SC makes it mandatory for automakers to offer long-term third-party cover for new vehicles

Supreme Court has made it mandatory for automobile companies to offer third-party insurance cover for buyers.

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Taking cognisance of the rising number of fatal road accidents, the Supreme Court has made it mandatory for automobile companies to offer third-party insurance cover for buyers. From September 1, third-party insurance will be mandatory for four-wheelers and two-wheelers being sold, for three years and five years respectively. 

The decision was taken by a bench constituting justices Madan B Lokur and Deepak Gupta, who ruled in favour of compulsory third-party insurance for vehicles in India. This means no vehicles will remain uninsured. Earlier, auto owners had to renew car insurance every year while insurance companies offered two-wheeler third party insurance for up to three years. 

Related: Claiming compensation under third-party motor insurance 

The Supreme Court has only reinforced the decision as per the Motor Vehicles Act which makes it mandatory for all vehicles plying on Indian roads to possess third-party motor insurance. 

With third-party insurance, the vehicle owner gets protection against third-party liabilities if the driver of the vehicle causes an accident resulting in death or injury to pedestrians or other vehicular passengers. The insurance coverage of damage to own vehicle is optional. It necessarily protects the damage caused to the third party and may or may not include individual vehicle damage. 

The Insurance Regulatory and Development Authority of India (IRDAI) mandate is to revise the third-party premium for motor vehicles on April 1 every year. With the recent apex court order, IRDAI will need to issue fresh rates for three-year car and five-year two-wheeler insurance in the third-party category. The premium for the multi-year policy is likely to be higher. 

Related: All you need to know about Third Party Liability in car insurance

IRDAI is expected to form a committee to deal with matters relating to the multi-year motor insurance policy and make further price recommendations for 2019-20. The committee will have 16 representative members from the road ministry, finance ministry, auto industry bodies, and insurance companies. Classification of vehicles, vehicle engine capacity, and data related to pricing are some points to be factored in while fixing the rates. 

The decision by the SC bench came in the wake of road accidents proving to be the biggest cause of death in India. About 150,000 people die on Indian roads every year, which makes road safety improvement a priority. A public interest litigation (PIL) filed by S Rajasekaran, Chairman and Head of the Orthopaedic Department, Ganga Hospital, Coimbatore, was the initiative that caused the SC bench to take the welcome decision. 

Related: What is not covered by your motor insurance policy

The order is expected to ease the legal worries of road accident victims, who can now contact the insurance company for compensation instead of chasing the offending vehicle owner for damages. 

As per the panel report, longer-term third-party insurance cover at the time of purchase of the vehicle would ensure that road accident victims do not suffer due to the fault of the owner not renewing his or her policy every year.

Advocate Gaurav Agarwal, who is assisting the court in the matter, said the panel forwarded the suggestion after it found that out of 18 crore vehicles registered in the country, 12 crore are uninsured. This also includes heavy vehicles. About 50% of the uninsured vehicles are two-wheelers, and statistics reflect that a majority of accidents are caused by them.


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