THIRD PARTY INSURNACE

Third-party insurance is an insurance policy purchased for protection against the claims of
another. One of the most common types is third-party insurance is automobile insurance. Third-
party offers coverage against claims of damages and losses incurred by a driver who is not the
insured, the principal, and is therefore not covered under the insurance policy. The driver who
caused damages is the third party.

Third-party insurance is essentially a form of liability insurance purchased by an insured (first

party) from an insurer (second party) for protection against the claims of another (third party).
The first party is responsible for their damages or losses, regardless of the cause of those
damages.

A third party insurance policy is a policy under which the insurance company agrees to
indemnify the insured person, if he is sued or held legally liable for injuries or damage done to a
third party. The insured is one party, the insurance company is the second party, and the person
you (the insured) injure who claims damages against you is the third party.

In National Insurance Co. Ltd. v. Fakir Chand, third party should include everyone (other than
the contracting parties to the insurance policy), be it a person traveling in another vehicle, one
walking on the road or a passenger in the vehicle itself which is the subject matter of insurance
policy.

There are two types of automobile third-party liability coverage. First, bodily injury liability
covers costs resulting from injuries to a person. These injuries' costs could include expenses like
hospital care, lost wages, and pain and suffering due to the accident. Second, property damage
liability covers costs resulting from damages to or loss of property. Examples of property
damage include the payment to replace landscaping and mailboxes, as well as compensation for
loss of use of a structure.

As required by law, drivers must carry at least a minimal amount of bodily injury liability and
property damage liability coverage. A few states do not require both or have other limitations.
Each state sets its minimum requirement for each type of coverage. Even in “no-fault” states,
liability coverage is all but essential. No-fault laws were established to reduce or eliminate
ordinary injury lawsuits affixed with low-dollar price tags and an overwhelming number of
claims for pain and suffering. Still, no-fault laws do not protect the insured from million-dollar
injury lawsuits stemming from seriously injured third parties. Both types of third-party insurance
are important, specifically for individuals, such as homeowners, with substantial assets to
protect. The more money and assets an insured has, the higher the limit should be for each type
of liability coverage.

In G. Govindan v. New India Assurance Co. Ltd., Third party risks insurance is mandatory
under the statute .This provision cannot be overridden by any clause in the insurance policy.

Other Types of Third-Party Liability Insurance

In most countries, third-party or liability insurance is compulsory insurance for any party that
may potentially be sued by a third party. Public liability insurance involves industries or
businesses that take part in processes or other activities that may affect third parties, such as
subcontractors, architects, and engineers. Here, the third-party can be visitors, guests, or users of
a facility. Most companies include public liability insurance in their insurance portfolio to protect
against damage to property or personal injury.

Salient Features of Third Party Insurance

1. Third party insurance is compulsory for all motor vehicles.

2. Third party insurance does not cover injuries to the insured himself but to the rest of the
world who is injured by the insured.
3. Beneficiary of third party insurance is the injured third party, the insured or the policy
holder is only nominally the beneficiary of the policy. In practice the money is always
paid direct by the insurance company to the third party (or his solicitor) and does not
even pass through the hands of the insured person.
4. In third party policies the premiums do not vary with the value of what is being insured
because what is insured is the legal liability' and it is not possible to know in advance
what that liability will be.
5. Third party insurance is almost entirely fault-based.(means you have to prove the fault of
the insured first and also that injury occurred from the fault of the insured to claim
damages from him)
6. Third party insurance involves lawyers aid
 7. The third party insurance is unpopular with insurance companies as compared to first
party insurance, because they never know the maximum amounts they will have to pay
under third party policies.

Relevant Provisions of Motor Vehicles Act, 1988 covers third party insurnace

Chapter 11 (Section 145 to 164) provides for compulsory third party insurance, which is
required to be taken by every vehicle owner. It has been specified in Section 146(1) that no
person shall use or allow using a motor vehicle in public place unless there is in force a policy of
insurance complying with the requirement of this chapter. Contravention of the provisions of
section 146 is an offence and is punishable with imprisonment which may extend to three
months or with fine which may extend to one thousand rupees or with both (section 196).
Section 147 provides for the requirement of policy and limit of liability. Every vehicle owner is
required to take a policy covering against any liability which may be incurred by him in respect
of death or bodily injury including owner of goods or his authorized representative carried in the
vehicle or damage to the property of third party and also death or bodily injury to any passenger
of a public service vehicle. According to this section the policy not require covering the liability
of death or injuries arising to the employees in the course of employment except to the extent of
liability under Workmen Compensation Act. Under Section 149 the insurer have been statutorily
liable to satisfy the judgment and award against the person insured in respect of third party risk.

