Disc.to 45% allow 55% discount

(b) When a Vehicle is brought for insurance if the insured is


unable to produce evidence of Bonus/Malus, following
procedure is to be adopted.
1) If the inspection of Registration book reveals that the
insured has owned the vehicle for a period of 30 days or less
only no malus is to be charged; a declaration is to be obtained
from the insured that he did not own a vehicle earlier.
(64)

2) It the inspection of Registration Book reveals


i) Owning the vehicle for 12 months or less - Malus as per
first slab i.e. – i) Pvt. Car & Taxies 10%, loading ii) Motor
Cycle & CommercialVehicle15% loading.
ii) Owning the vehicle for over 12 months - Malus as per
second slab i.e. – i) Pvt. Car and Taxies 30% loading ii)
Motor Cycle & Commercial Vehicle25% loading.
If adequate proof is produced before the expiry of the
policy suitable adjustment in premium may be made.

Q. What are the conditions for Concession for Vehicles


Laid Up and in what forms such connections may be
available?
Ans. Conditions for Concession for Vehicles Laid Up -
Concession for Vehicles Laid Up is available on a vehicle
which is laid up in garage and not in use for a period of two
consecutive months or more. This Concession is available if
following conditions are satisfied:
i) the vehicle is not undergoing repairs as a result of an
event giving rise to a claim under the policy;
ii) previous notice in writing has been given to the
Company;
iii) the Certificate of Insurance has been returned to the
Company.
iv) the period of suspension shall not extend beyond 12
months from the original expiry date of the policy.
Concession for Vehicles Laid Up apply to all classes of
vehicles except Trailers and Vehicles used for hire or reward
or for Motor Trade purpose, except when the permits for
vehicles are temporarily withheld or suspended by
government.
Form of Concession – The concession may be available in
the following form:
(1) In case of suspension of whole cover under the policy -
a) The liability of the insurance Company may be suspended
(65)
suspended and a pro-rata return of premium for the period
during which the policy is suspended may be credited to the
insured after charging a sum of Rs. 5 for this concession. The
return of premium. is allowed only as a credit to be deducted
from the next renewal premium and not as a cash refund; or
b) The expiry date of the current period of insurance under
the policy may be extended for a period equal to the period of
suspension on payment of a sum of Rs. 5 for this concession.
(2) In case of restriction of cover under the policy - Under 'B'
Policy the liability of the company may be restricted for loss /
damage by Fire and Theft only, and in consideration of the
reduced risk,
a) a pro-rata return of premium for such period may be
allowed after charging premium for the period of such
restriction at the rate of 15 paise per cent on IEV per month or
part thereof, and subject to a minimum premium of Rs. 30/-.
The return of premium may be allowed only as a credit
deductible from the next renewal premium, and not as a cash
refund; or
b) the expiry date of the current period of insurance may be
extended for a period equal to the laid up period on payment
of premium at the rate of 6 paise per cent on IEV per month
or part thereof, during which the cover has been so restricted
to Fire and Theft risks, subject to a minimum premium of Rs.
15/-.

Q. Discuss the Tariff Provisions regarding:


a) Policy on vehicles subject to hire purchase agreements
b) Minimum Premium
c) Addition of benefits during currency of policy
d) Inclusion of riot, strike, earthquake, flood perils during
the currency of the policy.
Ans. a) Policy on vehicles subject to hire purchase
agreements – It is not allowed to insure vehicle in a name
other than that in which the vehicle is registered. In case
vehicles subject to hire purchase agreements it is not permi -
(66)
- ssible to issue policies in the joint names of the Hirer and
Owner. Policies must be issued in the name of the Hirer and
the Owner's interest is protected by an endorsement
incorporated in the policy. This endorsement recognises the
interest of the owners in the motor vehicle insured and
provides that payment in respect of loss or damage to the
motor vehicle (which loss or damage is not made good by
repair or replacement) shall be made to Owners as long as
they are the Owners of the motor vehicle. The Owner's receipt
will be a full and final discharge to the insurers in respect of
such loss or damage.
b) Minimum Premium - Minimum premium is Rs. 100/- per
vehicle except "Act Only" premium for Motor
Cycles/Scooters/Auto Cycles. Minimum premium for vehicles
specially designed for handicapped persons will be Rs.
151only.
c) Addition of benefits during currency of policy -Any extra
benefits may be added and limitation cancelled once only
during the currency of an annual policy up to expiry date on a
pro rata basis subject to the minimum premium applicable.
When an extra benefit has been so added or limitation so
cancelled, no return of additional payment by the insured may
subsequently be allowed.
d) Inclusion of riot, strike, earthquake, flood perils during
the currency of the policy – At he inception of the policy the
insured can opt for exclusion of riot, strike, earthquake, flood
perils. If the insured exercises the option of excluding these
covers from the policy, it is not permissible to include these
perils during the currency of the policy.

Q. Discuss the Tariff Provisions for granting Personal


Accident Cover under Motor Policies.
Ans. Personal Accident cover for limited duration my be
granted under Motor Policies. This cover shall be operative
whilst the insured person is connected with the use
of the vehicle including mounting into, dismounting from or
(67)
travelling in the vehicle in any capacity. Any Personal
Accident insurance for 24 hours duration can not be given
under Motor Policy.

The benefits of the P.A. cover are as under:

Description of Benefits Benefits: % of


Capital Sum
Insured
i) Death only 100%
ii) Loss of two limbs or sight of two eyes
or loss of one limb and sight one eye. 100%
iii) Loss of one limb or sight of one eye. 50%
iv) Permanent Total Disablement from
injuries other than named above. 100%

Sum Insured and Premium - Maximum cover is limited to


Capital Sum Insured of Rs. 2 lakhs per person.
Premium per year per person for Capital Sum Insured of
Rs. 10,000/- is as under :-
For Private Cars ... Rs. 5.00
For Motor Cycles/ Scooters ... Rs. 7.50
For Commercial Vehicles ... Rs. 6.00
If the policy is for named persons, the premium
mentioned above should be charged for each person.
If the policy is desired for unnamed persons the cover
should be taken –
i) in case of private car or taxi for the number of persons the
vehicle is authorised to carry (including the driver);
ii) in case of motor cycle/ scooter without side car for
minimum two persons the vehicle is authorised to carry.

Q. Write short notes on:


a) Endorsement No. 71 - Personal Accident Cover for
Drivers (other than paid driver)
(68)
b) Policies issued to cover foreign made vehicles of
Embassies, High Commissions or Consulates in India
c) Vehicles specially designed for use of handicapped
persons
d) Motor Vehicles solely within the insured’s premises.

Ans. a) Endorsement No. 71 - Personal Accident Cover for


Drivers (other than paid driver) - Endorsement No. 71
provides for Personal Accident Cover for Drivers against
death or bodily injury in a motor accident for Capital Sum
Insured of Rs. 20,000/. This benefit is included as extension to
standard cover without charging any additional premium. This
extension is available to any driver including insured when
driving himself. However paid driver who is otherwise
covered under Workmen's Compensation Act, 1923 as per the
requirements of M,V. Act is not be covered under this
extension.
b) Policies issued to cover foreign made vehicles of
Embassies, High Commissions or Consulates in India – In
case of Motor Policies issued to cover foreign made vehicles
of Embassies, High Commissions or Consulates in India,
when the duty element is not included in the Insured's
Estimate of Value (IEV), the premium chargeable on Own
Damage cover is to be loaded by 15%.
c) Vehicles specially designed for use of handicapped
persons - While charging the premium on private vehicles,
including two/three wheelers specially designed for the use of
handicapped persons a discount of 33 1/3% shall be allowed.
This benefit is also extended to vehicles owned and used by
institutions engaged in services of blind handicapped and
mentally retarded persons.
d) Motor Vehicles solely within the insured’s premises -
Motor policies may be issued for the vehicles which are used
solely within the insured’s premises (not being a motor trader)
or on sites to which the public have no general right of access.
These vehicles should not be licensed for general road use.
(69)
The usual tariff rates less a reduction of 33.3% are charged as
premium for this class of vehicles.

Q. What are the rules for issue of Non-Motor Policies?


Ans. It is not permitted to insure Liability risks under the
Motor Vehicles Act in Non-Motor Policies. It is however
permissible to give other cover as follows:
(1) Vehicles not licensed for general road use - Non-Motor
Policies may be issued for vehicles which are not licensed for
road use and for which no Certificate of Insurance is required,
provided:
i) such vehicles are used only on the premises of the
insured (not being a Motor Trader) or on sites to which
the public has no general right of access.
ii) Vehicles (not being pedestrian controlled agricultural
implements) used for agricultural or forestry purposes are
excluded.
iii) Vehicles used by haulage contractors are excluded.
(2) Vehicles which otherwise provided for under the
Special Types Tariff - It is permissible in the case of
following types of vehicle to give any other cover (except
cover for legal liability in respect of use on a road) by means
of a Non-Motor Policy :
a) Mobile Cranes.
b) Mechanical Navies, Shovels, Grabs and Excavators.
c) Mobile Plant
d) Site Cleaning and Leveling Plant ( other than vehicles
designed or adapted for the carriage of goods or materials or
Road or Footpath Rollers).
e) Any vehicle which is used only on sites on which the
insured is carrying out work under a Building or Civil
Engineering Contract.
f) Fork-Lift Trucks.
(3) Contractors and Builders - Non-Motor Policies may be
issued to Contractors and Builders performing civil
Engineering or construction work, provided that
(70)
i) such policy is issued only for the period of one specific
contract;
ii) the vehicles are those used in, on or about the site clearing,
engineering or construction work to which the contract relates;
iii) any vehicle qualifying for a private car licence is excluded;
iv) any goods carrying vehicle used under a private or public
carrier permit issued in accordance with the Motor Vehicles
Act, is excluded.

