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Petitioner: M/s. EASTERN GENERAL INSURANCE COMPANY LIMITED VS Respondent: AZHAR ALI and 2 JUDGMENT
Court Name: Supreme Court of Pakistan Judge(s): Saleem Akhter, Muhammad Afzal Zullah, Shafi-ur-Rehman Title:M/s. EASTERN GENERAL INSURANCE COMPANY LIMITED vs AZHAR ALI and 2
JUDGMENT
Reported As: PLD 1993 Supreme Court 158 Result: Appeals accepted Judgment JUDGMENT SHAFIUR RAHMAN, J.---Leak to appeal was granted with a view to examine the interpretation of sections 94 to 96 of the Motor Vehicles Act, 1939 which stand saved by the Motor Vehicles Ordinance, 1965. 2. The facts in the two appeals and the decisions rendered therein are somewhat different and need separate narration in order to bring out the issue. ' CA.152-K/84. 3. Azhar Ali (respondent No,1) instituted a civil suit on the original side in the High Court of Sindh at Karachi claiming a sum of Rs,60,000 on account of the death of his son Javed Ali in a road accident on 6th of March, 1976. The vehicle involved in the accident was a Suzuki van bearing Registration No,KAZ-6985 of which Sheikh Muhammad Rais defendant/pendent No,2 was recorded to be the owner while the other respondent (No,3) Azad Badshah was driving it. The vehicle was said to be insured with the appellant. This claim was contested by the appellant on various grounds including the ground that though it had insured the vehicle and its owner but the insured person namely, the user/owner was different than Shaikh Muhammad Rais Shamsi on whose behalf he was required to pay the compensation. The learned Judge in the High Court arrived at the liability of the respondents Nos.2 and 3 but as regards that of the present appellant he refered it to a larger Bench. The two questions framed for determination by the larger Bench were as hereunder:-- "(1) Whether the insurer who has insured the vehicle against third party risks, is liable although the real owner of the vehicle at the time of the accident is not the person named in the insurance policy?
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(2) Whether a driver who is permitted to drive the insured vehicle will be deemed to be an insured under the insurance policy, though his name is not specifically mentioned in the policy? If so, whether the insurance company will be liable if such driver is found to be liable?" 4. The facts forming the background of these two questions were that Shaikh Muhammad Rais Shamsi had purchased vehicle involved in the accident during the currency of the insurance policy but as the registration book was not transferred in his name, he obtained the renewal of the insurance policy in the name of the previous owner Muhammad Shagil and not in his own name. This had afforded a ground to the appellant to raise the plea that the insured person was a different one and the person driving and involved in the accident had no authority or permission to drive the vehicle insured and on that account the appellant was not liable in the matter. 5. A survey of the British-and sub-continental decisions of the superior Courts was undertaken very exhaustively by the High Court's larger Bench and the conclusion reached was expressed as hereunder:-- "...In order to maintain an action against an insurer, it is incumbent to show that the person or classes of persons specified in the policy have incurred any liability in terms of clause (b) of subsection (1) of section 95. In other words, if the liability incurred is by a person other than the person or. Classes of persons specified in the policy, the insurer shall not be liable. It is only when it is shown that the liability was incurred during the currency of the policy by the person or classes of persons specified in the policy, the above subsection (2) of section 96 is attracted to." ' The condition in the Insurance Certificate relevant to the issue was held to be para. 5, which read as hereunder:-- "Person or classes of persons entitled to drive.--Any persons provided the person driving holds a valid licence to drive the vehicle." ' On the basis of this provision, the following conclusion was drawn:- "It may be observed that the above-quoted para. 5 of the insurance certificate is susceptible to two interpretations, namely, any persons mean the person or persons in employment/contemplation of the insured but liberal construction of the above para. Will cover any person holding a valid driving licence. Zafar Hussain Mirza, J preferred the latter interpretation and pointed out that the driver conductor and passengers whoever they may be at the material time a class of persons insured and that it was not warranted to add condition that only a driver in the employment of the main insured person was intended to be covered by the insurance policy. However, I may point out that if the above insurance certificate would have been couched differently, for example providing against above para. 5 `Owner or any person driving with his permission or order having a valid driving licence', in that event, it would