Can an Insurer Be Exonerated from Liability for Third-Party Motor Accident Claims If the Driver Lacked a Valid Transport Vehicle Licence on the Date of Accident? – Precedential Clarification on Breach of Policy and Liability

The Chhattisgarh High Court has reaffirmed, in light of binding Supreme Court precedents, that an insurance company can be fully exonerated from liability in third-party motor accident claims where it is established that there was a fundamental breach of policy conditions, specifically where the driver did not possess a valid and effective “Transport Vehicle” licence on the accident date and the owner failed to exercise due diligence. This decision upholds and applies the ratio of Supreme Court authorities, clarifies the impact of Section 15 of the Motor Vehicles Act, and serves as binding authority for tribunals and subordinate courts handling similar insurance disputes.

Summary

Practical Impact

What’s New / What Lawyers Should Note

• The High Court provides a detailed exegesis on Section 15 of the Motor Vehicles Act regarding renewal of a driving licence for a “Transport Vehicle,” holding that renewal after more than 30 days from expiry does not validate the interregnum period.
• Insurers may be fully exonerated (not just “pay and recover”) where a fundamental breach is established due to driver lacking a valid and effective licence at the time of the accident, following Supreme Court ratio.
• The owner’s responsibility to exercise due diligence on licence validity is reaffirmed; renewal after accident date cannot retrospectively cure breach.
• The pay-and-recover principle does not apply where the owner has committed a fundamental breach and was insufficiently diligent.
• Lawyers representing insurers can use this decision to argue for exoneration, rather than “pay and recover,” where breach is clear and renewal is out of time.

Summary of Legal Reasoning

• The Court first recited the facts, noting that the driver of the offending truck did not possess a valid and effective licence for “Transport Vehicles” on the accident date; the relevant authorisation expired in 2013, and renewed only after the 2016 accident.
• It analysed Section 15 of the Motor Vehicles Act, emphasizing that if renewal is sought more than 30 days after expiry, the renewed licence is effective only from the renewal date, creating a gap in validity.
• Detailed reference was made to the Supreme Court in Ram Babu Tiwari (2008) 8 SCC 165, which holds that such an interregnum in licence validity constitutes a breach and exonerates the insurer.
• The owner argued due diligence and good faith, but the Court found that neither the licensing authority’s records nor the owner’s testimony could override the statutory gap.
• The pay-and-recover principle (Swaran Singh) only applies if the breach is not fundamental; in the present case, the breach was grave and thus the insurer is not liable.
• All this resulted in dismissing the owner’s appeals and allowing the insurer’s appeals, with full exoneration of insurer from any liability to pay compensation to claimants.

Arguments by the Parties

Petitioner (Owner of the Offending Vehicle):

• The vehicle was duly insured on accident date; the insurer should bear liability.
• The driver possessed a licence issued in 2006, renewed till 2026; thus, it was valid.
• Licence documents were exhibited; owner exercised due diligence by checking the licence and conducting a skill test.
• There was no knowledge of invalidity; insurer did not prove that owner was aware of any breach.
• No unlawful use of vehicle at accident time.
• Based on Supreme Court precedents, full liability should rest with insurer.

Respondent (Insurance Company):

• No medical evidence produced by claimants to support injuries; claim assessment unsustainable.
• Specific breach: driver did not have valid and effective licence to drive a transport vehicle on date of accident.
• Licence for transport vehicles expired in 2013, renewed only in 2017; thus, not valid at accident time.
• Owner failed statutory and contractual obligation to ensure valid licence.
• Fundamental breach of policy: insurer should be exonerated even for third-party claims; liability cannot be imposed on insurer due to owner’s dereliction.

Factual Background

On 19 April 2016, a collision occurred between a motorcycle and a truck, resulting in serious injuries to two individuals. Both injured claimants filed separate compensation claims before the Motor Accident Claims Tribunal, Balod, seeking damages for their injuries. The owner of the truck claimed he had exercised due diligence in employing a licensed driver, while the insurer contended that the driver had no valid transport vehicle licence at the time due to the relevant authorisation having lapsed. The Claims Tribunal found breach but ordered the insurer to pay first, with right of recovery. Both the owner and insurer appealed.

Statutory Analysis

• The Court analysed Section 15 of the Motor Vehicles Act, which governs renewal of driving licences.
• It held that expiry of a licence for a transport vehicle followed by renewal after more than 30 days creates a period when the driver is not duly licensed, and any renewal post-30 days is effective only from the renewal date—not retrospectively.
• The requirement for a medical certificate and the strict wording of the proviso make the intervening period a gap in validity, and driving during this period amounts to a fundamental breach under Section 149(2).
• This statutory regime was read and applied in light of Supreme Court interpretations in Ram Babu Tiwari and Kusum Rai.

Alert Indicators

• ✔ Precedent Followed – Judgment closely follows established Supreme Court law and applies it to the facts.

Citations

• 2025:CGHC:44966
• National Insurance Co. Ltd. v. Swaran Singh, (2004) 3 SCC 297
• New India Assurance Co. Ltd. v. Manjeet Kaur, (2004) 1 SCC 551
• Ram Babu Tiwari v. United India Insurance Co. Ltd., (2008) 8 SCC 165
• National Insurance Co. Ltd. v. Kusum Rai, (2006) 4 SCC 250