PRIVATE CAR TARIFF


Q. Discuss the factors for rating private cars on a
comprehensive basis.

Ans. Factors for rating private cars - Following are the


factors for rating private cars on a comprehensive basis :
i) Cubic capacity of the vehicle – for this purpose Private cars
are grouped under two groups viz., cubic capacity not
exceeding 1500 cc, and exceeding 1500cc
ii) Value of the vehicle
iii) The Zone of operation - There are two Zones of operation,
Zone A and Zone B. Zone A consists of Madras Region and
Bombay excluding "Bombay". Zone B consists of Rest of
India, i.e. Calcutta Region, Delhi Region and "Bombay".
Following is the extract of Schedule of premium for own
damage section:
Insured's Cubic Capacity
Estimate of Not Exceeding Exceeding
Value (IEV) 1500 c.c. 1500 c.c.
Zone A Zone B Zone A Zone B
Rs. Rs. Rs. Rs. Rs.
15,000 561 792 - -
20,000 680 955 - -
30,000 916 1,279 966 1,238
40,000 1,153 1,604 1,202 1,686
50,000 1,389 1,928 1,439 2,011
(71)
N o t e s : i) Intermediate values and values in excess of those
shown in the schedule above shall be charged at Rs. 2.37% for
Zone A and Rs. 3.25% for Zone B calculated on the difference
to the nearest rupee.
ii) Electrical and/or electronic items fitted to private cars
should be insured separately under a 'B' Policy at a premium
of Rs. 3.40% on the value of such fittings, which should be
obtained separately for each item.

Q. Name the discounts granted under Private Car


Comprehensive Policies. Explain any three of them.
Ans. Discounts on the premium for the following are granted
under Private Car Comprehensive Policies:
i) Exclusion of fire risk;
ii) exclusion of theft risks;
iii) excess accidental damage or IBFP (insured bearing first
portion);
iv) membership of an automobile association;
v) no claim discount
vi) exclusion of earthquake and/or flood and/or riot perils.
1) Discount for Excess Accident Damage
Excess Accident Damage Discount
Insured bearing first Rs. 500 5% but not exceeding Rs. 125
Insured bearing first Rs. 1000 10% but not exceeding Rs. 250
Insured bearing first Rs. 1500 15% but not exceeding Rs. 375
Insured bearing first Rs. 2500 20% but not exceeding Rs. 625
Insured bearing first Rs. 5000 25% but not exceeding Rs.1250
Insured bearing first Rs. 7500 30% but not exceeding Rs.1800
Insured bearing first Rs.10000 35% but not exceeding Rs.2500
2) Discount for exclusion of earthquake and/or flood
and/or riot perils
Discount For Perils excluded
0.10% on IEV of car Earthquake (Fire and Shock damage),
0.15% on IEV of car Flood, typhoon, Hurricane, Storm,
Tempest, Inundation, Cyclone,
Hailstorm and Frost.
0.15% on IEV of car Riot & Strike and Terrorist Activity.
(72)
3) Discount for membership of a recognised Automobile
Association - A discount of 5% subject to maximum of Rs.
100/- per car may be allowed from the Own damage or
liability premium (whichever is more favourable to the
insured). Following are the conditions for this discount:
1) The discount can be allowed only in respect of membership
of one Association.
2) The insured shall produce membership card issued by the
Automobile Association or a reference shall be made to the
secretary of the Association concerned. This procedure must
be followed at the time of renewal also.
3) The discount is applicable only to individual owners or
joint owners of private cars and not to firms. The discount
may be given on policies subject to Hire Purchase or Leasing
Agreement, provided the insured is otherwise eligible for
discount.
4) The discount applies to both new business and renewals.
In the event of the insured becoming a member during the
currency of the policy, discount may be allowed pro-rata.

Q. a) Name five Extra benefits under private car


comprehensive policies.
b) Discuss any Three extra benefits available on payment
of extra premium, under the above Policy.
Ans. Five Extra benefits under private car comprehensive
policies:
i) Legal Liability to employees of the insured who may be
travelling or driving the employer’s car (other than paid
drivers).
ii) Personal Accident benefits to the insured and others.
iii) Additional cover to the luggage trailer.
iv) Cover for use of cars for reliability trials and rallies.
v) Cover for Extra fittings
b) Three extra benefits available on payment of extra
premium, under the above Policy-
(1) Reliability Trails and Rallies held in India - Policies may
(73)
be extended to permit use during a particular reliability trail or
rally under the auspices of any recognised motoring
organisation on payment of following additional premium:
"B" Policies - Rs. 50 for the first day and Rs. 25 for each
succeeding day. The cover is subject to an excess of Rs. 500
for each and every claim under Section I of the Policy.
"A" Policies - Rs. 20 for the first day. Rs. 10 for each
succeeding day.
(2) Increased Third Party Property Damage under Section
II-1(ii) of the Policy - The Motor Vehicles Act, 1988 provides
for minimum Rs. 6000 cover for Third party Property
Damage. It is possible to obtain higher limits of T.P.P.D.
cover at following additional premium:
First increase of Rs. 44000 (i.e. for total cover of Rs. 50000)
- Rs. 15 per vehicle.
For each additional Rs. 50000 - Rs. 10 per slab of Rs. 50000
per vehicle.
For unlimited liability - Rs. 50 total premium per vehicle.
3) Cover for Extra Fittings – Extra Fittings are to be covered
separately. Separate values are to be given for items intended
to be covered. Premium is charged @ 3.40% on the value.
Exclusion as to Mechanical or Electrical Breakdown is
applicable to extra fittings also.

MOTOR CYCLES / MOTOR SCOOTERS TARIFF

Q. What are the factors to be taken into account for rating


for Policy 'B' cover for Motor Cycle/Scooters?
Ans. Following Factors are to be taken into account for rating
for Policy 'B' cover for Motor Cycle/Scooters:
(a) Cubic Capacity, (b) IEV. and (c) Whether side car attached
or not.
Cubic Capacity and IEV – Following Rating Schedule is
applied:
(a) For Motor Cycles and Scooters other than Auto Cycle or
mechanically assisted Pedal Cycles:
(74)
Cubic Capacity Own Damage
Uptol50c.c. Rs. 88/- plus 1.10% on IEV
Upto250c.c. Rs. 110/- plus 1.10% on IEV
Over 250 c.c. Rs. 132/- plus 1. 10% on IEV

In applying the scale of rates, Motor Cycles / Motor


Scooters exceeding any of the stated cubic capacities are to be
rated according to the next higher capacity.
(b) For Auto Cycles or Mechanically Assisted Pedal Cycles -
Own Damage - Rs. 30/- plus 0.40% on IEV
Minimum values for computation of premium shall be as
under, irrespective of any lower value proposed for insurance:
Upto 150 c.c. Rs. 3,000/-
Upto 250 c.c. Rs. 4 , 000/_
Over 250 c.c. Rs. 5,000/-

Side car - The insured value of any side car is to be stated


separately. A 25% reduction may be allowed where the cover
excludes use of a Motor Cycle / Motor Scooter without a side-
car attached.
Discounts for deletion of named perils – Following discounts
may be allowed from Own Damage Premium:
i) 0.10% on IEV if Earthquake, etc. perils excluded.
ii) 0. 15% on IEV if Flood, etc. perils excluded. iii) 0. 15% on
IEV if Riot, Strike etc. perils excluded.

Q. Enumerate the extra benefits available under motor


Cycle Comprehensive Policies.
Ans. Extra Benefits under motor Cycle Comprehensive
Policies:
(1) Loss of Accessories – The policy does not cover Loss of
Accessories by Theft. This may be covered at an additional
premium of 3% on the value of such accessories, with a
minimum premium of Rs. 15 subject to a compulsory excess
of Rs. 50/-
(75)
(2) Legal Liability to persons employed in connection with
the operation and / or maintenance - Legal Liability to
persons employed in connection with the operation and / or
maintenance of the Motor Cycle under the Workmen's
Compensation Act, 1923, Fatal Accidents Act, 1855 and at
Common Law may be covered at the extra premium of Rs. 15
per person.
(3) Liability to Employees of the Insured - Legal Liability
to Employees of the Insured, who may be driving/riding the
Employer's Motor Cycle may be covered at the extra
premium of Rs.50/-.
(4) Reliability Trials and Rallies - Policies may be extended
to permit use during particular reliability trial or rally under
the auspices of a recognised motoring organisation on
payment of specific additional premiums. ( For the scope of
this extension please refer the description in the Private Car
Tariff).

(5) Increased Third Party Property Damage – The policy


may be extended for Increased Third Party Property Damage.
(Additional premium shall be as described in Private Car
Tariff)

Q. What are discounts available under Motor Cycle


Policy?
Ans. Discounts available under Motor Cycle Policy:
(1) Excess Accidental Damage :
i) Insured bearing first Rs. 100/ - 10% Discount but not
exceeding Rs. 25/
ii) Insured bearing first Rs. 200/- 15% but not exceeding Rs.
50/
(2) No Claim Bonus
(3) Discount for Membership of an Automobile
Association - Discount for Membership of an Automobile
Association is 5% subject to a maximum of Rs. 30/- per motor
cycle. Same rules apply as in Private Car Tariff.
(76)
Commercial Vehicles Tariff
Q. (a) Name the extra benefits available under
Commercial Vehicle Comprehensive Policies.
(b) Describe the scope of cover under extra benefit for
Legal liability for accidents to non-fare paying passengers.
Ans.(a) Following are the extra benefits available under
Commercial Vehicle Comprehensive Policies:
i) Legal Liabilities to employees of the insured.
ii) Personal Accident benefits to the insured and others.
iii) Legal Liability for accidents to passengers (fare paying).
iv) Legal Liability to non-fare paying passengers.
v) Increased Third Party Property Damage
vi) Liability for damage to property caused by spark risk in
connection with steam driven vehicles.
vii) Cover for extra fittings
b) Legal liability for accidents to non-fare paying
passengers-
Commercial Vehicles Policies may be extended to cover Legal
Liability to non-fare paying passengers..
There are two types of non-fare paying passengers:
i) Non-fare Paying Passengers who are employees of the
Insured but not "Workmen" ;under the Workmen's
Compensation Act- Following additional premium is payable:
a) Vehicles not designed for carriage of passengers, e.g.
Goods Carrying Vehicles - Rs.50/- per passenger.
b) Vehicles designed for carriage of passengers e.g. Bus -
Rs.110/- per Passenger.
ii) any other non-fare paying passengers - Legal Liability for
accidents to Non-fare Paying Passengers, who are not
employees of the Insured carried in a Goods Carrying
Vehicles may be covered at additional premium of Rs.50/-
per passenger.