not have been possible t take the above view, which found favour with Zafar Hussain Mirza, J I am inclined to subscribe to the above view found favour with Zafar Hussain Mirza, J. As it is a beneficial view and also seems to be in consonance with the spirit of the provisions of the Act highlighted hereinabove in para 6." ' The two questions were answered as hereunder:-- "(1) That an insurer shall be liable under the insurance policy against third party risks in case the action is brought in respect of the liability incurred by the person or classes of persons specified in the insurance policy in terms of clause (b) of subsection (1) of section 95 notwithstanding the transfer of ownership of the insured vehicle. (2) The question whether a driver can be deemed to be an insured under the insurance policy will depend on the terms of the insurance certificate or the insurance policy. If he is covered by the person or classes of persons specified in the policy he shall be deemed to be an insured person under the insurance policy." ' On the basis of it, the appellant was adjudged liable notwithstanding the fact that the insured person was different and the person permitting the driver to drive the vehicle was not the insured
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person. ' C.A.116-K/85: 6. In Civil Appeal No,116-K/1985, one Mst. Ayesha Bai (respondent No,1) filed a suit under section 4 of the Fatal Accidents Act of 1855 claiming damages for the death of her husband Mr.R.P. Hamza on 19-2-1967 caused by a bus bearing No, KAT-7037. The bus was being driven by Abdul Ghafoor (respondent No,2) who was employed by M/s. United Bus Service (respondent No,3) for the purpose. On being served with a notice under section 96 (2) of the Motor Vehicles Act, 1939, the appellant submitted objections to the claim pleading that the insured person in respect of that vehicle was Habib Ahmad and the person driving the vehicle at the time the accident took place was not one who was permitted and authorised to use the bus by the insured person but by the transferee who had not got the, bus insured. The insurance policy itself was produced in this case. The Judge trying the suit on facts took note of the following matters:-- "Now there is no dispute that there was a valid and effective policy as required by section 94 of the said Act covering the use of Bus No,KAT-7037 the vehicle involved in the event. The policy on its face shows its validity period from 5-4-1968 to 4-4-1969 and therefore, on the date of the event viz. 19-2-1969 it was obviously in force. It is also clear from the policy that it was issued to Mr.Habib Ahmad and the name of defendant No,2 nowhere figures as the person insured. The decree against defendant No,2 therefore, as already stated, would not be enforceable against or bind the company. But Mr. Saeed-uz Zaman contended that defendant No,2 has been proved to be the driver of the bus at the relevant time and as the policy extended the insurance cover to any driver of the vehicle, the decree against defendant No,1, in any case will be binding upon the company." ' The perusal of the Insurance Policy (Ex.5/1) shows that it commences with the following recitals:-- "Whereas the insured by the proposal and declaration dated as stated in the schedule which shall be the basis of this contract and is deemed to be incorporated herein has applied to the company for the insurance hereinafter contained........................................." ' The terms and conditions of the policy include a reference to the driver of the vehicle and inter alia provide that the company will indemnify "any driver who is driving the motor vehicle as declared by the proposer or any person authorised by him on his behalf'. The reference therefore, so far as the driver is concerned, is to the driver declared by the proposer which in turn has reference to the declaration contained the schedule annexed to the policy of which reference has been made in the recitals. The schedule mentions no specific name against the column relating to the driver but merely states 'driver, conductor and 37 passengers'. Reading the contents of the policy as a whole it appears that the policy extended to insurance cover to any driver who was driving the vehicle at the relevant time." ' It was further concluded that-- "in the instant case the language of the relevant term of the policy relating to the driver is couched in much wider terms than in the reported case. Mere there is no qualification that the driver to be entitled to indemnity must be one who should be driving the vehicle on the insured's order or with his permission. The dictum laid down in the decision is therefore applicable with greater force in the present case and the insurance company cannot therefore avoid its liability by pleading the absence of the main insured's permission." ' On these facts and findings, the appellant was held liable. On Intra Court Appeal, this judgment was affirmed and upheld by reference to the judgment of the Full Bench of the High Court which had by then come to be reported as Azhar Ali v. Sh.Muhammad Raees Shamsi and 2 others (PLD 1984 Karachi 38). 7. The arguments addressed by the learned counsel for the appellants, the Insurance Companies are straightforward. They state that they are being made responsible for their statutory liability and nothing beyond it. The statutory provisions (sections 95 and 96 of the Motor Vehicles Ordinance)
