There might be instances when your third-party insurer might not honour any claims that have been made against your policy, by the third party(victim). And this is despite you having a valid TP motor insurance. Due to this, you could end up paying a hefty amount out of your own pockets as compensation to the affected third party.
Read on to know about instances where your third-party insurer may step back from paying for damages, and if you can avoid such conditions.
What is third-party motor insurance, and when can it be denied?
The idea behind this insurance cover is to offer protection and compensation against damages caused by the insured’s vehicle i.e. your car/bike to a third party on the road, which could include pedestrians, another car and its occupant passengers. The policyholder i.e. you or the concerned vehicle are not eligible for any coverage under TP insurance.
TP cover doesn’t work if premium is unpaid
If your third-party motor policy is not active i.e. has lapsed due to premium non-payment before or at the time of the incident, your insurer can deny claims under third-party insurance.
Driving car under influence of alcohol or drugs
If the driver is found to be under the influence of drugs or alcohol this may become the ground for rejection of the claim. Says Sandeep Dadia, CEO & Country Head, Lockton India, “Other conditions under which your TP insurer may refuse to honour claims is if you’ve been found driving under the influence of alcohol or drugs.”
Not having a valid license or driving for wrong purpose
Not having a valid license can also be the ground of rejection of TP claim. “If the person driving the vehicle did not have a valid driving license, or was found using the vehicle for purposes not covered under the policy (e.g., using a private car for commercial purposes), the TP insurer may refute any claims,” says Dadia
For the claim to stand, your driver’s license should be active, and not expired to be valid. While a learner’s driving license is legal, it is mandatory for the learner to be sitting beside an experienced driver who also has a valid, regular license, while driving the vehicle. Also, the learner should have an ‘L’ sign painted at the back and front of the vehicle.
If someone with just a learner’s license is found breaching either of these two conditions, the TP insurer is well within its rights to refuse to pay compensation.
Not having a valid fitness certificate
Dadia further adds that the TP insurer can refuse to pay if the damage-causing vehicle does not have a valid vehicle fitness certificate. Notably, a new private vehicle’s fitness certificate is valid for 15 years, after which it must be renewed every 5 years.
If the policy is under grace period without premium payment
In motor third-party insurance, there is also no provision for a grace period. Hence, claims will only be admissible if the policy is active and valid at the time of the incident.
What happens if the premium cheque bounces?
In a 2022 judgement, the Karnataka High Court had mandated that the insurance company would be liable to pay compensation to a third party, even if the cheque issued towards premium payment by the insured was dishonored, if the same had not been properly communicated to the policyholder before the accident happened.
Paid amount can be recovered by insurer in case of violations
Even when the insurance company pays the claim but later discovers any violation then it can recover the amount from policyholder. “In cases where the insured violates the terms of the policy, the insurer may honour the third party claim but then recover the amount from the insured. This is known as subrogation” explains Dadia.
However, there is still a recourse left to policyholders. “If there are disputes regarding the insured’s violations, the matter may be taken to the Motor Accident Claims Tribunal (MACT) or a competent court. The tribunal/court will determine the liability of the insurer and the insured based on the evidence and circumstances of the case”, continues Dadia.
How many times can third-party insurance be claimed during the lifetime of a vehicle?
There is no limit on the number of third-party claims that can be made during the validity of a TP motor insurance policy. Each time a vehicle is found to have caused an accident resulting in injury, death, or property damage to a third party, the affected party can file a claim, provided the incident occurred within the policy period and the claim is within limits.
Generally, all motor policies are issued for a year and need to be renewed every year. However, new two-wheelers are to be compulsorily insured for 5 years against TP risk and new private cars are to be compulsorily insured for 3 years against TP risk.
Per Legal Auto Claims Team, TATA AIG, “If the same insured vehicle causes property damage or injury to third parties multiple times, the insurer is obligated to settle each legitimate claim as per the terms and conditions of the policy. TP insurance operates on an incident-based approach rather than a lifetime limit approach”.
Premium Payable for TP Insurance as per IRDAI
Source: IRDAI Order dated 04.03.2022, PolicyBazaar
Source: IRDAI Order dated 04.03.2022, PolicyBazaar
Is there a monetary limit on the damages to be paid by the TP insurer?
Per Arti Mulik, Chief Technology Officer at Universal Sompo General Insurance, “For property damages, which includes other party’s vehicles, buildings and more, the limit is up to Rs 7.5 lakh”.
In case of bodily injury, or even death, the coverage for third parties is unlimited. This also covers the medical expenses and compensation for injuries sustained by the other party in the event of an accident.
However, experts have divergent views on this. Per Dadia, the Rs 7.5 lakh limit had been eliminated under amendments made in the Motor Vehicles Act in 2019, meaning that there is no monetary limit under third-party insurance for property
Regarding coverage for damage to properties, the insured can choose from two options. One is a limited third-party plan, and the other is a normal one. It’s important to remember that even under a limited third-party plan, the coverage for bodily injury or death remains unlimited i.e. without any monetary ceiling.
Paras Pasricha, Head of Motor Insurance, PolicyBazaar explains that under a limited third-party plan, the property damage is defined up to Rs 6,000. “This means that the insurer is only liable to pay for property damages up to Rs 6,000. Compensation for damages above this limit will have to be borne by the insured themselves. The premium for such plans is generally cheaper by around Rs 100 than the regular TP plan”.
Individuals who are considered as third parties
Imagine this. Mr A is driving his car. Sitting alongside him are 4 of his friends, who are unrelated to him. The car meets with an accident, causing the death of 2 of the car’s passengers (Mr B and C), along with causing significant damage to another party on the road. Will Mr. B and C also be liable for compensation under TP insurance?
Dadia explains that in this case, the passengers will not be eligible for any compensation. “Third-party insurance, as mandated by the Motor Vehicles Act, 1988, is specifically designed to compensate, third parties (pedestrians, other vehicle occupants, or property owners) who suffer injury, death, or property damage due to the insured vehicle”.
“However, if the insured has opted for an additional cover such as Personal accident cover for unnamed passenger, the harm caused to the occupants of the insured’s vehicle may get covered up to the sum insured of Rs.2 Lacs. There are a couple of insurers who have now started offering an enhanced personal accident cover for passengers which the insured can opt for”, he adds.
A recent mandate by the Rajasthan High Court, under the bench of Justice Nupur Bhati, has also affirmed that in the case of a private vehicle insured against the “Act only Policy”, the insurance company is not liable to compensate the occupants of the vehicle since they are not considered to be the “third parties” as required under the Motor Vehicles Act, 1988 (“Act”).
But previously, in the case of United India Insurance Co. Ltd vs Karam Chand and Ors in 2011, the Jammu and Kashmir high court had established that third parties include all those who suffer as a result of the use of the said motor vehicle in a public place, which includes occupants of the vehicle or even any other persons travelling by road or in any other vehicle who fall victim to the accident. All these individuals are liable to be awarded compensation as a result of such an accident.