Q. Describe the Scale of Discount for Excess Accidental


Damage for Commercial Vehicles.
(77)
Ans. Scale of Discount for Excess Accidental Damage for
Commercial Vehicles
Excess Discount
Insured bearing 1st Rs. 1000 5% but not exceeding Rs.250
Insured bearing 1st Rs. 2500 10% but not exceeding Rs.625
Insured bearing 1st Rs. 5000 15% but not exceeding Rs. 1250
Insured bearing 1st Rs. 7500 20% but not exceeding Rs. 1875
Insured bearing 1st Rs.10000 25% but not exceeding Rs.2500

Q. Write a short note on IMT 74


Ans. IMT 74 – Commercial Vehicle Policy with Endorsement
No 26 provides that except in the case of total loss of the
vehicle, the Insurer shall not be liable under Section I of the
Policy (i.e. Own-Damage Section) for loss of or damage to
lamps, tyres, mudguards and/or bonnet side parts, bumpers
and/or paintwork. Majority of Exclusion under IMT 26 can be
deleted by paying an additional premium attaching
endorsement, IMT 74 which cover losses (excluding theft
under any circumstances) of items like tyres, mudguards,
headlights and painting of damage portion under commercial
Vehicle 'B' Policy.

Q. What is the basis of rating for charging Premium for


Own Damage Cover under various Commercial Vehicles?
Ans. Premium for Own Damage Cover under various
Commercial Vehicles –
(1) Goods Carrying Vehicles - The Rate is based on Gross
Vehicle Weight, which means the total weight of the Vehicle
and Load certified by the registering authority as permissible
for that vehicle. Based on GVW, the specified amount of
premium plus a percentage surcharge on the IEV is charged. A
discount of 30% may be allowed to Own Damage Premium
for vehicles which are used for carrying "own goods" only.
(2) Vehicles Carrying Passengers for Hire or Reward –
i) Taxis with carrying capacity upto 6 Passengers - The Rate
is based on Cubic Capacity upto 1500 c.c. and exceeding 1500
c.c.
(78)
ii) Three Wheelers with carrying capacity upto 6 Passengers
- The Rate is based on Cubic Capacity ( different capacities
given under Tariff).
iii) Other Vehicles with carrying capacity exceeding 6
Passengers – The rates are based on Licensed Passenger
Carrying Capacity and
(3) Trailers – The rate varies according to the class of
vehicle that will tow the trailer and the number of trailers
towed.
(4) Miscellaneous and special Types of Vehicles – The rates
vary according to type of vehicle.

Q. How the Trailers can be insured under Motor Policies?


Ans. A trailer is any truck, cart, carriage or other vehicle
without means of self- propulsion including agricultural
implements drawn or hauled by any self-propelled vehicle.
Trailers can be covered under Motor Policies in the following
ways:
i) Policy Covering the Vehicle which will tow the trailer may
be extended to cover the Trailer(s) or
ii) A separate policy is issued to cover trailer(s) at the
prescribed rates, subject to the Trailer and the Towing Vehicle
being insured on identical terms with the same Company.
For the purpose of Bonus / Malus. Clause, the towing
vehicle(s) and the trailer(s) whilst attached thereto shall be
treated as a single unit and claim made or arising in respect of
one section of the unit will affect the Bonus / Malus
entitlement of both sections of the unit.
The premium is calculated at the rate applicable to the
highest rated class of vehicle that will tow the trailer(s) at any
time. The rating Schedule - both of own damage and Third
Party Liability gives premium when (a) towed by vehicle rated
under agricultural Forestry class and (b) Others. Also the
premium varies according to whether one trailer is towed or
two, or three right upto eight trailers
Where more than one trailer is owned but not more than
one trailer is towed at a time, the basis of rating of such trailer
(79)
is the basis of “towing one trailer only" and this must be
applied to all trailers. The premium so calculated must be
charged on all trailers owned by and / or in the possession of
the insured. The same principle shall be applied in cases
where not more than two trailers are towed at a time.
The following clause must appear on all policies covering
either the towing vehicle or the trailers
"Warranted that not more than …… trailers shall be towed by
the towing vehicle and further warranted that the Company
shall not be liable to indemnify the insured in connection with
any vehicle or trailer while a greater number of trailers in all is
being towed than is permitted by law."

Q. What are the Tariff provisions regarding premium for


Motor Trade Internal Risks Policy.
Ans. For Motor Trade Internal Risks insurance the rates of
premium are based on
(a) Superficial area of premises occupied by the insured for
Motor trade business
(b) Wages paid to employees
The first and all renewable premiums are regulated partly
on wages, salaries etc. paid by the insured to employees
during the period of insurance. The insured has to maintain the
record of employees and the insurers have the right to inspect
such records.
(80)

CHAPTER 7
DOCUMENTS
OF
MOTOR INSURANCE
Q. Discuss the importance of various documents used for
Motor Insurance.
Ans. Various documents used for Motor Insurance with their
use and importance are enumerated as under:
(i) Proposal Form -The Proposal Form is compulsory in
Motor Insurance. The information/particulars given by the
insured in the Proposal Form, form the basis for the insurance
contract. The Declaration Clause in the form converts the
common law duty into a contractual duty of utmost good faith.
The effect of this is that the answers given in the proposal
become warranties.
(ii) Cover Note - Cover Note is issued pending issuance of
policy. It is unstamped document The cover note is to be
issued in the prescribed form and it is valid for a period of 15
days and can be extended upto two months.
(iii) Certificate of Insurance -The Certificate of Insurance is
an evidence that a motor vehicle is insured against third party
liability as required by the Motor Vehicles Act. The
Certificate is to be issued as per the form prescribed in the
Act.
(iv) The Policy - The Policy is a stamped document
evidencing the contract of insurance. It includes the terms and
conditions of the insurance cover.
(v) Various Endorsements- Endorsements are attached to
the policy to incorporate changes in the terms of the Policy. It
may be attached at the time of issuing the policy to provide
additional benefits and cover or to impose restrictions. The
wordings of the Endorsements are provided in the Tariff.
(81)
(vi) Renewal Notice - The Renewal Notice is reminder to the
insured about the expiry of the policy and calling for the
renewal for a further period of one year.
(vii)Renewal Receipt – While renewing the insurance some
insurers issue the Renewal Receipt in place of the Policy. It is
worded to the effect that, in consideration of receipt of the
renewal premium, the Policy is renewed for a further period of
12 months.

Q. What are the questions commonly asked in Motor


Proposal form?
Ans. Proposal Form -The Proposal Form is compulsory in
Motor Insurance. It is designed to elicit information necessary
for a proper evaluation of the risk and for rating. The
information/particulars given by the insured in the Proposal
Form, form the basis for the insurance contract. Following are
the questions commonly asked in Proposal form:
(a) Particulars about the proposer
i) Proposer's name in full. This is required to establish the
identity of the insured and to make enquiry concerning the
moral hazard.
ii) Address-It is necessary for communications and area of
use of the vehicle.
iii) Occupation- It indicates social status of the proposer and
also gives some indication about the extent and purpose the
vehicle is likely to be used.
iv) Physical disability and mental infirmity- Though this
information is relevant from the point of risk involved, it is
difficult to get precise answers as the vehicle may be driven
by persons other than the insured.
v) Previous convictions- This throw light on driving habits.
(b) Details of vehicles to be insured
i) Registration, Engine and Chassis Number and Make of
the vehicle -These give identification of the vehicles and are
required for verification in case of accident.
ii) Year of manufacture -This is necessary to decide the age
(82)
of the vehicle particularly for comprehensive cover.
iii) Type of body, Seating capacity and Cubic capacity-
These are required for Rating.
iv) Date of Purchase – This is required for applying loading
in case of late Registration
v) Insured's estimate of the value of the vehicle- Required
for premium calculation and this is also the Sum Insured in
Motor.
(c) Details of other vehicles – Details of Vehicles owned by
the proposer and details of accidents during the past 3 to 5
years give some idea about the physical and moral hazard.
(d) Details of insurance history-This is to ascertain whether
there were any adverse features, such as declinature,
cancellation or imposition of special terms and conditions by
previous insurers.
(e) Questions relating to extra benefits and eligibility for
discount – Required for additional premium or discount of
premium as the case may be.
(f) Certain other particulars in case of commercial vehicles
– E.g. the type of permit, the total licensed passenger carrying
capacity etc.
(g) Declaration - The answers to the questions are followed
by declaration. The Declaration Clause in the proposal form
converts the common law duty into a contractual duty of
utmost good faith. The effect of this is that the answers given
in the proposal become warranties.

Q. Certain common features appear in all types of Motor


Certificates of Insurance. What are they?
Ans. In Motor Insurance, in addition to the policy, a
Certificate of insurance in the prescribed form is issued as
required by the Motor Vehicles Act. There are certain
common features which appear in all types of motor
certificates of insurance. These are as under:
(a) Certificate number.
(b) Registration mark and number or description of the
(83)
vehicle insured.
(c) Effective date of commencement of insurance for the
purpose of the Act;
(d) Date of expiry of insurance;
(e) Persons or classes of Persons entitled to drive;
(f) Limitations as to use
The above details are followed by a certificate signed by
the Authorised Insurer to the effect that the Policy and the
Certificate of Insurance are issued in accordance with the
provisions of the Chapters X & XI of the Motor Vehicles Act,
1988.
Particulars(a) to (d) are same in all certificates.
Differences in wordings are found in the particulars (e) and
(f).

Q. Describe the wordings appearing in Certificate of


Insurance for Private Car for the following:
(i) Persons or classes of persons entitled to drive
(ii) Limitations as to Use
Ans.
(i) Persons or classes of persons entitled to drive
Any of the following:
(a) The Insured.
(b) Any other person who is driving on the Insured's order or
with his permission -
Provided that the person driving holds or had held and
has not been disqualified from holding an effective driving
license with all the required endorsements thereon as per the
Motor Vehicles Act and the Rules made there under for the
time being in force to drive the category of motor vehicle
insured hereunder.
(ii) Limitations as to Use
Use only for social, domestic and pleasure and for the
Insured's own business.
The Policy does not cover the use for hire or reward or
organised racing, pacemaking, reliability trials, speed testing,
(84)
the carriage of goods (other than samples) in connection with
any trade or business or use for any purpose in connection
with Motor Trade.