Insurance Companies have been allowed no other defence except the following:

(1) Use of vehicle for hire and reward not permit to ply such vehicle.
(2) For organizing racing and speed testing;
(3) Use of transport vehicle not allowed by permit.
(4) Driver not holding valid driving license or have been disqualified for holding such
license.
(5) Policy taken is void as the same is obtained by non-disclosure of material fact.

In Sohan Lal Passi's v. P. Sesh Reddy it has been held for the first time by the Supreme Court
that the breach of condition should be with the knowledge of the owner. If owner's knowledge
with reference to fake driving licence held by driver is not proved by the Insurance Company,
such defence, which was otherwise available, can not absolve insurer from the liability.
PROXIMATE CAUSE

Proximate cause is concerned with how the actual loss or damage happened to insured party and
whether it is a result of an insured peril. It looks for what is the reason behind the loss, is that is
an insured peril or not. The doctrine of proximate cause is one of the six principles of insurance.
The principle of proximate cause virtually revolves around the claims administration and, more
precisely, diagnosing the playability or otherwise of a claim on the question of perils covered by
a policy. A policy may cover certain perils mentioned specifically therein (known as insured
perils), whilst some perils may be specifically excluded (known as excepted perils) and some
may still be neither included nor excluded (known as uninsured perils).

It is not always that much straightforward that a loss would be caused by a singular insured or
uninsured or an excepted peril so that a claim would clearly be either payable or not payable.
Difficult situations do occur where numbers of perils get involved simultaneously, some insured,
some uninsured and some still accepted. More so, the position gets further complicated when an
insured peril is followed up by an excepted peril or an excepted peril is followed up by an
insured peril, simultaneously getting mixed up by uninsured perils.

The principle of proximate cause has been established to solve such a cumbersome situation and
to enable a claims manager to decide whether a claim is at all payable or not and if payable, then
to what extent. In Pawsey v. Scottish Union and National, proximate cause means the active,
efficient cause that sets in motion a train of events which brings about a result, without the
intervention of any force started and working actively from a new and independent source.

It is the immediate cause and not the remote cause. The maxim is, “Causa Proxima nonremota
spectatur”. Immediate or proximate means Proximate in efficiency and not necessarily in time.
The consideration is what has actually brought about the result?

In Leyland Shipping Co. v. Norwich Union Fire Insurance Society, a ship was severely
torpedoed and was in the process of sinking. Almost immediately there was a cyclonic storm and
the ship sank. It was held that the proximate cause of the sinking of the ship was torpedo.
Although, the cyclone was nearer to sinking in time, nevertheless, a torpedo was the active
efficient cause, because the ship was so hard hit by a torpedo that it would have definitely sunk.
Maybe the cyclone has accelerated the speed of sinking and it can simply be regarded as a
remote cause.

Example- On way to the hospital, the ambulance meets a head-on collision with a lorry and all
persons on board the ambulance die including our man. The proximate cause of our man’s death
is the collision and certainly no scratches. Collision being the cause of death is very efficient
here whilst scratch is inefficient and remote.

In Yorkshire Dale S.S. Co. v. Minister Of War Transport, the statement made was,

“Choice of the real or efficient cause from out of the whole complex of the facts must be made
by applying commonsense standards. Causation is to be understood as the man in the street, and
not as either scientist or the metaphysician would understand it”.

Rule of Proximate Cause

With regard to pay-ability or otherwise of a claim, keeping in view the perils insured, uninsured
and excepted, certain rules of proximate cause should be noted carefully.

These are;

1. Single Cause: When a single cause gives rise to a claim the issue is simple. If the cause is an
insured one the claim is payable if the cause is uninsured or excepted the claim is not payable.

2. Concurrent Causes: It really becomes a difficult proposition when a loss is caused by the
operation of a number of perils, some insured, some uninsured and some excepted. If no
excepted peril is involved, then provided that there is at least one insured peril involved, the
claim becomes payable by disregarding others. However, if excepted peril is involved with
insured peril then if the effects of excepted peril can be separated from that of the insured peril
then there is a liability for the loss caused by the insured peril. If it cannot be so separated then
there is no liability whatsoever.

3. Unbroken Sequence: If excepted peril is followed by an insured peril, there is no claim. If on

the other hand an insured peril is followed by an excepted peril there is a claim for the loss
caused by the insured peril. When several events occur in an unbroken sequence than provided
there is no excepted peril involved, the whole claim is payable only if an insured peril is
involved.
4. Broken Sequence: If excepted peril is followed by an insured peril as a new and independent
cause then there is a liability for the loss caused by the insured peril. If on the other hand, an
insured peril is followed by an excepted peril as a new and independent cause, here also there is
a liability for the loss caused by the insured peril.

