Kiran Raj

The Supreme Court Division Bench of Justices Sanjay Karol and Prashant Kumar Mishra held that insurance companies cannot deny compensation to accident victims merely because the vehicle involved had deviated from its permitted route. The Court stated that rejecting compensation on such a ground would be contrary to the purpose of motor vehicle insurance. Upholding the Karnataka High Court’s decision, it directed the insurer to pay the compensation awarded to the dependents of the deceased and permitted recovery of the amount from the vehicle owner under the “pay and recover” principle.

The case arose from a motor accident on 7 October 2014 in which a motorcyclist died after being struck by a bus driven in a rash and negligent manner within Channapatna City. The dependents of the deceased filed a claim before the Motor Accident Claims Tribunal seeking ₹50,00,000 compensation with 18% interest, stating that the deceased was the sole earning member operating a Shamiyana Centre and ration shop, earning approximately ₹15,000 per month.

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The Tribunal, by order dated 14 December 2016, took the notional monthly income as ₹8,000 and awarded ₹18,86,000 with 6% annual interest. The claimants appealed before the High Court of Karnataka seeking enhancement, while the insurance company filed a separate appeal contending that the bus had violated permit conditions by entering a route not covered by the permit.

The High Court reassessed the deceased’s income at ₹15,750 per month, added 40% towards future prospects, deducted one-fourth towards personal expenses, applied a multiplier of 16, and awarded a total of ₹31,84,000 under various heads. It directed the insurer to satisfy the award and recover the amount from the vehicle owner under the “pay and recover” principle.

Before the Supreme Court, the issue framed was whether deviation from the prescribed route as per the permit granted by the state transport authority would affect the insurer’s liability for an accident occurring on such a deviated route. The Court examined earlier decisions including National Insurance Co. Ltd. v. Swaran Singh (2004), New India Assurance Co. v. Kamla (2001), S. Iyyapan v. United India Insurance Co. Ltd. (2013), and M/s Chatha Service Station v. Lalmati Devi (2025) in determining the correctness of the High Court’s application of the “pay and recover” principle.

The Court observed that “the offending vehicle did not have the permit to enter Channapatna City, where the accident took place. This position is not in dispute. Unquestionably, therefore, the terms of the permit have been deviated.”

It stated that “the purpose of an insurance policy in the present context is to shield the owner/operator from direct liability when such an unforeseen/unfortunate incident takes place.” The Bench further recorded that “to deny the victim/dependents of the victim compensation simply because the accident took place outside the bounds of the permit and, therefore, is outside the purview of the insurance policy, would be offensive to the sense of justice, for the accident itself is for no fault of his.”

At the same time, the Court noted that “when an Insurance Company takes on a policy and accepts payments of premium in pursuance thereto, it agrees to do so within certain bounds. The contract lays down the four corners within which such an insurance policy would operate.”

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It further stated that “to expect the insurer to pay compensation to a third party, which is clearly outside the bounds of the said agreement, would be unfair.” Concluding on the balance between compensation and contractual limits, the Court observed that “balancing the need for payment of compensation to the victim vis-à-vis the interests of the insurer, the order of the High Court applying the pay and recover principle, in our considered view, is entirely justified and requires no interference.”

The Court directed that “the appeals are dismissed; however, there shall be no order as to costs. Pending application(s), if any, shall stand disposed of.”

Case Title: K. Nagendra v. The New India Insurance Co. Ltd. & Ors.
Neutral Citation: 2025 INSC 1270
Case Number: Civil Appeal Nos. (arising out of SLP (C) Nos. 7139-7140 of 2023)
Bench: Justice Sanjay Karol and Justice Prashant Kumar Mishra