Q. Describe the wordings for Limitations as to Use for:


(a) Goods Carrying Vehicle
(b) Passenger Carrying Vehicle
Ans.
(a) Limitations as to Use for Goods Carrying Vehicle - own
goods or general cartage:
Use only for carriage of goods within the meaning of the
Motor Vehicles Act, 1988.
The Policy does not cover
(1) Use for organised racing, pacemaking, reliability trial or
speed testing.
(2) Use whilst drawing a trailer except the towing (other than
for reward) of any one disabled mechanically propelled
vehicle.
(3) Use for carrying passengers in the vehicle except
employees (other than driver) not exceeding six in number
coming under the purview of Workmen's Compensation Act,
1923

(b) Limitation as to Use For Passenger Carrying Vehicle:


Use only for carriage of Passengers in accordance with
the permits (Contract Carriage or Stage Carriage) issued
within the meaning of the Motor Vehicles Act, 1988.
The Policy does not cover -
(1) Use for organised racing, pacemaking, reliability trial or
speed testing.
(2) Use whilst drawing a trailer except the towing (other than
for reward) of any one disabled mechanically propelled
vehicle.

Q. Describe Motor Cover Note.


Ans. Motor Cover Note is a document issued in advance of
(85)
the Certificate and the Policy. It is valid for a period of 15
days from the date of its issue. If for any reason the insurers
are not able to issue a policy during that period, the validity of
the Cover Note may be extended for a further period of 15
days at a time but in no case the total period of validity of a
Cover Note shall exceed two months.
Motor Cover Note is to be issued in the following form
prescribed by the Motor Tariff:
"The Insured described in the Schedule below, having
proposed for insurance in respect of the Motor Vehicle(s)
described therein and having paid the sum of Rs.... as
premium the risk is hereby held covered under the terms of
the Company’s usual form of.... Policy applicable thereto
(subject to any Special Conditions or Restrictions mentioned
overleaf) for the period between the dates specified in the
schedule unless the cover be terminated by the Company by
notice in writing in which case the insurance will thereupon
cease and a proportionate part of the premium otherwise
payable for such insurance will be charged for the time the
Company had been on risk."
The Cover Note further contains the following
particulars:
(1) Registration mark and number, or description of the
Vehicles insured / Cubic capacity / Carrying capacity/Make /
Year of manufacture.
(2) Name and Address of the Insured.
(3) Effective date and time of commencement of insurance for
the purpose of the Act.: Time Date
(4) Date of expiry of insurance.
(5) Persons or classes of persons entitled to drive.
(6) limitations as to Use
(7) Additional Risk if any
(8) Special Conditions
The Motor Cover Note incorporates a certificate to the
effect that it is issued in accordance with the provisions of
Chapters X and XI of the Motor Vehicles Act, 1988.
(86)

CHAPTER 8
MOTOR UNDERWRITING
Q. Discuss the primary factors in underwriting motor
business.
Ans. On the one hand where Motor business forms major part
of insurers insurance business, on the other hand it is
unprofitable also. In view of this it is necessary to adopt a
sound underwriting policy in motor business. The primary
factors in underwriting motor business may be grouped under
the following headings:
(i) The vehicle
(ii) The use of the vehicle
(iii) The geographical area of operation
(iv) The Proposer of the vehicle and
(v) The claims experience.

(i) The Vehicle - The underwriting approach depends on the


type of vehicle. In this regard following are the considerations:
a) The year of manufacture -The age of the vehicle is
important from the underwriting point of view. As a vehicle
becomes older, defects appear more frequently and metal
fatigue sets in. Old vehicles are normally inspected before
underwriting and subject to their condition, they are accepted
for insurance with or without excess and/or for restricted
cover.
b) The purchase price or the insured's estimated value -
Since there is no pro rata condition of average in motor policy,
careful attention has to be paid to the insured's estimated value
in relation to age of the vehicle. This is essential to avoid
dispute in the event of Total Loss.
c) Imported cars -Greater care is to be exercised in
underwriting imported cars and sports cars.
(ii) Use of the vehicle – Following are the considerations:
(87)
a) The purpose for which the vehicle is used – This has link
with exposure of risk. This aspect is taken care of in the rating
system adopted by the tariff. Private cars poses a lighter risk
than taxis which are subject to much greater utilisation.
Similarly private carriers are better risks than public carriers
as the latter are exposed to a greater incidence of accidents
and wear and tear.
b) Goods carried in case of goods carrying vehicles - The
general nature of the goods carried in respect of a goods
vehicle is also an important aspect for underwriting purposes,
especially if they are flammable or likely to explode.
(iii) Area of operation- The exposure to risk depends upon
the area in which the vehicle is used. This is a physical hazard.
In the rating system for private cars the tariff and has taken
care of this aspect wherein the rates differ according to the
zones in which the car is used. (Zone A and Zone B)
(iv) Proposer of the vehicle – These consideration are to take
care of Moral Hazard. In comparison to physical hazards like
the physical condition of the vehicle or the use to which it is
put or the area in which it is used the proposer/owner of the
motor vehicle is more responsible for bad claims experience.
While considering the acceptance of new proposals, it may not
be easy to ascertain all aspects of moral hazards. But the
owner's behaviour and attitude during the currency of the
policy and when a claim arises will be indicative of the moral
hazard. This aspect will have to be borne in mind at the time
of renewal.
(v) The Claims Experience – The claims experience for last
three to five years gives a good clue regarding the proposal.
Hence the information regarding the claims experience of the
proposer is asked in the proposal form separately for 'own
damage' claims and third party claims. A single or a series of
major claims need not be a matter of concern but a series of
minor accidents over a period of time is definitely an
unsatisfactory experience. Such proposals should be accepted
with great care and preferably an excess should be imposed.
(88)
Q. The Driver of the Vehicle is an important underwriting
consideration in Motor Insurance. Discuss.
Ans. This consideration is to take care of Moral or Personal
Hazard. In comparison to physical hazards like the physical
condition of the vehicle or the use to which it is put or the area
in which it is used the driver of the motor vehicle is more
responsible for bad claims experience. The physical hazards
are taken care of in the rating system but the personal hazard
of the driver can not be taken care of in the rating system. It is
essentially the driver who is responsible for good or bad
claims experience in motor insurance. By careful driving and
by taking a pride in his vehicle, an insured can substantially
reduce loss possibilities. On the other hand, neglect and
carelessness are two factors which are responsible for bad
claims experience.
The hazard arising from the driver can be assessed from
the point of view of' his age, physical condition, driving
experience and occupation. Age has a material bearing on the
risk. The young driver presents an unfavorable hazard because
speed has a special attraction for youth. Similarly, an elderly
driver involves an increased physical hazard. Because of
advancing age his faculties are less keen resulting in lower
reactions which may have serious consequences in the event
of an emergency. Physical defects regarding vision, hearing or
loss of limbs add to the exposure of risk. Common defects of
vision which can be corrected by glasses or contact tens are
ignored. The loss of sight in one eye is much more serious as
it impairs the field of vision and judgement of distances.
Deafness which can be overcome by the use of hearing aids is
ignored by the underwriter. Loss of limbs introduces
considerable hazards.
The driving experience may indicate accident-proneness.
Many accidents occur with new drivers because of their
limited driving experience where as the experienced driver
who is reckless take risks in over confidence.
The proposal form can not indicate the temperament of
(89)
an individual or his driving habits. This can be ascertained
from the claims experience and history of conviction for
traffic offences. Minor conviction for speeding or parking may
be ignored but a number of such convictions may indicate
both recklessness and indifference to the law on the part of the
proposer. in such cases, comprehensive cover may not be
granted.
The risk is closely associated with the occupation of the
proposer. Person engaged in the entertainment professions
represent a hazardous class of risk as they use their cars for
long and hurried journeys.
While considering the acceptance of new proposals, it
may not be easy to ascertain all the above aspects of moral
hazards. But the owner's behaviour and attitude during the
currency of the policy and when a claim arises may be good
indication which can be borne in mind at the time of renewal.

Q. Discuss the problems of motor insurance underwriting


of the following :
(a) Older vehicles (b) Imported cars.
(c) Cars imported by foreign embassies
(d) Sports Cars.
Ans. (a) Older vehicles – The age of the vehicle is important
from the underwriting point of view. Older vehicles are not
generally maintained properly. As a vehicle becomes older,
defects appear more frequently and metal fatigue sets in. The
claims experience of insurers in respect of older vehicles is not
satisfactory.
Since T.P. Insurance is compulsory under Motor Vehicles
Act, the insurers can not totally avoid covering the older
vehicles. Hence they may offer restricted cover or imposition
of excess. But the proposers (owners) are not satisfied with the
offer of the insurers for restricted cover. Hence, another
problem faced by the insurers is to convince the proposer. Still
while granting cover for older vehicles insurers prefer to
pre- insurance inspection and acceptance of insurance with
(90)
excess and restricted cover. Even after granting cover for
older vehicles, good underwriting practice on the part of the
insurers requires strict watch on the claims experience so as to
decide the acceptance of such older vehicles for renewal of
cover. The underwriting guidelines adopted in regard to the
insurance of old vehicles differ from insurer to insurer.
Another problem is in regard to the acceptance of the
insured's estimated value declared by the proposer. Since there
is no pro rata condition of average in motor policy, careful
attention has to be paid to the insured's estimated value in
relation to age of the vehicle. This is also essential to avoid
dispute in the event of Total Loss.
(b) Imported cars - Motor insurance underwriting of the
imported cars poses several problems to insurers. Imported
cars present problems to insurers both at the time of
acceptance of business and also at he time of loss
There is the problem of obtaining spare parts. The cost
of repairs of an imported car is also high because of the cost of
the materials and intricate design which requires more time
spent on dismantling or assembling. Valuation of imported
cars at the time of insurance would also pose a problem.
The policy covering such cars is invariably subject to the
Endorsement to the effect that in the event of loss or damage
necessitating the supply of a part not obtainable from stocks
held in the country in which the Motor Vehicle is held for
repair, the Company shall pay in cash the amount of the loss
or damage in respect of any such part plus the reasonable cost
of fitting. However the liability of the Company for the cost of
such part in the country in which the Motor Vehicle is held for
repair, shall be limited to
i) the price quoted in the latest price list issued by the
Manufacturer or his Agents for the country, or
ii)if no such price list exists, the price last obtaining at the
Manufacturer's Works plus the reasonable cost of transport
(otherwise than by air) to the country and the amount of the
relative import duty. .
(91)
Such cars not older than 10 years are accepted on
comprehensive terms subject to an 'excess'. Some insurers
exclude damage to the windscreen. Imported cars over 10
years and less than 15 years old are accepted on
comprehensive terms with a higher excess. Such cars over 15
years old are accepted for Third Party risks only.
(c) Cars imported by foreign embassies – Motor Insurance
of Cars imported by foreign embassies pose a special problem.
The embassies are exempted from paying customs duty on the
imported cars and at much less price than market price. To
obviate the difficulties like under-insurance in case of
insurance of such cars, the Tariff provides loading the O.D.
premium on such cars by 15%.
(d) Sports Cars - Insurance of Sports cars poses following
problems:
i) Sports cars are considered to be heavier risks than other cars
of the normal type.
ii) The repair costs are likely to be higher.
iii) These cars which are specially designed for high speed are
usually driven by young drivers from affluent families.
iv) The loss severity will be high because of the high speed.
Proposal for insurance of these cars is to be considered
on the individual merits. The acceptance is subject to an
excess, exclusion of personal accident benefits and loading of
premium.