WAIVER OF THE DOCTRINE

Sometimes the application of the rule of proximate cause may be waived by insurers through
policy condition. The best example here is probably the standard fire policy. The policy does not
cover loss due to “spontaneous fermentation”, but any resultant fire damage is covered.

This is because the insurers have used the word “it’s own” before “spontaneous fermentation”
which means that only the property subjected to spontaneous fermentation is excluded but any
resultant fire damage is covered.

In Coxe v. Employers Liability Assu. (1916), This case is important particularly because it
relates to a situation wherein the applicability of proximate cause was modified by special policy
wordings. It was a personal accident policy covering accidental death but not caused directly or
indirectly by or traceable to war. The fact was that the insured was knocked down by a running
train, in course of his duty as a military officer, whilst guarding a railway line.

It was held that even though the proximate cause of his death was an accident, the claim under
the policy was not recoverable simply because the cause of the death could be remotely traced to
war which was excluded from the ambit of the policy coverage. Had the wordings of the policy
not been like that, the claim would have been clearly payable under the policy.

Proximate Cause in Marine Insurance

According to Section 55 (1) Marine Insurance Act, 1963 states that subject to the provisions of
the Act and unless the policy otherwise provides the insurer is liable for any loss proximately
caused by a peril insured against, but subject to as aforesaid he is not liable for any loss which is
not proximately caused by a peril insured against.”

Section 55 (2) enumerates the losses which are not payable are

(i) misconduct of the assured,

(ii) delay although the delay be caused by a peril insured against,
 (iii) ordinary wear and tear, ordinary leakage and breakage inherent vice or nature of the
subject matter insured, or any loss proximately caused by rates or vermin or any
injury to machinery not proximately caused by maritime perils.

The insurer is not liable for any loss attributable to the willful misconduct of the assured, but,
unless the policy otherwise provides, he is liable for any loss proximately caused by a peril
insured against.

The insurer will not be liable for any loss caused by delay unless otherwise provided.

The insurer is not liable for ordinary wear and tear ordinary leakage and breakage, inherent vice
or nature of subject-matter insured, or for any loss proximately caused by rats or vermin, or for
any injury to machinery not proximately caused by maritime perils.

The causa proxima of a loss is the cause of the loss, proximate to the loss, not necessarily in
time, but inefficiency. While remote causes may be disregarded in determining the cause of a
loss, the doctrine must be interpreted with good sense.”

So as to uphold and not defeat the intention of the parties to the contract. Thus the proximate
cause is the actual cause of the loss. There must be the direct and non-intervening cause. The
insurer will be liable for any loss proximately caused by a peril insured against.

Proximate Cause in life insurance

Proximate Cause in life insurance is the efficient or effective, cause which causes the loss is
called proximate cause, it is the real actual cause of loss. If the cause of loss (peril) is insured, the
insurer will pay, otherwise, the insurer will not compensate.

In life insurance, the doctrine of Causa Proximo (Proximate Cause) is not applied because the
insurer is bound to pay the amount of insurance whatever may be the reason of death. It may be
natural or unnatural.

So, this principle is not of much practical importance in connection with life assurance, but in the
following cases, the proximate causes arc observed in the life insurance, too.

War-risk: Where policy is issued on the exclusion of War and aviation risks, the proximate cause
of death is important because the insurer waives its liability’ if death occurred, in this case, while
the insured was in the field or is engaged in the operation of war and aviation. Only premium
paid or surrender value whichever is higher is payable and the total policy amount is not payable.

Life Insurance and Suicide: If a suicide occurs within one year of the policy, or there was an
intention to commit suicide arid the payment of policy would be restricted, only up to the interest
of the third party in the policy provided the interest was expressed at least one month before the
suicide. A problem arises when it is a case of accident benefit, where an insured under an
accident policy is killed or suffers an injury, which has an immediate cause and a remote cause.
In accident benefit policy, double of the policy amount is paid. Therefore, the cause of death in
this policy is of paramount importance.
MOTOR INSURANCE

Motor or vehicle insurance is an insurance policy that protects the owner of the vehicle against
any financial loss arising out of damage or theft of vehicle. Motor vehicle coverage also includes
damage caused to third party or property. Motor Insurance is mandatory in India.Motor
Insurance is available for both cars and two wheelers. Owing to low value of two wheeler
vehicles, their premium is very nominal. When we buy a motor vehicle, we need to buy a motor
insurance. There are, however, many types of motor insurance policies available. The common
types are:

• Third party cover - This policy insures you against claims for bodily injuries or deaths
caused to other persons (known as the third party), as well as loss or damage to third
party property caused by your vehicle.
• Third party, fire and theft cover - This policy provides insurance against claims for third
party bodily injury and death, third party property loss or damage, and loss or damage to
your own vehicle due to accidental fire or theft.
• Comprehensive cover - This policy provides the widest coverage, i.e. third party bodily
injury and death, third party property loss or damage and loss or damage to your own
vehicle due to accidental fire, theft or an accident.