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provide for indemnification of the insured. Insured person is actually the user, the owner or the person who seeks to be insured. The contract is between the insured and the Insurance Company. It is insurance of indemnification whereby the direct and indirect liability of the insured is picked up as required by the statute by the Insurance Company. The insurance of the user of the vehicle if he happens to be different from the insured is on the extended principle contained in section 95 of the Motor Vehicles Ordinance itself which is limited to permitting someone to use. The permission to use must come from the insured person and if it has come and in fact exists or can be implied then that permitted person will also on account of the statutory extension of the Insurance fall within the category insured. If the permission of the insured person is wanting the extended connection between the insured person and the user would not exist and the insurance company would not in that case through the insured be liable for indemnification of the insured or the user. In order to further strengthen their case it is stated that the certificate of insurance itself contained the condition that it was not transferable. Further, all contracts of indemnity disappear or cease to have legal efficacy the moment the insurable rights of the insured are transferred. As soon as the primary insured person parted with the property wholly and unequivocally the policy came to an end and so did the liability of the appellants as insurer. 8. The relevant portions of sections 94 and 95 of the Motor Vehicles Act are reproduced as hereunder:-- "94. Necessity for insurance against third party risk.--(1) No person shall use except as a passenger or cause or allow any other person to use a motor vehicle in a public place, unless there is in force in relation to the use of the vehicle by that person or that other person, as the case may be, a policy of insurance complying with the requirements of this Chapter. ' Explanation.--A person driving a motor vehicle merely as a paid employee, while there is in force in relation to the use of this vehicle such policy as is required by this subsection, shall not be deemed to act in contravention of the subsection unless he knows or has reason to believe that there is no such policy in force. (2).................................................................................... 95. Requirements of policies and limits of liability.--(1) In order to comply with the requirements of this Chapter, a policy of insurance must be a policy which-- (a) is issued by a person who is an authorised insurer or by a cooperative society allowed under section 108 to transfer the business of an insurer; and (b) insures the person or classes of persons specified in the policy to the extent specified in subsection (2) against any liability which may be incurred by him or them in respect of the death of or bodily injury to any person caused by or arising out of the use of the vehicle in a public place in Pakistan or in a reciprocating territory: ' Provided that a policy shall not be required-- (i) to cover liability in respect of the death, arising out of and in the course of his employment, of the employee of a person insured by the policy or in respect of bodily injury sustained by such an employee arising out of and in the course of his employment, other than a liability arising under the Workmen's Compensation Act, 1923, in respect of the death of, or bodily injury to any such employee-- (a) engaged in driving the vehicle; or (b) if it be a public service vehicle, engaged as a conductor of the vehicle or in examining tickets on the vehicle; or (c) if it be a goods vehicle, being carried in the vehicle; or (ii) except where the vehicle is a vehicle in which passengers are carried for hire or reward or by reason of or in pursuance of contract of employment, to cover liability in respect of the death of or