Q. What are the model guidelines regarding age


considerations for fresh acceptance and renewals of
proposals requiring comprehensive cover on following
vehicles:
a) Taxis
b) Goods Carrying Vehicles.
Ans. a) Taxis -Following are the model guidelines regarding
age considerations for fresh acceptance of proposals requiring
comprehensive cover on Taxis:
i) Upto 3 years – Comprehensive cover may be granted
(92)
without much considerations .
ii) Upto 5 years - Subject to inspection and satisfactory
claims experience.
iii) Over 5 years but upto 7 years - Subject to inspection with
a further compulsory excess of Rs. 5000.
iv) Over 7 years - Act only cover should be granted.
Upto 10 years old vehicles renewal may be done on
normal terms subject to satisfactory claims experience. Over
10 years renewals should be offered for Act only.
b) Commercial Vehicles - Following are the model
guidelines regarding age considerations for fresh acceptance
of proposals requiring comprehensive cover on Commercial
Vehicles:
1) Goods Carrying Vehicles (Own Goods)
i) Upto 5 years - Comprehensive cover may be granted
without much considerations .
ii) Over 5 to 7 years - Subject to inspection and satisfactory
claims experience.
iii)Over 7 years and upto 10 years - Subject to satisfactory
inspection and a compulsory excess of Rs. 2,500/ -;
iv) Over 10 years - Act only cover should be granted.
v)Disposal vehicles - On inspection and subject to further
compulsory excess of Rs. 500/-
Upto a period of 12 years Renewal to be offered with
normal terms subject to satisfactory claims experience. Over
12 years Act only cover should be granted on renewal.
2) Public Carriers
i) Upto 5 years - Comprehensive cover may be granted
without much considerations .
ii) Over 5 years and upto 6 years - Subject to inspection and
satisfactory claims experience or additional compulsory
excess
iii)Over 7 years Act only cover should be granted.
Upto a period of 10 years Renewal to be offered with
normal terms subject to satisfactory claims experience. Over
10 years Act only cover should be granted on renewal.
(93)
What are the constituents of statistical structure for motor
insurance?
Ans. Rates of premium for any class of insurance are based on
past loss experience. So is the case with Motor Insurance. In
view of this it is most essential to maintain a detailed
statistical structure for premium and claims cost for Motor
insurance. Following are the constituents of statistical
structure for motor insurance-
1)Collection of Statistics- The tariff provides classification
and sub-classifications of vehicles. Statistics of premium and
claims are also be maintained and collated on the same basis.
The second aspect is the nature of the cover provided as
different rates are provided for Own Damage, and Act only
covers. This aspect is also to be incorporated in the statistical
structure.
2) Correctness of Statistics – Like any statistics the value and
use of motor insurance statistics depends upon the correctness
of the figures and the speed with which they can be produced.
3)Interpretation of statistics - Interpretation of statistics is as
important as collation. The claims cost reflects not only the
paid claims but outstanding claims. Therefore, it is essential
that an effective system is adopted for proper estimates of
outstanding claims be devised. The result of past loss
experience have to be interpreted in the light of changing
conditions surrounding motor insurance business.
4) Action on statistics - Once the claims cost is known, it is
possible to develop incurred claims to premium ratio over a
reasonably long period in each classification to consider
effecting appropriate underwriting measures by the
Companies and rate revisions by the Tariffs Advisory
Committee.

Q. What are the primary factors responsible for Road


accidents?
Ans. –Following are the four primary factors responsible for
Road accidents :
(94)
1)The driver – The largest number of accidents is attributable
to driver’s fault. This is ‘Human Cause’ of accidents.
Drunken driving, over-speeding and other violations of traffic
law etc, are responsible for road accidents.
2)The vehicle – This constitutes 'Physical Cause' for road
accidents
and can be summarised as bad maintenance. overloading etc.
3)The road – This is 'Environmental Cause' and consists of
bad road conditions, inadequate lighting, insufficient traffic
signs and signals etc.
4) The pedestrian – Reckless or indifferent behavior and
disregarding road traffic rules by pedestrian cause accidents.

Q. Discuss the Role of Insurers in promoting Road Safety


Ans. Although the Insurers have no direct way to play any
role in road safety, indirectly they play significant role in
promoting road safety and preventing road accidents. The
following activities of General Insurance Industry throw light
on this role:
1) The premium rating structure encourages loss prevention on
the part of the motoring public as substantial discounts in the
premium are offered if the insured establishes an accident free
record. Again, premium discounts are offered if the insured is
willing to bear a certain portion of the loss himself. These
incentives not only result in reduced cost of insurance but also
encourage careful driving.
2) Underwriting system followed by insurers involves careful
'risks selection' and 'risk improvement'. This makes indirect
contribution to road accidents prevention.
3) The Loss Prevention Association of India established by the
General Insurance Industry is actively engaged, amongst its
other activities, in promoting prevention of road accidents.
The Association's involvement in road-safety programmes has
the objective to reduce and contain the rapidly accelerating
rate. The intensive programmes of the Association are aimed
at creating awareness of road safety measures and traffic
(95)
rules for pedestrians and include driver education programmes
with special emphasis on defensive driving techniques and
specially designed programmes for child-safety on the roads.

Q. What are the remedial actions for the reduction of road


accidents?
Ans. Following remedial actions can be suggested for
reduction of road accidents:
1) The elimination or minimisation of driver error – For this
purpose driver education assumes crucial importance. The
training imparted by the motor training schools must be
intensive and adequate to provide the skills needed in complex
traffic situations. The training should aim at developing in the
driver a strong sense of personal and social responsibility for
safe operation of motor vehicies. It is also essential that testing
standards of Road Transport Authorities must be of a stringent
order.
2) Improving pedestrian behaviour - Reckless or indifferent
behavior and disregarding road traffic rules by pedestrian
cause accidents. To ensure Road Safety behaviour of
pedestrian is to be improved. This is a long term process. It is
essentially a matter of self discipline. Safety consciousness
and civic sense will have to be fostered right from the
elementary school level. Secondly, enforcement of traffic laws
by the police and the law courts, will bring about more
responsible pedestrian behaviour.
3) Elimination of Physical Cause - Defective vehicle which
is the physical cause, ranks second among the causes
contributing to road accidents. The question has following
dimensions
i) Regular maintenance of the vehicle by the owner on a
voluntary basis,
ii) Compulsory maintenance through strict enforcement of
rules regarding periodical inspection of vehicles by Road
Transport Authorities
iii) Tachograph to provide irrefutable evidence in case of
(96)
accidents by giving relevant information about the speed, time
and place of accident. It promotes good driving habits and this
results in saving of fuel and maintenance costs and reduction
of road accidents.
iv) Post accident repair inspection of the vehicle by both the
Insurance Surveyors and the road transport authorities in case
of major damage.
4) Road safety – Transport Development Council of the
ministry of shipping and Transport has made following
recommendations having a bearing on road safety:
a) strengthening or creating facilities for highway testing,
control and research for consideration of State Governments in
whom is vested the bulk of road construction. For example, a
model scheme for organising State testing and control
laboratories prepared by the Central Road Research Institute
has been circulated to the States for their implementation.
b) Planning, design and construction of road facilities.
c) Adequate, proper and systematic maintenance of the
National Highways and other roads in the country, through
regular re-surfacing, routine maintenance operations and
"Special Repairs" and "Flood Damage" repairs.
d) Creation of separate Traffic Engineering cells in the Public
Works Department to serve as a focal agency to analyse all the
traffic and accident data on a continuing basis, enabling
identification of the vulnerable accident:- prone spots and the
remedial measures to be adopted.
(97)
CHAPTER 9
MOTOR CLAIMS

OWN DAMAGE CLAIMS


Q. What are the documents required for processing a
motor own damage claim?
Ans. The documents required for processing the claim are:
(1) Claim Form
(2) Survey Report / Officer's Inspection Report
(3) Driving Licence
(4) Registration Certificate Book
(5) Fitness Certificate
(6) Permit
(7) Police Report
(8) Final Bill from repairs
(9) Satisfaction Note from the insured; where it is required.
(10) Receipted bill from the repairer, if paid by insured.

Q. Write a short not on Motor Loss Survey Report.


Ans. - A Motor Loss Survey Report contains following
information:
i) The Accident:
a) Date of Occurrence, Time and Place: (street, Road, Town)
Under Policies Station:
b) Cause of accident:
c) Any special features:
d) No. of photographs attached:
ii) The Assessment of loss:
Repairer's Surveyor's
Estimate Assessment
(1) Labour
(2) a) Parts
b) Less Depreciation (at....%)
(3) Excess, if any
(4) Salvage
(98)
iii) Net Liability of Insurer-
Labour + Parts (less Depreciation) - Excess/Salvage Rs.

iv) General Observation - These would relate to compliance


with policy condition, warranties, etc. This would be followed
by surveyor's recommendation regarding the payment of the
claim. If adverse features are involved, the surveyor would
leave the settlement question to the insurers, giving his
reasons.

