SC Reaffirms “Pay and Recover” Principle: Insurer Must Pay First, Recover Later

The appellant, Akula Narayana, filed a claim before the Motor Accidents Tribunal for compensation arising from a fatal accident involving a five-seater vehicle that was insured with The Oriental Insurance Company Ltd.. The Tribunal, by its award dated 29 April 2021, held both the insurer and the vehicle owner jointly and severally liable to pay compensation. The Tribunal relied on the insurer’s admission that an additional premium had been collected to cover risks of the driver, conductor, and cleaner.

HC Held: On appeal, the High Court of Telangana set aside the Tribunal’s finding against the insurer, holding that the insurance policy did not cover passengers beyond the driver, conductor, and cleaner. It also found that since nine persons were travelling in a five-seater vehicle, there was a clear breach of policy conditions, absolving the insurer of all liability. The claimant, unable to recover compensation from the vehicle owner, appealed to the Supreme Court.

Issue Before Court: Whether the insurer could be completely absolved of liability for compensation when there was a breach of insurance conditions due to overloading, or whether it must first pay and recover the amount from the vehicle owner.

Supreme Court Held: A two-judge Bench of the SC held that the High Court erred in absolving the insurer entirely. Citing the precedents in National Insurance Co. Ltd. v. Swaran Singh (2004), Shamanna v. Oriental Insurance Co. Ltd. (2018), and Rama Bai v. Amit Minerals, the Court reaffirmed the “pay and recover” doctrine. It ruled that even where there is a breach of insurance conditions, such as carrying excess passengers, the insurer must satisfy the award and then recover the amount from the vehicle owner.

The Court clarified that since the insurance policy was valid and not disputed, and because the claimant should not be left remediless, the insurer was directed to pay the compensation amount as awarded by the Tribunal and thereafter recover it from the insured. The appeal was thus allowed to that extent.

To Read Full Judgment, Download PDF Given Below