A standard motor insurance will not cover certain losses, such as your own death or bodily injury
due to a motor accident, your liability against claims from passengers in your vehicle (except for
passengers of hired vehicles such as taxis and buses) and loss or damage arising from an act of
nature, such as flood, storm and landslide. However, we may pay additional premiums to extend
your policy to cover flood, landslide, landslip as well as cover your passengers. It is important to
check the policy for the exclusions.

Important points to consider when buying motor insurance policies

Insured value/sum insured- If you are buying a policy against loss/damage to your vehicle, you
must ensure that your vehicle is adequately insured as it will affect the amount you can claim in
the event of loss/damage. For a new vehicle, the insured value will be the purchase price while
for other vehicles, the insured value is the market value of the vehicle at the point you apply for
the insurance policy.
 • Under-insurance – If you insure your vehicle at a lower sum than its market value, you
will be deemed as self-insured for the difference, i.e. in the event of loss/damage, you
will only be partially compensated (up to the proportion of insurance) by your insurance
company.
• Over-insurance – Should you insure your vehicle at a higher sum than its market value,
the maximum compensation you will receive is the market value of the vehicle as the
policy owner cannot ‘profit’ from a motor insurance claim.

Duty of disclosure- You should disclose fully all material facts, including previous accidents (if
any), modification to engines, etc. When in doubt as to whether a fact is relevant or not, it is best
to ask your insurance company. If you fail to disclose any material fact, your insurance company
may refuse to pay your claim or any claim made by a third party against you. In such cases, you
are personally liable for such claims.

Price- The price you pay for your motor insurance will depend on the type of policy selected.
The insurance premium charged by your insurance company is the standard minimum rate in
accordance with the Motor Tariff. However, in addition to the standard minimum rate, your
insurance company may impose additional premiums known as loadings to the premium payable
in view of higher risk factors involved such as age of vehicle and claims experience.

No-claim-discount- The premium payable may be reduced if you have no-claim-discount (NCD)
entitlement. NCD is a ‘reward’ scheme for you if no claim was made against your policy during
the preceding 12 months of policy. Different NCD rates are applicable for different classes of
vehicles. For a private car, the scale of NCD ranges from 25% to 55% as provided in the policy.

Excess- Also known as a ‘deductible’. This is the amount of loss you have to bear before your
insurance company will pay for the balance of your vehicle damage claim. The types of excess
applicable are as follows:

Compulsory excess of RM400 – if your vehicle is driven by a person not named in your policy
or a person named in your policy who is under the age of 21, the holder of a provisional (L)
driving licence or the holder of a full driving licence of less than two years.

Other excess – applicable at the discretion of your insurance company and in some cases, no
excess is imposed. You can negotiate with your insurance company on this excess.
Insurance policy

With the implementation of e-cover note in 2005, insurance companies will transit motor
insurance information electronically to the Road Transport Department (RTD) and you will
receive confirmation slip containing details of your motor cover as confirmation of the purchase
of your motor insurance. Thereafter, within one month, you should receive:

• the Schedule which shows your name and address, details of the vehicle, the sum insured
(for comprehensive and third party fire & theft policies), the period of insurance, the
policy number, your NCD entitlement, premium breakdown, excess and named drivers;
• the certificate of insurance which shows your name, vehicle model, registration number
and cubic capacity, period of insurance, authorised drivers and limitations of use. In some
cases, this may be issued at the point of purchase in place of the cover note; and
• a motor policy which shows the terms and conditions of cover provided by your
insurance company.

Principle of indemnity

The principle of indemnity is crucial in insurance. Based on this principle, the insurance cover
will compensate your loss by putting you back to the same position you were in immediately
before the loss. As you will be compensated only for the loss suffered, you cannot 'profit' from a
motor insurance claim. Therefore, if your vehicle is more than five years old, betterment will
apply.

Betterment occurs when in the course of repairing an accident-damaged vehicle, an old part is
replaced with a new franchise part. In line with the principle of indemnity, you will have to bear
the difference in costs as you are in a better position after the accident with the new franchise
part. However, the application of betterment is at the discretion of your insurance company.