Q. Describe the types of Losses (Own Damage) under


Motor Policies.
Ans. - There are three types of losses described as under:
i) Total Loss -
1) Whenever a surveyor finds that a vehicle is either beyond
repairs or the repairs are not in economic proposition, he
negotiates with the insured to assess the loss on a Total Loss
basis - for a reasonable sum representing the market value of
the vehicle immediately prior to the loss. If the market value is
more than the insured value, the settlement will be brought
about for the insured value. The Insured will be paid in case
and the Insurers will take over the salvage of the damage
vehicle which will thereafter be disposed off for their own
benefit calling tenders through advertisement in newspapers.
2) Total losses can also arise due to the theft of the vehicle and
its remaining untraced by the police authorities till the end.
For arriving at the market value of untraced vehicles, Insurer
take the opinion of 2 or 3 automobile surveyors after giving
them necessary information such as make, year of
manufacture, past claims, improvements carried, if any, etc. If,
say, three surveyors indicate three different figures, the
average amount is worked out, which will be taken as the
market value, and accordingly the claim will be finalised,
depending upon the Sum Insured being equal to or more than
the market value.
ii) Cash Loss Settlement - Under certain circumstances, Ins-
(99)
-urers are forced to settle Total Loss Claims without claiming
the salvage or reimburse the Insured with his repairs bill
without submission of repairs bill or without even verifying
whether the vehicles is or will be repaired or not. These types
of settlements are in the nature of compromise mode and are
known as 'Cash Loss' settlements, which are usually resorted
to in the case of Commercial Vehicle claims payable on
repair's basis. This mode of settlement is adopted in following
circumstances.
1) When the claim is assessed for Total Loss but difficulties
are encountered in disposing off the salvage or when a
reasonable amount is not forthcoming as value of the salvage.
In such cases, the value of the salvage is mutually agreed
upon, as recommended by the Surveyor, and this is deducted
from the amount of Total Loss as assessed by the Insured. In
other words the Insured is reimbursed the net Total Loss and
allowed to retain the salvage.
2) When the insured insists on repairs even though Total Loss
settlement adjusting the salvage value available is more
economical to the insurer.
3) When the Insured purchases spare parts from market
without bill and is not in a position to furnish bills these losses
are settled 'Cash Loss' without insisting on bills for an amount,
which is suitable, scaled down.
The cash loss settlement is generally offered at 60% to 80% of
insurers' liability for the loss on repair basis. Following
example will make this clear:
Suppose net liability (after adjusting Salvage value) on repair
basis is Rs. 65000 and on total loss basis it is Rs. 55000. The
suggested cash Loss Settlement may be (Rs. 65000 less 30%
Rs. 19500) Rs. 45500 since the liability of insurers is the least
among all the three modes of settlement.
iii) Repair Basis - The amount of loss in this mode of
settlement consists of repairer's labour plus cost of parts
replaced less depreciation. Excess if any is also deducted. The
salvage is collected by insurers.
(100)

CLAIM PROCEDURE - OWN DAMAGE


Q. Describe in brief the procedure involved in Own
Damage Claim.

Ans. - The procedure involved in Own Damage Claim can be


summarised as under:
i) Preliminary Steps - On receipt of notice of loss, the policy
records are checked to see that the policy is in force and that
in covers the vehicle involved. The loss is entered in the Claim
register and a claim form is issued to the insured for
completion and return.
The Insured is required to submit a detailed estimate of repairs
from any repairer of his choice. Generally, these repairs are
acceptable to the insurers but they at times ask the insured to
obtain repair estimate from another repairer, if they have
reason to believe that the competence, moral hazard or
business integrity of the repairer first chosen is not
satisfactory.
ii) Assessment - Independent automobile surveyors are
assigned the task of assessing the cause and extent of loss.
They are supplied with a copy of the policy, the claim form
and the repairer's estimate. They inspect the damaged vehicle,
discuss the cost of repair or replacement with the repairer and
submit their survey report. In respect of minor damage claims,
independent surveyors are not always appointed. The insurers'
own officials or their own automobile engineers inspect the
vehicle and submit a report. In major losses Spot Survey is
also arranged.
iii) Settlement - The survey report is examined and settlement
is effected in accordance with the recommendations contained
therein and keeping in mind the terms, conditions, exclusions
etc. of the policy.
Sometimes the repairer is paid directly by the insured in which
case the latter is reimbursed on submission of a receipted bill
from the repairers. In either case, discharge voucher or receipt
(101)
is obtained. The claims Register and the policy and renewal
records are marked that the claim is paid indicating the
amount of claim and the amount of salvage, if any.

Q. Describe the general procedure for settling Motor Total


Loss (Theft) Claim.
Ans.
Procedure for settlement of motor total loss (Theft) claims
-Motor total loss claims can also arise due to the theft of the
vehicle and its remaining untraced by the police authorities till
the end. The procedure for settlement of such claims is as
under:
1) First Information Report lodged with the Police - These
losses will have to be supported by a copy of the First
Information Report lodged with the Police authorities
immediately after the theft has been detected. The police
authorities register the complaint allotting it a number of the
entry made in the Station Diary. This number, which is usually
known as SDE No. or C.R. NO. (Crime Register) has to be
quoted by the Insured in the claim intimation to the Insurers.
2) Documents - The insured has to submit a claim form giving
narration of the incidence of theft. After lodging the F.I.R. the
police keep the investigations going until the vehicle is traced
and delivered to its owner. However, if they do not succeed in
recovering the vehicle after a period of, say 3-4 months, they
file away the case certifying that the case is classified as true
but undetected. This certificate is essential before the insurers
settle a total loss following theft.
The Insured has to submit to the Insurer the Registration and
Taxation books, ignition keys and blank TO. and T.T.O. forms
duly signed by the insured, so that the stolen vehicle when
recovered and sold can be transferred in the name of the
buyer.
If the R.C. book and Taxation Certificate are also stolen along
with the vehicle, it will be necessary for the insured to obtain
duplicate ones from the Registering Authority and thereafter
(102)
deposit them with the Insurers. The insured will address a
letter to the R.T.O. informing about the loss of the vehicle due
to the theft along with a Non-user Form so that he is not made
liable to pay the taxes. Copy of such letter shall be given to the
insurer.
It is always prudent to inform to concerned Registering
Authority by a Registered A/D/ letter that a total loss claim is
being processed for payment in respect of the stolen vehicle
and to request them not to transfer the ownership of the
vehicle to any one. This will prevent the thief from disposing
off the stolen vehicle.
3) Assessment of Loss - For arriving at the market value of
untraced vehicles, Insurers take the opinion of 2 or 3
automobile surveyors after giving them necessary information
such as make, year of manufacture, past claims, improvements
carried, if any, etc. If, say, three surveyors indicate three
different figures, the average amount is worked out, which
will be taken as the market value, and accordingly the claim
will be finalised, depending upon the Sum Insured being equal
to or more than the market value.
4) Settlement - The usual procedure of obtaining the
discharge, payment to the financier if any etc., as done in case
of settlement of any own damage claim is adopted while
settling the claim.
The ignition keys, R.C. Book etc. are preserved by the
Insurer in their custody so that these are made readily
available if the vehicle is traced at a later date.

Q. Write a short note on Knock-for-knock agreement.


Ans. Knock-for-knock agreement - Insurers have entered
into an agreement called the 'knock for knock' agreement.
According to this agreement when two vehicles insured (under
B Policy) with two different insurers are involved in an
accident, each insurer will indemnify his own insured. In other
words the Own Damage Claim shall be settled under the
respective policy. The insurers covering own damage will not
(103)
exercise subrogation rights against the other party involved.
This is in order to avoid litigation to decide the question of
negligence on the part of the vehicles and the consequent
delay and expenses.
This agreement is applicable for private cars insured
separately with two different insurers for comprehensive risks.
The agreement is not applicable to cases where one/or both the
vehicles are used for hire or reward.
THIRD PARTY CLAIMS

Q. What are the documents required for processing motor


claims?
Ans. Following are the documents required for processing
motor claims are:
a) For All Claims (Both own damage and third party):
i) Completed Claim Form.
ii) Vehicular documents such as Registration Certificate,
Permit and Trip Sheet for verification and return.
iii) Driving Licence of the driver who drove the vehicle at the
time of the accident for verification and return.
b) Additional Documents required for Own Damage Claims:
i) Estimate of Repairs.
ii) Survey Report.
iii) Police Investigation Report (for major accidents and for
theft claims).
iv) Final Bill from repairers,
v) Satisfaction Note from the insured if the payment is to be
made to the repairer.
vi) Receipt and Bill from the repairer, if paid by the insured.
c) Additional Documents required for Third Party Claims:
i) Police Investigation Report.
ii) Post Mortem Report for fatal claims.
iii) Legal Heirship Certificate for fatal claims.
iv) Injury Certificate for injury claims.
v) Vouchers/Receipts for medical expenses if any incurred for
injury claims.
(104)
vi) Employer's Certificate regarding salary and/or loss of pay.
vii) Certificate of proof of age.
viii) In case of property damage claim Proof of ownership of
property, Certificate for value of property and Estimate of
repairs for rectification of damage to the property.

Q. Explain briefly the procedure followed in handling


Third party Motor Claims.
Ans. - Following is the procedure of handling T.P. Claims -
1) The first step on receipt of notice of claim from the insured
or tribunal is to ascertain whether the vehicles insured on the
date of accident. The entry is made in the claims register.
2) The case is entrusted to a panel advocate immediately so
that the insurers are represented at the very first hearing.
3) A letter is addressed to the insured to furnish the
information as to O.D. Claims details if lodged, name of the
Police Station where the accident was reported, driver's name
and address, name of the advocate if the insured has appointed
one etc. The insured is also sent a claim form for completion
and return.
4) Insurers estimate their liability. In case of death claims,
status of the deceased, his monthly income, age, contribution
to family, relationship with claimant etc. are taken into
consideration. In the event of injury claims Medical Report,
evidence of medical expenditure, age of injured, his
occupation and income etc. are taken
into consideration. The aspect of contributory negligence, if
any, is also taken care of.
5) On the basis of above information, the advocate's opinion is
obtained. . Defences available to insurer under the M.V.Act.
are examined. The advocate depending upon the facts of the
case then files a written statement.
6) If the liability is certain, an attempt is made to compromise
the claim. The claim can be compromised in Lok Adalat.
7) The insured and or the driver are required to co-operate
with the insurers while regular hearing of the case is going on.
(105)
If they do not, they may be called as witness under Section
169 of the Act.
8)On completion of the hearing, the tribunal decides upon the
claims and award is given. The amount awarded is paid to the
claimant as directed by the tribunal.
9) If the insurers are aggrieved by on award of a tribunal, they
may prefer an appeal to high court within ninety days from the
date of the award.

