Comprehensive/Package Motor Insurance Covers Vehicle Occupants: Supreme Court Explains Different Types Of Policies
The Supreme Court has held that a comprehensive motor insurance policy covers the owner and occupants of the vehicle and cannot be treated on par with a basic third-party insurance policy, while also recommending that insurers adopt a standardised "opt-in" mechanism enabling customers to choose additional covers at the time of purchasing insurance.
The judgment came in an appeal filed by National Insurance Company against a Telangana High Court decision awarding compensation to the family of T. Ramu, who died in a road accident involving his own Maruti 800 car.
Ramu was returning from Tirupati to his native village on July 13, 1996, when an unidentified lorry allegedly rammed into his car from behind near Singarayakonda. He succumbed to the injuries during treatment. Since the offending lorry could not be traced, his legal representatives sought compensation under the comprehensive insurance policy covering his own vehicle.
The Motor Accident Claims Tribunal had rejected the claim, holding that no additional premium had been paid to cover the owner's personal risk. However, the Telangana High Court reversed the decision and awarded the family ₹10,00,500 with 7.5% annual interest, holding that the comprehensive policy covered the owner travelling in the vehicle as an occupant.
Dismissing the insurer's appeal, a Bench of Justice Sanjay Karol and Justice Prashant Kumar Mishra upheld the High Court's view. Referring to the IRDA circular dated November 16, 2009, the Court observed that under a comprehensive or package policy, insurance companies are liable to compensate occupants of the vehicle. Stressing that courts should not adopt a hyper-technical approach in motor accident claims, the Bench found no reason to interfere with the High Court's reasoning.
"It is well settled that in matters concerning motor accident claims, Courts should not adopt a hyper-technical approach. As rightly submitted by the claimant- respondents, in accordance with the circular of the IRDA dated 16.11.2009, insurance companies are liable to compensate for any occupant in the vehicle under a comprehensive/package policy. Consequently, we find no reason to disagree with the reasoning adopted by the High Court. The present Civil Appeal is dismissed to that extent."
While deciding the appeal, the Court also undertook a broader examination of the existing motor insurance framework and explained the different categories of insurance policies available.
Types of insurances
1. Third-party insurance: The bench explained that this policy is mandatory under the MVA Act and is commonly referred to as the Act Only Policy. It covers liability for injury, death or damage to the property of third parties. However, it doesn't cover damage to the insured vehicle itself.
The bench explained that the MVA mandates insurance covering third-party risks(also known as third-party insurance) under Section 146. As per the legislative mandate, no person is allowed to use the vehicle in the absence of third-party insurance.
2. Comprehensive insurance policy: It covers liability for injury, death, or damage to the property of occupants of vehicles. For instance, it would cover the insurance of the person sitting on the passenger seat of the vehicle along with the driver.
The Court has directed that the insurer must display the benefits of obtaining comprehensive motor-vehicle insurance policies in a easy-to-read format on its websites.
3. Own-Damage cover: This is an optional standalone policy, which covers damage to the insured vehicle due to accidents, fire, theft, etc, depending on the terms of the policy.
4. Commercial vehicle insurance policy: It covers vehicles used for commercial/business purposes such as trucks etc. It covers third-party liability as well as damage to the goods being carried, the occupant of the vehicle, and the damage to the vehicle itself.
The Court recorded the IRDAI's submission that a broad four-layer insurance structure would be introduced for private vehicles to provide greater clarity on the various policy options available to vehicle owners and enable them to make informed choices.
According to the IRDAI, the first layer would consist of a mandatory Third-Party Only Policy, which would serve as the base policy and the minimum insurance cover required under Section 146 of the Motor Vehicles Act. The premium for this policy would continue to be fixed through a consultative process between the IRDAI and the Central Government.
The second layer would comprise an optional Legal Liability Cover for occupants or pillion riders, excluding the owner, driver and the insured's family members. The IRDAI submitted that this cover would be available on payment of an additional premium, with pricing to be determined by the respective insurance companies.
The third layer would be an optional Personal Accident Cover for the owner, driver and all occupants or pillion riders, including the insured's family members. This cover would provide compensation in cases of death or permanent disability, with premiums to be fixed by the insurance companies.
The fourth layer would be an optional Own Damage Cover, which would insure the vehicle against loss or damage. Its premium would also be determined by the respective insurers.
The Court suggested that every customer purchasing motor insurance, whether online or offline, be provided with a "customer option form" listing the mandatory third-party policy and each of the optional covers, along with their coverage details and applicable premiums. Customers would be able to choose the optional covers by selecting them through check boxes.
The Court proposed a template as folllows :
The Court said that IDRA would be free to modify the format of the customer option form if the need arose.
Case Details: National Insurance Co Ltd v Smt Thungala Dhana Laxmi
Citation : 2026 LiveLaw (SC) 759