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bodily injury to persons being carried in or upon or entering or mounting or alighting from the vehicle at the time of the occurrence of the event out of which a claim arises; or (iii) to cover any contractual liability. (2) Subject to the provision of subsection (1), a policy of insurance shall cover any liability incurred in respect of any one accident up to the following limits namely:-- (a) where the vehicle is a goods vehicle, a limit of twenty thousand rupees in all, the liabilities, if any, arising under the Workmen's Compensation Act,1923, in respect of the death of, or bodily injury to, employees other than the driver being carried in the vehicle being limited to six such employees; (b) where the vehicle in which passengers are carried for hire or reward or by reason of or in pursuance of a contract of employment, in respect of persons other than passengers carried for hire or reward, a limit of twenty thousand rupees; and in respect of passengers a limit of twenty thousand rupees in all, and four thousand rupees in respect of an individual passenger, if the vehicle is registered to carry not more than six passengers excluding the driver or two thousand rupees in respect of an individual passenger, if the vehicle is registered to carry more than six passengers excluding the driver; (c) where the vehicle is a vehicle of any other class the amount of the liability incurred. (3) Omitted. (4) A policy shall be of no effect for the purposes of this Chapter unless and until there is issued by the insurer in favour of the person by whom the policy is effected a certificate of insurance in the prescribed form and containing the prescribed particulars of any conditions subject to which the policy is issued and any of other prescribed matters; and different forms, particulars and matters may be prescribed in different cases. (5) Notwithstanding anything elsewhere contained in any law, a person issuing a policy of insurance under this section shall be liable to indemnify the person or classes of persons specified in the policy in respect of any liability which the policy purports to cover in the case of that person or those classes of persons." 9. It is true that statutory liability of the insured both primary as well as extended will prevail over the contractual liability of the insurer and the insured. However, in the cases before us, there is no such conflict because the insurance itself in both the cases is expressed to be within the confines of the statutory provision applicable to it. It was third party insurance as required by the statute. 10. The basic feature of this or such a contract is expressed to be as hereunder in paragraph 727 in Halsbury's Laws of England, Third Edition (Volume 22):-- "727. Indemnity as basis of contract.-- In its main features a contract of motor insurance is a contract of indemnity. This means that, so far as concerns the insurance of the car as an example of property insurance, or the insurance of third party liability (whether limited or general) as an example of publice liability insurance, the ordinary principles of these classes of insurance are applicable. In so far, however, as clauses provide for insurance cover not in the nature of an indemnity, as where provision is made for the death or disablement of the assured himself, the principles of life insurance or personal accident insurance will apply." ' In paragraph 764 in Fourth Edition of Halsbury's Laws of England (Volume 25) it is provided as hereunder:-- "764. Obligation to indemnify.--Notwithstanding anything in any enactment authorised insurers issuing a policy pursuant to the statutory requirements must indemnify the persons or classes of persons specified in the policy in respect of any liability which the policy purports to cover in the case of those persons or classes of persons. From this provision there is derived the right of a permitted driver to claim directly against the insurers even though he is in no strict sense a party to the contract of insurance. However, no right of action is conferred by this provision upon injured
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third parties; nor are the insurers deprived by it of their normal rights to repudiate a policy on the ground of misrepresentation or non-disclosure." 11. 'A contract of indemnity' has been defined in section 124 of the Contract Act as hereunder:- "A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself. Or by the conduct of any other person, is called a "contract of indemnity? ' The British Act of 1972 (Road Traffic Act) by its subsection (1) of section 143 made an identical provision on the subject of insurance in the following words:-- "Subject to the provisions of this part of this Act, it shall not be lawful for a person to use, or cause or permit another person to use, a motor vehicle on a road unless there is in force in relation to the use of the vehicle by that person or that other person, as the case may be, such a policy of insurance or such a security in respect of third party risks as complies with the requirements of this part of this Act; and if a person acts in contravention of this section he shall be guilty of an offence." ' In the Book 'The Law of Insurance" by Raoul Colinvaux (fourth edition) at page 406 in para. 20-10, the following comments on the subject appear:-- "It follows that the only persons caught by section 143(1) of the Act of 1972 are, (a) a person actually using a motor vehicle on a road; (b) the owner of it, whether registered or not, or a person responsible for its care, management or control, who permits another so to use it; and (c) a person causing another so to use it. Mere assistance, by advancing money to purchase a car and assistance in obtaining a policy, is not 'causing' in this sense." ' In paragraph 20-17 the following comments have been made:-- "Sale of car ends policy.