Q. What are the informations required to determine the


question of third party liability of the insured and the
liability under Motor Policy?
Ans. Following informations are required to determine the
question and extent of third party liability of the insured and
the liability under Motor Policy:
a) Information required for all types of T.P. Claims:
i) Statements of the driver and witnesses to the accident.
ii) Details of the driver's prosecution, charges, depositions
during the criminal proceedings and judgement.
iii) Details of the accident to decide negligence of the parties
involved for deciding the aspect of contributory negligence.
b) Information required for Fatal Claims:
i) The post mortem report.
ii) The age and status of the deceased, his monthly income, his
contribution to the family and the status of the claimant and
his relationship with the deceased.
iii) Dependency.
c) Information required for injury claims:
i) The age, occupation and income of the injured.
ii) The nature and extent of the injuries and whether the injury
has resulted in permanent disability.
iii) The period and expenses for medical treatment.
c) Information required for third party property claims:
i) The estimated cost of repairs.
ii) The depreciation in value of the property.
iii) The cost of hiring alternate property or alternatively loss
(106)
of house or loss of profit during the period of repairs.
In addition to the above the following information is
required to determine the question of the insurers' liability for
third party claims under the Motor Policy:
a) Existence of valid insurance cover.
b) Limit of liability under the Policy.
c) Defences under the Motor Vehicles Act, whether available
or not

Q. Define Negligence. What are the conditions for


sustaining civil action for negligence? Discuss the
circumstances in which liability for accidents through
negligence in the use of motor vehicles usually arises.
Ans. Negligence - Negligence means 'absence of care'. It is
defined as the breach of a duty caused by the omission to do
something, which a reasonable man, guided by those
considerations, which ordinarily regulate the conduct of
human affairs, would do, or doing something, which a prudent
and reasonable man would not do. In simple words,
negligence means 'absence of care'.
A civil action for negligence can be sustained when the
following conditions are satisfied:
i) There must exist a duty of care towards the injured party.
ii) An action for negligence can proceed only if there is a
breach of that duty of care.
iii) The plaintiff must prove that he has suffered injury or
damage as a consequence of the breach of duty of care.
vi) The injury or damage should be a consequence of the
negligent act. There has to be a close causal relationship
between the breach of duty and the injury or damage.
Liability for accidents through negligence - Liability for
accidents through negligence in the use of motor vehicles
usually arises in the following circumstances:
(1) Dangerous and reckless driving without proper regard to
the safety of the pedestrians.
(2) Non-observance of the traffic rules and regulations.
(107)
(3) Leaving a motor vehicle unattended on the road or
highway without taking proper precaution for its safety.
(4) Defective vehicles. However, latent defects of which the
owner was unaware do not constitute negligence. The onus is
on the defendant to prove that the vehicle was defective or
unfit.

Q. Write a short note on Contributory negligence/


Ans. Contributory negligence - Contributory negligence is
the existence of negligence on the part of the affected third
party in respect of motor vehicle accidents. If the injured
person has also contributed to the accident there is
contributory negligence on the part of the injured. The
damages will be reduced according to the degree of blame
attaching to each person.
Contributory negligence is one of the defences available
to the insured except in case of no fault liability in respect of
motor accident third party claims. Contributory negligence
cannot be attributed to any child victim. The result of
successfully establishing contributory negligence on the part
of the affected third party is the reduction of compensation.

Q. What are the Defences against Negligence?


Ans. Following are the Defences against Negligence:
a) Volenti Non-fit Injuria.- This legal maxim denotes that if
a person voluntarily consents to run the risk, the question of
negligence does not arise. This defence may arise in passenger
claims. When a person has of his own willingness and consent
decided to become a passenger in it public service vehicle,
then he cannot complain of matters ordinarily incidental to
traffic in such vehicles.
b) Inevitable Accident - This is an accident which occurs
inspite of ordinary care, caution and skill. The burden to prove
that accident was inevitable rests upon the driver. He must
establish the cause of the accident and also that the result of
that cause was inevitable.
(108)
c) Act of God - This has been defined as an event due to
'natural causes directly and exclusively without human
intervention'. Examples of acts of God are storms, earthquake,
lightning etc.
d) Emergency- If a person in a moment of imminent danger,
acts in a way which causes injury to another, he will not be
held liable in negligence if his act was not unreasonable in the
difficult situation in which he was placed. Sometimes a
pedestrian using a road may unexpectedly cause the driver of
oncoming vehicle, to swerve and thereby cause injury to
another pedestrian, then the driver would be able to raise the
defence of emergency.

Q. Distinguish between Special Damages and General


Damages.
Ans. Damages are the pecuniary compensation recoverable by
civil action for breach of contract or for tort. Damages
for personal injury claims fall into two categories:
1) Special damages- These are the damages, which can be
calculated accurately from records of actual expenses
incurred, or financial losses (e.g. loss of salary etc.) suffered.
2) General Damages – These are the damages, which cannot
be calculated from record and therefore estimated by the
Courts taking into account a number of factors relevant to
individual cases. General Damages comprise compensation
for pain, suffering and distress, loss of enjoyment of life and
loss of amenities etc.

Q.Describe the principle applicable in computation of


damages for death, personal injury and property loss due
to an accident.
Ans.
1) Computation of damages for death – The principles
adopted for the assessment of general damages in death cases
have been well settled in three decisions of the Supreme Court
(109)
which are based upon famous English decision in Davis Vs.,
Powell. As per these decisions, the following basis is adopted:
a) The amount of wages earned by the deceased
(ascertainment to some extent may depend upon the regularity
of his employment).
b) The amount that would have been spent by the deceased
for his personal and living expenses, had he been alive.
c) Number of years of purchase or multiplier in regard to
the remaining life of the decreased had he not died in the
accident.
d) Uncertainties relating to claims, for instance that the
widow might have remarried and thus ceased to be dependent
or other like matters of speculation.
The balance amount of income after deducting the
estimated personal and living expenses for the deceased per
year would be turned into a lump sum, multiplying the stun by
the number of years of purchase. This lump sum, however, has
to be taxed down having due regard to uncertainties as stated
against factor (d) above.
Lord Wright's Method- This method involves
multiplying the dependency amount of what the deceased
would have spent on the dependents by the common accepted
multiplier of 12 to 15 which is known as the Year Purchase
Factors.
2) Computation of damages for personal injury - Damages
for personal injury claims fall into two categories:
a) Special damages - Special damages comprise the following
expenses:
actual loss of earnings, suffered as a result of injury;
medical, nursing or other expenses necessarily incurred as a
result of the injury and
funeral expenses in case of fatal injury.
The above expenses are computed up to the date of
settlement of judgement.
(110)
b) General Damages - General Damages comprise
compensation for the following:
i) pain, suffering and distress,
ii) loss of enjoyment of life and loss of amenities,
iii) loss of recreational ability; and/or
iv) loss of reduced expectation of life

General damages may also be awarded for


i) the on-going net loss of earnings (prospective loss
of income)
ii) the on-going medical nursing or other expenses
likely to be incurred in the future as a result of the
injury suffered. (future medical expenses.
iii) loss of opportunity in the job market
iv) loss of matrimonial prospects e.g. a young
unmarried woman suffering severe facial
disfigurement may lose her matrimonial
prospects.
The courts suitably adjust the value of future losses,
upwards or downwards, to reflect;
i) Immediate receipt of money with potential for
earning investment income.
ii) Other benefits received by the legal heirs through
succession to properties or moneys of the
deceased.
iii) The changing circumstances of life. For example,
the widow remarrying or the risk of early death
due to other causes.
iv) Inflation or the falling value of money.
3) Property Damage -In respect of damage to property (e.g.
goods) the measure of damages is the cost of restoration of the
property to the original position. The measure of damage takes
into consideration the depreciation in the value or loss of use
or loss of profit or the cost of hiring another property during
the repair. In other words, if the property is totally destroyed,
the measure of damages is the value of the property. But if it is
(111)
only damaged the measure is the depreciation in its value
supplemented by the amount representing the loss of use of
the property when it is being repaired or replaced. However, in
practice, its application may vary according to circumstances
of each case.

Q. What are the loss control measures adopted in Motor


Portfolio?
Ans.- Following measurers can be suggested to control motor
losses –
a) O.D. Claims:
i) Empanelment of Surveyors - Surveyors having automobile
back drown should only be impaneled. The panel should be
classified into major, medium and minor categories depending
upon the experience, quality of work and efficiency of the
surveyor.
ii) Appointment of Surveyor - Appointment should be done
immediately. The same surveyor should not be appointed for
successive claims.
iii) Estimates - Estimates of professional estimate makers
should not be entertained.
iv) Survey - Final survey should be done at the workshop from
where the estimate has been obtained. Surveyor should give
identification numbers or marks of the radiator, battery and
major
assemblies like chasis, front axle etc. For cabin and body the
surveyor should mention material costs and labour charges
separately. Where necessary, surprise inspection of vehicles
under repair at workshop should be done by the officer of the
company. Surveyor should submit his report immediately with
photographs initialed and dated.
v) Reinspection - Reinspection of the vehicle after repair
should be done by a surveyor other than the final surveyor
who assessed the loss.
vi) Verification of bills - To ensure the accuracy and
bonafides, bills submitted by the insured should be scrutinised
(112)
by the surveyor.
vii) Salvage - In small losses, fair value of salvage should be
deducted from the assessed loss. Where salvage is collected it
should be disposed off immediately. Perfect record of Salvage
should be maintained.
viii) Review of Pending Claims - Periodical review of pending
claims should be done. If the claims are pending for
compliance from insured, noticed should be given to comply
within a stipulated time. Giving second notice the insured
should be informed that the claims shall be treated as No
claim in case of non-compliance of formalities in stipulated
time and thereafter the file should be closed.
ix) Strict underwriting control - While accepting motor
business, strict underwriting control should be exercised.

