Supreme Court Holds Insurer Liable, Sets Aside MP HC’s Pay-and-Recover Order

Last Updated:September 08, 2025, 18:53 IST

The case was related to a fatal accident involving a utility van that lost control and plunged into a gorge, causing the deaths of several individuals

The Court held that the van in question was duly registered with a contract carriage permit allowing it to carry passengers and goods. (PTI/File)

The Supreme Court of India on September 4 ruled that an insurance company cannot avoid liability for compensation arising from a tragic utility van accident in Madhya Pradesh, setting aside a “pay and recover" order of the High Court.

The Court held that the van in question was duly registered with a contract carriage permit allowing it to carry passengers and goods, and since the insurer had issued a comprehensive package policy after verifying the documents, the liability squarely rested with it.

The case stemmed from a fatal accident involving a utility van that lost control and plunged into a gorge, causing the deaths of several individuals. Among the deceased were a student, a catering worker, a painter, a postal employee, and an unemployed man. Their families approached the Motor Accident Claims Tribunal seeking compensation. The claims were filed on behalf of both passengers travelling in the van and pedestrians who were caught in the accident.

The Madhya Pradesh High Court, while considering the insurer’s defence, had concluded that the van was not permitted under its insurance policy to carry passengers. Treating the vehicle as a goods carriage, it directed the insurance company to pay the compensation amounts in the first instance and subsequently recover the sums from the owner of the vehicle, Shyam Lal. This “pay and recover" arrangement was challenged before the Supreme Court by the owner.

In his appeal, Shyam Lal contended that the vehicle was registered as a utility van with a seating capacity of five persons including the driver, apart from its goods-carrying capacity. He pointed out that a valid contract carriage permit had been issued for the van, thereby authorising it to carry passengers for hire or reward. He further argued that the insurer had issued a comprehensive package policy only after examining the registration certificate and permit, which clearly reflected the vehicle’s dual utility. On these grounds, he submitted that the High Court had erred in categorising the van as a goods vehicle and imposing liability on him through a pay-and-recover order.

The insurer, however, maintained that the van had been overloaded and carried more passengers than permitted. It argued that the fact of multiple claim petitions, coupled with allegations that nine individuals had died in the accident, demonstrated that the van was carrying more persons than allowed under the insurance policy. On this basis, it sought to justify the High Court’s finding that it was not bound to bear the entire liability.

The Supreme Court rejected the insurer’s submissions, observing that the presence of multiple claimants did not establish overloading. The Court pointed out that one of the deceased was a pedestrian and not a passenger in the van. Moreover, it cautioned against assuming that every individual rescued from the accident site had necessarily been inside the vehicle at the time of the mishap.

The bench comprising Justices K Vinod Chandran and N V Anjaria examined the documents on record and noted that the registration certificate classified the van as a utility vehicle with a dual structure — half portion for goods and the other for passengers. The permit issued for the van was a contract carriage permit, which, unlike a goods carriage, authorises the carrying of passengers for hire or reward. The Court emphasised that once such registration and permit were in place, there was no basis for treating the van as a goods vehicle.

The Court also underscored that the comprehensive package policy had been issued by the insurance company after scrutiny of the relevant documents. Both the registration certificate and the permit reflected the van’s passenger-carrying capacity, and the insurer was fully aware of this fact at the time of issuing the policy. Having accepted the dual-purpose nature of the vehicle and having collected premiums accordingly, the insurer could not later disclaim liability on grounds inconsistent with the documents it had verified.

In categorical terms, the Court held that the liability to compensate the victims of the accident lay with the insurance company and not the vehicle owner. It found the High Court’s direction permitting the insurer to recover the compensation amount from the owner to be legally unsustainable. The bench observed that the High Court’s approach stemmed from an incorrect characterisation of the vehicle as a goods carriage and an unwarranted assumption of overloading.

By restoring the Tribunal’s award against the insurer, the Supreme Court ensured that the dependents of the deceased victims would receive compensation without further procedural obstacles.

Sanya Talwar

Sanya Talwar, Editor at Lawbeat, has been heading the organisation since its inception. After practising in courts for over four years, she discovered her affinity for legal journalism. She has worked previousl...Read More

Sanya Talwar, Editor at Lawbeat, has been heading the organisation since its inception. After practising in courts for over four years, she discovered her affinity for legal journalism. She has worked previousl...

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News india Supreme Court Holds Insurer Liable, Sets Aside MP HC’s Pay-and-Recover Order

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