--The main cover will usually be by reference to a specified car, owned by the policy-holder. The whole policy will then only remain effective while he retains an interest in that car. Even if it contains an extension in respect of the use by the policy-holder of any car being used at the time of the accident 'instead of the insured car' this extension will cease to be effective once he has parted with the car insured. ' While complete change of ownership of a vehicle will put an end to the policy, this is not so when the additional partner joins a partnership in whose name a vehicle is insured." 12. To the same effect are the judgments given on the point; for example in Peters v. General Accident and Life Assurance Corporation Limited (1937) 4 All England Reports 628, the law on the subject was laid down in the following words:-- "But it is perfectly true that motor insurers do give this wide extension clause, which puts it into the power of the insured person to allow any person whatever to drive his car, provided he holds a licence, and if there is an accident the insurance company will be liable, even though the person may have a very bad driving record. It would be a still more serious thing if it could be said, as indeed it is said in this case, that, by an assignment to take place between the owner of the car who is insured and somebody to whom he is going to sell his car, the buyer of the car can be thrust upon the insurance company as the assured, although they have no say in the matter whatever, and no opportunity then to refuse to insure him, because, as I understand the argument, the way it has been pressed on me--and, indeed, I think Mr. Comyns Carr must go so far--is that this new assured would be put upon the insurance company, although they had never heard of him and never heard of the transaction until after some serious accident had taken place... ... ... ...As to the question of what happened to the policy, I think the policy lapsed. I think that there was thereafter no policy in existence upon this car, because the only person who was insured was Mr. Coomber, and Mr. Coomber had parted with the car. I think that, unless I held that, I should be going behind the principle in the case in the House of Lords known as Rogerson v. Scottish Automobile & General Insurance Co. Ltd. (1931) 146 L.T. 26; Digest Supp." ' This case went to the Court of Appeal where the judgment was firmed in the following words (1938) 2 All England Reports 267:--
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"The effect of that, therefore, is that Mr. Coomber is indemnified, and that person whom Mr. Coomber orders or permits to use the car are indemnified. It is said that the contract between Mr. Coomber and the insurance company constituted by that document is assignable... ... ...The insurance company in this case, as in every case, make inquiries as to the driving record of the person proposing to take out a policy of insurance with them. The business reasons for that are obvious, because a man with a good record will be received at an ordinary rate of premium and a man with a bad record may not be received at all, or may be asked to pay a higher premium. The policy is, in a very true sense, one in which there is inherent a personal element of such a character as to make it, in my opinion, quite impossible to say that the policy is one assignable at the volition of the assured. That is all I need say upon that branch of the argument... .. -On the sale of the car, the property passed to him, and, although Mr. Comyns Carr at one stage of the argument appeared to suggest that it had not, yet, when his attention was called to the evidence, he felt himself constrained to giv up that point. The property, therefore, passed to the purchaser Ion before this accident took place. The circumstance that he had not paid the whole of the purchase price is irrelevant for that purpose, because that circumstance does not leave in the vendor, Mr. Coomber, any interest in the car. There is no vendor's lien, or anything of that sort. The car had become the out and out property of Pope. When Pope was using that car, he was not using it by the permission of Coomber. It is an entire misuse of language to say that. He was using it as owner and by virtue of his rights as owner, and not by virtue of an permission of Coomber." 13. The decision in Peter's case (1937) 4 All ER 628 was followed Gyarsilal Jagannathprasad Mor v. Pandit Sitacharan Dubey and others (Al: 1963 Madhya Pradesh 164) in the following words:- "Now it is quite true that a motor insurance policy is a contact o personal indemnity and the assured cannot claim the insuranc amount when he does not suffer any loss or damage. It is clear that where a…
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