b) Loss control measures for T.P.Claims - Since in third


party claims the tribunal awards the compensation, loss can be
minimised by defending the claim in effective manner.
Following measures may also be taken:
i) Investigation- Any officer assigned this function should
make 'on the spot' investigation and obtain information about
the age, occupation, income etc. of the
deceased/injured. Wherever necessary, correct insurance
particulars from the RTO should be obtained and furnished to
the advocate for the insurance company.
ii) Proper Use of Advocates- ‘Preparation of panel of
advocates and entrustment of cases to them on a rotation basis,
ensuring that no Advocate should have more than 10 cases at
any given time. The advocate appointed to defend on behalf of
the company and the insured, should be furnished a certified
true copy of the related policy.
iii) Performance appraisal - The annual performance
appraisal of the advocates for defending the cases before
MACT.
iv) Statutory defences- Furnishing the particulars of statutory
defences available to the insurers under Sec. 149(2) of M.V.
Act 1988 to the panel advocate and ensuring that the plea in
regard to proper defence is taken in the written statement filed
on behalf of the insurer,
v) Compromise settlement of the TP Claims, especially
through Lok Adalats.
vi) Expeditious settlement of awards which do not warrant
appeal and there by save payment of further interest.
In view of the deteriorating experience of the motor
insurance portfolio which is causing concern to the industry, it
is necessary to adopt effective loss control measures.
(114)
CHAPTER 10
PRACTICAL PROBLEMS
Q. Due to sudden breakage of steering rod, a private car,
driven by a paid driver, goes off the road and collides with
the compound wall and gate of a factory. The insured has
submitted a claim under a private car comprehensive
policy in respect of the following :
a) Repair of damage to the radiator and engine.
b) Replacement of left front tyre totally damaged.
c) Replacement of steering rod.
d) Replacement of windscreen, which was smashed to pieces.
e) Claim from the paid driver (Under W.C. Act) for temporary
total disablement due to injuries sustained in the accident.
Indicate how you would deal with each of the above items of
claims from the point of view of:
i) Liability under the policy.
ii) Amount of claim payable.
Ans. a) Repair of damage to the radiator and engine -
Insurers are liable under the policy and actual cost is payable.
b) Replacement of left front tyre totally damaged - Insurers
are liable under the policy and actual cost is payable.
c) Replacement of steering rod - Being mechanical
breakdown not covered under the policy, hence not payable.
d) Replacement of windscreen which was smashed to
pieces - Insurers are liable under the policy and actual cost is
payable if this being an extra fittings is covered.
e) Claim from the paid driver - Policy covers W.C.
Liability. Hence the following amount shall become payable
as per provisions of W.C. Act:
A half-monthly payment of sum equivalent to 25% of monthly
wages. This payment shall be payable on the 16th day -
(i) from the date of disablement where such disablement lasts
for a period of twenty-eight days or more: or
(ii) after the expiry of waiting period of three days from the
(115)
date of disablement where such disablement lasts for a period
of less than twenty-eight days.
On the ceasing of the disablement before the date of which
any half monthly payment falls due, there shall be payable in
respect of that half-month a sum proportionate to the duration
of the disablement in that half month. The compensation under
this clause is payable for maximum 5 years.

Q. Discuss the insurer's liability under Standard Motor


Policies ‘B’ for following claims.
a) Loss of horn by theft from a motor cycle.
b) Accident damage to an ornamental hub-cap of a private
car.
c) Damage to the cabin due to an accident to a public
carrier, the estimated repair cost of which is Rs.1475/-.
d) Death of an employee of the owner of the goods carrier
who was travelling in the lorry at the time of the accident.
Ans.
a) Standard Motor Cycle Policy does not cover the loss of or
damage to accessories by burglary, house-breaking or theft
unless the Motor Cycle is stolen at the same time. Hence the
insurer is not liable, for the loss of the horn, an accessory by
theft from a Motor Cycle.
b) Extra fitting are to be covered specifically. The ornamental
hub cap is an extra fitting. Insurer is not liable under the
standard Motor Car Policy B for its loss of or damage unless
it is got covered by specifically adding this hub cap as extra
fitting.
c) The standard Motor Policy B covering a public carrier is
subject to a compulsory excess of Rs. 1500 as per the
endorsement No.26. Since the estimated repair cost is less
than Rs. 1500, there is no liability under the Policy.
d) Under the Motor Vehicles Act in respect of a lorry
(goods vehicles) it is required to cover employees being
carried in the vehicle. Hence the insurer is liable for employee
of the owner of the goods carrier who was travelling in the
(116)
lorry at the time of the accident.

Q. The insured gives the car keys to his watchman every


day for cleaning the car. One day the watchman, after
cleaning the car, drove it outside the building compound
without a valid driving licence and met with serious
accident, resulting into damage to car and serious injuries
to a pedestrian. The insured is having Private Car Policy
'B' for the Car. Discuss the Insurer's Liability.
Ans. - For admission of liability under the policy, the
watchman driving the car at the time of accident must hold a
valid driving licence entitling him to drive LMV. In the instant
case the watchman who drove the car at the time of accident
was without a valid driving licence. Hence the insurers are
liable neither for damage to car nor for personal injuries to the
pedestrian.

Q. A Luxury Tourist Bus 1987 Model carrying 35


passengers was involved in a serious accident on 5.6.90
resulting in death of Driver and two passengers and
injuries to 15 passengers. Bus was insured under policy 'B'
with unlimited liability to passengers. Other details are as
under:
a) Insured of Rs. 400000
b) Fatal injuries to paid driver Rs 80000
c) Fatal injuries to two passengers Rs. 135000 (each)
d) Minor injuries to 15 passengers Rs. 80000 (total
e) Repairs Rs. 50000
f) Replacement of parts Rs. 25000
g) Salvage Rs. 3000
i) Discuss the insurer's liability.
(ii) Would the position be different in case the driver was
holding LMV driving licence and had applied for HMV
licence on 31.12.89 to the R.T.O.
Ans. - (i) Presuming that the driver was holding valid
driving licence – with an endorsement to drive transport
(117)
vehicle and was also possessing badge, the insurers are liable
under the policy to pay the claim as under:
a) No relevance except in the case of total loss.
b), c) and d) payable under Section II of the policy presuming
the amount is awarded by the court or compromised.
e, f) and g) - The amount payable will be as under:
Repairs Rs. 50000
Replacement of Parts Rs. 25000
Less: depreciation for the age of vehicle being between 3 to 4
years: 50% for rubber, Plastic Parts, and battery and 25% for
other parts replaced. If the damages include tyres, lamps,
mudguards, bonnet side parts, bumpers and paintwork they are
excluded under Endt. No. 26.
Less: Excess as per Endt. No 26 Rs. 1500
Less: salvage Rs. 3000

(ii) Presuming that the driver applied for HMV licence -


The vehicle in question is H.M.V. The driver is holding LMV
licence. Mere applying for HMV licence does not entitle the
person to drive Bus. Hence unless there is a pucca driving
licence, insurers are not liable.

Q. How do you deal with the following enquiries in respect


of Motor Policies?
(a) Comprehensive Policy for a public carrier with extra cover
for loss or damage to tyres.
(b) Act policy for Motor Cycle with the additional benefit of
PA. cover to the owner.
(c) Comprehensive Policy for a private car in the joint names
of the registered owner and financier.
(d) Liability to the public risk Policy for a scooter owned by
private company with a request for A.A. Membership discount.
Ans. (a) Endorsement No.26 does not cover the loss of or
damage to tyre. However by paying extra premium it can be
covered under IMT 74
(b) No additional cover /extra benefit can be granted under
an Act Policy. PA. cover to the owner can be granted in
(118)
Conjunction with B Policy only.
(c) It is not permissible as per the Motor Tariff to issue
Policies in joint names. The financier's interest can be
recorded in the Policy be way of endorsement.
(d) The A.A. Membership discount can not be allowed on
vehicles owned by firms or companies as it is available only
for vehicles owned by individuals and joint owners.

Q. A goods carrying vehicle (general cartage) is insured


under Commercial Vehicle B Policy without extra benefit.
It met with an accident inside a factory compound.
Following claims have been lodged:
a) Damage to the mudguard and/or bonnet side parts, head
light and bumper the estimated loss of which is Rs. 2000/-.
b) Death of a coolie carried in the vehicle.
c) Damage to the car of the owner of the goods carrying
vehicle which happened to accompany the lorry inside the
private place at the material time of the accident.
d) Injury to the driver's friend travelling in the vehicle.
e) Damage to stereo.
How will you deal with claims?
Ans. Although the accident occurred inside a factory
compound which is not a public place it is covered under the
B Policy. The claims shall be dealt as under:
a) Damages to the mudguard and/or bonnet side parts, head
light and bumper are excluded under IMT No.26. Hence there
is no liability under the policy.
b) The insurers are liable under Section II of the policy.
c) Section II of the Policy excludes liability in respect of
damage to property belonging to the insured. Hence no
liability.
d) The driver's friend was travelling in the vehicle as a non-
fare paying passenger and not in the course of or arising out of
any employment. The insurers are not liable for his injury
claim as policy is without extra benefit for legal liability to
non-fare paying passengers.
(119)
e) Extra fitting are to be covered specifically. The stereo is
an extra fitting. Insurer is not liable under the Policy B for its
loss of or damage unless it is got covered by specifically
adding it as extra fitting.

Q. State, with reasons, the extent of liability of an insurer


under appropriate standard forms of Motor Policies "B":-
a) Insured was driving his own Goods Carrying Vehicle
General Cartage, and suffered personal injury due to accident.
He claimed for Workmen's Compensation.
b) Theft of a rear left tyre of contract carriage from the parked
place. Policy is subject to Endorsement 26.
c) Tape Recorder-cum-Radio stolen from a Private car at the
spot of accident.
d) Damage to a motor cycle whilst the insured was
participating in organised racing.
e) Due to a mechanical defect, the steering rod of a Tourist
Taxi, breaks and meets with an accident. Insured claimed
damages to steering rod, head lamps, front bumper and right
mudguard.
f) Loss of the insured's limb due to accident whilst travelling
in his car.
Ans.
a) Though the insured was the driver of the vehicle, he is not
employee. So he can not claim for Workmen's Compensation.
b) Under IMT 26 Except in case of Total Loss the insurers are
not liable for loss of or damage to lamps, tyres, mudguards
and/or paint work. Hence there is no liability for theft of a rear
left tyre of contract carriage from the parked place.
c) e) Electronic items and Extra fitting are to be covered
specifically. The Tape Recorder-cum-Radio is an extra fitting.
Insurer is not liable under the Policy B for its loss of or
damage unless it is got covered by specifically adding it as
extra fitting.
d) Damage to a motor cycle whilst the insured was
participating in organised racing is not payable as policy
(120)
excludes organised racing
e) Damage to the steering rod is mechanical break doen which
is excluded under the policy. However loss of head lamps,
front bumper and right mudguard is payable as Policy for
Tourist Taxi is not subject to IMT 26.
f) The policy is not extended to cover personal accident risk.
Further Section II of the policy covers liability to third parties
and not to the insured. Hence insurers are not liable.

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